-----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, H30yio+t+XSI+tIR3Y/OL+KEwQnUT99nGs8RDGJ6aL7Os414v9aEv3oubUkW0VJk U0AsgS9+39ej2wKHYNbuDA== 0000912057-96-017899.txt : 19960816 0000912057-96-017899.hdr.sgml : 19960816 ACCESSION NUMBER: 0000912057-96-017899 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06214 FILM NUMBER: 96614530 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-Q 1 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ______________ FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1996 Commission file number 1-6214 ______________ WELLS FARGO & COMPANY (Exact name of Registrant as specified in its charter) Delaware 13-2553920 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 420 Montgomery Street, San Francisco, California 94163 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 415-477-1000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Shares Outstanding July 31, 1996 ------------------ Common stock, $5 par value 94,143,159 FORM 10-Q TABLE OF CONTENTS PART I - FINANCIAL INFORMATION Page Item 1. Financial Statements ---- Consolidated Statement of Income............................... 2 Consolidated Balance Sheet..................................... 3 Consolidated Statement of Changes in Stockholders' Equity...... 4 Consolidated Statement of Cash Flows........................... 5 Note to Financial Statements................................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Summary Financial Data......................................... 10 Overview....................................................... 11 Merger with First Interstate Bancorp........................... 13 Line of Business Results....................................... 14 Earnings Performance........................................... 17 Net Interest Income.......................................... 17 Noninterest Income........................................... 21 Noninterest Expense.......................................... 23 Income Taxes................................................. 24 Earnings/Ratios Excluding Goodwill and Nonqualifying CDI..... 25 Balance Sheet Analysis......................................... 26 Investment Securities.,,,,,,................................. 26 Loan Portfolio..............,,,,,,........................... 29 Commercial real estate..........,,,,,,..................... 29 Nonaccrual and Restructured Loans and Other Assets........... 30 Changes in total nonaccrual loans.......................... 30 Changes in foreclosed assets............................... 33 Loans 90 days past due and still accruing.................. 33 Allowance for Loan Losses.................................... 34 Other Assets................................................. 36 Deposits..................................................... 38 Capital Adequacy/Ratios...................................... 38 Asset/Liability Management................................... 40 Derivative Financial Instruments............................. 41 Liquidity Management......................................... 42 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K............................... 43 SIGNATURE................................................................ 44 ============================================================================ The information furnished in these interim statements reflects all adjustments which are, in the opinion of management, necessary for a fair statement of the results for such periods. Such adjustments are of a normal recurring nature, unless otherwise disclosed in this Form 10-Q. The results of operations in the interim statements are not necessarily indicative of the results that may be expected for the full year. In addition, this Form 10-Q includes forward-looking statements that involve inherent risks and uncertainties. The Company cautions readers that a number of important factors could cause actual results to differ materially from those in the forward-looking statements. Those factors include fluctuations in interest rates, inflation, government regulations, the progress of integrating First Interstate and economic conditions and competition in the geographic and business areas in which the Company conducts its operations. The interim financial information should be read in conjunction with the Company's 1995 Annual Report on Form 10-K. 1 PART I - FINANCIAL INFORMATION WELLS FARGO & COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME
============================================================================================================= Quarter Six months ended June 30, ended June 30, ------------------- ------------------- (in millions) 1996 1995 1996 1995 - ------------------------------------------------------------------------------------------------------------- INTEREST INCOME Federal funds sold and securities purchased under resale agreements $ 8 $ 1 $ 10 $ 2 Investment securities 225 152 353 317 Mortgage loans held for sale -- 54 -- 54 Loans 1,618 823 2,494 1,681 Other 7 1 7 2 ------ ------ ------ ------ Total interest income 1,858 1,031 2,864 2,056 ------ ------ ------ ------ INTEREST EXPENSE Deposits 454 254 695 496 Federal funds purchased and securities sold under repurchase agreements 21 59 57 115 Commercial paper and other short-term borrowings 3 9 8 19 Senior and subordinated debt 80 50 128 102 ------ ------ ------ ------ Total interest expense 558 372 888 732 ------ ------ ------ ------ NET INTEREST INCOME 1,300 659 1,976 1,324 Provision for loan losses -- -- -- -- ------ ------ ------ ------ Net interest income after provision for loan losses 1,300 659 1,976 1,324 ------ ------ ------ ------ NONINTEREST INCOME Service charges on deposit accounts 258 119 380 236 Fees and commissions 211 103 329 204 Trust and investment services income 104 57 164 112 Investment securities gains (losses) 3 -- 2 (15) Other 63 31 118 14 ------ ------ ------ ------ Total noninterest income 639 310 993 551 ------ ------ ------ ------ NONINTEREST EXPENSE Salaries 400 177 581 349 Incentive compensation 61 33 93 60 Employee benefits 102 48 157 101 Equipment 111 45 167 92 Net occupancy 108 53 161 106 Core deposit intangible 82 11 91 22 Goodwill 81 9 89 17 Other 332 184 505 349 ------ ------ ------ ------ Total noninterest expense 1,277 560 1,844 1,096 ------ ------ ------ ------ INCOME BEFORE INCOME TAX EXPENSE 662 409 1,125 779 Income tax expense 299 177 498 314 ------ ------ ------ ------ NET INCOME $ 363 $ 232 $ 627 $ 465 ====== ====== ====== ====== NET INCOME APPLICABLE TO COMMON STOCK $ 344 $ 222 $ 598 $ 444 ====== ====== ====== ====== PER COMMON SHARE Net income $ 3.61 $ 4.51 $ 8.39 $ 8.92 ====== ====== ====== ====== Dividends declared $ 1.30 $ 1.15 $ 2.60 $ 2.30 ====== ====== ====== ====== Average common shares outstanding 95.6 49.1 71.3 49.8 ====== ====== ====== ====== =============================================================================================================
2 WELLS FARGO & COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
=============================================================================================================== JUNE 30, December 31, June 30, (in millions) 1996 1995 1995 - --------------------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks $ 8,882 $ 3,375 $ 2,848 Federal funds sold and securities purchased under resale agreements 1,344 177 375 Investment securities: At fair value 13,692 8,920 2,473 At cost (estimated fair value $7,602) -- -- 7,662 -------- ------- ------- Total investment securities 13,692 8,920 10,135 Mortgage loans held for sale -- -- 1,336 Loans 70,541 35,582 33,896 Allowance for loan losses 2,273 1,794 1,947 -------- ------- ------- Net loans 68,268 33,788 31,949 -------- ------- ------- Due from customers on acceptances 210 98 71 Accrued interest receivable 591 308 300 Premises and equipment, net 2,400 862 863 Core deposit intangible 2,208 166 186 Goodwill 7,479 382 399 Other assets 3,512 2,240 2,469 -------- ------- ------- Total assets $108,586 $50,316 $50,931 ======== ======= ======= LIABILITIES Noninterest-bearing deposits $ 27,535 $10,391 $ 9,600 Interest-bearing deposits 56,333 28,591 29,184 -------- ------- ------- Total deposits 83,868 38,982 38,784 Federal funds purchased and securities sold under repurchase agreements 944 2,781 3,693 Commercial paper and other short-term borrowings 262 195 532 Acceptances outstanding 210 98 71 Accrued interest payable 177 85 89 Other liabilities 2,865 1,071 933 Senior debt 2,586 1,783 1,485 Subordinated debt 2,644 1,266 1,482 -------- ------- ------- Total liabilities 93,556 46,261 47,069 -------- ------- ------- STOCKHOLDERS' EQUITY Preferred stock 839 489 489 Common stock - $5 par value, authorized 150,000,000 shares; issued and outstanding 94,912,532 shares, 46,973,319 shares and 48,473,804 shares 475 235 242 Additional paid-in capital 11,207 1,135 407 Retained earnings 2,586 2,174 2,737 Cumulative foreign currency translation adjustments (4) (4) (4) Investment securities valuation allowance (73) 26 (9) -------- ------- ------- Total stockholders' equity 15,030 4,055 3,862 -------- ------- ------- Total liabilities and stockholders' equity $108,586 $50,316 $50,931 ======== ======= ======= ===============================================================================================================
3 WELLS FARGO & COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
========================================================================================= Six months ended June 30, ------------------------- (in millions) 1996 1995 - ----------------------------------------------------------------------------------------- PREFERRED STOCK Balance, beginning of period $ 489 $ 489 Preferred stock issued to First Interstate stockholders 350 -- ------- ------ Balance, end of period 839 489 ------- ------ COMMON STOCK Balance, beginning of period 235 256 Common stock issued to First Interstate stockholders 260 -- Common stock issued under employee benefit and dividend reinvestment plans 2 3 Common stock repurchased (22) (17) ------- ------ Balance, end of period 475 242 ------- ------ ADDITIONAL PAID-IN CAPITAL Balance, beginning of period 1,135 871 Preferred stock issued to First Interstate stockholders 10 -- Common stock issued to First Interstate stockholders 11,039 -- Common stock issued under employee benefit and dividend reinvestment plans 53 58 Common stock repurchased (1,141) (522) Fair value adjustment related to First Interstate stock options 111 -- ------- ------ Balance, end of period 11,207 407 ------- ------ RETAINED EARNINGS Balance, beginning of period 2,174 2,409 Net income 627 465 Preferred stock dividends (29) (21) Common stock dividends (186) (116) ------- ------ Balance, end of period 2,586 2,737 ------- ------ CUMULATIVE FOREIGN CURRENCY TRANSLATION ADJUSTMENTS Balance, beginning and end of period (4) (4) ------- ------ INVESTMENT SECURITIES VALUATION ALLOWANCE Balance, beginning of period 26 (110) Change in unrealized net gain (loss), after applicable taxes (99) 101 ------- ------ Balance, end of period (73) (9) ------- ------ Total stockholders' equity $15,030 $3,862 ======= ====== =========================================================================================
4 WELLS FARGO & COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS
================================================================================================== Six months ended June 30, ------------------------- (in millions) 1996 1995 - -------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 627 $ 465 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses -- -- Depreciation and amortization 323 131 Deferred income tax provision (benefit) 146 (47) Increase in net deferred loan fees (21) (15) Net decrease in accrued interest receivable 25 28 Write-down on mortgage loans held for sale -- 83 Net increase in accrued interest payable 5 29 Other, net 38 (207) -------- ------ Net cash provided by operating activities 1,143 467 -------- ------ CASH FLOWS FROM INVESTING ACTIVITIES: Investment securities: At cost: Proceeds from prepayments and maturities -- 983 Purchases -- (26) At fair value: Proceeds from sales 763 670 Proceeds from prepayments and maturities 2,435 64 Purchases (469) (60) Cash acquired from First Interstate 6,030 -- Proceeds from sales of mortgage loans held for sale -- 2,580 Net (increase) decrease in loans resulting from originations and collections 49 (1,655) Proceeds from sales (including participations) of loans 184 238 Purchases (including participations) of loans (43) (179) Proceeds from sales of foreclosed assets 61 109 Net (increase) decrease in federal funds sold and securities purchased under resale agreements 907 (115) Other, net (93) (142) -------- ------- Net cash provided by investing activities 9,824 2,467 -------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Net decrease in deposits (2,566) (3,548) Net increase (decrease) in short-term borrowings (2,116) 1,014 Proceeds from issuance of senior debt 760 815 Repayment of senior debt (300) (705) Proceeds from issuance of subordinated debt 500 -- Proceeds from issuance of common stock 55 61 Repurchase of common stock (1,163) (539) Payment of cash dividends on preferred stock (21) (31) Payment of cash dividends on common stock (186) (116) Other, net (423) (11) -------- ------- Net cash used by financing activities (5,460) (3,060) -------- ------- NET CHANGE IN CASH AND CASH EQUIVALENTS (DUE FROM BANKS) 5,507 (126) Cash and cash equivalents at beginning of period 3,375 2,974 -------- ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,882 $ 2,848 ======== ======= Supplemental disclosures of cash flow information: Cash paid during the quarter for: Interest $ 796 $ 703 ======== ======= Income taxes $ 185 $ 299 ======== ======= Noncash investing and financing activities: Transfers from loans to foreclosed assets $ 72 $ 61 ======== ======= Transfers from loans to mortgage loans held for sale $ -- $ 4,023 ======== ======= Acquisition of First Interstate: Common stock issued $ 11,299 $ -- Fair value of preferred stock issued 360 -- Fair value of stock options 111 -- Fair value of assets acquired 55,797 -- Fair value of liabilities assumed 51,214 -- ==================================================================================================
5 WELLS FARGO & COMPANY AND SUBSIDIARIES NOTE TO FINANCIAL STATEMENTS MERGER WITH FIRST INTERSTATE BANCORP (MERGER) On April 1, 1996, the Company completed its acquisition of First Interstate Bancorp (First Interstate), the 14th largest bank holding company in the nation as of March 31, 1996 with 405 offices in California and a total of approximately 1,150 offices in 13 western states. The Merger resulted in the creation of the ninth largest bank holding company in the United States based on assets as of June 30, 1996. The purchase price of the transaction was approximately $11.3 billion based on Wells Fargo's share price on January 19, the last trading day before Wells Fargo and First Interstate agreed on an exchange ratio. First Interstate shareholders received two-thirds of a share of Wells Fargo common stock for each share of common stock owned; 52,007,264 shares of the Company's common stock were issued. Each share of First Interstate preferred stock was converted into the right to receive one share of the Company's preferred stock. Each outstanding and unexercised option granted by First Interstate was converted into an option to purchase Company common stock based on the original plan and the agreed upon exchange ratio. The Merger is being accounted for as a purchase transaction. Accordingly, the results of operations of First Interstate are included with that of the Company for periods subsequent to the date of the Merger (i.e., the financial information for periods prior to second quarter 1996 included in this Form 10-Q excludes First Interstate). The name of the newly combined company is Wells Fargo & Company. The major components of management's plan for the combined company include the realignment of First Interstate's businesses to reflect Wells Fargo's structure, consolidation of retail branches and administrative facilities and reduction in staffing levels. As a result of this plan, the adjustments to goodwill included accruals totaling approximately $307 million ($181 million after tax) related to the disposition of premises, including an accrual of $121 million ($71 million after tax) associated with the dispositions of traditional former First Interstate branches in California and out of state. The California dispositions include 176 branch closures in the third quarter of 1996. (See Noninterest Income section for information on other, Wells Fargo branch dispositions.) Additionally, the adjustments to goodwill included accruals of approximately $415 million ($245 million after tax) related to severance of former First Interstate employees throughout the Company who will be displaced through December 31, 1997. Severance payments of $59 million were paid during the second quarter of 1996. As a condition of the Merger, Wells Fargo was required by regulatory agencies to divest 61 First Interstate branches in California. In the first quarter of 1996, the Company entered into a contract with Home Savings of America, principal subsidiary of H.F. Ahmanson & Company, to sell the 61 First Interstate branches, which is currently expected to be completed in September 1996. In addition, the Company is selling the First Interstate banks in Wyoming and Montana (for which the Company has a definitive agreement and expects the sale to close 6 on or about October 1, 1996, subject to regulatory approval). The Company is also currently seeking a buyer for the bank subsidiary in Alaska. Other significant adjustments to goodwill included the write-off of First Interstate's existing goodwill and other intangibles of $701 million. The pro forma amounts in the table below are presented for informational purposes and are not necessarily indicative of the results of operations of the combined company for the periods presented. The pro forma amounts are also not necessarily indicative of the 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, which have not been included in the pro forma amounts. The following pro forma combined summary of income gives effect to the combination as if the Merger was consummated on January 1, 1995.
PRO FORMA COMBINED FINANCIAL DATA ============================================================================= Six months ended June 30, ------------------------- (in millions, except per share data) 1996 1995 - ----------------------------------------------------------------------------- SUMMARY OF INCOME Net interest income $2,594 $2,620 Provision for loan losses -- -- Noninterest income 1,296 1,086 Noninterest expense (1) 2,435 2,458 Net income (1) 807 707 PER COMMON SHARE Net income (1) $ 8.11 $ 6.68 Dividends declared 2.60 2.30 AVERAGE COMMON SHARES OUTSTANDING 94.9 100.2 =============================================================================
(1) Noninterest expense for the six months ended June 30, 1996 excludes $251 million ($245 million after tax) of nonrecurring merger-related expenses recorded by First Interstate in the first quarter of 1996. The pro forma combined net income of $807 million for the six months ended June 30, 1996 consists of second quarter 1996 net income of the combined company of $363 million, first quarter 1996 net income of the Company of $264 million and a first quarter net loss of First Interstate of $(23) million, plus pro forma adjustments of $203 million. The pro forma combined net income of $707 million for the six months ended June 30, 1995 consists of net income of the Company of $465 million and First Interstate of $432 million for the six months ended June 30, 1995, less pro forma adjustments of $(190) million. The pro forma adjustments for both periods include amortization of $144 million relating to $7,187 million excess purchase price over fair value of First Interstate's net assets acquired (goodwill). Goodwill is amortized using the straight-line method over 25 years. 7 Goodwill may change as certain estimates and contingencies are finalized, although any adjustments are not expected to have a significant effect on the ultimate amount of goodwill. In addition to First Interstate premise and severance costs affecting goodwill, an estimated $60 million of costs related to the Company's premises, employees and operations as well as all costs relating to systems conversions and other indirect, integration costs were expensed during the second quarter. The Company expects to incur additional merger-related costs, which will be expensed as incurred. With respect to timing, it is assumed that the integration will be completed and that such costs will be incurred not later than 18 months after the closing of the Merger. 8 [THIS PAGE INTENTIONALLY LEFT BLANK] 9 FINANCIAL REVIEW
SUMMARY FINANCIAL DATA ================================================================================================================================= % Change Quarter ended June 30, 1996 from Six months ended --------------------------------- ------------------ ------------------- JUNE 30, Mar. 31, June 30, Mar. 31, June 30, JUNE 30, June 30, % (in millions) 1996 1996 1995 1996 1995 1996 1995 Change - --------------------------------------------------------------------------------------------------------------------------------- FOR THE PERIOD Net income $ 363 $ 264 $ 232 38 % 56 % $ 627 $ 465 35 % Net income applicable to common stock 344 254 222 35 55 598 444 35 Per common share Net income $ 3.61 $ 5.39 $ 4.51 (33) (20) $ 8.39 $ 8.92 (6) Dividends declared 1.30 1.30 1.15 -- 13 2.60 2.30 13 Average common shares outstanding 95.6 47.0 49.1 103 95 71.3 49.8 43 Profitability ratios (annualized) Net income to average total assets (ROA) 1.35% 2.16% 1.81% (38) (25) 1.60 % 1.80% (11) Net income applicable to common stock to average common stockholders' equity (ROE) 9.77 28.34 26.71 (66) (63) 13.52 26.80 (50) Efficiency ratio (1) 65.8% 55.1% 57.8% 19 14 62.1 % 58.5% 6 Average loans $ 70,734 $ 35,025 $33,202 102 113 $ 52,880 $ 34,759 52 Average assets 108,430 49,134 51,491 121 111 78,782 51,938 52 Average core deposits 83,356 36,819 36,226 126 130 60,087 36,462 65 Net interest margin 6.03% 6.18% 5.66% (2) 7 6.08 % 5.63% 8 AT PERIOD END Investment securities $ 13,692 $ 8,435 $10,135 62 35 $ 13,692 $ 10,135 35 Loans (2) 70,541 35,167 33,896 101 108 70,541 33,896 108 Allowance for loan losses 2,273 1,681 1,947 35 17 2,273 1,947 17 Goodwill 7,479 373 399 -- -- 7,479 399 -- Assets 108,586 48,978 50,931 122 113 108,586 50,931 113 Core deposits 83,331 37,414 37,026 123 125 83,331 37,026 125 Common stockholders' equity 14,191 3,713 3,373 282 321 14,191 3,373 321 Stockholders' equity 15,030 4,202 3,862 258 289 15,030 3,862 289 Tier 1 capital (3) 6,346 3,856 3,418 65 86 6,346 3,418 86 Total capital (Tiers 1 and 2) (3) 9,533 5,353 4,959 78 92 9,533 4,959 92 Capital ratios Common stockholders' equity to assets 13.07% 7.58% 6.62% 72 97 13.07 % 6.62 % 97 Stockholders' equity to assets 13.84 8.58 7.58 61 83 13.84 7.58 83 Risk-based capital (3) Tier 1 capital 7.83 9.40 8.60 (17) (9) 7.83 8.60 (9) Total capital 11.77 13.04 12.48 (10) (6) 11.77 12.48 (6) Leverage (3) 6.37 7.91 6.69 (19) (5) 6.37 6.69 (5) Book value per common share $ 149.52 $ 79.01 $ 69.59 89 115 $ 149.52 $ 69.59 115 Staff (active, full-time equivalent) 41,548 18,748 18,978 122 119 41,548 18,978 119 NET INCOME AND RATIOS EXCLUDING GOODWILL AND NONQUALIFYING CORE DEPOSIT INTANGIBLE AMORTIZATION AND BALANCES ("CASH" OR "TANGIBLE") (4) Net income applicable to common stock $ 468 $ 262 $ 230 79 103 $ 730 $ 461 58 Net income per common share 4.89 5.58 4.69 (12) 4 10.24 9.27 10 ROA 1.96% 2.25% 1.89% (13) 4 2.05 % 1.89 % 8 ROE 33.43 32.74 31.58 2 6 33.18 31.67 5 Efficiency ratio 58.0 54.3 56.9 7 2 56.7 57.5 (1) COMMON STOCK PRICE High $264-1/2 $261-1/4 $185-7/8 1 42 $264-1/2 $185-7/8 42 Low 232-1/8 203-1/8 157 14 48 203-1/8 143-3/8 42 Period end 239-1/8 261-1/4 180-1/4 (8) 33 239-1/8 180-1/4 33 =================================================================================================================================
(1) The efficiency ratio is defined as noninterest expense divided by the total of net interest income and noninterest income. (2) Loans exclude mortgage loans held for sale at June 30, 1995 of $1,336 million. (3) See the Capital Adequacy/Ratios section for additional information. (4) Nonqualifying core deposit intangible (CDI) amortization and average balance excluded from these calculations are, with the exception of the efficiency ratio, net of applicable taxes. The after-tax amounts for the amortization and average balance of nonqualifying CDI were $43 million and $1,334 million for the quarter ended June 30, 1996, respectively, and $43 million and $667 million for the six months ended June 30, 1996, respectively. Goodwill amortization and average balance (which are not tax effected) were $81 million and $7,238 million for the quarter ended June 30, 1996, respectively, and $89 million and $3,808 million for the six months ended June 30, 1996, respectively. 10 OVERVIEW Wells Fargo & Company (Parent) is a bank holding company whose principal subsidiary is Wells Fargo Bank, N.A. (Bank). In this Form 10-Q, Wells Fargo & Company and its subsidiaries are referred to as the Company. On April 1, 1996, the Company completed its acquisition of First Interstate Bancorp. As a result, the financial information presented in this Form 10-Q for the second quarter and first six months of 1996 reflects the effects of the acquisition subsequent to the Merger's consummation. The Company's results of operations for the second quarter and first six months of 1996 were significantly affected by the Merger. Since the Company's results of operations subsequent to April 1, 1996 reflect amounts recognized from combined operations, they cannot be divided between or attributed directly to either of the two former entities. In substantially all of the Company's income and expense categories, the increases in the amounts reported for the second quarter and first six months of 1996 compared to the amounts reported in the corresponding periods in 1995 resulted from the Merger. The increases in substantially all of the categories of the Company's balance sheet between amounts reported at June 30, 1996 and those reported at December 31, 1995 also resulted from the Merger. Other significant factors affecting the Company's results of operations and financial position are described in the applicable sections below. Net income for the second quarter of 1996 was $363 million, compared with $232 million for the second quarter of 1995, an increase of 56%. Per share earnings for the second quarter of 1996 were $3.61, compared with $4.51 in the second quarter of 1995, a decrease of 20%. Net income for the first six months of 1996 was $627 million, or $8.39 per share, compared with $465 million, or $8.92 per share, for the first six months of 1995. Return on average assets (ROA) was 1.35% and 1.60% in the second quarter and first half of 1996, respectively, compared with 1.81% and 1.80% in the same periods of 1995. Return on average common equity (ROE) was 9.77% and 13.52% in the second quarter and first half of 1996, respectively, compared with 26.71% and 26.80%, respectively, in the same periods of 1995. Earnings before the amortization of goodwill and nonqualifying core deposit intangible ("cash" or "tangible" earnings) in the second quarter of 1996 were $4.89 per share, compared with $4.69 per share for the second quarter of 1995. On the same basis, ROA was 1.96% in the second quarter of 1996, compared with 1.89% in the second quarter of 1995; ROE was 33.43% in the second quarter of 1996, compared with 31.58% in the second quarter of 1995. Following the merger with First Interstate, "cash" earnings, as well as "cash" ROA and ROE, are the measures of performance which will be most comparable with prior quarters. They are also the most relevant measures of financial performance for shareholders because they measure the Company's ability to repurchase stock, pay dividends and support growth. 11 "Cash" EPS of $4.89 is down from "cash" EPS of $5.58 for the first quarter of 1996 given merger-related expenses and because the Company is just beginning to realize the economic benefits of the Merger. The Company is confident that it will meet the original merger targets within the first 18 months. Net interest income on a taxable-equivalent basis was $1,304 million and $659 million in the second quarter of 1996 and 1995, respectively. The increase in net interest income in both the second quarter and first half of 1996 compared with the same periods of 1995 was primarily due to an increase in average earning assets as a result of the Merger. The Company's net interest margin was 6.03% for the second quarter of 1996, compared with 5.66% in the same quarter of 1995 and 6.18% in the first quarter of 1996. Noninterest income was $639 million and $993 million in the second quarter and first half of 1996, respectively, compared with $310 million and $551 million in the same periods of 1995. In addition to the effects of the Merger, the increase for the first half of 1996 as compared to the same period of 1995 included an $83 million write-down to lower of cost or estimated market in 1995 for certain product types within the real estate 1-4 family first mortgage portfolio that were reclassified to mortgage loans held for sale. Noninterest expense in the second quarter of 1996 was $1,277 million, compared with $560 million for the second quarter of 1995. In addition to the effect of combining operations of First Interstate with the Company, the increase reflected goodwill and CDI amortization, severance for Wells Fargo employees and other merger-related expenditures. During the second quarter of 1996, net charge-offs totaled $178 million, or 1.01% of average loans (annualized). This compared with $113 million, or 1.30%, during the first quarter of 1996 and $70 million, or .84%, during the second quarter of 1995. The allowance for loan losses was 3.22% of total loans at June 30, 1996, compared with 4.78% at March 31, 1996 and 5.74% at June 30, 1995. Total nonaccrual and restructured loans were $742 million at June 30, 1996, compared with $552 million at December 31, 1995 and $644 million at June 30, 1995. Foreclosed assets amounted to $238 million at June 30, 1996, $186 million at December 31, 1995 and $224 million at June 30, 1995. The Company's effective tax rate was 45% and 44% for the second quarter and first half of 1996, respectively. The effective tax rate was 43% and 40% for the same periods of 1995. The increase in the effective tax rate for the second quarter and first half of 1996 was due to increased goodwill amortization related to the Merger, which is not tax deductible. The increase in the effective tax rate for the first half of 1996 was also due to a $22 million reduction of income tax expense in 1995 related to the settlement with the Internal Revenue Service of certain audit issues pertaining to auto leases for the years 1987 through 1992. Common stockholders' equity to total assets was 13.07% at June 30, 1996, compared with 7.58% and 6.62% at March 31, 1996 and June 30, 1995, respectively. The Company's total risk-based capital ratio at June 30, 1996 was 11.77% and its Tier 1 risk-based capital ratio was 7.83%, exceeding minimum guidelines of 8% and 4%, respectively, for bank holding 12 companies and the "well capitalized" guidelines for banks of 10% and 6%, respectively. At March 31, 1996, the risk-based capital ratios were 13.04% and 9.40%, respectively; at June 30, 1995, these ratios were 12.48% and 8.60%, respectively. The Company's leverage ratios were 6.37%, 7.91% and 6.69% at June 30, 1996, March 31, 1996 and June 30, 1995, respectively, exceeding the minimum regulatory guideline of 3% for bank holding companies and the "well capitalized" guideline of 5% for banks. MERGER WITH FIRST INTERSTATE BANCORP On April 1, 1996, the Company completed its acquisition of First Interstate Bancorp. As a condition of the Merger, Wells Fargo was required by regulatory agencies to divest 61 First Interstate branches in California. In the first quarter of 1996, the Company entered into a contract with Home Savings of America, principal subsidiary of H.F. Ahmanson & Company, to sell the 61 First Interstate branches. At June 30, 1996, these branches had aggregate deposits of approximately $2.1 billion and loans of approximately $1.3 billion. The selling price of the divested branches represents a premium of 8.11% on the deposits. The transaction is expected to close in September 1996. As of the acquisition date, the California bank of First Interstate merged into Wells Fargo Bank, N.A. In June 1996, the Company merged former First Interstate bank subsidiaries in six states (Idaho, Nevada, New Mexico, Oregon, Utah and Washington) into Wells Fargo Bank, N.A. Each of these states has opted-in early under the interstate branching provisions of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. Wells Fargo Bank of Arizona, N.A. (formerly First Interstate Bank of Arizona, N.A.) is expected to be merged into Wells Fargo Bank, N.A. in September 1996. In addition, the Company is selling First Interstate banks in Wyoming and Montana (for which the Company has a definitive agreement and expects the sale to close on or about October 1, 1996, subject to regulatory approval). The Company is also currently seeking a buyer for the bank subsidiary in Alaska. The aggregate assets and deposits of these banks at June 30, 1996 were $649 million and $462 million, respectively. Banks in the other states retained by the Company are expected to merge into Wells Fargo Bank, N.A. as soon as permitted by applicable state laws (i.e., Colorado in June 1997; Texas not earlier than in September 1999). The Company expects to meet its pre-merger objective of realizing net annual cost savings of $700 million ($800 million of noninterest expenses, less $100 million of revenues) not later than 18 months after the date of the Merger. About 50% of the net cost savings are anticipated to be achieved within the first nine months. The full impact of revenue losses due to the Merger is expected to be recognized by the first quarter of 1997, with revenue growth resuming in the first half of 1997. For additional discussion of the Company's plan for branch closures and consolidations and for pro forma information, see Note to Financial Statements. 13
LINE OF BUSINESS RESULTS (ESTIMATED) ======================================================================================================================= (income/expense in millions, average balances in billions) - ----------------------------------------------------------------------------------------------------------------------- 1996 1995 1996 1995 1996 1995 -------------- -------------- -------------- Retail Business Distribution Banking Investment Group Group Group -------------------------------------------------------------- QUARTER ENDED JUNE 30, Net interest income (1) $228 $117 $164 $ 91 $214 $122 Provision for loan losses (2) -- -- 17 8 1 -- Noninterest income (3) 335 160 67 34 138 71 Noninterest expense (3) 504 236 119 74 179 114 ---- ---- ---- ---- ---- ---- Income before income tax expense 59 41 95 43 172 79 Income tax expense (4) 24 18 39 18 71 33 ---- ---- ---- ---- ---- ---- Net income $ 35 $ 23 $ 56 $ 25 $101 $ 46 ==== ==== ==== ==== ==== ==== Average loans $ -- $ -- $4.7 $2.3 $1.9 $ .5 Average assets 2.7 1.0 6.5 3.4 2.5 .8 Average core deposits 18.7 9.5 12.3 6.2 37.3 17.8 Return on equity (5) 13% 19% 29% 26% 50% 38% Risk-adjusted efficiency ratio (6) 99% 94% 73% 79% 62% 68% SIX MONTHS ENDED JUNE 30, Net interest income (1) $344 $232 $262 $179 $314 $243 Provision for loan losses (2) -- -- 28 16 2 1 Noninterest income (3) 500 321 111 66 203 145 Noninterest expense (3) 770 461 189 138 261 223 ---- ---- ---- ---- ---- ---- Income before income tax expense 74 92 156 91 254 164 Income tax expense (4) 30 39 65 38 105 69 ---- ---- ---- ---- ---- ---- Net income $ 44 $ 53 $ 91 $ 53 $149 $ 95 ==== ==== ==== ==== ==== ==== Average loans $ -- $ -- $3.8 $2.2 $1.2 $ .5 Average assets 1.7 1.0 5.3 3.3 1.6 .8 Average core deposits 13.8 9.6 9.3 6.3 27.8 17.9 Return on equity (5) 11% 22% 30% 29% 47% 41% Risk-adjusted efficiency ratio (6) 100% 92% 71% 75% 62% 69% =======================================================================================================================
(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) The 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 $113 million and $55 million for the quarters ended June 30, 1996 and 1995, respectively, and $163 million and $103 million for the six months ended June 30, 1996 and 1995, respectively. These charges are eliminated in the Other category in arriving at the Consolidated Company totals for noninterest income and expense. The line of business results show the financial performance of the Company's major business units. The table presents the second quarter and six months ended June 30, 1996 and the same periods of 1995. First Interstate results prior to April 1, 1996 are not included and, therefore, the current period is not comparable to prior periods. 14
================================================================================================ ------------------------------------------------------------------------------------------------ 1996 1995 1996 1995 1996 1995 1996 1995 1996 1995 --------------- --------------- --------------- --------------- ----------------- Wholesale Real Estate Products Consumer Consolidated Group Group Lending Other Company ------------------------------------------------------------------------------------------------ QUARTER ENDED JUNE 30, Net interest income (1) $ 106 $ 62 $ 231 $ 105 $ 288 $ 154 $ 73 $ 8 $1,304 $ 659 Provision for loan losses (2) 12 7 21 10 111 55 (162) (80) -- -- Noninterest income (3) 15 4 85 31 75 55 (76) (45) 639 310 Noninterest expense (3) 29 22 123 49 130 78 193 (13) 1,277 560 ------ ---- ----- ----- ------ ------ ------ ------ ------ ------ Income before income tax expense 80 37 172 77 122 76 (34) 56 666 409 Income tax expense (4) 33 15 71 33 50 32 15 28 303 177 ------ ---- ----- ----- ------ ------ ------ ------ ------ ------ Net income $ 47 $ 22 $ 101 $ 44 $ 72 $ 44 $ (49) $ 28 $ 363 $ 232 ====== ==== ===== ===== ====== ====== ====== ====== ====== ====== Average loans $ 10.5 $6.3 $18.9 $ 8.9 $ 24.3 $ 10.6 $ 10.4 $ 4.6 $ 70.7 $ 33.2 Average assets 11.1 6.8 23.2 10.1 25.6 11.0 36.8 18.4 108.4 51.5 Average core deposits .3 .1 11.3 2.9 .3 .2 3.2 (.5) 83.4 36.2 Return on equity (5) 18% 13% 23% 24% 19% 24% --% --% 10% 27% Risk-adjusted efficiency ratio (6) 72% 90% 71% 67% 80% 73% --% --% --% --% SIX MONTHS ENDED JUNE 30, Net interest income (1) $ 172 $120 $ 332 $ 209 $ 471 $ 301 $ 85 $ 40 $1,980 $1,324 Provision for loan losses (2) 20 14 31 20 174 105 (255) (156) -- -- Noninterest income (3) 39 11 123 76 133 101 (116) (169) 993 551 Noninterest expense (3) 51 36 179 99 205 150 189 (11) 1,844 1,096 ------ ---- ----- ----- ------ ------ ------ ------ ------ ------ Income before income tax expense 140 81 245 166 225 147 35 38 1,129 779 Income tax expense (4) 58 34 101 70 94 62 49 2 502 314 ------ ---- ----- ----- ------ ------ ------ ------ ------ ------ Net income $ 82 $ 47 $ 144 $ 96 $ 131 $ 85 $ (14) $ 36 $ 627 $ 465 ====== ==== ===== ===== ====== ====== ====== ====== ====== ====== Average loans $ 8.8 $6.4 $13.9 $ 8.8 $ 18.0 $ 10.3 $ 7.2 $ 6.6 $ 52.9 $ 34.8 Average assets 9.3 6.8 16.7 10.0 18.7 10.6 25.5 19.4 78.8 51.9 Average core deposits .3 .1 6.8 2.8 .3 .2 1.8 (.4) 60.1 36.5 Return on equity (5) 19% 14% 23% 26% 23% 25% --% --% 14% 27% Risk-adjusted efficiency ratio (6) 70% 84% 70% 64% 73% 73% --% --% --% --% =================================================================================================
(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 rates 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) 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. The results incorporate estimates of cost allocations, transfers and assignments based on management's current understanding of the First Interstate businesses. The cost allocations are based on estimates of the steady state level of expenses. The Company is still in the process of integrating First Interstate and changes may affect the line of business results. 15 The Company believes that cash earnings is the most relevant measure of financial performance for shareholders. For this reason, goodwill and nonqualifying core deposit intangible have not been allocated to the business units in this presentation and are reported in "Other." 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 a result of the Merger, the physical distribution network has increased to 2,129 staffed outlets in 13 states, with 1,580 traditional branches, 202 supermarket branches and 347 banking centers, and 4,513 ATMs. Average consumer checking core deposits for the second quarter were $18.7 billion, with the addition of $9.4 billion in First Interstate deposits. 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. As a result of the Merger, deposits have increased by $5.8 billion to $12.3 billion. Loans have increased by $1.3 billion to $4.7 billion. 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. Through the Merger, the funds management and high net worth portfolio management businesses increased from $36.6 billion to $56.3 billion in assets under management, loans increased by $1.4 billion to $1.9 billion and core deposits increased by $18.8 billion to $37.3 billion. 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 Merger added lending offices in Portland, Houston, San 16 Diego and Phoenix. The Real Estate Group's loans increased by $3.3 billion to $10.5 billion after the inclusion of First Interstate's real estate lending operations. The Wholesale Products Group serves businesses with annual sales in excess of $5 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, cash management and electronic products. The Group includes the majority ownership interest in the Wells Fargo HSBC Trade Bank established in October 1995 that provides trading financing, letters of credit and collection services. Middle market commercial banking distribution capability was enhanced through the Merger with the addition of offices in the Pacific Northwest, Southwest and Texas. The Merger also provided additional cash management and electronic products market penetration, especially in the large corporate segment. As a result of the Merger, the Wholesale Products Group's loans increased by $10.0 billion to $18.9 billion and core deposits increased by $8.9 billion to $11.3 billion. Consumer Lending offers a full array of consumer loan products, including credit cards, auto financing and leases, home equity lines and loans, lines of credit and installment loans. As a result of the Merger, the portfolio increased by $12.3 billion consisting of $1.2 billion in credit cards, $6.5 billion in equity/unsecured loans and $4.6 billion in auto financing and leases. The total portfolio now contains $5.2 billion in credit cards, $12.1 billion in equity/unsecured loans and $7.0 billion in auto financing. The Other category includes the Company's 1-4 family first mortgage portfolio, the investment securities portfolio, goodwill and the nonqualifying core deposit intangible, 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. EARNINGS PERFORMANCE NET INTEREST INCOME Net interest income on a taxable-equivalent basis was $1,304 million in the second quarter of 1996, compared with $659 million in the second quarter of 1995. The Company's net interest margin was 6.03% in the second quarter of 1996, compared with 5.66% in the second quarter of 1995 and 6.18% in the first quarter of 1996. Net interest income on a taxable-equivalent basis was $1,980 million in the first six months of 1996, compared with $1,324 million in the first six months of 1995. The Company's net interest margin was 6.08% in the first six months of 1996, compared with 5.63% in the first six months of 1995. Individual components of net interest income and the net interest margin are presented in the rate/yield table on pages 18 and 19. 17
AVERAGE BALANCES, YIELDS AND RATES PAID (TAXABLE-EQUIVALENT BASIS) (1) (2) ================================================================================================================================= Quarter ended June 30, ---------------------------------------------------------------------------- 1996 1995 -------------------------------- --------------------------------- INTEREST Interest AVERAGE YIELDS/ INCOME/ Average Yields/ income/ (in millions) BALANCE RATES EXPENSE balance rates expense - --------------------------------------------------------------------------------------------------------------------------------- EARNING ASSETS Federal funds sold and securities purchased under resale agreements $ 588 5.36% $ 8 $ 66 6.18% $ 1 Investment securities: At fair value (3): U.S. Treasury securities 3,177 5.52 44 426 6.70 7 Securities of U.S. government agencies and corporations 8,434 6.07 129 998 5.38 14 Private collateralized mortgage obligations 2,653 6.23 42 956 6.41 16 Other securities 668 6.83 10 62 14.42 1 -------- ------- -------- ------- Total investment securities at fair value 14,932 6.01 225 2,442 6.16 38 At cost: U.S. Treasury securities -- -- -- 1,469 4.85 18 Securities of U.S. government agencies and corporations -- -- -- 4,996 6.04 75 Private collateralized mortgage obligations -- -- -- 1,249 5.85 18 Other securities -- -- -- 156 6.85 3 -------- ------- -------- ------- Total investment securities at cost -- -- -- 7,870 5.80 114 -------- ------- -------- ------- Total investment securities 14,932 6.01 225 10,312 5.89 152 Mortgage loans held for sale (3) -- -- -- 2,884 7.33 54 Loans: Commercial 19,460 8.75 424 8,436 10.01 211 Real estate 1-4 family first mortgage 11,924 7.50 224 5,063 7.42 94 Other real estate mortgage 13,006 9.32 300 8,058 9.49 190 Real estate construction 2,385 10.07 60 1,070 10.20 27 Consumer: Real estate 1-4 family junior lien mortgage 6,790 8.96 152 3,356 8.55 72 Credit card 5,183 14.61 189 3,433 15.62 134 Other revolving credit and monthly payment 9,151 9.35 213 2,353 10.56 62 -------- ------- -------- ------- Total consumer 21,124 10.51 554 9,142 11.73 268 Lease financing 2,599 8.76 57 1,405 9.22 32 Foreign 236 4.72 3 28 7.98 1 -------- ------- -------- ------- Total loans 70,734 9.20 1,622 33,202 9.93 823 Other 396 6.62 7 61 5.30 1 -------- ------- -------- ------- Total earning assets $ 86,650 8.62 1,862 $ 46,525 8.86 1,031 ======== ------- ======== ------- FUNDING SOURCES Interest-bearing liabilities: Deposits: Interest-bearing checking (4) $ 7,060 1.24 22 $ 4,210 1.00 11 Market rate and other savings (4) 32,921 2.68 220 15,170 2.54 96 Savings certificates 16,779 4.84 201 7,948 5.27 104 Other time deposits 483 5.89 7 442 7.21 8 Deposits in foreign offices 303 5.17 4 2,309 6.06 35 -------- ------- -------- ------- Total interest-bearing deposits 57,546 3.17 454 30,079 3.38 254 Federal funds purchased and securities sold under repurchase agreements 1,667 5.08 21 3,924 6.02 59 Commercial paper and other short-term borrowings 296 4.19 3 621 5.95 9 Senior debt 2,289 6.07 35 1,511 6.85 26 Subordinated debt 2,580 7.03 45 1,484 6.54 24 -------- ------- -------- ------- Total interest-bearing liabilities 64,378 3.49 558 37,619 3.96 372 Portion of noninterest-bearing funding sources 22,272 -- -- 8,906 -- -- -------- ------- -------- ------- Total funding sources $ 86,650 2.59 558 $ 46,525 3.20 372 ======== ------- ======== ------- NET INTEREST MARGIN AND NET INTEREST INCOME ON A TAXABLE-EQUIVALENT BASIS (5) 6.03% $ 1,304 5.66% $ 659 ===== ======= ===== ======= NONINTEREST-EARNING ASSETS Cash and due from banks $ 8,569 $ 2,602 Other 13,211 2,364 -------- -------- Total noninterest-earning assets $ 21,780 $ 4,966 ======== ======== NONINTEREST-BEARING FUNDING SOURCES Deposits $ 26,596 $ 8,898 Other liabilities 2,414 1,157 Preferred stockholders' equity 839 489 Common stockholders' equity 14,203 3,328 Noninterest-bearing funding sources used to fund earning assets (22,272) (8,906) -------- -------- Net noninterest-bearing funding sources $ 21,780 $ 4,966 ======== ======== TOTAL ASSETS $108,430 $ 51,491 ======== ======== =================================================================================================================================
(1) The average prime rate of Wells Fargo Bank was 8.25% and 9.00% for the quarters ended June 30, 1996 and 1995, respectively and 8.29% and 8.91% for the six months ended June 30, 1996 and 1995, respectively. The average three-month London Interbank Offered Rate (LIBOR) was 5.52% and 6.12% for the quarters ended June 30, 1996 and 1995, respectively, and 5.46% and 6.21% for the six months ended June 30, 1996 and 1995, respectively. (2) Interest rates and amounts include the effects of hedge and risk management activities associated with the respective asset and liability categories. (3) Yields are based on amortized cost balances. The average amortized cost balances for investment securities at fair value totaled $15,012 million and $2,492 million for the quarters ended June 30, 1996 and 1995, respectively, and $11,814 million and $2,685 million for the six months ended June 30, 1996 and 1995, respectively. The average amortized cost balances for mortgage loans held for sale totaled $2,925 million and $1,470 million for the quarter and six months ended June 30, 1995, respectively. (4) Due to the limited transaction activity on existing NOW (negotiable order of withdrawal) account customers, $3.4 billion of interest-bearing checking deposits at December 31, 1995 was reclassified to market rate and other savings. (5) Includes taxable-equivalent adjustments that primarily relate to income on certain loans and securities that is exempt from federal and applicable state income taxes. The federal statutory tax rate was 35% for all periods presented. 18
============================================================================ Six months ended June 30, ---------------------------------------------------------------------------- 1996 1995 --------------------------------- -------------------------------- INTEREST Interest AVERAGE YIELDS/ INCOME/ Average Yields/ income/ BALANCE RATES EXPENSE balance rates expense ----------------------------------------------------------------------------- EARNING ASSETS Federal funds sold and securities purchased under resale agreements $ 357 5.42% $ 10 $ 57 5.93% $ 2 Investment securities: At fair value (3): U.S. Treasury securities 2,266 5.52 62 406 6.70 14 Securities of U.S. government agencies and corporations 6,712 6.02 203 1,104 5.59 32 Private collateralized mortgage obligations 2,366 6.15 73 1,022 6.38 34 Other securities 447 7.03 15 64 14.49 3 -------- ------ ------- ------- Total investment securities at fair value 11,791 5.99 353 2,596 6.21 83 At cost: U.S. Treasury securities -- -- -- 1,557 4.84 38 Securities of U.S. government agencies and corporations -- -- -- 5,114 6.03 154 Private collateralized mortgage obligations -- -- -- 1,267 5.89 37 Other securities -- -- -- 160 6.76 5 -------- ------ ------- ------- Total investment securities at cost -- -- -- 8,098 5.79 234 -------- ------ ------- ------- Total investment securities 11,791 5.99 353 10,694 5.90 317 Mortgage loans held for sale (3) -- -- -- 1,450 7.29 54 Loans: Commercial 14,384 9.15 655 8,246 9.89 405 Real estate 1-4 family first mortgage 8,162 7.52 307 7,042 7.24 255 Other real estate mortgage 10,602 9.28 489 8,090 9.54 383 Real estate construction 1,856 10.04 93 1,045 10.18 53 Consumer: Real estate 1-4 family junior lien mortgage 5,062 8.81 222 3,339 8.60 143 Credit card 4,558 15.02 343 3,280 15.69 257 Other revolving credit and monthly payment 5,875 9.76 285 2,311 10.49 121 -------- ------ ------- ------- Total consumer 15,495 10.99 850 8,930 11.70 521 Lease financing 2,248 8.95 101 1,378 9.19 63 Foreign 133 4.98 3 28 7.46 1 -------- ------ ------- ------- Total loans 52,880 9.48 2,498 34,759 9.72 1,681 Other 231 6.57 7 60 5.44 2 -------- ------ ------- ------- Total earning assets $ 65,259 8.82 2,868 $47,020 8.76 2,056 ======== ------ ======= ------- FUNDING SOURCES Interest-bearing liabilities: Deposits: Interest-bearing checking (4) $ 3,958 1.21 24 $ 4,287 1.00 21 Market rate and other savings (4) 25,456 2.62 332 15,643 2.55 198 Savings certificates 12,707 4.98 315 7,649 5.09 193 Other time deposits 412 6.46 13 400 5.10 10 Deposits in foreign offices 414 5.33 11 2,486 5.96 74 -------- ------ ------- ------- Total interest-bearing deposits 42,947 3.25 695 30,465 3.28 496 Federal funds purchased and securities sold under repurchase agreements 2,186 5.25 57 3,905 5.92 115 Commercial paper and other short-term borrowings 350 4.81 8 654 5.92 19 Senior debt 2,000 6.15 61 1,575 6.89 54 Subordinated debt 1,923 6.97 67 1,477 6.57 48 -------- ------ ------- ------- Total interest-bearing liabilities 49,406 3.61 888 38,076 3.87 732 Portion of noninterest-bearing funding sources 15,853 -- -- 8,944 -- -- -------- ------ ------- ------- Total funding sources $ 65,259 2.74 888 $47,020 3.13 732 ======== ------ ======= ------- NET INTEREST MARGIN AND NET INTEREST INCOME ON A TAXABLE-EQUIVALENT BASIS (5) 6.08% $1,980 5.63% $ 1,324 ===== ====== ===== ======= NONINTEREST-EARNING ASSETS Cash and due from banks $ 5,721 $ 2,595 Other 7,802 2,323 -------- ------- Total noninterest-earning assets $ 13,523 $ 4,918 ======== ======= NONINTEREST-BEARING FUNDING SOURCES Deposits $ 17,966 $ 8,883 Other liabilities 1,846 1,149 Preferred stockholders' equity 664 489 Common stockholders' equity 8,900 3,341 Noninterest-bearing funding sources used to fund earning assets (15,853) (8,944) -------- ------- Net noninterest-bearing funding sources $ 13,523 $ 4,918 ======== ======= TOTAL ASSETS $ 78,782 $51,938 ======== ======= ============================================================================
19 Interest income included hedging income (expense) of $24 million in the second quarter of 1996, compared with $(2) million in the second quarter of 1995. Interest expense included hedging income (expense) of $(5) million in the second quarter of 1996, compared with $6 million in the second quarter of 1995. Loans averaged $70.7 billion in the second quarter of 1996, compared with $33.2 billion in the second quarter of 1995, and $52.9 billion in the first six months of 1996, compared with $34.8 billion in the first six months of 1995. This increase primarily reflects the acquisition of the First Interstate portfolio. Investment securities averaged $14.9 billion during the second quarter of 1996, compared with $10.3 billion in the second quarter of 1995, and $11.8 billion in the first six months of 1996, compared with $10.7 billion in the first six months of 1995. This increase reflects the acquisition of the First Interstate portfolio. Average core deposits were $83.4 billion and $36.2 billion in the second quarter of 1996 and 1995, respectively, and funded 77% and 70% of the Company's average total assets in the same quarter of 1996 and 1995, respectively. For the first six months of 1996 and 1995, average core deposits were $60.1 billion and $36.5 billion, respectively, and funded 76% and 70% of the Company's average total assets in the same period of 1996 and 1995, respectively. 20
NONINTEREST INCOME ================================================================================================================== Quarter Six months ended June 30, ended June 30, ------------- % ------------- % (in millions) 1996 1995 Change 1996 1995 Change - ------------------------------------------------------------------------------------------------------------------ Service charges on deposit accounts $258 $119 117% $380 $236 61% Fees and commissions: Credit card membership and other credit card fees 26 23 13 53 42 26 Debit and credit card merchant fees 37 17 118 52 30 73 Charges and fees on loans 32 12 167 50 23 117 Shared ATM network fees 27 13 108 39 24 63 Mutual fund and annuity sales fees 18 8 125 27 18 50 All other 71 30 137 108 67 61 ---- ---- ---- ---- Total fees and commissions 211 103 105 329 204 61 Trust and investment services income: Asset management and custody fees 60 32 88 95 63 51 Mutual fund management fees 34 17 100 55 31 77 All other 10 8 25 14 18 (22) ---- ---- ---- ---- Total trust and investment services income 104 57 82 164 112 46 Investment securities gains (losses) 3 -- -- 2 (15) -- Income from equity investments accounted for by the: Cost method 20 13 54 55 32 72 Equity method 8 12 (33) 10 20 (50) Check printing charges 15 9 67 24 20 20 Gains (losses) from dispositions of operations 1 (9) -- 5 (9) -- Gains (losses) on sales of loans 1 1 -- 5 (66) -- Losses on dispositions of premises and equipment (5) (5) -- (17) (8) (113) All other 23 10 130 36 25 44 ---- ---- ---- ---- Total $639 $310 106% $993 $551 80% ==== ==== === ==== ==== === ==================================================================================================================
The overall increase in noninterest income reflected the impact of the Merger. "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 $21 million and $15 million for the second quarter of 1996 and 1995, respectively, and $37 million and $25 million for the first half of 1996 and 1995, respectively. The related amortization expense was $16 million and $11 million for the second quarter of 1996 and 1995, respectively, and $27 million and $17 million for the first half of 1996 and 1995, respectively. The balance of purchased mortgage servicing rights was $230 million and $169 million at June 30, 1996 and 1995, respectively. The purchased mortgage loan servicing portfolio totaled $20 billion at June 30, 1996, compared with $14 billion at June 30, 1995. A major portion of the increase in trust and investment services income for the second quarter and first half of 1996 was due to greater mutual fund management fees, reflecting the overall growth in the fund families' net assets. The Company managed 17 of the Stagecoach family of funds consisting of $7.8 billion of assets at June 30, 1996, compared with 28 funds consisting of $8.0 billion at June 30, 1995. At June 30, 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 21 corporations, partnerships and other business entities. As a result of the sale of the Company's joint venture interest in WFNIA and the sale of the Masterworks division at year-end 1995, $.5 billion of the retail funds and all the institutional funds of $1.8 billion were no longer under the Company's management at June 30, 1996. The Overland Express family of 13 funds, which had $4.4 billion of assets under management at June 30, 1996, compared with $2.9 billion at June 30, 1995, is sold through brokers around the country. In addition to managing Stagecoach and Overland Express Funds, the Company also managed or maintained personal trust, corporate trust, employee benefit trust and agency assets of approximately $285 billion (including $235 billion from First Interstate) and $51 billion at June 30, 1996 and 1995, respectively. As a result of the Merger, the Company became the interim advisor for the Pacifica family of 18 funds which had $5.4 billion of assets under management at June 30, 1996. These funds are expected to merge into the Stagecoach family of funds in September 1996. At December 31, 1995, the Company had a liability of $83 million related to the disposition of premises and, to a lesser extent, severance and miscellaneous expenses associated with scheduled branch closures. Of this amount, $13 million represented a third quarter 1995 accrual for the closures of 21 branches scheduled for March 1996. The remaining amount consisted of a fourth quarter 1995 accrual for the disposition of 120 branches, of which 88 branches have been or are scheduled to be closed in the third quarter of 1996. The remaining 32 branch dispositions are expected to be completed by the first quarter of 1997. The liability at June 30, 1996 associated with branch dispositions not acquired as a result of the Merger was $72 million. Additional expense accruals are expected to be made in the fourth quarter of 1996 or the first quarter of 1997 for additional Wells Fargo branch dispositions that are yet to be identified as the Company continues to open more supermarket branches and banking centers. At June 30, 1996, the Company had 2,129 retail outlets, comprised of 1,580 traditional branches, 202 supermarket branches and 347 banking centers, in 13 western states. In August 1996, the Company and Safeway Inc. signed an agreement in principle that would allow the Company to open as many as 450 new retail outlets (banking centers and branches) in Safeway stores in the western United States. For the first half of 1995, gains and losses on sales of loans included an estimated $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. This write-down was partially offset by gains on sales of two loans, resulting from the assumption of the borrowers' loans by third parties. 22
NONINTEREST EXPENSE ====================================================================================================================== Quarter Six months ended June 30, ended June 30, --------------- % --------------- % (in millions) 1996 1995 Change 1996 1995 Change - ---------------------------------------------------------------------------------------------------------------------- Salaries $ 400 $177 126% $ 581 $349 66% Incentive compensation 61 33 85 93 60 55 Employee benefits 102 48 113 157 101 55 Equipment 111 45 147 167 92 82 Net occupancy 108 53 104 161 106 52 Contract services 66 38 74 108 64 69 Core deposit intangible: Nonqualifying (1) 72 -- -- 72 -- -- Qualifying 10 11 (9) 19 22 (14) Goodwill 81 9 800 89 17 424 Outside professional services 31 11 182 44 20 120 Telecommunications 28 15 87 44 28 57 Operating losses 27 11 145 42 27 56 Postage 26 14 86 41 26 58 Advertising and promotion 21 17 24 34 31 10 Stationery and supplies 21 9 133 31 18 72 Travel and entertainment 16 10 60 26 17 53 Security 17 5 240 23 10 130 Outside data processing 15 3 400 18 5 260 Check printing 10 6 67 16 12 33 Escrow and collection agency fees 9 4 125 13 8 63 Federal deposit insurance 3 24 (88) 4 47 (91) Foreclosed assets 1 2 (50) 3 (2) -- All other 41 15 173 58 38 53 ------ ---- ------ ----- Total $1,277 $560 128% $1,844 $1,096 68% ====== ==== === ====== ====== === ======================================================================================================================
(1) Amortization of core deposit intangibles acquired after February 1992 that are subtracted from stockholders' equity in computing regulatory capital for bank holding companies. In addition to the effect of combining operations of First Interstate with the Company, the overall increase in noninterest expense primarily reflected merger-related expenses, including severance and higher expenses for contract and outside professional services. Salaries, incentive compensation and employee benefits expense increased $305 million and $321 million from the second quarter and first half of 1995, respectively, substantially due to higher staff levels after the consummation of the Merger. Salaries and employee benefits expense for the second quarter of 1996 included merger-related severance expense of $27 million. Additional severance expense may be incurred in future quarters as the Company continues the integration process, although the total amount is not anticipated to be materially different than the second quarter. The Company's active full-time equivalent (FTE) staff, including hourly employees, was approximately 41,548 at June 30, 1996, compared with approximately 18,978 at June 30, 1995. The Company currently expects to have less than 35,000 active FTE by the third quarter of 1997. Excluding the effects of the Merger, increases in equipment expense in the second quarter and first half of 1996 compared with the same periods in 1995 were primarily due to a higher level 23 of spending on software and technology for product development and increased depreciation expense on equipment related to business initiatives and system upgrades. Goodwill and CDI amortization resulting from the Merger were each $72 million for the quarter ended June 30, 1996. The core deposit intangible is amortized on an accelerated basis based on an estimated useful life of 15 years. The impact on noninterest expense from the amortization of the nonqualifying core deposit intangible in 1997, 1998 and 1999 is expected to be $241 million, $211 million and $186 million, respectively. The related impact on income tax expense is expected to be a benefit of $99 million, $86 million and $76 million in 1997, 1998 and 1999, respectively. The decrease in federal deposit insurance for the second quarter of 1996 compared with the same period of 1995 was predominantly due to the FDIC's reduction of deposit insurance premiums. Effective January 1, 1996, the best-rated institutions insured by the Bank Insurance Fund pay the statutory minimum annual assessment of $2,000. INCOME TAXES The Company's effective tax rate was 45% and 44% for the second quarter and first half of 1996, respectively, compared with 43% and 40% for the same periods of 1995, respectively. The increase in the effective tax rate for the second quarter and first half of 1996 was due to increased goodwill amortization related to the Merger, which is not tax deductible. The increase in the effective tax rate for the first half of 1996 was also due to a $22 million reduction of income tax expense in 1995 related to the settlement with the Internal Revenue Service of certain audit issues pertaining to auto leases for the years 1987 through 1992. 24 EARNINGS/RATIOS EXCLUDING GOODWILL AND NONQUALIFYING CDI The following table reconciles reported earnings to net income excluding goodwill and nonqualifying core deposit intangible ("cash" or "tangible") for the quarter ended June 30, 1996:
====================================================================================================== Quarter ended (in millions) June 30, 1996 - ------------------------------------------------------------------------------------------------------ Amortization --------------------------- Nonqualifying Reported core deposit "Cash" earnings Goodwill intangible earnings - ------------------------------------------------------------------------------------------------------ Income before income tax expense $ 662 $ 81 $ 72 $ 815 Income tax expense (299) -- (29) (328) ----- ---- ---- ----- Net income 363 81 43 487 Preferred dividends (19) -- -- (19) ----- ---- ---- ----- Net income applicable to common stock $ 344 $ 81 $ 43 $ 468 ===== ==== ==== ===== Per common share $3.61 $.84 $.44 $4.89 ===== ==== ==== ===== ======================================================================================================
The ROA, ROE and efficiency ratios excluding goodwill and nonqualifying core deposit intangible amortization and balances for the quarter ended June 30, 1996 were calculated as follows:
====================================================================================================== Quarter ended (in millions) June 30, 1996 - ------------------------------------------------------------------------------------------------------ ROA: A*/ (C-E) = 1.96% ROE: B*/ (D-E) = 33.43% Efficiency: (F-G) / H = 58.0% Net income $ 487 (A) Net income applicable to common stock 468 (B) Average total assets 108,430 (C) Average common stockholders' equity 14,203 (D) Average goodwill ($7,238) and after-tax nonqualifying core deposit intangible ($1,334) 8,572 (E) Noninterest expense 1,277 (F) Amortization expense for goodwill and nonqualifying core deposit intangible 153 (G) Net interest income plus noninterest income 1,939 (H) ======================================================================================================
* Annualized 25 BALANCE SHEET ANALYSIS - ----------------------
INVESTMENT SECURITIES ========================================================================================================================== JUNE 30, December 31, June 30, 1996 1995 1995 ------------------ ---------------- ---------------- ESTIMATED Estimated Estimated FAIR fair fair (in millions) COST VALUE Cost value Cost value - -------------------------------------------------------------------------------------------------------------------------- AVAILABLE-FOR-SALE SECURITIES AT FAIR VALUE: U.S. Treasury securities $ 2,626 $ 2,624 $1,347 $1,357 $ 423 $ 431 Securities of U.S. government agencies and corporations (1) 7,928 7,847 5,218 5,223 1,036 1,008 Private collateralized mortgage obligations (2) 2,790 2,716 2,121 2,122 990 972 Other 439 443 169 181 25 34 ------- ------- ------ ------ ------ ------ Total debt securities 13,783 13,630 8,855 8,883 2,474 2,445 Marketable equity securities 31 62 18 37 16 28 ------- ------- ------ ------ ------ ------ Total $13,814 $13,692 $8,873 $8,920 $2,490 $2,473 ======= ======= ====== ====== ====== ====== HELD-TO-MATURITY SECURITIES AT COST: U.S. Treasury securities $ -- $ -- $ -- $ -- $1,372 $1,361 Securities of U.S. government agencies and corporations (1) -- -- -- -- 4,902 4,870 Private collateralized mortgage obligations (2) -- -- -- -- 1,236 1,217 Other -- -- -- -- 152 154 ------- ------- ------ ------ ------ ------ Total debt securities $ -- $ -- $ -- $ -- $7,662 $7,602 ======= ======= ====== ====== ====== ====== ==========================================================================================================================
(1) All securities of U.S. government agencies and corporations are mortgage-backed securities. (2) Substantially all private collateralized mortgage obligations (CMOs) are AAA rated bonds collateralized by 1-4 family residential first mortgages. 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, 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 in order to provide increased liquidity flexibility to meet anticipated loan growth. The available-for-sale portfolio includes both debt and marketable equity securities. At June 30, 1996, the available-for-sale securities portfolio had an unrealized net loss of $123 million, or less than 1% of the cost of the portfolio, comprised of unrealized gross losses of $185 million and unrealized gross gains of $62 million. 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 June 30, 1995, the available-for-sale securities portfolio had an unrealized net loss of $17 million, comprised of unrealized gross losses of $55 million and unrealized gross gains of $38 million. The unrealized net gain or loss on available-for-sale securities is reported on an after-tax basis as a separate component of stockholders' equity. At June 30, 1996, the valuation allowance amounted to an unrealized net 26 loss of $73 million, compared with an unrealized net gain of $26 million at December 31, 1995 and an unrealized net loss of $9 million at June 30, 1995. At June 30, 1995, the held-to-maturity securities portfolio had an estimated unrealized net loss of $60 million (which reflected estimated unrealized gross gains of $26 million). The unrealized net loss in the available-for-sale portfolio at June 30, 1996 was predominantly due to investments in mortgage-backed securities. This unrealized net loss reflected current interest rates that were higher than those at the time the investments were purchased. The decline in the fair value of the investment securities portfolio is not considered to be an other-than-temporary impairment. 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). During the first half of 1996, realized gross gains and losses resulting from the sale of available-for-sale securities were $5 million and $2 million, respectively. During the first half of 1995, realized losses on the sale of investment securities totaled $15 million. These losses resulted from the sale of $397 million of securities of U.S. government agencies and corporations, $288 million of private collateralized mortgage obligations and $2 million of marketable equity securities from the available-for-sale portfolio for asset/liability management purposes. 27 The following table provides the expected remaining maturities and yields (taxable-equivalent basis) of debt securities within the investment portfolio.
=============================================================================================== June 30, 1996 --------------------------------------------------------- Expected remaining principal maturity --------------------------------------------------------- Weighted average expected Weighted remaining One year or less Total average maturity ---------------- (in millions) amount yield (in yrs.-mos.) Amount Yield - ----------------------------------------------------------------------------------------------- AVAILABLE-FOR-SALE SECURITIES (1): U.S. Treasury securities $ 2,626 5.84% 1-4 $1,278 5.59% Securities of U.S. government agencies and corporations 7,928 6.39 2-5 2,684 5.86 Private collateralized mortgage obligations 2,790 6.40 2-2 805 6.28 Other 439 6.96 2-3 121 6.27 ------- ------ TOTAL COST OF DEBT SECURITIES $13,783 6.31% 2-2 $4,888 5.87% ======= ==== === ====== ==== ESTIMATED FAIR VALUE $13,630 $4,852 ======= ====== ===============================================================================================
===================================================================================================== June 30, 1996 -------------------------------------------------------------- Expected remaining principal maturity -------------------------------------------------------------- After one year After five years through five years through ten years After ten years ------------------ ----------------- --------------- (in millions) Amount Yield Amount Yield Amount Yield - ----------------------------------------------------------------------------------------------------- AVAILABLE-FOR-SALE SECURITIES (1): U.S. Treasury securities $1,341 6.07% $ 7 6.30% $ -- --% Securities of U.S. government agencies and corporations 4,494 6.48 670 7.85 80 7.20 Private collateralized mortgage obligations 1,919 6.40 54 7.36 12 18.85 Other 298 6.64 17 18.67 3 6.37 ------ ---- ---- TOTAL COST OF DEBT SECURITIES $8,052 6.40% $748 8.05% $ 95 8.65% ====== ==== ==== ===== ==== ===== ESTIMATED FAIR VALUE $7,937 $746 $ 95 ====== ==== ==== =====================================================================================================
(1) The weighted average yield is computed using the amortized cost of available-for-sale investment securities carried at fair value. The weighted average expected remaining maturity of the debt securities portfolio was 2 years and 2 months at June 30, 1996, compared with 2 years and 1 month at March 31, 1996 and December 31, 1995. The short-term debt securities portfolio serves to maintain asset liquidity and to fund loan growth. At June 30, 1996, 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 $10,563 million, or 77%, of the Company's investment securities portfolio at June 30, 1996. 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 $10,563 million to $10,054 million and the expected remaining maturity of these securities would increase from 2 years and 4 months to 2 years and 7 months. 28
LOAN PORTFOLIO ======================================================================================================= % Change June 30, 1996 from ------------------ JUNE 30, Dec. 31, June 30, Dec. 31, June 30, (in millions) 1996 1995 1995 1995 1995 - ------------------------------------------------------------------------------------------------------- Commercial (1)(2) $19,575 $ 9,750 $ 8,872 101% 121% Real estate 1-4 family first mortgage (3) 11,811 4,448 5,051 166 134 Other real estate mortgage (4) 12,920 8,263 7,973 56 62 Real estate construction 2,401 1,366 1,110 76 116 Consumer: Real estate 1-4 family junior lien mortgage 6,736 3,358 3,373 101 100 Credit card 5,276 4,001 3,628 32 45 Other revolving credit and monthly payment 9,075 2,576 2,409 252 277 ------- ------- ------- Total consumer 21,087 9,935 9,410 112 124 Lease financing 2,689 1,789 1,451 50 85 Foreign 58 31 29 87 100 ------- ------- ------- Total loans (net of unearned income, including net deferred loan fees, of $528, $463 and $407) $70,541 $35,582 $33,896 98% 108% ======= ======= ======= === === =======================================================================================================
(1) Includes loans to real estate developers of $905 million, $700 million and $467 million at June 30, 1996, December 31, 1995 and June 30, 1995, respectively. (2) Includes agricultural loans (loans to finance agricultural production and other loans to farmers) of $1,493 million, $1,029 million and $838 million at June 30, 1996, December 31, 1995 and June 30, 1995, respectively. (3) Excludes mortgage loans held for sale at June 30, 1995 of $1,336 million, net of an estimated $50 million write-down to the lower of cost or estimated market. (4) Includes agricultural loans that are secured by real estate of $370 million, $250 million and $258 million at June 30, 1996, December 31, 1995 and June 30, 1995, respectively. The table below presents comparative period-end commercial real estate loans.
======================================================================================================= % Change June 30, 1996 from ------------------ JUNE 30, Dec. 31, June 30, Dec. 31, June 30, (in millions) 1996 1995 1995 1995 1995 - ------------------------------------------------------------------------------------------------------- Commercial loans to real estate developers (1) $ 905 $ 700 $ 467 35% 102 % Other real estate mortgage 12,920 8,263 7,973 56 62 Real estate construction 2,401 1,366 1,110 76 116 ------- ------- ------ Total $16,226 $10,329 $9,550 57% 70 % ======= ======= ====== === === Nonaccrual loans $ 425 $ 371 $ 458 15% (7)% ======= ======= ====== === === Nonaccrual loans as a % of total 2.6% 3.6% 4.8% ======= ======= ====== =======================================================================================================
(1) Included in commercial loans. 29
NONACCRUAL AND RESTRUCTURED LOANS AND OTHER ASSETS (1) ============================================================================== JUNE 30, Dec. 31, June 30, (in millions) 1996 1995 1995 - ------------------------------------------------------------------------------ Nonaccrual loans: Commercial (2)(3) $ 208 $ 112 $ 121 Real estate 1-4 family first mortgage 87 64 64 Other real estate mortgage (4) 363 307 373 Real estate construction 47 46 58 Consumer: Real estate 1-4 family junior lien mortgage 22 8 12 Other revolving credit and monthly payment 1 1 3 Lease financing 3 -- -- ----- ----- ----- Total nonaccrual loans (5) 731 538 631 Restructured loans (6) 11 14 13 ----- ----- ----- Nonaccrual and restructured loans 742 552 644 As a percentage of total loans (7) 1.1% 1.6% 1.9% Foreclosed assets 238 186 224 Real estate investments (8) 7 12 14 ----- ----- ----- Total nonaccrual and restructured loans and other assets $ 987 $ 750 $ 882 ===== ===== ===== ==============================================================================
(1) Excludes loans that are contractually past due 90 days or more as to interest or principal, but are both well-secured and in the process of collection or are real estate 1-4 family first mortgage loans or consumer loans that are exempt under regulatory rules from being classified as nonaccrual. (2) Includes loans to real estate developers of $15 million, $18 million and $27 million at June 30, 1996, December 31, 1995 and June 30, 1995, respectively. (3) Includes agricultural loans of $30 million, $6 million and $2 million at June 30, 1996, December 31, 1995 and June 30, 1995, respectively. (4) Includes agricultural loans secured by real estate of $6 million or less for all periods presented. (5) Of the total nonaccrual loans, $553 million, $408 million and $516 million at June 30, 1996, December 31, 1995 and June 30, 1995, respectively, were considered impaired under FAS 114 (Accounting by Creditors for Impairment of a Loan). (6) In addition to originated loans that were subsequently restructured, there were loans of $50 million, $50 million and none at June 30, 1996, December 31, 1995 and June 30, 1995, respectively, 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 restructured loans and loans purchased at a steep discount, $50 million, $50 million and none were considered impaired under FAS 114 at June 30, 1996, December 31, 1995 and June 30, 1995, respectively. (7) Total loans exclude mortgage loans held for sale at June 30, 1995. (8) 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 $124 million, $95 million and $75 million at June 30, 1996, December 31, 1995 and June 30, 1995, respectively. The table below summarizes the changes in total nonaccrual loans.
============================================================================== JUNE 30, June 30, (in millions) 1996 1995 - ------------------------------------------------------------------------------ BALANCE, BEGINNING OF QUARTER $525 $566 Nonaccrual loans of First Interstate 201 -- New loans placed on nonaccrual 173 173 Loans purchased -- 1 Charge-offs (48) (18) Payments (87) (49) Transfers to foreclosed assets (19) (19) Loans returned to accrual (14) (23) ---- ---- BALANCE, END OF QUARTER $731 $631 ==== ==== ==============================================================================
30 The Company generally identifies loans to be evaluated for impairment under FAS 114 (Accounting by Creditors for Impairment of a Loan) when such loans are on nonaccrual or have been restructured. However, not all nonaccrual loans are impaired. Generally, a loan is placed on nonaccrual status upon becoming 90 days past due as to interest or principal (unless both well-secured and in the process of collection), when the full timely collection of interest or principal becomes uncertain or when a portion of the principal balance has been charged off. Real estate 1-4 family loans (both first liens and junior liens) are placed on nonaccrual status within 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, including scheduled interest payments. For a loan that has been restructured, the contractual terms of the loan agreement refer to the contractual terms specified by the original loan agreement, not the contractual terms specified by the restructuring agreement. Not all impaired loans are necessarily placed on nonaccrual status. That is, restructured loans performing under restructured terms beyond a specified performance period are classified as accruing but may still be deemed impaired under FAS 114. For loans covered under FAS 114, the Company makes an assessment for impairment when and while such loans are on nonaccrual, or the loan has been restructured. When a loan with unique risk characteristics has been identified as being impaired, the 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. 31 The table below shows the recorded investment in impaired loans by loan category at June 30, 1996, December 31, 1995 and June 30, 1995:
================================================================================= JUNE 30, December 31, June 30, (in millions) 1996 1995 1995 - --------------------------------------------------------------------------------- Commercial $ 166 $ 77 $ 98 Real estate 1-4 family first mortgage 2 2 6 Other real estate mortgage (1) 386 330 351 Real estate construction 47 46 57 Other 2 3 4 ----- ----- ----- Total (2) $ 603 $ 458 $ 516 ===== ===== ===== Impairment measurement based on: Collateral value method $ 433 $ 374 $ 367 Discounted cash flow method 135 66 130 Historical loss factors 35 18 19 ----- ----- ----- $ 603 $ 458 $ 516 ===== ===== ===== =================================================================================
(1) Includes accruing loans of $50 million, $50 million and none purchased at a steep discount at June 30, 1996, December 31, 1995 and June 30, 1995, respectively, whose contractual terms were modified after acquisition. The modified terms did not affect the book balance nor the yields expected at the date of purchase. (2) Includes $39 million, $22 million and $48 million of impaired loans with a related FAS 114 allowance of $4 million, $3 million and $9 million at June 30, 1996, December 31, 1995 and June 30, 1995, respectively. The average recorded investment in impaired loans was $613 million and $523 million during the second quarter and first half of 1996, respectively, and $504 million and $479 million during the second quarter and first half of 1995, respectively. Total interest income recognized on impaired loans was $5 million and $9 million during the second quarter and first half of 1996, respectively, and $4 million and $8 million during the second quarter and first half of 1995, respectively. The interest income for all periods 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. 32 The Company anticipates normal influxes of nonaccrual loans as it further increases its lending activity as well as resolutions of loans in the nonaccrual portfolio. The performance of any individual loan can be 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. The table below summarizes the changes in foreclosed assets.
============================================================================= JUNE 30, June 30, (in millions) 1996 1995 - ----------------------------------------------------------------------------- BALANCE, BEGINNING OF QUARTER $ 198 $ 273 Foreclosed assets of First Interstate 51 -- Additions 37 19 Sales (33) (62) Charge-offs (12) (2) Write-downs (1) (1) Other deductions (2) (3) ----- ----- BALANCE, END OF QUARTER $ 238 $ 224 ===== ===== =============================================================================
Loans 90 Days or More Past Due and Still Accruing - ------------------------------------------------- The following table shows loans contractually past due 90 days or more as to interest or principal, but not included in the nonaccrual or restructured categories. All loans in this category are both well-secured and in the process of collection or are real estate 1-4 family first mortgage loans or consumer loans that are exempt under regulatory rules from being classified as nonaccrual because they are automatically charged off after being past due for a prescribed period (generally, 180 days). Notwithstanding, real estate 1-4 family loans (first liens and junior liens) are placed on nonaccrual within 150 days of becoming past due and such nonaccrual loans are excluded from the following table.
============================================================================= JUNE 30, Dec. 31, June 30, (in millions) 1996 1995 1995 - ----------------------------------------------------------------------------- Commercial $ 83 $ 12 $ 1 Real estate 1-4 family first mortgage 31 8 8 Other real estate mortgage 31 24 66 Real estate construction 15 -- -- Consumer: Real estate 1-4 family junior lien mortgage 11 4 5 Credit card 105 95 54 Other revolving credit and monthly payment 7 1 1 ----- ----- ----- Total consumer 123 100 60 Lease financing 1 -- -- ----- ----- ----- Total $ 284 $ 144 $ 135 ===== ===== ===== =============================================================================
33 ALLOWANCE FOR LOAN LOSSES
=========================================================================================== Quarter ended Six months ended ------------------- -------------------- JUNE 30, June 30, JUNE 30, June 30, (in millions) 1996 1995 1996 1995 - ------------------------------------------------------------------------------------------- BALANCE, BEGINNING OF PERIOD $1,681 $2,017 $1,794 $2,082 Allowance of First Interstate 770 -- 770 -- Loan charge-offs: Commercial (1) (48) (10) (61) (17) Real estate 1-4 family first mortgage (5) (3) (9) (6) Other real estate mortgage (13) (12) (16) (34) Real estate construction (4) (1) (5) (4) Consumer: Real estate 1-4 family junior lien mortgage (13) (4) (17) (7) Credit card (101) (46) (187) (83) Other revolving credit and monthly payment (51) (13) (71) (23) ------ ------ ------ ------ Total consumer (165) (63) (275) (113) Lease financing (8) (3) (14) (7) ------ ------ ------ ------ Total loan charge-offs (243) (92) (380) (181) ------ ------ ------ ------ Loan recoveries: Commercial (2) 8 6 13 14 Real estate 1-4 family first mortgage 2 1 5 2 Other real estate mortgage 19 7 23 13 Real estate construction 4 -- 5 1 Consumer: Real estate 1-4 family junior lien mortgage 4 1 5 2 Credit card 11 3 16 6 Other revolving credit and monthly payment 15 3 18 5 ------ ------ ------ ------ Total consumer 30 7 39 13 Lease financing 2 1 4 3 ------ ------ ------ ------ Total loan recoveries 65 22 89 46 ------ ------ ------ ------ Total net loan charge-offs (178) (70) (291) (135) ------ ------ ------ ------ BALANCE, END OF PERIOD $2,273 $1,947 $2,273 $1,947 ====== ====== ====== ====== Total net loan charge-offs as a percentage of average loans (annualized) (3) 1.01% .84% 1.10% .78% ------ ------ ------ ------ Allowance as a percentage of total loans (3) 3.22% 5.74% 3.22% 5.74% ====== ====== ====== ====== ===========================================================================================
(1) Charge-offs of loans to real estate developers were $.8 million and $.1 million for the quarters ended June 30, 1996 and June 30, 1995, respectively, and $1.1 million and $.3 million for the six months ended June 30, 1996 and 1995, respectively. (2) Includes recoveries from loans to real estate developers of $.5 million and $1 million for the quarters ended June 30, 1996 and June 30, 1995, respectively, and $1.1 million and $1.4 million for the six months ended June 30, 1996 and June 30, 1995, respectively. (3) Average and total loans exclude first mortgage loans held for sale at June 30, 1995. 34 The table below presents net charge-offs by loan category.
======================================================================================================================== Quarter ended Six Months Ended ------------------------------------ -------------------------------------- JUNE 30, 1996 June 30, 1995 JUNE 30, 1996 June 30, 1995 --------------- ---------------- ---------------- ----------------- % OF % of % OF % of AVERAGE average AVERAGE average (in millions) AMOUNT LOANS(1) Amount loans(1) AMOUNT LOANS(1) Amount loans(1) - ------------------------------------------------------------------------------------------------------------------------ Commercial $ 40 .80% $ 4 .22% $ 48 .65% $ 2 .06% Real estate 1-4 family first mortgage 3 .10 2 .14 4 .10 4 .12 Other real estate mortgage (6) (.20) 5 .24 (7) (.14) 21 .53 Real estate construction -- -- 1 .33 -- -- 3 .61 Consumer: Real estate 1-4 family junior lien mortgage 9 .54 3 .42 12 .50 5 .34 Credit card 90 7.03 43 4.95 171 7.56 78 4.75 Other revolving credit and monthly payment 36 1.59 10 1.65 53 1.82 18 1.53 ---- ---- ---- ---- Total consumer 135 2.58 56 2.44 236 3.07 101 2.27 Lease financing 6 .84 2 .60 10 .88 4 .52 ---- ---- ---- ---- Total net loan charge-offs $178 1.01% $ 70 .84% $291 1.10% $135 .78% ==== ==== ==== ==== ==== ==== ==== ==== ========================================================================================================================
(1) Calculated on an annualized basis. The largest category of net charge-offs in the second quarter and first half of 1996 was credit card loans, comprising more than 50% of total net charge-offs in each period. During 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. As these loans continue to mature, the total amount of credit card charge-offs and the percentage of net charge-offs to average credit card loans is 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. During the second quarter of 1996, the Company's credit policies for certain consumer loans not secured by real estate were modified. The changes were made primarily to align the charge-off policies of the combined Wells Fargo and First Interstate portfolios. The policy changes included extending installment loans and lines of credit charge-offs from 90 to 120 days, or from four to five payment cycles. The impact of this change was a one-time reduction in gross charge-offs of approximately $4 million. Separately, First Interstate's charge-off policies were conformed to Wells Fargo's policies in two areas. The credit card charge-off period was extended from 120 days to 180 days past due before a loan was charged off, which reduced gross charge-offs by approximately $7 million for the second quarter. An offsetting policy change for auto loans and leases conformed the First Interstate charge-off policy of 120 days to the Wells Fargo policy of 90 days and resulted in an increase to charge-offs of approximately $6 million. The Company considers the allowance for loan losses of $2,273 million adequate to cover losses inherent in loans, loan commitments and standby letters of credit at June 30, 1996. The Company's determination of the level of the allowance and, correspondingly, the provision for loan losses rests upon various judgments and assumptions, including general economic conditions, loan portfolio composition, prior loan loss experience and the Company's ongoing examination process and that of its regulators. There was no provision for loan losses in the first 35 half of 1996, or during all of 1995. However, the Company anticipates that it will resume making a provision of up to $40 million in either the third or fourth quarter of 1996. OTHER ASSETS
============================================================================================ JUNE 30, December 31, June 30, (in millions) 1996 1995 1995 - -------------------------------------------------------------------------------------------- Nonmarketable equity investments $ 691 $ 428 $ 412 Net deferred tax asset (1) 551 854 972 Certain identifiable intangible assets 462 220 245 Foreclosed assets 238 186 224 Other 1,570 552 616 ------ ------ ------ Total other assets $3,512 $2,240 $2,469 ====== ====== ====== ============================================================================================
(1) Net of a valuation allowance of none, none and $2 million at June 30, 1996, December 31, 1995 and June 30, 1995, respectively. The Company estimates that approximately $504 million of the $551 million net deferred tax asset at June 30, 1996 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 $47 million primarily relates to approximately $621 million 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. In October 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 second quarter 1996, fourth quarter 1995 and second quarter 1995 were $76 million (including $72 million from First Interstate), $7 million and $53 million, respectively, and no originated mortgage servicing rights were capitalized during the same periods. 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 $16 million, $11 million and $11 million for the quarters ended June 30, 1996, December 31, 1995 and June 30, 1995, respectively. Purchased mortgage servicing rights included in certain identifiable intangible assets were $230 million, $152 million and $169 million at June 30, 1996, December 31, 1995 and June 30, 1995, respectively. Other identifiable intangible assets are generally amortized using an accelerated method, which is based on estimated useful lives ranging from 5 to 15 years. Amortization expense was 36 $25 million, $15 million and $15 million for the quarters ended June 30, 1996, December 31, 1995 and June 30, 1995, respectively. In June 1996, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard No. 125 (FAS 125), Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities. This Statement provides guidance for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. FAS 125 supersedes FAS 76, 77 and 122, while amending both FAS 65 and 115. The Statement is effective January 1, 1997 and is to be applied prospectively. Earlier implementation is not permitted. A transfer of financial assets in which control is surrendered over those assets is accounted for as a sale to the extent that consideration other than beneficial interests in the transferred assets is received in the exchange. Liabilities and derivatives incurred or obtained by the transfer of financial assets are required to be measured at fair value, if practicable. Also, any servicing assets and other retained interests in the transferred assets must be measured by allocating the previous carrying value between the asset sold and the interest retained, if any, based on their relative fair values at the date of transfer. For each servicing contract in existence before January 1, 1997, previously recognized servicing rights and excess servicing receivables that do not exceed contractually specified servicing are required to be combined, net of any previously recognized servicing obligations under that contract, as a servicing asset or liability. Previously recognized servicing receivables that exceed contractually specified servicing fees are required to be reclassified as interest-only strips receivable. The Statement also requires an assessment of interest-only strips, loans, other receivables or retained interests in securitizations. If these assets can be contractually prepaid or otherwise settled such that the holder would not recover substantially all of its recorded investment, the asset will be measured like available-for-sale securities or trading securities, under FAS 115. This assessment is required for financial assets held on or acquired after January 1, 1997. In accordance with the above, the Company will apply the requirements of this Statement beginning January 1, 1997. The Company has not completed the complex analysis required to determine the future impact on its financial statements related to existing financial assets and servicing contracts. 37 DEPOSITS
================================================================================ JUNE 30, December 31, June 30, (in millions) 1996 1995 1995 - -------------------------------------------------------------------------------- Noninterest-bearing $27,535 $10,391 $ 9,600 Interest-bearing checking (1) 6,984 887 4,108 Market rate and other savings (1) 32,302 17,944 15,083 Savings certificates 16,510 8,636 8,235 ------- ------- ------- Core deposits 83,331 37,858 37,026 Other time deposits 472 248 244 Deposits in foreign offices (2) 65 876 1,514 ------- ------- ------- Total deposits $83,868 $38,982 $38,784 ======= ======= ======= ================================================================================
(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 was reclassified to market rate and other savings deposits. (2) Short-term (under 90 days) interest-bearing deposits used to fund short-term borrowing needs. CAPITAL ADEQUACY/RATIOS Risk-based capital (RBC) guidelines issued by the Federal Reserve Board (FRB) establish a risk-adjusted ratio relating capital to different categories of assets and off-balance sheet exposures. The Company's Tier 1 and Tier 2 capital components are presented on the following page. The guidelines require a minimum total RBC ratio of 8%, with at least half of the total capital in the form of Tier 1 capital. To supplement the RBC guidelines, the FRB established a minimum leverage ratio guideline of 3% of Tier 1 capital to average total assets. The decrease in the Company's RBC and leverage ratios at June 30, 1996 compared with December 31, 1995 resulted primarily from an overall increase in risk-weighted assets due to the Merger. 38 The table below presents the Company's risk-based capital and leverage ratios.
========================================================================================= JUNE 30, December 31, June 30, (in billions) 1996 1995 1995 - ----------------------------------------------------------------------------------------- Tier 1: Common stockholders' equity $ 14.2 $ 3.6 $ 3.4 Preferred stock .8 .5 .5 Less goodwill and other deductions (1) (8.7) (.5) (.5) --------- --------- ------- Total Tier 1 capital 6.3 3.6 3.4 --------- --------- ------- Tier 2: Mandatory convertible debt .2 -- .1 Subordinated debt and unsecured senior debt 2.0 1.0 1.0 Allowance for loan losses allowable in Tier 2 1.0 .5 .5 --------- --------- ------- Total Tier 2 capital 3.2 1.5 1.6 --------- --------- ------- Total risk-based capital $ 9.5 $ 5.1 $ 5.0 --------- --------- ------- --------- --------- ------- Risk-weighted balance sheet assets $ 83.3 $ 39.2 $ 38.2 Risk-weighted off-balance sheet items: Commitments to make or purchase loans 4.9 2.7 2.4 Standby letters of credit 2.4 .7 .6 Other .5 .4 .4 --------- --------- ------- Total risk-weighted off-balance sheet items 7.8 3.8 3.4 --------- --------- ------- Goodwill and other deductions (1) (8.8) (.5) (.5) Allowance for loan losses not included in Tier 2 (1.3) (1.3) (1.4) --------- --------- ------- Total risk-weighted assets $ 81.0 $ 41.2 $ 39.7 --------- --------- ------- --------- --------- ------- Risk-based capital ratios: Tier 1 capital (4% minimum requirement) 7.83% 8.81% 8.60% Total capital (8% minimum requirement) 11.77 12.46 12.48 Leverage ratio (3% minimum requirement) (2) 6.37% 7.46% 6.69% =========================================================================================
(1) Other deductions include the unrealized net loss on available-for-sale investment securities 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). 39 Under the Federal Deposit Insurance Corporation Improvement Act of 1991, a "well capitalized" bank must have a Tier 1 RBC ratio of at least 6%, a combined Tier 1 and Tier 2 ratio of at least 10% and a leverage ratio of at least 5%. At June 30, 1996, the Bank had a Tier 1 RBC ratio of 9.90%, a combined Tier 1 and Tier 2 ratio of 13.01% and a leverage ratio of 7.90%. ASSET/LIABILITY MANAGEMENT As is typical in the banking industry, most of the Company's assets and liabilities are sensitive to fluctuation in interest rates. Accordingly, an essential objective of asset/liability management is to control interest rate risk. 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 the two will decline or turn negative if rates increase. The Company refers to this type of risk as "term structure risk." Another source of interest rate risk, "basis risk," results from changing spreads between loan and deposit rates. More difficult to quantify and manage, this type of risk is not highly correlated to changes in the level of interest rates, and is driven by other market conditions. The Company employs various asset/liability strategies, including the use of interest rate derivative products, to ensure that exposure to interest rate fluctuations is limited within Company guidelines of acceptable levels of risk-taking. The Company uses interest rate derivatives as an asset/liability management tool to hedge mismatches in interest rate maturities. For example, futures are used to shorten the rate maturity of market rate savings to better match the maturity of prime-based loans. 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. Generally, an asset sensitive gap indicates that there would be a negative impact on the net interest margin from a decreasing rate environment. At June 30, 1996, the under-one-year cumulative gap was a $985 million (.9% of total assets) net asset position, compared with net liability positions of $258 million (.5% of total assets) at March 31, 1996 and $394 million (.8% of total assets) at December 31, 1995. The shift to a net asset position at June 30, 1996 from a net liability position at March 31, 1996 was due to the inclusion of the First Interstate balance sheet which had a significant net asset position. Two adjustments to the cumulative gap provide comparability with those bank holding companies that present interest rate sensitivity in an alternative manner. However, management does not believe that these adjustments depict its interest rate risk. The first adjustment excludes noninterest-earning assets, noninterest-bearing liabilities and stockholders' equity from the reported cumulative gap. The second adjustment moves interest-bearing checking, savings deposits and Wells Extra Savings (included in market rate savings) from the nonmarket category to the shortest possible maturity category. The second adjustment reflects the availability of the deposits for immediate withdrawal. The resulting adjusted under-one-year cumulative gap (net 40 liability position) was $14.7 billion, $4.7 billion and $8.7 billion at June 30, 1996, March 31, 1996 and December 31, 1995, respectively. The gap analysis provides a useful framework to measure the term structure risk. To more fully explore the complex relationships within the gap over time and interest rate environments, the Company performs simulation modeling to estimate the potential effects of changing interest rates. 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 interest rate 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 in these instruments and does not use them speculatively. The Company offers contracts to its customers, but hedges such contracts by purchasing other financial contracts or uses the contracts for asset/liability management. The contracts 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. The Company also enters into foreign exchange positions, such as forward, spot and option contracts, primarily as customer accommodations. 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, interest rate cap contracts written and foreign exchange option 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 institutions, losses associated with counterparty nonperformance on derivative financial instruments have been immaterial. 41 The following table summarizes the aggregate notional or contractual amounts, credit risk amount and net fair value for the Company's derivative financial instruments at June 30, 1996 and December 31, 1995.
========================================================================================================================== JUNE 30, 1996 December 31, 1995 ---------------------------------------- ----------------------------------------- NOTIONAL OR CREDIT ESTIMATED Notional or Credit Estimated CONTRACTUAL RISK FAIR contractual risk fair (in millions) AMOUNT AMOUNT (3) VALUE amount amount (3) value - -------------------------------------------------------------------------------------------------------------------------- ASSET/LIABILITY MANAGEMENT HEDGES Interest rate contracts: Futures contracts $ 5,534 $ -- $ -- $ 5,372 $ -- $ -- Floors purchased (1) 19,023 64 64 15,522 206 206 Caps purchased (1) 491 5 5 391 1 1 Swap contracts (1) 16,826 105 (161) 6,314 185 175 Foreign exchange contracts: Forward contracts (1) 35 -- -- 25 -- -- CUSTOMER ACCOMMODATIONS Interest rate contracts: Futures contracts 10 -- -- 23 -- -- Floors written 1,865 -- (9) 105 -- (1) Caps written 2,348 -- (7) 1,170 -- (4) Floors purchased (1) 1,863 9 9 105 1 1 Caps purchased (1) 2,256 7 7 1,139 4 4 Swap contracts (1) 2,210 21 5 1,518 5 1 Foreign exchange contracts (2): Forward and spot contracts (1) 1,566 13 3 909 10 1 Option contracts purchased (1) 23 -- -- 29 -- -- Option contracts written 21 -- -- 23 -- -- ==========================================================================================================================
(1) The Company anticipates performance by substantially all of the counterparties for these financial instruments. (2) The Company has immaterial trading positions in these contracts. (3) Credit risk amounts reflect the replacement cost for those contracts in a gain position in the event of nonperformance by counterparties. LIQUIDITY MANAGEMENT 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. A shelf registration statement filed in 1995 with the Securities and Exchange Commission allows the issuance of up to $2.3 billion of senior or subordinated debt or preferred stock. At June 30, 1996, $.8 billion of securities remained unissued. During the third quarter of 1996, the Company issued $.6 billion of senior and subordinated debt under this shelf registration. 42 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 3(ii) By-Laws 4 The Company hereby agrees to furnish upon request to the Commission a copy of each instrument defining the rights of holders of securities of the Company. 11 Computation of Earnings Per Common Share 27 Financial Data Schedule 99(a) Computation of Ratios of Earnings to Fixed Charges -- the ratios of earnings to fixed charges, including interest on deposits, were 2.11 and 2.05 for the quarters ended June 30, 1996 and 1995, respectively, and 2.19 and 2.02 for the six months ended 1996 and 1995, respectively. The ratios of earnings to fixed charges, excluding interest on deposits, were 5.73 and 4.05 for the quarters ended June 30, 1996 and 1995, respectively, and 5.55 and 3.91 for the six months ended June 30, 1996 and 1995, respectively. (b) Computation of Ratios of Earnings to Fixed Charges and Preferred Dividends -- the ratios of earnings to fixed charges and preferred dividends, including interest on deposits, were 2.00 and 1.96 for the quarters ended June 30, 1996 and 1995, respectively, and 2.08 and 1.93 for the six months ended June 30, 1996 and 1995, respectively. The ratios of earnings to fixed charges and preferred dividends, excluding interest on deposits, were 4.58 and 3.57 for the quarters ended June 30, 1996 and 1995, respectively, and 4.59 and 3.46 for the six months ended June 30, 1996 and 1995, respectively. (b) The Company filed the following reports on Form 8-K during the second quarter of 1996 and through the date hereof: (1) April 1, 1996 under Item 5, containing the April 1 Press Release that announced that Wells Fargo & Company had completed its acquisition of First Interstate Bancorp (2) April 5, 1996 under Item 7, containing unaudited pro forma combined financial information of the Company and First Interstate Bancorp for 1995, the Consent of Independent Accountants for First Interstate and audited financial statements of First Interstate Bancorp as of December 31, 1995 and 1994 and for each of the years in the three-year period ended December 31, 1995 43 (3) April 10, 1996 under Items 2 and 7, describing the Company's acquisition of First Interstate Bancorp in accordance with the terms of the Merger Agreement and containing the unaudited pro forma combined financial information of the Company and First Interstate Bancorp for 1995 and audited financial statements of First Interstate Bancorp as of December 31, 1995 and 1994 and for each of the years in the three-year period ended December 31, 1995 (4) April 16, 1996 under Item 5, containing the Press Releases that announced the Company's financial results for the quarter ended March 31, 1996, the Company's share repurchase program and the quarterly common stock dividend (5) July 16, 1996 under Item 5, containing the Press Release that announced the Company's financial results for the quarter ended June 30, 1996 (6) August 9, 1996 under Item 7, containing the unaudited pro forma combined financial information of the Ccmpany and First Interstate Bancorp for the six months ended June 30, 1996 and the year ended December 31, 1996 SIGNATURE --------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on August 14, 1996. WELLS FARGO & COMPANY By: /s/ FRANK A. MOESLEIN -------------------------------------- Frank A. Moeslein Executive Vice President and Controller (Principal Accounting Officer) 44 EX-3.(II) 2 EXHIBIT 3(II) Exhibit 3(ii) - -------------- BY-LAWS OF WELLS FARGO & COMPANY (A DELAWARE CORPORATION), AS AMENDED MAY 10, 1996 ______________ 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 2l, 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 21. 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 -2- 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 -3- 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 -4- 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 the Chairman of the Board, presiding, and not less than seven additional Directors, who shall be 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 -5- 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 & -6- 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. 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 -7- 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. 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 -8- 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 -9- 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. -10- 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 -11- 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 -12- 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 -13- 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. -14- 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 -15- 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. -16- 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 -17- 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. -18- EX-11 3 EXHIBIT 11 EXHIBIT 11 WELLS FARGO & COMPANY AND SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON SHARE
=============================================================================================================== Quarter Six months ended June 30, ended June 30, ------------------- ------------------- (in millions) 1996 1995 1996 1995 - --------------------------------------------------------------------------------------------------------------- PRIMARY EARNINGS PER COMMON SHARE Net income $ 363 $ 232 $ 627 $ 465 Less preferred dividends 19 10 29 21 ------ ------ ------ ------ Net income for calculating primary earnings per common share $ 344 $ 222 $ 598 $ 444 ------ ------ ------ ------ ------ ------ ------ ------ Average common shares outstanding 95.6 49.1 71.3 49.8 ------ ------ ------ ------ PRIMARY EARNINGS PER COMMON SHARE $ 3.61 $ 4.51 $ 8.39 $ 8.92 ------ ------ ------ ------ ------ ------ ------ ------ FULLY DILUTED EARNINGS PER COMMON SHARE (1) Net income $ 363 $ 232 $ 627 $ 465 Less preferred dividends 19 10 29 21 ------ ------ ------ ------ Net income for calculating fully diluted earnings per common share $ 344 $ 222 $ 598 $ 444 ------ ------ ------ ------ ------ ------ ------ ------ Average common shares outstanding 95.6 49.1 71.3 49.8 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 1.8 1.1 1.8 1.1 ------ ------ ------ ------ Average common shares outstanding as adjusted 97.4 50.2 73.1 50.9 ------ ------ ------ ------ ------ ------ ------ ------ FULLY DILUTED EARNINGS PER COMMON SHARE $ 3.54 $ 4.42 $ 8.19 $ 8.73 ------ ------ ------ ------ ------ ------ ------ ------ ===============================================================================================================
(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-27 4 EXHIBIT 27
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 10-Q DATED AUGUST 8, 1996 FOR THE PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL INFORMATION. 1,000,000 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 8,882 0 1,344 0 13,692 0 0 70,541 2,273 108,586 83,868 1,206 3,042 5,230 0 839 475 13,716 108,586 2,494 353 7 2,864 695 888 1,976 0 2 1,844 1,125 627 0 0 627 8.39 8.19 6.08 731 284 11 0 1,794 380 89 2,273 0 0 0
EX-99.(A) 5 EXHIBIT 99(A) EXHIBIT 99(a) WELLS FARGO & COMPANY AND SUBSIDIARIES COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
=============================================================================================================== Quarter Six months ended June 30, ended June 30, ------------------- ------------------- (in millions) 1996 1995 1996 1995 - --------------------------------------------------------------------------------------------------------------- EARNINGS, INCLUDING INTEREST ON DEPOSITS (1): Income before income tax expense $ 662 $ 409 $1,125 $ 779 Fixed charges 594 388 942 764 ------ ----- ------ ------ $1,256 $ 797 $2,067 $1,543 ------ ----- ------ ------ ------ ----- ------ ------ Fixed charges (1): Interest expense $ 558 $ 372 $ 888 $ 732 Estimated interest component of net rental expense 36 16 54 32 ------ ----- ------ ------ $ 594 $ 388 $ 942 $ 764 ------ ----- ------ ------ ------ ----- ------ ------ Ratio of earnings to fixed charges (2) 2.11 2.05 2.19 2.02 ------ ----- ------ ------ ------ ----- ------ ------ EARNINGS, EXCLUDING INTEREST ON DEPOSITS: Income before income tax expense $ 662 $ 409 $1,125 $ 779 Fixed charges 140 134 247 268 ------ ----- ------ ------ $ 802 $ 543 $1,372 $1,047 ------ ----- ------ ------ ------ ----- ------ ------ Fixed charges (1): Interest expense $ 558 $ 372 $ 888 $ 732 Less interest on deposits (454) (254) (695) (496) Estimated interest component of net rental expense 36 16 54 32 ------ ----- ------ ------ $ 140 $ 134 $ 247 $ 268 ------ ----- ------ ------ ------ ----- ------ ------ Ratio of earnings to fixed charges (2) 5.73 4.05 5.55 3.91 ------ ----- ------ ------ ------ ----- ------ ------ ===============================================================================================================
(1) As defined in Item 503(d) of Regulation S-K. (2) These computations are included herein in compliance with Securities and Exchange Commission regulations. However, management believes that fixed charge ratios are not meaningful measures for the business of the Company because of two factors. First, even if there was no change in net income, the ratios would decline with an increase in the proportion of income which is tax-exempt or, conversely, they would increase with a decrease in the proportion of income which is tax-exempt. Second, even if there was no change in net income, the ratios would decline if interest income and interest expense increase by the same amount due to an increase in the level of interest rates or, conversely, they would increase if interest income and interest expense decrease by the same amount due to a decrease in the level of interest rates. EX-99.(B) 6 EXHIBIT 99(B) EXHIBIT 99(b) WELLS FARGO & COMPANY AND SUBSIDIARIES COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS
=============================================================================================================== Quarter Six months ended June 30, ended June 30, ------------------- ------------------- (in millions) 1996 1995 1996 1995 - --------------------------------------------------------------------------------------------------------------- EARNINGS, INCLUDING INTEREST ON DEPOSITS (1): Income before income tax expense $ 662 $ 409 $1,125 $ 779 Fixed charges 594 388 942 764 ------ ----- ------ ------ $1,256 $ 797 $2,067 $1,543 ------ ----- ------ ------ ------ ----- ------ ------ Preferred dividend requirement $ 19 $ 10 $ 29 $ 21 Ratio of income before income tax expense to net income 1.82 1.76 1.79 1.68 ------ ----- ------ ------ Preferred dividends (2) $ 35 $ 18 $ 52 $ 35 ------ ----- ------ ------ Fixed charges (1): Interest expense 558 372 888 732 Estimated interest component of net rental expense 36 16 54 32 ------ ----- ------ ------ 594 388 942 764 ------ ----- ------ ------ Fixed charges and preferred dividends $ 629 $ 406 $ 994 $ 799 ------ ----- ------ ------ ------ ----- ------ ------ Ratio of earnings to fixed charges and preferred dividends (3) 2.00 1.96 2.08 1.93 ------ ----- ------ ------ ------ ----- ------ ------ EARNINGS, EXCLUDING INTEREST ON DEPOSITS: Income before income tax expense $ 662 $ 409 $1,125 $ 779 Fixed charges 140 134 247 268 ------ ----- ------ ------ $ 802 $ 543 $1,372 $1,047 ------ ----- ------ ------ ------ ----- ------ ------ Preferred dividends (2) $ 35 $ 18 $ 52 $ 35 ------ ----- ------ ------ Fixed charges (1): Interest expense 558 372 888 732 Less interest on deposits (454) (254) (695) (496) Estimated interest component of net rental expense 36 16 54 32 ------ ----- ------ ------ 140 134 247 268 ------ ----- ------ ------ Fixed charges and preferred dividends $ 175 $ 152 $ 299 $ 303 ------ ----- ------ ------ ------ ----- ------ ------ Ratio of earnings to fixed charges and preferred dividends (3) 4.58 3.57 4.59 3.46 ------ ----- ------ ------ ------ ----- ------ ------ ===============================================================================================================
(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. -----END PRIVACY-ENHANCED MESSAGE-----