-----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, PvJomdA5I4CRmrFMjZOczLJr0dHDQ6l95ANdQ1GvHRBYSU42nni3/LudNm08I6jk 9O413l02e77ZiV/WAMR8vg== 0001047469-99-010171.txt : 19990318 0001047469-99-010171.hdr.sgml : 19990318 ACCESSION NUMBER: 0001047469-99-010171 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 20 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990317 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WELLS FARGO & CO/MN CENTRAL INDEX KEY: 0000072971 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 410449260 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-02979 FILM NUMBER: 99567422 BUSINESS ADDRESS: STREET 1: 420 MONTGOMERY STREET STREET 2: SIXTH & MARQUETTE CITY: SAN FRANCISCO STATE: CA ZIP: 94163 BUSINESS PHONE: 6126671234 MAIL ADDRESS: STREET 1: NORWEST CENTER STREET 2: SIXTH & MARQUETTE CITY: MINNEAPOLIS STATE: MN ZIP: 55479 FORMER COMPANY: FORMER CONFORMED NAME: NORWEST CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: NORTHWEST BANCORPORATION DATE OF NAME CHANGE: 19830516 10-K405 1 FORM 10-K 405 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------- FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the year ended December 31, 1998 Commission File Number 001-2979 --------------------------- WELLS FARGO & COMPANY (Exact name of registrant as specified in its charter) Delaware No. 41-0449260 (State of incorporation) (I.R.S. Employer Identification No.) 420 Montgomery Street, San Francisco, California 94163 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 1-800-411-4932 Former name of registrant: Norwest Corporation SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Name of Each Exchange Title of Each Class on Which Registered ------------------- ---------------------- Common Stock, par value $1-2/3 New York Stock Exchange Chicago Stock Exchange Preferred Share Purchase Rights New York Stock Exchange Chicago Stock Exchange 6 3/4% Convertible Subordinated Debentures Due 2003 New York Stock Exchange Adjustable Rate Cumulative Preferred Stock, Series B New York Stock Exchange No securities are registered pursuant to Section 12(g) of the Act. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will be not contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of February 26, 1999 (the latest practicable date), 1,653,100,884 shares of common stock were outstanding having an aggregate market value, based on a closing price of $36.75 per share, of $60,751 million. At that date, the aggregate market value of common stock held by non-affiliates was approximately $58,262 million. DOCUMENTS INCORPORATED BY REFERENCE Portions of the 1998 Annual Report to Stockholders - Incorporated into Parts I, II and IV. Portions of the Proxy Statement for the 1999 Annual Meeting of Stockholders - Incorporated into Part III. FORM 10-K CROSS-REFERENCE INDEX
Page(s) -------------------------------------------------- FORM Annual Proxy 10-K Report (1) Statement ---- ------ --------- PART I Item 1. Business Description of Business 2-8 34-96 -- Statistical Disclosure: Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rates and Interest Differential 9,11 38-41 -- Investment Portfolio -- 44-45, 55-56, 63 -- Loan Portfolio 12-17 45-46, 56-57, 64-66 -- Summary of Loan Loss Experience 18-22 47, 57, 65-66 -- Deposits -- 40-41, 47, 68 -- Return on Equity and Assets -- 34-35 -- Short-Term Borrowings -- 68 -- Derivative Financial Instruments 23-24 48, 58, 91-92 -- Item 2. Properties 24-25 67 -- Item 3. Legal Proceedings -- 89 -- Item 4. Submission of Matters to a Vote of Security Holders (in fourth quarter 1998) 25 -- -- PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters -- 50, 62 -- Item 6. Selected Financial Data -- 36 -- Item 7. Management's Discussion and Analysis of Finan- cial Condition and Results of Operations -- 34-50 -- Item 7A. Quantitative and Qualitative Disclosures About Market Risk -- 47-48 -- Item 8. Financial Statements and Supplementary Data 10,11 51-96 -- Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure (2) -- -- -- PART III Item 10. Directors and Executive Officers of the Registrant 26-28 -- (3) Item 11. Executive Compensation -- -- (3) Item 12. Security Ownership of Certain Beneficial Owners and Management -- -- (3) Item 13. Certain Relationships and Related Transactions -- -- (3) PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 29-35 51-96 -- SIGNATURES 36 -- -- - --------------------------------------------------------------------------------------------------------------
(1) The 1998 Annual Report to Stockholders, portions of which are incorporated by reference into this Form 10-K. (2) None. (3) The information required to be submitted in response to this item is incorporated by reference from the Company's definitive Proxy Statement for the 1999 Annual Meeting of Stockholders to be held on April 27, 1999, to be filed with the Securities and Exchange Commission pursuant to Regulation 14(a). 1 DESCRIPTION OF BUSINESS GENERAL Wells Fargo & Company is a diversified financial services company organized under the laws of Delaware and registered under the Bank Holding Company Act (BHC Act) of 1956, as amended. Based on assets as of December 31, 1998, it was the seventh largest bank holding company in the United States. As a diversified financial services organization, Wells Fargo & Company (Parent) owns subsidiaries engaged in banking and a variety of related businesses. Subsidiaries of the Parent provide retail, commercial and corporate banking services through banks located in Arizona, California, Colorado, Idaho, Illinois, Indiana, Iowa, Minnesota, Montana, Nebraska, Nevada, New Mexico, North Dakota, Ohio, Oregon, South Dakota, Texas, Utah, Washington, Wisconsin and Wyoming. Additional financial services are provided to customers by subsidiaries engaged in various businesses; principally wholesale banking, mortgage banking, consumer finance, equipment leasing, agricultural finance, commercial finance, securities brokerage and investment banking, insurance agency services, computer and data processing services, trust services, mortgage-backed securities servicing and venture capital investment. Wells Fargo & Company together with its subsidiaries is referred to in this report as the Company. Its significant subsidiaries are Norwest Bank Minnesota, N.A. and its consolidated subsidiaries and WFC Holdings Corporation and its consolidated subsidiaries, including its principal subsidiary, Wells Fargo Bank, N.A. On November 2, 1998, Norwest Corporation changed its name to "Wells Fargo & Company" upon the merger (the Merger) of the former Wells Fargo & Company (the former Wells Fargo) into a wholly-owned subsidiary of Norwest Corporation. Norwest Corporation as it was before the Merger is referred to as the former Norwest. The Merger was accounted for as a pooling of interests and, accordingly, the information included in this Form 10-K presents the combined results as if the Merger had been in effect for all periods presented. The Parent provides to its subsidiaries various services, including strategic planning, asset and liability management, investment administration and portfolio planning, tax planning, new product and business development, advertising, administration and internal auditing, employee benefits and payroll management. In addition, the Parent provides funds to its subsidiaries. The Parent derives substantially all its income from investments in and advances to its subsidiaries and service fees received from its subsidiaries. The Company has four operating segments for the purpose of management reporting: Community Banking, Wholesale Banking, Mortgage Banking and Norwest Financial. Financial information and narrative descriptions of these operating segments are included in the 1998 Annual Report to Stockholders. 2 HISTORY AND GROWTH The former Norwest provided banking services to customers in 16 states and additional financial services through subsidiaries engaged in a variety of businesses including mortgage banking and consumer finance. The former Wells Fargo's principal subsidiary, Wells Fargo Bank, N.A., continues to be a significant subsidiary of the new Company. The bank was the successor to the banking portion of the business founded by Henry Wells and William G. Fargo in 1852. That business later operated the westernmost leg of the Pony Express and ran stagecoach lines in the western part of the United States. The California banking business was separated from the express business in 1905, and was merged in 1960 with American Trust Company, another of the oldest banks in the Western United States, and became Wells Fargo Bank, N.A., a national banking association, in 1968. The former Wells Fargo acquired First Interstate Bancorp (First Interstate) in April 1996. First Interstate's assets had an approximate book value of $55 billion. The transaction was valued at approximately $11.3 billion and was accounted for as a purchase. The Company expands its business, in part, by acquiring banking institutions and other companies engaged in activities closely related to banking. The Company continues to explore opportunities to acquire banking institutions and other companies permitted by the Bank Holding Company Act. Discussions are continually being carried on related to such acquisitions. It is not presently known whether, or on what terms, such discussions will result in further acquisitions. It is the policy of the Company not to comment on such discussions or possible acquisitions until a definitive agreement with respect thereto has been signed. COMPETITION Legislative and regulatory changes coupled with technological advances have significantly increased competition in the financial services industry. The Company's banking and financial services subsidiaries compete with other financial services providers, such as commercial banks and financial institutions, including savings and loan associations, credit unions, finance companies, mortgage banking companies and mutual funds. In addition, the Company's subsidiaries compete with nonbank institutions such as brokerage houses and insurance companies, as well as financial services subsidiaries of commercial and manufacturing companies. Many of these competitors are not subject to the same regulatory restrictions as banks and bank holding companies. REGULATION AND SUPERVISION The following discussion, together with Notes 3 and 22 to Financial Statements, incorporated by reference herein, sets forth the material elements of the regulatory framework applicable to bank holding companies and their subsidiaries and provides certain specific information relevant to the Company. This regulatory framework is intended primarily for the 3 protection of depositors, federal deposit insurance funds and the banking system as a whole, and not for the protection of security holders. To the extent that the information describes statutory and regulatory provisions, it is qualified in its entirety by reference to those provisions. Further, such statutes, regulations and policies are continually under review by Congress and state legislatures, and federal and state regulatory agencies. A change in statutes, regulations or regulatory policies applicable to the Company or its subsidiaries could have a material effect on the business of the Company. This regulatory environment, among other things, may restrict the Company's ability to diversify into certain areas of financial services, acquire depository institutions in certain states, and pay dividends on the Company's capital stock. It may also require the Company to provide financial support to one or more of its banking subsidiaries, maintain capital balances in excess of those desired by management, and pay higher deposit insurance premiums as a result of the deterioration in the financial condition of depository institutions in general. GENERAL PARENT BANK HOLDING COMPANY. As a bank holding company, the Company is subject to regulation under the BHC Act and to inspection, examination and supervision by the Federal Reserve Board (FRB). SUBSIDIARY BANKS. The Company's national subsidiary banks are subject to regulation and examination primarily by the Office of the Comptroller of the Currency (OCC) and secondarily by the Federal Deposit Insurance Corporation (FDIC) and the FRB. The Company's state-chartered banks are subject to primary federal regulation and examination by the FDIC or the FRB and, in addition, are regulated and examined by their respective state banking departments. NONBANKING SUBSIDIARIES. Many of the Company's nonbank subsidiaries are also subject to regulation by the FRB and other applicable federal and state agencies. The Company's brokerage subsidiaries are regulated by the Securities and Exchange Commission (SEC), the National Association of Securities Dealers, Inc. and state securities regulators. The Company's insurance subsidiaries are subject to regulation by applicable state insurance regulatory agencies. Other nonbanking subsidiaries of the Company are subject to the laws and regulations of both the federal government and the various states in which they conduct business. PARENT BANK HOLDING COMPANY ACTIVITIES BANKING-RELATED REQUIREMENT. Under the BHC Act, bank holding companies generally may not acquire the beneficial ownership or control of more than 5% of the voting shares or substantially all the assets of any company, including a bank, without the FRB's prior approval. Also, bank holding companies generally may engage, 4 directly or indirectly, only in banking and such other activities as are determined by the FRB to be closely related to banking. INTERSTATE BANKING. Under the Riegle-Neal Interstate Banking and Branching Act (Riegle-Neal Act), which became effective on September 29, 1995, a bank holding company may acquire banks in states other than its home state, subject to any state requirement that the bank has been organized and operating for a minimum period of time, not to exceed five years, and the requirement that the bank holding company not control, prior to or following the proposed acquisition, more than 10% of the total amount of deposits of insured depository institutions nationwide or, unless the acquisition is the bank holding company's initial entry into the state, more than 30% of such deposits in the state (or such lesser or greater amount set by the state). The Riegle-Neal Act also authorizes banks to merge across state lines beginning June 1, 1997, thereby creating interstate branches. States may opt out of the Riegle-Neal Act and thereby prohibit interstate mergers in the state. The Company will be unable to consolidate its banking operations in one state with those of another state if either state in question has opted out of the Riegle-Neal Act. The state of Montana has opted out until at least the year 2001. REGULATORY APPROVAL. In determining whether to approve a proposed bank acquisition, federal bank regulators will consider, among other factors, the effect of the acquisition on competition, the public benefits expected to be received from the acquisition, the projected capital ratios and levels on a post-acquisition basis, and the acquiring institution's record of addressing the credit needs of the communities it serves, including the needs of low and moderate income neighborhoods, consistent with the safe and sound operation of the bank, under the Community Reinvestment Act of 1977, as amended. DIVIDEND RESTRICTIONS Wells Fargo & Company is a legal entity separate and distinct from its subsidiary banks and other subsidiaries. Its principal source of funds to pay dividends on its common and preferred stock and debt service on its debt is dividends from its subsidiaries. Various federal and state statutory provisions and regulations limit the amount of dividends the Company's subsidiary banks and certain other subsidiaries may pay without regulatory approval. For information about the restrictions applicable to the Company's subsidiary banks, see Note 3 to Financial Statements, incorporated by reference herein. Federal bank regulatory agencies have the authority to prohibit the Company's subsidiary banks from engaging in unsafe or unsound practices in conducting their businesses. The payment of dividends, depending on the financial condition of the bank in question, could be deemed an unsafe or unsound practice. The ability of the Company's subsidiary banks to pay dividends in the future is currently, and could be further, influenced by bank regulatory policies and capital guidelines. 5 HOLDING COMPANY STRUCTURE TRANSFER OF FUNDS FROM SUBSIDIARY BANKS. The Company's subsidiary banks are subject to restrictions under federal law that limit the transfer of funds or other items of value from such subsidiaries to the Parent and its nonbanking subsidiaries (including affiliates) in so-called "covered transactions." In general, covered transactions include loans and other extensions of credit, investments and asset purchases, as well as other transactions involving the transfer of value from a subsidiary bank to an affiliate or for the benefit of an affiliate. Unless an exemption applies, covered transactions by a subsidiary bank with a single affiliate are limited to 10% of the subsidiary bank's capital and surplus and, with respect to all covered transactions with affiliates in the aggregate, to 20% of the subsidiary bank's capital and surplus. Also, loans and extensions of credit to affiliates generally are required to be secured in specified amounts. SOURCE OF STRENGTH DOCTRINE. The FRB has a policy that a bank holding company is expected to act as a source of financial and managerial strength to each of its subsidiary banks and, under appropriate circumstances, to commit resources to support each such subsidiary bank. This support may be required at times when the bank holding company may not have the resources to provide it. Capital loans by a bank holding company to any of its subsidiary banks are subordinate in right of payment to deposits and certain other indebtedness of the subsidiary bank. In addition, in the event of a bank holding company's bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a priority of payment. DEPOSITOR PREFERENCE. The Federal Deposit Insurance Act (the FDI Act) provides that, in the event of the "liquidation or other resolution" of an insured depository institution, the claims of depositors of the institution (including the claims of the FDIC as subrogee of insured depositors) and certain claims for administrative expenses of the FDIC as a receiver will have priority over other general unsecured claims against the institution. If an insured depository institution fails, insured and uninsured depositors, along with the FDIC, will have priority in payment ahead of unsecured, nondeposit creditors, including the institution's parent holding company. LIABILITY OF COMMONLY CONTROLLED INSTITUTIONS. Under the FDI Act, an insured depository institution is generally liable for any loss incurred, or reasonably expected to be incurred, by the FDIC in connection with (a) the default of a commonly controlled insured depository institution or (b) any assistance provided by the FDIC to a commonly controlled insured depository institution in danger of default. "Default" is defined generally as the appointment of a conservator or receiver and "in danger of default" is defined generally as the existence of certain conditions indicating that a default is likely to occur in the absence of regulatory assistance. CAPITAL REQUIREMENTS The Company is subject to risk-based capital requirements and guidelines imposed by the FRB, which are substantially similar to the capital requirements and guidelines 6 imposed by the FRB, the OCC and the FDIC on depository institutions within their respective jurisdictions. For information about these capital requirements and guidelines, see Note 22 to Financial Statements, incorporated by reference herein. The FRB's capital guidelines provide that banking organizations experiencing internal growth or making acquisitions are expected to maintain strong capital positions substantially above the minimum supervisory levels, without significant reliance on intangible assets. Also, the guidelines indicate that the FRB will consider a "tangible Tier 1 leverage ratio" in evaluating proposals for expansion or new activities. The tangible Tier 1 leverage ratio is the ratio of a banking organization's Tier 1 capital (excluding intangibles) to total assets (excluding intangibles). The FRB, the FDIC and the OCC have adopted rules to incorporate market and interest rate risk components into their risk-based capital standards. Amendments to the risk-based capital requirements, incorporating market risk, became effective January 1, 1998. Under the new market risk requirements, capital will be allocated to support the amount of market risk related to a financial institution's ongoing trading activities. As an additional means to identify problems in the financial management of depository institutions, the FDI Act requires federal bank regulatory agencies to establish certain non-capital safety and soundness standards for institutions for which they are the primary federal regulator. The standards relate generally to operations and management, asset quality, interest rate exposure and executive compensation. The agencies are authorized to take action against institutions that fail to meet such standards. The FDI Act requires federal bank regulatory agencies to take "prompt corrective action" with respect to FDIC-insured depository institutions that do not meet minimum capital requirements. A depository institution's treatment for purposes of the prompt corrective action provisions will depend upon how its capital levels compare to various capital measures and certain other factors, as established by regulation. FDIC INSURANCE Through the Bank Insurance Fund (BIF), the FDIC insures the deposits of the Company's depository institution subsidiaries up to prescribed per depositor limits. The amount of FDIC assessments paid by each BIF member institution is based on its relative risk of default as measured by regulatory capital ratios and other factors. Specifically, the assessment rate is based on the institution's capitalization risk category and supervisory subgroup category. An institution's capitalization risk category is based on the FDIC's determination of whether the institution is well capitalized, adequately capitalized or less than adequately capitalized. An institution's supervisory subgroup category is based on the FDIC's assessment of the financial condition of the institution and the probability that FDIC intervention or other corrective action will be required. 7 The BIF assessment rate currently ranges from zero to 27 cents per $100 of domestic deposits. The FDIC may increase or decrease the assessment rate schedule on a semiannual basis. An increase in the BIF assessment rate could have a material adverse effect on the Company's earnings, depending on the amount of the increase. The FDIC is authorized to terminate a depository institution's deposit insurance upon a finding by the FDIC that the institution's financial condition is unsafe or unsound or that the institution has engaged in unsafe or unsound practices or has violated any applicable rule, regulation, order or condition enacted or imposed by the institution's regulatory agency. The termination of deposit insurance for one or more of the Company's subsidiary depository institutions could have a material adverse effect on the Company's earnings, depending on the collective size of the particular institutions involved. All FDIC-insured depository institutions must pay an annual assessment to provide funds for the payment of interest on bonds issued by the Financing Corporation, a federal corporation chartered under the authority of the Federal Housing Finance Board. The bonds (commonly referred to as FICO bonds) were issued to capitalize the Federal Savings and Loan Insurance Corporation. FDIC-insured depository institutions paid approximately 1.2 cents per $100 of BIF-assessable deposits in 1998, and will continue to pay as assessed until the earlier of December 31, 1999 or the date the last savings and loan association ceases to exist. FISCAL AND MONETARY POLICIES The Company's business and earnings are affected significantly by the fiscal and monetary policies of the federal government and its agencies. The Company is particularly affected by the policies of the FRB, which regulates the supply of money and credit in the United States. Among the instruments of monetary policy available to the FRB are (a) conducting open market operations in United States government securities, (b) changing the discount rates of borrowings of depository institutions, (c) imposing or changing reserve requirements against depository institutions' deposits, and (d) imposing or changing reserve requirements against certain borrowing by banks and their affiliates. These methods are used in varying degrees and combinations to directly affect the availability of bank loans and deposits, as well as the interest rates charged on loans and paid on deposits. For that reason alone, the policies of the FRB have a material effect on the earnings of the Company. 8 ANALYSIS OF CHANGES IN NET INTEREST INCOME The following table allocates the changes in net interest income on a taxable-equivalent basis to changes in either average balances or average rates for both interest-earning assets and interest-bearing liabilities. Because of the numerous simultaneous volume and rate changes during any period, it is not possible to precisely allocate such changes between volume and rate. For this table, changes that are not solely due to either volume or rate are allocated to these categories in proportion to the percentage changes in average volume and average rate.
- ------------------------------------------------------------------------------------------------------------------------ Year ended December 31, -------------------------------------------------------- 1998 OVER 1997 1997 over 1996 -------------------------- -------------------------- (in millions) VOLUME RATE TOTAL Volume Rate Total - ------------------------------------------------------------------------------------------------------------------------ Increase (decrease) in interest income: Federal funds sold and securities purchased under resale agreements $ 29 $ 2 $ 31 $(25) $ (1) $(26) Securities available for sale: Securities of U.S. Treasury and federal agencies (13) (12) (25) 83 8 91 Securities of U.S. states and political subdivisions 12 -- 12 37 (4) 33 Mortgage-backed securities: Federal agencies (199) (17) (216) (30) 23 (7) Private collateralized mortgage obligations (14) (2) (16) 11 8 19 Other securities 29 7 36 (7) (3) (10) Loans held for sale 75 (16) 59 25 (41) (16) Mortgages held for sale 433 (25) 408 (11) (28) (39) Loans: Commercial 299 (76) 223 220 8 228 Real estate 1-4 family first mortgage (154) 28 (126) 25 15 40 Other real estate mortgage 5 (34) (29) 55 59 114 Real estate construction 29 (18) 11 36 (10) 26 Consumer: Real estate 1-4 family junior lien mortgage (1) (45) (46) 80 25 105 Credit card (96) 28 (68) 23 (34) (11) Other revolving credit and monthly payment (56) 60 4 55 28 83 Lease financing 109 (7) 102 79 8 87 Foreign 58 7 65 19 (2) 17 Other 33 (1) 32 33 7 40 ----- ----- ----- ----- ----- ----- Total increase (decrease) in interest income 578 (121) 457 708 66 774 ----- ----- ----- ----- ----- ----- Increase (decrease) in interest expense: Deposits: Interest-bearing checking (12) (11) (23) (59) 16 (43) Market rate and other savings 43 10 53 161 (46) 115 Savings certificates (44) (14) (58) 89 27 116 Other time deposits 19 (6) 13 26 (4) 22 Deposits in foreign offices (23) -- (23) 27 1 28 Short-term borrowings 167 -- 167 35 13 48 Long-term debt 18 (14) 4 (72) 25 (47) Guaranteed preferred beneficial interests in Company's subordinated debentures (23) 3 (20) 95 -- 95 ----- ----- ----- ----- ----- ----- Total increase (decrease) in interest expense 145 (32) 113 302 32 334 ----- ----- ----- ----- ----- ----- Increase (decrease) in net interest income on a taxable-equivalent basis $ 433 $ (89) $ 344 $406 $ 34 $440 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- - ------------------------------------------------------------------------------------------------------------------------
9 SUPPLEMENTARY FINANCIAL DATA - QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The following condensed, consolidated statement of income presents the Company's results of operations for the eight quarters ended December 31, 1998. This information should be read in conjunction with the Financial Review and the Financial Statements contained in the 1998 Annual Report to Stockholders.
- ------------------------------------------------------------------------------------------------------ 1998 QUARTER ENDED ----------------------------------------------------- (in millions, except per share amounts) DEC. 31 SEPT. 30(1) JUNE 30(1) MAR. 31(1) - ------------------------------------------------------------------------------------------------------ INTEREST INCOME $ 3,598 $ 3,528 $ 3,490 $ 3,439 INTEREST EXPENSE 1,297 1,265 1,258 1,245 -------- -------- -------- -------- NET INTEREST INCOME 2,301 2,263 2,232 2,194 Provision for loan losses 624 307 309 305 -------- -------- -------- -------- Net interest income after provision for loan losses 1,677 1,956 1,923 1,889 -------- -------- -------- -------- NONINTEREST INCOME Service charges on deposit accounts 364 356 332 305 Trust and investment fees and commissions 274 267 269 259 Credit card fee revenue 136 136 128 121 Other fees and commissions 252 241 232 221 Mortgage banking 252 275 303 276 Insurance 70 73 111 95 Net venture capital gains (losses) (4) 4 53 59 Net gains on securities available for sale 8 76 66 19 Other 205 193 221 178 -------- -------- -------- -------- Total noninterest income 1,557 1,621 1,715 1,533 -------- -------- -------- -------- NONINTEREST EXPENSE Salaries and benefits 1,292 1,061 1,055 1,007 Equipment 328 192 196 184 Net occupancy 200 188 187 189 Goodwill 104 108 104 104 Core deposit intangible 60 58 61 63 Net losses on dispositions of premises and equipment 270 7 41 7 Operating losses 46 35 33 39 Other 1,182 698 775 703 -------- -------- -------- -------- Total noninterest expense 3,482 2,347 2,452 2,296 -------- -------- -------- -------- INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT) (248) 1,230 1,186 1,126 Income tax expense (benefit) (54) 488 467 442 -------- -------- -------- -------- NET INCOME (LOSS) $ (194) $ 742 $ 719 $ 684 -------- -------- -------- -------- -------- -------- -------- -------- NET INCOME (LOSS) APPLICABLE TO COMMON STOCK $ (203) $ 733 $ 710 $ 676 -------- -------- -------- -------- -------- -------- -------- -------- EARNINGS (LOSS) PER COMMON SHARE $ (.12) $ .45 $ .44 $ .42 -------- -------- -------- -------- -------- -------- -------- -------- DILUTED EARNINGS (LOSS) PER COMMON SHARE $ (.12) $ .45 $ .43 $ .41 -------- -------- -------- -------- -------- -------- -------- -------- DIVIDENDS DECLARED PER COMMON SHARE $ .185 $ .185 $ .165 $ .165 -------- -------- -------- -------- -------- -------- -------- -------- Average common shares outstanding 1,642.4 1,617.3 1,610.3 1,615.7 -------- -------- -------- -------- -------- -------- -------- -------- Diluted average common shares outstanding 1,642.4 1,640.7 1,632.2 1,639.1 -------- -------- -------- -------- -------- -------- -------- --------
1997 Quarter ended ------------------------------------------------------ (in millions, except per share amounts) Dec. 31(1) Sept. 30(1) June 30(1) Mar. 31(1) - ----------------------------------------------------------------------------------------------------- INTEREST INCOME $ 3,445 $ 3,400 $ 3,377 $ 3,380 INTEREST EXPENSE 1,263 1,251 1,230 1,210 -------- -------- -------- -------- NET INTEREST INCOME 2,182 2,149 2,147 2,170 Provision for loan losses 343 320 263 214 -------- -------- -------- -------- Net interest income after provision for loan losses 1,839 1,829 1,884 1,956 -------- -------- -------- -------- NONINTEREST INCOME Service charges on deposit accounts 315 311 308 310 Trust and investment fees and commissions 244 247 235 228 Credit card fee revenue 126 119 107 96 Other fees and commissions 213 214 206 193 Mortgage banking 258 254 188 226 Insurance 72 74 100 90 Net venture capital gains (losses) 26 53 93 19 Net gains on securities available for sale 50 22 22 5 Other 175 133 169 173 -------- -------- -------- -------- Total noninterest income 1,479 1,427 1,428 1,340 -------- -------- -------- -------- NONINTEREST EXPENSE Salaries and benefits 979 958 933 940 Equipment 195 181 187 176 Net occupancy 181 179 176 183 Goodwill 112 103 113 105 Core deposit intangible 67 68 71 67 Net losses on dispositions of premises and equipment 19 11 7 39 Operating losses 72 62 190 50 Other 633 634 686 612 -------- -------- -------- -------- Total noninterest expense 2,258 2,196 2,363 2,172 -------- -------- -------- -------- INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT) 1,060 1,060 949 1,124 Income tax expense (benefit) 410 430 392 462 -------- -------- -------- -------- NET INCOME (LOSS) $ 650 $ 630 $ 557 $ 662 -------- -------- -------- -------- -------- -------- -------- -------- NET INCOME (LOSS) APPLICABLE TO COMMON STOCK $ 640 $ 619 $ 546 $ 650 -------- -------- -------- -------- -------- -------- -------- -------- EARNINGS (LOSS) PER COMMON SHARE $ .40 $ .38 $ .33 $ .39 -------- -------- -------- -------- -------- -------- -------- -------- DILUTED EARNINGS (LOSS) PER COMMON SHARE $ .39 $ .38 $ .33 $ .39 -------- -------- -------- -------- -------- -------- -------- -------- DIVIDENDS DECLARED PER COMMON SHARE $ .165 $ .15 $ .15 $ .15 -------- -------- -------- -------- -------- -------- -------- -------- Average common shares outstanding 1,621.1 1,623.6 1,639.1 1,654.8 -------- -------- -------- -------- -------- -------- -------- -------- Diluted average common shares outstanding 1,641.9 1,646.4 1,663.1 1,679.7 -------- -------- -------- -------- -------- -------- -------- -------- - -----------------------------------------------------------------------------------------------------
(1)Amounts have been restated to reflect the pooling-of-interests accounting treatment of the Merger. The restated amounts include adjustments to conform the accounting policies of the former Norwest and the former Wells Fargo. In noninterest expense, salaries and benefits decreased by $2 million in each of the quarters that preceded the fourth quarter of 1998 to conform the accounting treatment for the postretirement transition obligation identified with the implementation of FAS 106, Employers' Accounting for Postretirement Benefits Other than Pensions. Additionally, equipment expense increased $2 million for the quarter ended June 30, 1998 and $6 million, $4 million, $6 million and $2 million for the quarters ended December 31, 1997, September 30, 1997, June 30, 1997 and March 31, 1997, respectively. 10
AVERAGE BALANCES, YIELDS AND RATES PAID (TAXABLE-EQUIVALENT BASIS)--QUARTERLY (1)(2) - --------------------------------------------------------------------------------------------------------------------------------- Quarter ended December 31, ------------------------------------------------------------------------ 1998 1997 ----------------------------------- --------------------------------- 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 $ 2,011 5.25% $ 27 $ 909 5.42% $ 12 Securities available for sale (3): Securities of U.S. Treasury and federal agencies 3,722 5.82 54 3,906 6.13 60 Securities of U.S. states and political subdivisions 1,539 8.41 31 1,513 8.38 31 Mortgage-backed securities: Federal agencies 20,283 6.85 341 18,874 7.15 331 Private collateralized mortgage obligations 3,433 6.66 57 2,706 6.82 46 -------- ------ -------- ------ Total mortgage-backed securities 23,716 6.82 398 21,580 7.11 377 Other securities 2,738 5.86 43 1,331 4.80 17 -------- ------ -------- ------ Total securities available for sale 31,715 6.71 526 28,330 6.92 485 Loans held for sale (3) 5,099 7.63 97 4,078 8.08 82 Mortgages held for sale (3) 16,995 6.82 290 8,281 7.21 149 Loans: Commercial 34,631 8.62 751 30,640 9.14 705 Real estate 1-4 family first mortgage 12,941 8.92 289 15,102 8.86 340 Other real estate mortgage 16,305 8.89 365 16,204 9.36 382 Real estate construction 3,779 9.12 87 3,366 9.64 82 Consumer: Real estate 1-4 family junior lien mortgage 10,125 8.73 224 9,990 9.56 227 Credit card 5,644 14.67 207 6,542 14.66 240 Other revolving credit and monthly payment 16,284 12.69 518 17,414 12.76 557 -------- ------ -------- ------ Total consumer 32,053 12.33 949 33,946 12.54 1,024 Lease financing 6,177 8.02 124 4,782 8.43 101 Foreign 1,438 21.18 76 1,015 20.94 53 -------- ------ -------- ------ Total loans (4) 107,324 9.80 2,641 105,055 10.19 2,687 Other 2,353 5.27 31 2,666 6.18 41 -------- ------ -------- ------ Total earning assets $165,497 8.72 3,612 $149,319 9.25 3,456 -------- ------ -------- ------ -------- -------- FUNDING SOURCES Deposits: Interest-bearing checking $ 2,181 0.94 5 $ 2,172 2.02 11 Market rate and other savings 54,653 2.49 343 50,991 2.61 336 Savings certificates 27,673 5.11 357 28,351 5.34 381 Other time deposits 3,911 5.39 53 3,955 5.66 56 Deposits in foreign offices 1,130 4.69 13 866 4.50 10 -------- ------ -------- ------ Total interest-bearing deposits 89,548 3.42 771 86,335 3.65 794 Short-term borrowings 17,075 5.09 219 11,757 5.47 162 Long-term debt 19,143 6.09 292 17,465 6.41 280 Guaranteed preferred beneficial interests in Company's subordinated debentures 774 7.65 15 1,298 7.81 25 -------- ------ -------- ------ Total interest-bearing liabilities 126,540 4.07 1,297 116,855 4.29 1,261 Portion of noninterest-bearing funding sources 38,957 -- -- 32,464 -- -- -------- ------ -------- ------ Total funding sources $165,497 3.12 1,297 $149,319 3.37 1,261 -------- ------ -------- ------ -------- -------- NET INTEREST MARGIN AND NET INTEREST INCOME ON A TAXABLE-EQUIVALENT BASIS (5) 5.60% $2,315 5.88% $2,195 ----- ------ ----- ------ ----- ------ ----- ------ NONINTEREST-EARNING ASSETS Cash and due from banks $ 11,086 $ 10,852 Goodwill 7,709 8,123 Other 13,480 12,949 -------- -------- Total noninterest-earning assets $ 32,275 $ 31,924 -------- -------- -------- -------- NONINTEREST-BEARING FUNDING SOURCES Deposits $ 43,303 $ 38,127 Other liabilities 7,197 6,440 Preferred stockholders' equity 463 463 Common stockholders' equity 20,269 19,358 Noninterest-bearing funding sources used to fund earning assets (38,957) (32,464) -------- -------- Net noninterest-bearing funding sources $ 32,275 $ 31,924 -------- -------- -------- -------- TOTAL ASSETS $197,772 $181,243 -------- -------- -------- -------- - ---------------------------------------------------------------------------------------------------------------------------------
(1) The average prime rate of the Company was 7.92% and 8.50% for the quarters ended December 31, 1998 and 1997, respectively. The average three-month London Interbank Offered Rate (LIBOR) was 5.28% and 5.84% for the same quarters, respectively. (2) Interest rates and amounts include the effects of hedge and risk management activities associated with the respective asset and liability categories. (3) Yields are based on amortized cost balances. (4) Nonaccrual loans and related income are included in their respective loan categories. (5) Includes taxable-equivalent adjustments that primarily relate to income on certain loans and securities that is exempt from federal and applicable state income taxes. The federal statutory tax rate was 35% for all periods presented. 11 LOAN PORTFOLIO The following table presents the remaining contractual principal maturities of selected loan categories at December 31, 1998 and a summary of the major categories of loans outstanding at the end of the last five years. At December 31, 1998, the Company did not have loan concentrations that exceeded 10% of total loans, except as shown below.
- ------------------------------------------------------------------------------------------------------------------ DECEMBER 31, 1998 ------------------------------------------------------------------------------ OVER ONE YEAR THROUGH FIVE YEARS OVER FIVE YEARS ------------------ --------------- FLOATING FLOATING OR OR ONE YEAR FIXED ADJUSTABLE FIXED ADJUSTABLE (in millions) OR LESS RATE RATE RATE RATE TOTAL - ------------------------------------------------------------------------------------------------------------------ Selected loan maturities: Commercial $20,037 $3,072 $10,124 $ 352 $1,865 $ 35,450 Real estate 1-4 family first mortgage 2,848 747 418 3,889 3,727 11,629 Other real estate mortgage 2,905 2,585 4,019 3,926 3,233 16,668 Real estate construction 2,165 193 1,124 145 163 3,790 Foreign 695 752 98 45 19 1,609 ------- ------ ------- ------ ------ -------- Total selected loan maturities $28,650 $7,349 $15,783 $8,357 $9,007 69,146 ------- ------ ------- ------ ------ -------- ------- ------ ------- ------ ------ Other loan categories: Consumer: Real estate 1-4 family junior lien mortgage 10,996 Credit card 5,795 Other revolving credit and monthly payment 15,677 -------- Total consumer 32,468 Lease financing 6,380 -------- Total loans $107,994 -------- --------
- --------------------------------------------------------------------------------------- December 31, -------------------------------------------------- (in millions) 1997 1996 1995 1994 - --------------------------------------------------------------------------------------- Selected loan maturities: Commercial $ 32,061 $ 30,794 $20,127 $16,550 Real estate 1-4 family first mortgage 14,165 16,051 8,799 14,335 Other real estate mortgage 16,326 16,419 11,857 10,616 Real estate construction 3,326 3,247 2,108 1,581 Foreign 1,155 1,132 932 643 -------- -------- ------- ------- Total selected loan maturities 67,033 67,643 43,823 43,725 -------- -------- ------- ------- Other loan categories: Consumer: Real estate 1-4 family junior lien mortgage 10,618 10,357 6,970 6,433 Credit card 6,671 7,028 5,667 5,636 Other revolving credit and monthly payment 17,021 16,916 11,715 8,686 -------- -------- ------- ------- Total consumer 34,310 34,301 24,352 20,755 Lease financing 4,968 3,816 2,605 2,095 -------- -------- ------- ------- Total loans $106,311 $105,760 $70,780 $66,575 -------- -------- ------- ------- -------- -------- ------- ------- - ---------------------------------------------------------------------------------------
The table at the top of the following page summarizes other real estate loans by state and property type. The table at the bottom of the following page summarizes real estate construction loans by state and project type. 12 REAL ESTATE MORTGAGE LOANS BY STATE AND TYPE (excluding 1-4 family first mortgages)
- ----------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------- California Texas Minnesota Nevada ------------------- ----------------- ----------------- ----------------- Total Non- Total Non- Total Non- Total Non- (in millions) loans accrual loans accrual loans accrual loans accrual - ----------------------------------------------------------------------------------------------------------------------- Office buildings $ 2,032 $ 19 $ 218 $ -- $ 76 $ -- $ 117 $ -- Retail buildings 1,191 35 229 3 220 1 64 -- Industrial 1,564 8 246 2 269 1 102 -- Hotels/motels 278 2 251 2 49 -- 408 9 Apartments 620 7 123 -- 102 -- 108 -- Institutional 654 9 67 3 -- -- 33 -- Agricultural 274 8 50 1 64 2 -- -- Land 184 1 87 -- 27 -- 13 -- 1-4 family structures (1) 3 -- 66 -- 43 -- 1 -- Other 123 1 137 3 90 1 52 -- ------- ---- ------- ---- ----- --- ----- ---- Total by state $ 6,923 $ 90 $ 1,474 $ 14 $ 940 $ 5 $ 898 $ 9 ------- ---- ------- ---- ----- --- ----- ---- ------- ---- ------- ---- ----- --- ----- ---- % of total loans 41% 9% 6% 5% ------- ------- ----- ----- ------- ------- ----- ----- Nonaccruals as a % of total by state 1% 1% 1% 1% ---- ---- --- ---- ---- ---- --- ---- - -----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------- December 31, 1998 - ----------------------------------------------------------------------------------------------- Other Non- states (2) All states accruals ------------------- -------------------- as a % Total Non- Total Non- of total (in millions) loans accrual loans accrual by type - ----------------------------------------------------------------------------------------------- Office buildings $ 1,162 $ 3 $ 3,605 $ 22 1% Retail buildings 1,675 46 3,379 85 3 Industrial 773 3 2,954 14 -- Hotels/motels 700 15 1,686 28 2 Apartments 567 3 1,520 10 1 Institutional 354 4 1,108 16 1 Agricultural 510 7 898 18 2 Land 180 -- 491 1 -- 1-4 family structures (1) 155 1 268 1 -- Other 357 3 759 8 1 ------- ---- -------- ----- Total by state $ 6,433 $ 85 $ 16,668 $ 203 1% ------- ---- -------- ----- -- ------- ---- -------- ----- -- % of total loans 39% 100% ------- -------- ------- -------- Nonaccruals as a % of total by state 1% ---- ---- - -----------------------------------------------------------------------------------------------------------
(1) Represents loans to real estate developers secured by 1-4 family residential developments. (2) Consists of 36 states; no state had loans in excess of $813 million at December 31, 1998. REAL ESTATE CONSTRUCTION LOANS BY STATE AND TYPE
- ----------------------------------------------------------------------------------------------------------- California Arizona Texas Colorado ---------------- ---------------- ---------------- ---------------- Total Non- Total Non- Total Non- Total Non- (in millions) loans accrual loans accrual loans accrual loans accrual - ----------------------------------------------------------------------------------------------------------- Retail buildings $ 116 $ 1 $ 77 $ -- $ 27 $-- $ 19 $ -- 1-4 family: Land 151 -- 1 -- 6 -- 17 -- Structures 160 3 102 1 117 1 99 1 Land (excluding 1-4 family) 139 -- 37 -- 35 2 17 -- Apartments 134 4 83 -- 49 -- 37 -- Office buildings 140 -- 40 -- 30 -- 27 -- Industrial 152 2 27 -- 16 -- 40 -- Hotels/motels 53 -- 8 -- 7 -- 19 -- Institutional 51 -- 10 -- 31 -- 20 -- Agricultural 4 -- 2 -- 1 -- -- -- Other 123 -- 11 -- 12 1 13 -- ------ --- ---- -- ---- -- ---- -- Total by state $1,223 $10 $398 $1 $331 $4 $308 $1 ------ --- ---- -- ---- -- ---- -- ------ --- ---- -- ---- -- ---- -- % of total loans 32% 11% 9% 8% ------ ---- ---- ---- ------ ---- ---- ---- Nonaccruals as a % of total by state 1% --% 1% --% --- -- -- -- --- -- -- -- - -----------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------- December 31, 1998 -------------------------------------------------- Other Non- states(1) All states accruals ---------------- ---------------- as a% Total Non- Total Non- of total (in millions) loans accrual loans accrual by type - --------------------------------------------------------------------------- Retail buildings $ 180 $ -- $ 419 $ 1 --% 1-4 family: Land 73 -- 248 -- -- Structures 260 1 738 7 1 Land (excluding 1-4 family) 253 -- 481 2 -- Apartments 105 -- 408 4 1 Office buildings 141 -- 378 -- -- Industrial 90 -- 325 2 1 Hotels/motels 116 -- 203 -- -- Institutional 63 -- 175 -- -- Agricultural 5 -- 12 -- -- Other 244 -- 403 1 -- ------ -- ------ --- Total by state $1,530 $1 $3,790 $17 --% ------ -- ------ --- -- ------ -- ------ --- -- % of total loans 40% 100% ------- ------ ------- ------ Nonaccruals as a % of total by state --% -- -- - ---------------------------------------------------------------------------
(1) Consists of 30 states; no state had loans in excess of $282 million at ` December 31, 1998. 13 UNDERWRITING POLICIES AND PRACTICES It is the policy of the Company to grant credit in accordance with the principles of sound risk management and the Company's business strategy. The Company obtains and analyzes sufficient information to determine that the purpose of a credit extension is lawful and productive and that the borrower is able to repay as scheduled. Credit is structured in a manner consistent with such supporting analysis and is monitored to detect changes in quality. The Company's credit policies establish the fundamental credit principles which guide the Company in granting loans, leases, lines of credit, standby and commercial letters of credit, acceptances and commitments ("direct credit") to customers on an unsecured, partially secured or fully secured basis. The credit product line for both businesses and individuals includes standardized products as well as customized, individual accommodations. In addition, the Company provides products and services which could become direct credit exposure unless such products are offered on a "cash only" basis. These include: automated clearing house services, controlled disbursement, wire services, foreign exchange services, interest rate protection products, Federal fund lines to banks, cash letters and deposit accounts which create exposure by allowing use of funds advanced/uncollected funds ("operating credit"). Standardized documentation and underwriting and a study of the requirements of the secondary market are an explicit consideration in credit product development. The Company requires some degree of background check into character and credit history of all its credit customers. Extensions of credit must be supported by current financial information on the borrower (and guarantor) which is appropriate to the size and type of credit being offered; such information can denote any material which serves to inform the Company about the financial health of its credit customers. An accompanying credit analysis includes, at a minimum, an evaluation of the customer's financial strength and probability of repayment, with due consideration given to the negative factors which may affect the borrower's ability to meet repayment schedules. Collateral is valued in accordance with Company appraisal standards and, where applicable, appraisal regulations issued under the Financial Institutions Reform, Recovery and Enforcement Act of 1989 and other applicable law. For commercial real estate transactions, the recommending officer reviews and evaluates the key assumptions supporting the appraised value. In addition to a broad range of laws and regulations and the Company's credit policies, the Company has established minimum underwriting standards which delineate criteria for sources of repayment, financial strength and enhancements such as guarantees. The primary source of repayment will be recurring cash flow of the borrower or cash flow from the real estate project being financed. Underwriting standards include: minimum financial condition and cash flow hurdles for unsecured credit; maximum loan to collateral value ratios for secured products; minimum cash flow coverage of debt service, or debt to income ratios, for term products; minimum liquidity and maximum financial leverage requirements when lending to highly leveraged borrowers; and, for certain products, a description of any credit scoring criteria and methodology employed. Prudent credit practice will permit credit extensions which are an exception to the minimum underwriting standards; procedures for 14 approval of exceptions are included in Company policy; and certain exceptions are reported to the Board of Directors. Generally, the Company's minimum underwriting standards for commercial real estate include various maximum loan-to-value ("LTV") ratios ranging from 50% to 80%, depending on the type of collateral and the size and purpose of the loan; minimum debt service (stabilized net income divided by debt service cost) ranging from 1.10 to 1.30 depending on the type of property financed; and maximum terms ranging from 2 to 15 years for certain commercial property loans depending on the same loan/collateral characteristics. For example, a typical owner-occupied commercial real estate loan would most often have a maximum LTV of 80%, debt service coverage of 1.25 and a term of 4 to 15 years. For community reinvestment projects, the Company applies special underwriting criteria to its financing of construction of affordable multi-family housing built by non-profit as well as for-profit developers. The Company has devoted a limited portion of its commercial real estate portfolio to higher-risk loans, for which a commensurate return is expected. Such transactions include purchases of performing or distressed real estate loans at a discount, acquisition of rated and unrated tranches of commercial mortgage obligations, senior loan originations, mezzanine financing and origination of single assets for securitization. Many of the higher-yielding transactions may contain non-recourse provisions. In general, this business is more "opportunistic" in nature, as opposed to representing a highly defined lending program. As such, higher LTVs (up to 90% or 95%) will be underwritten on occasion, particularly in the case of junior and senior participating debt. Generally, commercial loan categories include unsecured loans and lines of credit with minimum debt service coverage (earnings before interest, taxes, depreciation and amortization divided by debt service cost) dependent on the specific credit analysis. Common forms of collateral pledged to secure commercial credit accommodations include accounts receivable, inventories, equipment, agricultural crops or livestock, marketable securities and cash or cash equivalent. In addition to the minimum debt service requirements, most transactions have maximum terms of 1 to 8 years and/or LTVs in the range of 65% to 85%, based on an analysis of the collateral pledged. Wells Fargo HSBC Trade Bank, which provides trade financing, letters of credit, foreign exchange services and collection services, generally uses the same underwriting guidelines as the Company has established for its commercial lending functions. The Company also allocates a relatively small percentage of its commercial loan portfolio to the origination of asset-based loans secured by "hard assets" (accounts receivable, inventory, equipment and/or real estate). In contrast to traditional commercial lending, asset-based borrowers generally do not have the ability to repay their debts through cash flow; therefore, such loans are fully secured and tailored to the growth and turnover of the borrower's self-liquidating asset base. Maximum LTVs are generally in the range of 65% to 85%, with specialized collateral monitoring and control procedures in place to mitigate risk exposure. 15 The Company has devoted a focused product group to providing a full range of credit products to small businesses with annual sales of up to $10 million and in which the owner of the business is also the principal financial decision maker. Credit products include lines of credit, receivables and inventory financing, equipment loans and leases and real estate financing. In addition, the group employs a variety of government sponsored credit programs designed to meet the credit needs of small businesses who fit "near bankable" business profiles. The group utilizes automated credit decision methods, including credit scoring and rule-based criteria, to approve or decline requests for credit. In some cases, more traditional analysis is employed. An evaluation of the soundness and desirability of collateral, if any, is also required before an extension of credit will be made. Loan-to-value, debt service coverage and maximum loan term underwriting guidelines employed are, in general, similar to those described earlier for commercial and commercial real estate loan products. The Company is an active participant in the national transportation finance market, underwriting primarily consumer auto leases and indirect auto loans (sales finance contracts). Direct loans and marine and recreational vehicle loans are also offered as accommodation products for our retail customers and a select group of dealers. Most applicants for these credit products are assigned a credit score which is indicative of their relative probability of repayment. The credit scoring models are validated as to their predictive power on a periodic basis. The lending group includes in its credit decision making criteria other judgmental factors, such as advance rate and debt to income ratio, which are used to augment this credit score. However, all credit decisions made contrary to an established cut-off score must be supported and documented by a credit officer with the appropriate approval authority. The Company's principal target market for offering consumer credit cards and consumer loans and lines of credit is its franchise states in the U.S. as well as customers from its national businesses. Some accounts from previous national campaigns and portfolio acquisitions also remain in the portfolio. The credit review process includes initial screens to ensure that applicants meet minimum age and income level requirements for the product requested. Fraud screens are also completed and credit bureau reports are used to calculate the debt-to-income ratios and credit scores on which an evaluation of creditworthiness is based. Analyst review may be used to supplement the recommendations of the credit score. Applicants with major derogatory bureau information, minimal credit references, or high debt-to-income ratios may be considered for declines in spite of passing the credit score, while other favorable factors may be considered in approving applicants failing the credit score. Income, employment and/or collateral verification may be required for certain products and loan amounts. The Company offers a variety of first mortgage loan products to customers. The loan products are underwritten and packaged for sale in the secondary mortgage markets. A limited number of these loans are purchased by the Company, typically for community lending purposes or other client accommodations. The Company also provides second mortgage loans and lines of 16 credit secured by first and second deeds of trust directly to its customers. The Company relies on cash flow as the primary source of repayment for these equity products. The nature of the credit review that is conducted depends on the product, but typically consists of an evaluation of the applicant's debt ratios and credit history, either judgmentally or using a credit score, along with a review of the collateral. Maximum combined LTVs will range from 50% to 100% depending on the nature, amount and term of the loan. The Company operates a diversified consumer finance company, which conducts consumer finance and auto finance business. The finance company also issues credit cards and has a relatively small portfolio of accounts receivable, lease and other commercial financing. The majority of its loans are secured by liens on household goods, automobiles, other personal property or real estate. The consumer finance operation makes direct loans to consumers and purchase sales finance contracts from retail merchants from offices throughout the United States, and in Canada, the Caribbean and Latin America. The auto finance business specializes in purchasing sales finance contracts directly from automobile dealers and making loans secured by automobiles in the United States and Puerto Rico. In order to make a careful selection of credit risks, the company reviews credit information concerning each applicant to determine income, living expenses, payment obligations, indebtedness, paying habits and length and stability of employment. The information is obtained from the applicants, the applicants' employers, creditors of the applicants and credit reporting agencies; however, credit scoring is not used as an automated credit decision tool. The above underwriting practices are general standards that are subject to change; the actual terms and conditions of a specific credit transaction are dependent on an analysis of the specific transaction. 17 CHANGES IN THE ALLOWANCE FOR LOAN LOSSES
- ---------------------------------------------------------------------------------------------------------------------------- (in millions) 1998 1997 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------------------- BALANCE, BEGINNING OF YEAR $ 3,062 $ 3,059 $ 2,711 $2,872 $2,911 Allowances related to assets acquired, net 144 168 870 119 29 Provision for loan losses 1,545 1,140 500 312 365 Loan charge-offs: Commercial (261) (357) (200) (99) (90) Real estate 1-4 family first mortgage (26) (26) (24) (20) (23) Other real estate mortgage (54) (26) (50) (59) (96) Real estate construction (3) (5) (14) (10) (22) Consumer: Real estate 1-4 family junior lien mortgage (31) (37) (38) (23) (33) Credit card (535) (579) (487) (330) (211) Other revolving credit and monthly payment (1,002) (618) (488) (255) (167) -------- -------- -------- ------ ------ Total consumer (1,568) (1,234) (1,013) (608) (411) Lease financing (48) (46) (35) (18) (16) Foreign (84) (37) (35) (29) (26) -------- -------- -------- ------ ------ Total loan charge-offs (2,044) (1,731) (1,371) (843) (684) -------- -------- -------- ------ ------ Loan recoveries: Commercial 82 105 89 68 74 Real estate 1-4 family first mortgage 11 9 12 8 11 Other real estate mortgage 78 62 57 65 43 Real estate construction 4 12 12 5 22 Consumer: Real estate 1-4 family junior lien mortgage 7 10 10 4 5 Credit card 56 61 50 26 29 Other revolving credit and monthly payment 163 144 101 57 46 -------- -------- -------- ------ ------ Total consumer 226 215 161 87 80 Lease financing 12 13 9 13 17 Foreign 14 10 9 5 4 -------- -------- -------- ------ ------ Total loan recoveries 427 426 349 251 251 -------- -------- -------- ------ ------ Total net loan charge-offs (1,617) (1,305) (1,022) (592) (433) -------- -------- -------- ------ ------ BALANCE, END OF YEAR $ 3,134 $ 3,062 $ 3,059 $2,711 $2,872 -------- -------- -------- ------ ------ -------- -------- -------- ------ ------ Total net loan charge-offs as a percentage of average total loans 1.52% 1.25% 1.04% .84% .70% -------- -------- -------- ------ ------ -------- -------- -------- ------ ------ Allowance as a percentage of total loans 2.90% 2.88% 2.89% 3.83% 4.31% -------- -------- -------- ------ ------ -------- -------- -------- ------ ------ - ----------------------------------------------------------------------------------------------------------------------------
The SEC requires the Company to present the ratio of the allowance for loan losses to total nonaccrual loans. This ratio was 442% and 434% at December 31, 1998 and 1997, respectively. This ratio may fluctuate significantly from period to period due to such factors as the mix of loan types in the portfolio, the prospects of borrowers and the value and marketability of collateral as well as, for the nonaccrual portfolio taken as a whole, wide variances from period to period in terms of delinquency and relationship of book to contractual principal balance. Classification of a loan as nonaccrual does not necessarily indicate that the principal of a loan is uncollectible in whole or in part. Consequently, the ratio of the allowance for loan losses to nonaccrual loans, taken alone and without taking into account numerous additional factors, is not a reliable indicator of the adequacy of the allowance for loan losses. Indicators of the credit quality of the Company's loan portfolio and the method of determining the allowance for loan losses are discussed in the 1998 Annual Report to Stockholders. 18 ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES The table on page 22 provides a breakdown of the allowance for loan losses by loan category. The Company has an established process to determine the adequacy of the allowance for loan losses which assesses the risk and losses inherent in its portfolio. This process provides an allowance consisting of two components, allocated and unallocated. To arrive at the allocated component of the allowance, the Company combines estimates of the allowances needed for loans analyzed individually (including impaired loans subject to Statement of Financial Accounting Standards No. 114 (FAS 114), Accounting by Creditors for Impairment of a Loan) and loans analyzed on a pool basis. The determination of allocated reserves for portfolios of larger commercial and commercial real estate loans involves a review of individual higher-risk transactions, focusing on the accuracy of loan grading, assessments of specific loss content, and, in some cases, strategies for resolving problem credits. These considerations supplement the application of loss factors delineated by individual loan grade to the existing distribution of risk exposures, thus framing an assessment of inherent losses across the entire wholesale lending portfolio segment which is responsive to shifts in portfolio risk content. The loss factors used for this analysis have been derived from migration models which track actual portfolio movements from problem asset loan grades to loss over a 5 to 10 year period. In the case of pass loan grades, the loss factors are derived from analogous loss experience in public debt markets, calibrated to the long-term average loss experience of the Company's portfolios. The loan loss reserve allocations arrived at through this loss factor methodology are adjusted based on management's judgment concerning the effect of recent economic events on portfolio performance. In the case of more homogeneous portfolios, such as consumer loans and leases, residential mortgage loans, and some segments of small business lending, the determination of allocated reserves is conducted at an aggregate, or pooled, level. For portfolios of this nature, the risk assessment process emphasizes the development of rigorous forecasting models, which focus on recent delinquency and loss trends in different portfolio segments to project relevant risk metrics over an intermediate-term horizon. Such analyses are updated frequently to capture the most recent behavioral characteristics of the subject portfolios, as well as any changes in management's loss mitigation or customer solicitation strategies, in order to reduce the differences between estimated and observed losses. A reserve which approximates one year of projected net losses is provided as the baseline allocation for most homogeneous portfolios, to which management may add certain adjustments to ensure that a prudent amount of conservatism is present in the specific assumptions underlying that forecast. While coverage of one year's losses is often adequate (particularly for homogeneous pools of loans and leases), the time period covered by the allowance may vary by portfolio, based on the Company's best estimate of the inherent losses in the entire portfolio as of the evaluation date. To mitigate the imprecision inherent in most estimates of expected credit losses, the allocated component of the allowance is supplemented by an unallocated component. The unallocated component includes management's judgmental determination of the amounts 19 necessary for concentrations, economic uncertainties and other subjective factors; correspondingly, the relationship of the unallocated component to the total allowance for loan losses may fluctuate from period to period. Although management has allocated a portion of the allowance to specific loan categories, the adequacy of the allowance must be considered in its entirety. At December 31, 1998 the allowance for loan losses was $3,134 million (2.90% of total loans), compared with $3,062 million (2.88% of total loans) at December 31, 1997. During 1998, net charge-offs exceeded the provision for loan losses by $72 million; however, the addition of $144 million of allowances related to acquired assets accounted for the net growth of $72 million in the reserve, year over year. The components of the allowance, allocated and unallocated, are shown in the table on page 22. The allocated component declined to $1,968 million from $2,061 million, while the unallocated component grew to $1,166 million from $1,001 million, as of December 31, 1998 and 1997, respectively. The $93 million reduction in the allocated component was substantially due to the lower allocated allowance to loans outstanding ratios in the credit card, other real estate mortgage, and lease financing portfolios. The lower projected future losses in the leasing portfolio, despite significant portfolio growth, reduced allocated reserves by roughly $20 million year over year. Likewise, net loss rates in the credit card portfolio are expected to improve modestly during 1999, which, combined with further expected run-off in the portfolio, brought the allocated reserve requirement down by roughly $65 million. Finally, the commercial real estate portfolio showed continuing gradual improvement in problem asset trends, with significant reductions in nonaccruing loans and increases in recoveries of previous charge-offs. The improvements in the credit quality of this portfolio translated into a reduction of approximately $55 million in the allocated reserve. A portion of these reductions in the allocated component was offset by increases of approximately $45 million in the foreign and other consumer product categories which relate primarily to an increase in reserve coverage of expected losses in Norwest Financial, including Island Finance. The changes in the allocated reserve relate primarily to projected rates of loss in different portfolio segments. Analyzing the movements in the allocated reserve strictly from a loan volume perspective indicates that, had the ratio of allocated reserves to loans outstanding remained flat with the 1997 ratio of 1.94%, allocated reserves would have increased by roughly $33 million, as loans outstanding grew by $1.7 billion during the year. However, due to a shift in portfolio composition, the higher volume increased the allocated reserve by only $12 million, as relatively lower-risk commercial loans and lease financing supplanted higher-risk credit cards and other consumer loans. There were no material changes in estimation methods and assumptions for the allowance that took place during the year. Relatively minor differences existed in the methodologies for deriving the allocated portion of the allowance employed by the former Norwest and the former Wells Fargo; these differences will be reconciled in the first half of 1999. No material changes to the level of the allowance are expected. The Company considers the allowance for loan losses of $3,134 million adequate to cover losses inherent in loans, loan commitments, and standby letters of credit at December 31, 20 1998. This allowance is roughly 1.9 times the level of 1998 net losses (or 2.4 times 1998 net losses, exclusive of approximately $300 million of losses in Island Finance, reflecting a fourth quarter review of its loan portfolio). This ratio is expected to remain in the range of 2.5 times coverage of 1999 net losses, which was its approximate value during the first three quarters of 1998. The foregoing discussion contains forward-looking statements about the adequacy of the Company's reserves for future loan losses. These forward-looking statements are inherently subject to risks and uncertainties. A number of factors--many of which are beyond the Company's control--could cause actual losses to be more than estimated losses. Among these factors are changes in political and economic conditions, interest rate fluctuations, technological changes (including the "Year 2000" data systems compliance issue), equity and fixed income market fluctuations, personal and commercial customers' bankruptcies, inflation, changes in law, changes in fiscal, monetary, regulatory and tax policies, monetary fluctuations, credit quality and credit risk management, mergers and acquisitions, and the integration of merged and acquired companies. 21
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES - ------------------------------------------------------------------------------------------------------------- (in millions) 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------- Commercial $ 605 $ 560 $ 472 Real estate 1-4 family first mortgage 50 64 53 Other real estate mortgage 230 277 340 Real estate construction 56 46 59 Consumer: Credit card 344 471 440 Other consumer 550 542 452 ------ ------ ------ Total consumer 894 1,013 892 Lease financing 54 58 47 Foreign 79 43 34 ------ ------ ------ Total allocated 1,968 2,061 1,897 Unallocated component of the allowance (1) 1,166 1,001 1,162 ------ ------ ------ Total $3,134 $3,062 $3,059 ------ ------ ------ ------ ------ ------ -------------------------------------------------------------- 1998 1997 1996 ------------------ ------------------ ------------------ ALLOC. LOAN Alloc. Loan Alloc. Loan ALLOW. CATGRY allow. catgry allow. catgry AS% AS% as% as% as% as% OF LOAN OF TOTAL of loan of total of loan of total CATGRY LOANS catgry loans catgry loans ------- -------- ------- -------- ------- -------- Commercial 1.71% 33% 1.75% 30% 1.53% 29% Real estate 1-4 family first mortgage .43 11 .45 14 .33 15 Other real estate mortgage 1.38 15 1.70 15 2.07 16 Real estate construction 1.48 4 1.38 3 1.82 3 Consumer: Credit card 5.94 5 7.06 6 6.26 6 Other consumer 2.06 25 1.96 26 1.66 26 --- --- --- Total consumer 2.75 30 2.95 32 2.60 32 Lease financing .85 6 1.17 5 1.23 4 Foreign 4.91 1 3.72 1 3.00 1 --- --- --- Total allocated 1.82 100% 1.94 100% 1.79 100% --- --- --- --- --- --- Unallocated component of the allowance (1) 1.08 .94 1.10 ---- --- ---- Total 2.90% 2.88% 2.89% ---- --- ---- ---- --- ---- - ------------------------------------------------------------------------------------------------------------- December 31, - --------------------------------------------------------------------------------------- (in millions) 1995 1994 - --------------------------------------------------------------------------------------- Commercial $ 321 $ 248 Real estate 1-4 family first mortgage 73 69 Other real estate mortgage 291 330 Real estate construction 68 62 Consumer: Credit card 383 126 Other consumer 313 240 ------ ------ Total consumer 696 366 Lease financing 41 34 Foreign 27 20 ------ ------ Total allocated 1,517 1,129 Unallocated component of the allowance (1) 1,194 1,743 ------ ------ Total $2,711 $2,872 ------ ------ ------ ------ December 31, --------------------------------------- 1995 1994 ----------------- ----------------- Alloc. Loan Alloc. Loan allow. catgry allow. catgry as% as% as% as% of loan of total of loan of total catgry loans catgry loans ------- -------- ------- -------- Commercial 1.59% 28% 1.50% 25% Real estate 1-4 family first mortgage .83 13 .48 22 Other real estate mortgage 2.45 17 3.11 16 Real estate construction 3.23 3 3.92 2 Consumer: Credit card 6.76 8 2.24 8 Other consumer 1.68 26 1.59 23 --- --- Total consumer 2.86 34 1.76 31 Lease financing 1.57 4 1.62 3 Foreign 2.90 1 3.11 1 --- --- Total allocated 2.14 100% 1.70 100% --- --- --- --- Unallocated component of the allowance (1) 1.69 2.61 ---- ---- Total 3.83% 4.31% ---- ---- ---- ---- - ---------------------------------------------------------------------------------------
(1) This amount and any unabsorbed portion of the allocated allowance are also available for any of the above listed loan categories. 22 DERIVATIVE FINANCIAL INSTRUMENTS The Company uses interest rate derivative financial instruments as asset/liability management tools to hedge the Company's exposure to interest rate fluctuations. The Company also offers contracts to its customers, but hedges such contracts by purchasing other financial contracts or uses the contracts for asset/liability management. The derivative activities table below reconciles the beginning and ending notional or contractual amounts for derivative financial instruments used for asset/liability management purposes for 1998 and shows the expected remaining maturity at year-end 1998. The interest rate swap maturities and average rates table on the following page summarizes the notional amount, expected maturities and weighted average interest rates associated with amounts to be received or paid on interest rate swap agreements, together with an indication of the asset/liability hedged. For a further discussion of derivative financial instruments, refer to Note 23 to Financial Statements, incorporated by reference herein.
DERIVATIVE ACTIVITIES - ---------------------------------------------------------------------------------------------------------------------------- Year ended December 31, 1998 ------------------------------------------------------------------------------------ Weighted average expected Amortization remaining Beginning and Ending maturity (in (in millions) balance Additions maturities Terminations balance yrs.-mos.) - ---------------------------------------------------------------------------------------------------------------------------- Interest rate contracts: Swaps $24,052 $ 6,169 $ 4,059 $ 1,733 $24,429 2-10 Futures 10,949 117,615 450 65,766 62,348 1-4 Floors and caps 35,344 6,054 7,770 30 33,598 2-3 Options 11,168 156,776 62,832 79,290 25,822 0-2 Forwards 27,507 558,887 98,977 446,134 41,283 0-1 Foreign exchange contracts: Forwards and spots 548 1,164 1,524 20 168 0-2 - ----------------------------------------------------------------------------------------------------------------------------
Net deferred gains related to interest rate futures contracts were $316 million at December 31, 1998, most of which will be fully amortized within seven years. The net deferred gains on terminated derivative financial instruments were $412 million and $164 million at December 31, 1998 and 1997 respectively. 23
INTEREST RATE SWAP MATURITIES AND AVERAGE RATES (1) - -------------------------------------------------------------------------------------------------------------- There- (in millions) 1999 2000 2001 2002 after Total - -------------------------------------------------------------------------------------------------------------- Receive-fixed rate (hedges loans) Notional amount $2,577 $3,667 $4,193 $2,632 $1,163 $14,232 Weighted average rate received 6.70% 6.67% 6.23% 5.78% 5.98% 6.32% Weighted average rate paid 5.06 5.09 5.16 5.24 5.42 5.16 Receive-fixed rate (hedges senior and subordinated debt) Notional amount $ 766 $ 400 $ 752 $ 400 $2,558 $ 4,876 Weighted average rate received 7.28% 6.17% 6.64% 6.59% 6.82% 6.79% Weighted average rate paid 5.50 5.28 5.22 5.38 5.35 5.35 Receive-fixed rate (hedges mortgage servicing rights) Notional amount $ -- $ 173 $ -- $ -- $ -- $ 173 Weighted average rate received --% 2.89% --% --% --% 2.89% Weighted average rate paid -- 5.72 -- -- -- 5.72 Receive-fixed rate (hedges deposits) Notional amount $1,112 $1,950 $1,550 $ -- $ -- $ 4,612 Weighted average rate received 7.08% 5.55% 5.47% --% --% 5.90% Weighted average rate paid 4.87 5.07 5.24 -- -- 5.08 Other swaps (2) Notional amount $2,021 $1,942 $1,879 $ 563 $1,926 $ 8,331 Weighted average rate received 5.53% 5.57% 5.53% 5.83% 5.79% 5.62% Weighted average rate paid 5.40 5.46 5.40 5.73 5.46 5.45 Total notional amount $6,476 $8,132 $8,374 $3,595 $5,647 $32,224 ------ ------ ------ ------ ------ ------- ------ ------ ------ ------ ------ ------- - --------------------------------------------------------------------------------------------------------------
(1) Variable interest rates are presented on the basis of rates in effect at December 31, 1998. These rates may change substantially in the future due to open market factors. (2) Predominantly represents customer accommodation swaps not used for asset/liability management purposes. The notional amount predominantly reflects customer accommodations as well as the swaps used to hedge the customer accommodations. PROPERTIES The Company owns its headquarters building in San Francisco as well as Wells Fargo Centers in Phoenix, Arizona and Portland, Oregon. In addition, the Company leases office space for data processing support and various administrative departments in major locations in California, Minnesota, Texas, Arizona, Colorado and Oregon. As of December 31, 1998, the Company's Community Banking Group subsidiaries operate out of about 6,000 banking locations under various types of ownership and leasehold agreements. Norwest Mortgage leases its headquarters in Des Moines, Iowa, servicing centers in Minneapolis, Minnesota; Phoenix, Arizona; Charlotte, North Carolina; and Springfield, Illinois, operations centers in Frederick, Maryland and St. Louis, Missouri and all mortgage production offices nationwide. In addition, Norwest Mortgage owns servicing centers located in Springfield, 24 Ohio and Riverside, California. Norwest Financial owns its headquarters in Des Moines, Iowa, and leases all branch locations. The Company is also a joint venture partner in two office buildings in downtown Los Angeles, California and one in Sacramento, California, of which approximately one-half of the space is occupied by administrative staff of the Company and the remainder is sublet. For further information with respect to premises and equipment and commitments under noncancelable leases for premises and equipment, refer to Note 6 to Financial Statements, incorporated by reference herein. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS A special meeting of stockholders of Norwest Corporation was held on October 20, 1998, to consider proposals to: 1) issue shares of Norwest common stock, pursuant to an Agreement and Plan of Merger, dated as of June 7, 1998, and amended and restated as of September 10, 1998 (the "Agreement"), by and among Wells Fargo & Company, Norwest Corporation and WFC Holdings Corporation; and 2) adopt amendments to Norwest Corporation's Restated Certificate of Incorporation to (a) increase the number of authorized shares of common stock from 2,000,000,000 to 4,000,000,000, (b) increase the number of authorized shares of preferred stock, no par value, from 5,000,000 to 20,000,000 and (c) change the name of Norwest Corporation to "Wells Fargo & Company." The proposals were adopted by the following vote:
Issuance Of Shares Adopt Amendments ------------------ ---------------- For 548,748,383 For 540,906,762 Against 15,774,330 Against 24,041,280 Abstain 2,314,094 Abstain 1,888,765
A special meeting of stockholders of the former Wells Fargo was held on October 20, 1998, to consider adoption of the Agreement. The Agreement was adopted by the following vote: For 57,428,537 Against 500,572 Abstain 266,623
25 EXECUTIVE OFFICERS OF THE REGISTRANT
YEARS WITH NAME AND COMPANY OR COMPANY POSITION POSITIONS PRIOR TO MERGER AGE PREDECESSORS ---------------- ------------------------- --- ------------ John A. Berg Former Norwest: Senior Vice President and Regional 53 23 Group Executive Group Head (March 1998 to November 1998); Regional Vice President President (Greater Minnesota/ La Crosse Region) (Central Banking) (January 1990 to March 1998) Leslie S. Biller Former Norwest: President and Chief Operating Officer 51 11 Vice Chairman and (January 1997 to November 1998); Executive Vice Chief Operating President (South Central Community Banking) (July 1990 Officer to January 1997) Patricia R. Callahan Former Wells Fargo: Executive Vice President 45 21 Executive Vice (Wholesale Banking) (July 1997 President (Human to November 1998); Executive Vice President Resources) (Personnel) (March 1993 to July 1997) James R. Campbell Former Norwest: Executive Vice President (North 56 34 Group Executive Central Banking) (August 1997 to November 1998); Vice President Executive Vice President (Commercial Banking Services, (Minnesota Banking) Specialized Lending and Nebraska) (January 1996 to August 1997); Executive Vice President (Twin Cities Banking) (February 1993 to January 1996); Executive Vice President (Corporate Banking) (April 1988 to February 1993); also at various times he served as Chairman, President and Chief Executive Officer of Norwest Bank Minnesota, N.A. (January 1984 to Present) Teresa A. Dial Former Wells Fargo: Vice Chair (Consumer and Business 49 26 Group Executive Banking) (March 1996 to November 1998); Group Vice President Executive Vice President (Business Banking) (September (California, 1991 to March 1996) Business Banking, Phone Banking and Distribution Strategies) Paul Hazen Former Wells Fargo: Chairman of the Board, President 57 28 Chairman of the and Chief Executive Officer (January 1995 to November Board 1998); President and Chief Operating Officer (July 1984 to January 1995) 26 EXECUTIVE OFFICERS OF THE REGISTRANT (continued) YEARS WITH NAME AND COMPANY OR COMPANY POSITION POSITIONS PRIOR TO MERGER AGE PREDECESSORS - ---------------- ------------------------- --- ------------ David A. Hoyt Former Wells Fargo: Vice Chairman (Real 43 17 Group Executive Estate Administration/ Capital Markets/ Vice President International) (May 1997 to November 1998); (Wholesale Executive Vice President (Capital Markets/ Banking) Problem Loans) (September 1994 to May 1997); Executive Vice President (Workout Group/ New Business Administration) (November 1992 to September 1994) Rodney L. Jacobs Former Wells Fargo: President 58 20 Vice Chairman and (May 1998 to November 1998); Vice Chairman Chief Financial and Chief Financial Officer (February 1991 Officer to May 1998) Richard M. Former Norwest: Chairman and Chief 55 13 Kovacevich Executive Officer (January 1997 to November President and 1998); Chairman, President and Chief Chief Executive Executive Officer (May 1995 to January Officer 1997); President and Chief Executive Officer (January 1993 to May 1995) Ely L. Licht Former Wells Fargo: Executive Vice 51 15 Executive Vice President (Credit Administration) (February President & Chief 1990 to November 1998) Credit Officer Kenneth R. Murray Former Norwest: Group Executive Vice 60 16 Group Executive President (Southwestern Banking) and Vice President Head of Credit Policy (August (Diversified 1997 to November 1998); Executive Vice Financial) President (Southwestern Community Banking) (July 1990 to August 1997) John C. Nelson Former Norwest: Chairman and Chief 54 32 Group Executive Executive Officer of Norwest Bank Colorado, Vice President N.A. (January 1995 to November 1998); (Western Banking) Chairman, President and Chief Executive Officer of Norwest Colorado, Inc. (February 1992 to January 1995); President and Chief Operating Officer of Norwest Colorado, Inc. (October 1991 to February 1992); President of Norwest Colorado, Inc. (July 1991 to October 1991); Chairman of the Board and Chief Executive Officer of Norwest Bank Iowa, N.A. (January 1988 to July 1991) 27 EXECUTIVE OFFICERS OF THE REGISTRANT (continued) YEARS WITH NAME AND COMPANY OR COMPANY POSITION POSITIONS PRIOR TO MERGER AGE PREDECESSORS - ---------------- ------------------------- --- ------------ Mark C. Oman Former Norwest: Executive Vice 44 19 Group Executive President (Mortgage Services and Iowa Vice President Community Banking (February 1997 to (Mortgage and November 1998); President and Chief Home Equity) Executive Officer of Norwest Mortgage, Inc. (August 1989 to February 1997); also Chairman and Chief Executive Officer of Norwest Mortgage, Inc. (February 1997 to Present) Clyde W. Ostler Former Wells Fargo: Vice Chairman 52 28 Group Executive (Business and Investment) (May 1993 to Vice President November 1998) (Investments) Les L. Quock Former Wells Fargo: Senior Vice President 45 19 Senior Vice (Payment Systems Services Group) (February President and 1997 to November 1998); Senior Vice Controller President (BBG Systems) (October 1996 to February 1997); Senior Vice President (Business Loan Admin & Finance) (November 1995 to October 1996); Senior Vice President (Business Loan Administration) (January 1994 to November 1995) Stanley S. Stroup Former Norwest: Executive Vice President 55 15 Executive Vice and General Counsel (February 1993 to President and November 1998) General Counsel John G. Stumpf Former Norwest: Regional President of 45 17 Group Executive Norwest Bank Texas (July 1994 to November Vice President 1998); Regional President of Norwest Bank (Southwestern Colorado, N.A. (April 1991 to July 1994) Banking)
There is no family relationship among the above officers. All executive officers serve at the pleasure of the Board of Directors. 28 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Financial Statements, Schedules and Exhibits: (1) The consolidated financial statements and related notes and the independent auditors' report thereon that appear on pages 51 through 96 of the 1998 Annual Report to Stockholders are incorporated herein by reference. (2) Financial Statement Schedules: All schedules are omitted, because they are either not applicable or the required information is shown in the consolidated financial statements or the notes thereto. (3) Exhibits: The Company's SEC file number is 001-2979. On or before November 2, 1998, the Company filed documents with the SEC under the name Norwest Corporation. The former Wells Fargo filed documents under SEC file number 001-6214.
Exhibit number Description ------ ----------- 3(a) Restated Certificate of Incorporation, incorporated by reference to Exhibit 3(b) to the Company's Current Report on Form 8-K dated June 28, 1993. Certificates of Amendment of Certificate of Incorporation, incorporated by reference to Exhibit 3 to the Company's Current Report on Form 8-K dated July 3, 1995 (authorizing preference stock), and Exhibits 3(b) and 3(c) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998 (changing the Company's name and increasing authorized common and preferred stock, respectively) (b) Certificate of Designations for the Company's ESOP Cumulative Convertible Preferred Stock, incorporated by reference to Exhibit 4 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1994 (c) Certificate of Designations for the Company's Cumulative Tracking Preferred Stock, incorporated by reference to Exhibit 3 to the Company's Current Report on Form 8-K dated January 9, 1995 (d) Certificate of Designations for the Company's 1995 ESOP Cumulative Convertible Preferred Stock, incorporated by reference to Exhibit 4 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995 (e) Certificate Eliminating the Certificate of Designations for the Company's Cumulative Convertible Preferred Stock, Series B, incorporated by reference to Exhibit 3(a) to the Company's Current Report on Form 8-K dated November 1, 1995 29 3(f) Certificate Eliminating the Certificate of Designations for the Company's 10.24% Cumulative Preferred Stock, incorporated by reference to Exhibit 3 to the Company's Current Report on Form 8-K dated February 20, 1996 (g) Certificate of Designations for the Company's 1996 ESOP Cumulative Convertible Preferred Stock, incorporated by reference to Exhibit 3 to the Company's Current Report on Form 8-K dated February 26, 1996 (h) Certificate of Designations for the Company's 1997 ESOP Cumulative Convertible Preferred Stock, incorporated by reference to Exhibit 3 to the Company's Current Report on Form 8-K dated April 14, 1997 (i) Certificate of Designations for the Company's 1998 ESOP Cumulative Convertible Preferred Stock, incorporated by reference to Exhibit 3 to the Company's Current Report on Form 8-K dated April 20, 1998 (j) Certificate of Designations for the Company's Adjustable Cumulative Preferred Stock, Series B, incorporated by reference to Exhibit 3(j) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998 (k) Certificate of Designations for the Company's Fixed/Adjustable Rate Noncumulative Preferred Stock, Series H, incorporated by reference to Exhibit 3(k) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998 (l) Certificate of Designations for the Company's Series C Junior Participating Preferred Stock (m) By-Laws, as amended effective February 23, 1999 4(a) See Exhibits 3(a) through 3(m) (b) Rights Agreement, dated as of October 21, 1998, between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent, incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form 8-A dated October 21, 1998 (c) The Company agrees to furnish upon request to the Commission a copy of each instrument defining the rights of holders of senior and subordinated debt of the Company. 10*(a) Long-Term Incentive Compensation Plan as amended effective February 23, 1999 (including Forms of Non-Qualified Stock Option and Restricted Stock Agreements for grants subsequent to November 2, 1998). Forms of Non-Qualified Stock Option and Restricted Stock Agreements for grants prior to November 2, 1998, incorporated by reference to Exhibit 10(a) to the Company's Annual Report on Form 10-K for the year ended December 31, 1997 30 10*(b) Long-Term Incentive Plan, incorporated by reference to Exhibit A to the former Wells Fargo's Proxy Statement filed March 14, 1994 *(c) Executive Incentive Compensation Plan, incorporated by reference to Exhibit 19(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1988. Amendment to Executive Incentive Compensation Plan, incorporated by reference to Exhibit 19(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1989 *(d) Performance-Based Compensation Policy, incorporated by reference to Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 *(e) Executive Incentive Pay Plan, incorporated by reference to Exhibit 10(h) to the former Wells Fargo's Annual Report on Form 10-K for the year ended December 31, 1995 *(f) Senior Executive Performance Plan, incorporated by reference to Exhibit B to the former Wells Fargo's Proxy Statement filed March 14, 1994 *(g) 1990 Equity Incentive Plan, incorporated by reference to Exhibit 10(f) to the former Wells Fargo's Annual Report on Form 10-K for the year ended December 31, 1995 *(h) 1982 Equity Incentive Plan, incorporated by reference to Exhibit 10(g) to the former Wells Fargo's Annual Report on Form 10-K for the year ended December 31, 1993 *(i) Employees' Stock Deferral Plan, incorporated by reference to Exhibit 10(c) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998 *(j) Employees' Deferred Compensation Plan, incorporated by reference to Exhibit 10(c) to the Company's Annual Report on Form 10-K for the year ended December 31, 1997 *(k) Elective Deferred Compensation Plan for Mortgage Banking Executives, incorporated by reference to Exhibit 10(c) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997 *(l) Performance Deferral Award Plan for Mortgage Banking Executives, incorporated by reference to Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 *(m) Directors Formula Stock Award Plan, as amended effective January 1, 1999 *(n) 1999 Directors Stock Option Plan 31 10*(o) 1990 Director Option Plan for directors of the former Wells Fargo, incorporated by reference to Exhibit 10(c) to the former Wells Fargo's Annual Report on Form 10-K for the year ended December 31, 1997 *(p) 1987 Director Option Plan for directors of the former Wells Fargo, incorporated by reference to Exhibit A to the former Wells Fargo's Proxy Statement filed March 10, 1995, and as further amended by the amendment adopted September 16, 1997, incorporated by reference to Exhibit 10 to the former Wells Fargo's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997 *(q) 1991 Director Option Plan for directors of the former First Interstate Bancorp, incorporated by reference to First Interstate Bancorp's Registration Statement on Form S-8 (SEC File No. 033-37299) and to the former Wells Fargo's Post-Effective Amendment No. 1 on Form S-8 filed on April 2, 1996 (SEC File No. 033-64575) *(r) Deferred Compensation Plan for Non-Employee Directors of the former Norwest, incorporated by reference to Exhibit 10(i) to the Company's Annual Report on Form 10-K for the year ended December 31, 1995 *(s) Directors' Stock Deferral Plan for directors of the former Norwest, incorporated by reference to Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998 *(t) Deferral Plan for Directors of the former Wells Fargo, incorporated by reference to Exhibit 10(b) to the former Wells Fargo's Annual Report on Form 10-K for the year ended December 31, 1997 *(u) 1999 Deferral Plan for Directors *(v) Supplemental Savings Investment Plan, incorporated by reference to Exhibit 10(h) to the Company's Annual Report on Form 10-K for the year ended December 31, 1997 *(w) Supplemental Pension Plan, incorporated by reference to Exhibit 10(i) to the Company's Annual Report on Form 10-K for the year ended December 31, 1997 *(x) Supplemental Long Term Disability Plan, incorporated by reference to Exhibit 10(f) to the Company's Annual Report on Form 10-K for the year ended December 31, 1990. Amendment to Supplemental Long Term Disability Plan, incorporated by reference to Exhibit 10(g) to the Company's Annual Report on Form 10-K for the year ended December 31, 1992 *(y) Executive Financial Counseling Plan, incorporated by reference to Exhibit 10(f) to the Company's Annual Report on Form 10-K for the year ended December 31, 1987 32 10*(z) Benefits Restoration Program, incorporated by reference to Exhibit 10(a) to the former Wells Fargo's Annual Report on Form 10-K for the year ended December 31, 1995 (aa) Executive Loan Plan, incorporated by reference to Exhibit 10(i) to the former Wells Fargo's Annual Report on Form 10-K for the year ended December 31, 1994 *(bb) Agreement between the Company and Richard M. Kovacevich dated March 18, 1991, incorporated by reference to Exhibit 19(e) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1991. Amendment effective January 1, 1995, to the March 18, 1991 agreement between the Company and Richard M. Kovacevich, incorporated by reference to Exhibit 10(c) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995 *(cc) Employment Agreement, dated as of June 7, 1998, between the Company and Paul Hazen, incorporated by reference to Exhibit 10.01 to the Company's Registration Statement No. 333-63247 on Form S-4 filed September 11, 1998. Forms of Stock Option and Restricted Stock Agreements pursuant to Employment Agreement. *(dd) Employment Agreement, dated as of January 1, 1999, between the Company and Rodney L. Jacobs *(ee) Form of severance agreement between the Company and seven executive officers, including two directors, and agreement between the Company and an executive officer. Amendment effective January 1, 1995, to the March 11, 1991 agreement between the Company and Richard M. Kovacevich, incorporated by reference to Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995 *(ff) Change of Control Severance Plan of the former Wells Fargo, incorporated by reference to Exhibit 10(c) to the former Wells Fargo's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998 *(gg) Consulting Agreement dated January 25, 1999, between the Company and Chang-Lin Tien *(hh) Retirement Plan for Non-Employee Directors of the former Norwest, as amended effective November 2, 1998 *(ii) Directors' Retirement Plan for directors of the former Wells Fargo, as amended effective November 2, 1998 - ------------------------- * Management contract or compensatory plan or arrangement. Stockholders may obtain a copy of any Exhibit, in Item 14(a)(3), upon payment of a reasonable fee, by writing Wells Fargo & Company, Office of the Secretary, Norwest Center, Sixth and Marquette, Minneapolis, Minnesota, 55479-1026. 33 12(a) Computation of Ratios of Earnings to Fixed Charges -- the ratios of earnings to fixed charges, including interest on deposits, were 1.63, 1.81, 1.78, 1.80 and 1.92 for the years ended December 31, 1998, 1997, 1996, 1995 and 1994, respectively. The ratios of earnings to fixed charges, excluding interest on deposits, were 2.56, 3.10, 2.98, 2.73 and 3.32 for the years ended December 31, 1998, 1997, 1996, 1995 and 1994, respectively. 12(b) Computation of Ratios of Earnings to Fixed Charges and Preferred Dividends -- the ratios of earnings to fixed charges and preferred dividends, including interest on deposits, were 1.61, 1.79, 1.73, 1.74 and 1.85 for the years ended December 31, 1998, 1997, 1996, 1995 and 1994, respectively. The ratios of earnings to fixed charges and preferred dividends, excluding interest on deposits, were 2.49, 2.99, 2.77, 2.55 and 3.02 for the years ended December 31, 1998, 1997, 1996, 1995 and 1994, respectively. 13 1998 Annual Report to Stockholders, pages 34 through 96 21 Subsidiaries of the Company 23 Consent of Independent Accountants 24 Powers of Attorney 27 Financial Data Schedule
(b) The former Wells Fargo, the former Norwest and the Company filed, on the dates indicated during the fourth quarter of 1998 and through the date hereof in 1999, the following reports on Form 8-K: FORMER WELLS FARGO (Commission File No. 001-6214) (1) October 15, 1998 under Item 5, containing the Underwriting Agreement between the former Wells Fargo and Goldman, Sachs & Co. dated October 12, 1998, in connection with the sale of 2.5 million shares of the former Wells Fargo common stock (2) October 20, 1998 under Item 5, containing the press release that announced the former Wells Fargo financial results for the quarter and nine months ended September 30, 1998 (3) November 17, 1998 (filed by WFC Holdings Corporation) under Items 2 and 7, describing the consummation of the merger by and among former Wells Fargo & Company, Norwest Corporation and WFC Holdings Corporation pursuant to an Agreement and Plan of Merger dated as of June 7, 1998 and amended and restated as of September 10, 1998, and containing the press release dated November 2, 1998 issued by Norwest Corporation announcing the completion of the merger and unaudited pro forma condensed combined financial information as of September 30, 1998 34 FORMER NORWEST (Commission File No. 001-2979) (4) October 21, 1998 under Item 5, containing the new preferred share purchased rights plan pursuant to the Rights Agreement between the former Norwest and ChaseMellon Shareholder Services, L.L.C., dated October 21, 1998, to replace the preferred share purchased rights plan expiring on November 23, 1998 (5) October 22, 1998 under Item 5, reporting consolidated operating results of the former Norwest for the quarter and nine months ended September 30, 1998 WELLS FARGO & COMPANY (Commission File No. 001-2979) (6) November 16, 1998 under Items 2 and 7, describing the consummation of the merger by and among former Wells Fargo & Company, Norwest Corporation and WFC Holdings Corporation pursuant to an Agreement and Plan of Merger dated as of June 7, 1998 and amended and restated as of September 10, 1998, and containing the press release dated November 2, 1998 issued by Norwest Corporation announcing the completion of the merger and unaudited pro forma condensed combined financial information as of September 30, 1998 (7) January 19, 1999 under Item 5, containing the Supplemental Annual Report for 1997; Supplemental Quarterly Report for the quarter ended September 30, 1998; and the Company's financial results for the quarter and year ended December 31, 1998 (8) January 29, 1999 under Item 5, describing the Company's most recent Board action taken with respect to the Company's systematic stock repurchase program STATUS OF PRIOR DOCUMENTS The Wells Fargo & Company Annual Report on Form 10-K for the year ended December 31, 1998, at the time of filing with the Securities and Exchange Commission, shall modify and supersede all documents filed prior to January 1, 1999 pursuant to Sections 13, 14 and 15(d) of the Securities Exchange Act of 1934 (other than the Current Report on Form 8-K filed October 13, 1997) for purposes of any offers or sales of any securities after the date of such filing pursuant to any Registration Statement or Prospectus filed pursuant to the Securities Act of 1933 which incorporates by reference such Annual Report on Form 10-K. 35 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 15, 1999. WELLS FARGO & COMPANY BY: /s/ RICHARD M. KOVACEVICH --------------------------------------- Richard M. Kovacevich President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated. By: /s/ RODNEY L. JACOBS --------------------------------------- Rodney L. Jacobs Vice Chairman and Chief Financial Officer (Principal Financial Officer) By: /s/ LES L. QUOCK --------------------------------------- Les L. Quock Senior Vice President and Controller (Principal Accounting Officer) The Directors of Wells Fargo & Company listed below have duly executed powers of attorney empowering Philip J. Quigley to sign this document on their behalf. Leslie S. Biller Richard D. McCormick J. A. Blanchard III Cynthia H. Milligan Michael R. Bowlin Benjamin F. Montoya Edward M. Carson Donald B. Rice David A. Christensen Ian M. Rolland William S. Davila Judith M. Runstad Susan E. Engel Susan G. Swenson Paul Hazen Daniel M. Tellep Rodney L. Jacobs Chang-Lin Tien Reatha Clark King Michael W. Wright Richard M. Kovacevich John A. Young By: /s/ PHILIP J. QUIGLEY --------------------------------------- Philip J. Quigley Director and Attorney-in-fact March 15, 1999 36 EX-3.(L) 2 EXHIBIT 3(L) EXHIBIT 3 (l) WELLS FARGO & COMPANY ------------------------------------------ CERTIFICATE OF DESIGNATIONS Pursuant to Section 151 of the Delaware General Corporation Law ------------------------------------------ SERIES C JUNIOR PARTICIPATING PREFERRED STOCK ------------------------------------------ Wells Fargo & Company, a corporation organized and existing under the General Corporation Law of the State of Delaware (hereinafter called the "Corporation"), hereby certifies that the following resolution was adopted by the Board of Directors of the Corporation as required by Section 151 of the General Corporation Law at a meeting duly called and held on September 22, 1998: RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of the Corporation (hereinafter called the "Board of Directors" or the "Board") in accordance with the provisions of the Restated Certificate of Incorporation, as amended, the Board of Directors hereby creates a series of Preferred Stock, without par value, of the Corporation (the "Preferred Stock"), and hereby states the designation and number of shares, and fixes the relative rights, preferences, and limitations thereof as follows: Series C Junior Participating Preferred Stock: Section 1. DESIGNATION AND AMOUNT. The shares of such series shall be designated as "Series C Junior Participating Preferred Stock" (the "Series C Preferred Stock") and the number of shares constituting the Series C Preferred Stock shall be 4,000,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; PROVIDED, that no decrease shall reduce the number of shares of Series C Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into Series C Preferred Stock. Section 2. DIVIDENDS AND DISTRIBUTIONS. (A) Subject to the rights of the holders of any shares of any series of Preferred Stock (or any similar stock) ranking prior and superior to the Series C Preferred Stock with respect to dividends, the holders of shares of Series C Preferred Stock, in preference to the holders of Common Stock, par value $1-2/3 per share (the "Common Stock"), of the Corporation, and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the first day of March, June, September and December in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series C Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $10 or (b) subject to the provision for adjustment hereinafter set forth, 1000 times the aggregate per share amount of all cash dividends, and 1000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series C Preferred Stock. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series C Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Corporation shall declare a dividend or distribution on the Series C Preferred Stock as provided in paragraph (A) of this Section immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1 per share on the Series C Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series C Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series C Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the -2- shares of Series C Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series C Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. Section 3. VOTING RIGHTS. The holders of shares of Series C Preferred Stock shall have the following voting rights: (A) Subject to the provision for adjustment hereinafter set forth, each share of Series A Preferred Stock shall entitle the holder thereof to 1000 votes on all matters submitted to a vote of the stockholders of the Corporation. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of shares of Series C Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) Except as otherwise provided herein, in any other Certificate of Designations creating a series of Preferred Stock or any similar stock, or by law, the holders of shares of Series C Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (C) Except as set forth herein, or as otherwise provided by law, holders of Series C Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. Section 4. CERTAIN RESTRICTIONS. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series C Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series C Preferred Stock outstanding shall have been paid in full, the Corporation shall not: -3- (i) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series C Preferred Stock; (ii) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series C Preferred Stock, except dividends paid ratably on the Series C Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series C Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series C Preferred Stock; or (iv) redeem or purchase or otherwise acquire for consideration any shares of Series C Preferred Stock, or any shares of stock ranking on a parity with the Series C Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. REACQUIRED SHARES. Any shares of Series C Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth herein, in the Certificate of Incorporation, or in any other Certificate of Designations creating a series of Preferred Stock or any similar stock or as otherwise required by law. Section 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (1) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series C Preferred Stock unless, prior -4- thereto, the holders of shares of Series C Preferred Stock shall have received $1000 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, provided that the holders of shares of Series C Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 1000 times the aggregate amount to be distributed per share to holders of shares of Common Stock, or (2) to the holders of shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series C Preferred Stock, except distributions made ratably on the Series C Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series C Preferred Stock were entitled immediately prior to such event under the proviso in clause (1) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 7. CONSOLIDATION, MERGER, ETC. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series C Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 1000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series C Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 8. NO REDEMPTION. The shares of Series C Preferred Stock shall not be redeemable. Section 9. RANK. The Series C Preferred Stock shall rank, with respect to the payment of dividends and the distribution of assets, junior to all series of any other class of the Corporation's Preferred Stock. -5- Section 10. AMENDMENT. The Certificate of Incorporation of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series C Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series C Preferred Stock, voting together as a single class. IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf of the Corporation by its Executive Vice President and attested by its Secretary this 18th day of November, 1998. By: /s/ Stanley S. Stroup -------------------------- Stanley S. Stroup Executive Vice President Attest: /s/ Laurel A. Holschuh - ------------------------------ Laurel A. Holschuh Secretary [Filed in the Office of the Delaware Secretary of State on November 18, 1998] -6- EX-3.(M) 3 EXHIBIT 3(M) EXHIBIT 3(m) WELLS FARGO & COMPANY By-Laws (As amended through February 23, 1999) OFFICES 1. The principal office shall be in the City of Wilmington, County of New Castle, State of Delaware, and the name of the resident agent in charge thereof is The Corporation Trust Company. The Corporation may also have an office in the City of San Francisco, State of California, and also offices at such other places as the Board of Directors may from time to time appoint or the business of the Corporation may require. SEAL 2. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware." Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. STOCKHOLDERS' MEETINGS 3. PLACE. All meetings of stockholders shall be held at the office of the Corporation in San Francisco, California, or at such other place within or without the State of Delaware as shall from time to time be designated by the Board of Directors. 4. ANNUAL MEETING. An annual meeting of stockholders shall be held on the fourth Tuesday of April in each year, or such other date as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, if not a legal holiday, and if a legal holiday, then on the next day following, at such time as shall be designated by the Board of Directors, when the stockholders shall elect, by a plurality vote except as otherwise provided by law, by the Certificate of Incorporation or by these By-Laws, by ballot, a Board of Directors, and transact such other business as may properly be brought before this meeting. 5. QUORUM. The holders of a majority of the stock issued and outstanding, and entitled to vote thereat, present in person, or represented by proxy, shall be requisite and shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by law, by the Certificate of Incorporation or by these By-Laws. If, however, such majority shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until the requisite amount of voting stock shall be present. At such adjourned meeting at which the requisite amount of voting stock shall be represented, any business may be transacted which might have been transacted at the meeting as originally convened. 6. VOTING PROXIES. At each meeting of the stockholders every stockholder having the right to vote shall be entitled to vote in person or by proxy appointed by an instrument in writing subscribed by such stockholder and bearing a date not more than one year prior to said meeting, unless said instrument provides for a longer period. Each stockholder shall have one vote for each share of stock having voting power registered in his name on the books of the Corporation, provided that, except where the transfer books of the Corporation shall have been closed or a date shall have been fixed as a record date for the determination of stockholders entitled to vote, no share of stock shall be voted at any election of directors which has been transferred on the books of the Corporation within twenty days next preceding such election. The vote for directors, and, upon the demand of any stockholder, the vote upon any question before the meeting shall be by ballot. All elections shall be had and all questions decided by a plurality vote, except such as may, under the provisions of law, the Certificate of Incorporation, or these By-Laws, require the vote of a larger number of shares. 7. NOTICE OF ANNUAL MEETING. Written notice of the annual meeting shall be mailed to each stockholder entitled to vote thereat at such address as appears on the stock records of the Corporation, at least ten days prior to the meeting. 8. STOCKHOLDERS' LIST. A complete list of the stockholders entitled to vote at the ensuing election, arranged in alphabetical order, shall be prepared by the Secretary and shall, during the usual hours of business, be open to the examination of any stockholder at the place where said election is to be held for ten days before such election and shall be produced and kept at the time and place of election during the whole time thereof, and subject to the inspection of any stockholder who may be present. 9. NOTICE OF STOCKHOLDER BUSINESS AT ANNUAL MEETING. The proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders (a) pursuant to the Corporation's notice of meeting, (b) by or at the direction of the Board of Directors or (c) by any stockholder of the Corporation who was a stockholder of record at the time of giving of notice provided for in this By-Law, who is entitled to vote at the meeting and who complies with the notice procedures set forth in this By-Law. For business to be properly brought before an annual meeting pursuant to the foregoing sentence, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation and such business must otherwise be a proper matter for stockholder action. To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 90th day, nor earlier than the close of business on the 120th day, prior to the first anniversary of the preceding year's annual meeting; provided, however, that, in the event that the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made by the Corporation. In no event shall the public announcement of an adjournment of an annual meeting 2 commence a new time period for the giving of a stockholder's notice as described above. Such stockholder's notice shall set forth a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made, and, as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the proposal is made, the name and address of such stockholder as they appear on the Corporation's books and of such beneficial owner, and the class and number of shares of the Corporation that are owned beneficially and of record by such stockholder and such beneficial owner. Notwithstanding anything in these By-Laws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this Section 9. The Chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of this Section 9, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. 10. SPECIAL MEETINGS - CALL. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the Chairman or a Vice Chairman or the President or a majority of the Board of Directors. 11. SPECIAL MEETING - BUSINESS. Business transacted at all special meetings shall be confined to the objects stated in the call. 12. SPECIAL MEETINGS - NOTICE. Written notice of a special meeting of stockholders, stating the time and place and object thereof, shall be mailed, postage prepaid, at least ten days before such meeting, to each stockholder entitled to vote thereat at his last known address as shown by the books of the Corporation. 13. ACTION BY WRITTEN CONSENT OF STOCKHOLDERS. (a) Any action which is required to be or may be taken at any annual or special meeting of stockholders of the Corporation may be taken without a meeting, without prior notice and without a vote, if consents in writing, setting forth the action so taken, shall have been signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote thereon were present and voted; provided, however, that prompt notice of the taking of the corporate action without a meeting and by less than unanimous written consent shall be given to those stockholders who have not consented in writing. (b) The record date for determining stockholders entitled to express consent to corporate action in writing without a meeting shall be fixed by the Board of Directors. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent without a meeting shall, by written notice to the Secretary, request the Board of Directors to fix a record date. Upon receipt of such a request, the Secretary shall place such request before the Board of Directors at its next regularly scheduled meeting, provided, however, that if the stockholder represents in such request that he intends, and is prepared, to commence a consent solicitation as soon as is permitted by the Securities Exchange Act of 1934, as amended, and the regulations thereunder and other applicable law, the Secretary shall as promptly as practicable call a special meeting of the Board of Directors, 3 which meeting shall be held as promptly as practicable. At such regular or special meeting, the Board of Directors shall fix a record date as provided in Section 40 of these By-Laws and Section 213(a) (or its successor provision) of the Delaware General Corporation Law. Should the Board of Directors fail to fix a record date as provided for in this Section 13, then the record date shall be the day on which the first written consent is expressed. (c) In the event of the delivery to the Corporation of written consents purporting to represent the requisite voting power to authorize or take corporate action and/or related revocations, the Secretary of the Corporation shall provide for the safekeeping of such consents and revocations and shall, as promptly as practicable, engage nationally recognized independent inspectors of election for the purpose of promptly performing a ministerial review of the validity of the consents and revocations. No action by written consent and without a meeting shall be effective until such inspectors have completed their review, determined that the requisite number of valid and unrevoked consents has been obtained to authorize or take the action specified in the consents, and certified such determination for entry in the records of the Corporation kept for the purpose of recording the proceedings of meetings of stockholders. DIRECTORS 14. NUMBER. The property and business of the Corporation shall be managed by its Board of not less than ten nor more than twenty-eight directors, with the number to be designated from time to time by resolution of the Board. Directors shall be elected at the annual meeting of the stockholders, except as otherwise provided by the Certificate of Incorporation or by these By-Laws, and each director shall be elected to serve until his successor shall be elected and shall qualify. 15. NOTICE OF STOCKHOLDER NOMINEES. Only persons who are nominated in accordance with the procedures set forth in these By-Laws shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders (a) by or at the direction of the Board of Directors or (b) by any stockholder of the Corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 15. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than 30 days nor more than 60 days prior to the meeting; provided, however, that in the event that less than 40 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (b) as to the stockholder giving the notice (i) the name and address, as they appear on the Corporation's books, of such stockholder and (ii) the class and number of shares of the Corporation which are beneficially owned by such stockholder. At the request of the Board of Directors any person nominated by the Board of Directors for election as a director shall furnish to the Secretary of the Corporation that information required to be set forth in a stockholder's notice of 4 nomination which pertains to the nominee. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in the By-Laws. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by these By-Laws, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. 16. VACANCIES. If the office of any director or directors becomes vacant by reason of death, resignation, retirement, disqualification, removal from office, or otherwise, a majority of the remaining directors, though less than a quorum, except as otherwise provided by law, by the Certificate of Incorporation or by these By-Laws, shall choose a successor until a successor or successors have been duly elected, unless sooner displaced. 17. PLACE OF MEETINGS. The directors may hold their meetings and have one or more offices, and keep the books of the Corporation, except the original or duplicate stock ledger, outside of Delaware, at the office of the Corporation in the City of Minneapolis, Minnesota, or at such other places as they may from time to time determine. 18. POWERS. In addition to the powers and authorities by these By-Laws expressly conferred upon them, the Board may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these By-Laws directed or required to be exercised or done by the stockholders. COMMITTEES 19. PURPOSES - POWERS. The Board of Directors may, by resolution or resolutions, passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation, which to the extent provided in said resolution or resolutions or in these By-Laws, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Corporation, and may have power to authorize the seal of the Corporation to be affixed to all papers which may require it. Such committee or committees shall have such name or names as may be stated in these By-Laws or as may be determined from time to time by resolution adopted by the Board of Directors. 20. MINUTES. The committees may keep regular minutes of their proceedings and shall report to the Board when required. COMPENSATION 21. DIRECTORS. By resolution of the Board, directors may receive a fixed fee for their services, and a fixed sum and expenses of attendance, if any, may be allowed for attendance at each regular or special meeting of the Board; provided, that nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. 5 22. COMMITTEE MEMBERS. Members of special or standing committees may be allowed like compensation for attending committee meetings. MEETINGS OF THE BOARD 23. ANNUAL MEETING. Immediately following the annual meeting of stockholders and at the place of such meeting the newly elected Board shall meet for the purpose of organization, the election of officers and the transaction of other business, and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided that a majority of the whole Board shall be present. In lieu of meeting at such time and place, the newly elected Board may meet at such time and place as may be fixed by the consent in writing of all the directors or by call issued by the Chairman or a Vice Chairman or the President. 24. REGULAR MEETINGS. Regular meetings of the Board may be held without notice at such time and place as shall from time to time be determined by the Board. 25. SPECIAL MEETINGS - CALL. Special meetings of the Board may be called by the Chairman or a Vice Chairman or the President on two days' notice to each director, either personally or by mail or by telegram; special meetings shall be called by the Chairman or a Vice Chairman or the President or the Secretary in like manner and on like notice on the written request of two directors. 26. QUORUM. At all meetings of the Board of Directors any number of directors constituting not less than one-third (1/3) of the total number of members of said Board shall be necessary and sufficient to constitute a quorum for the transaction of business, provided that where there is less than a majority of the Board of Directors present at any meeting, no action by those present, although constituting a quorum, shall be taken except by unanimous vote. OFFICERS 27. OFFICERS. The officers of the Corporation shall be a Chairman, one or more Vice Chairmen, President, a Secretary, a Treasurer, a Controller, a Chief Examiner, a Chief Auditor, and such other officers, and with such duties, as may be determined by the Board as necessary for the prompt and orderly transaction of the business of the Corporation. Any two or more offices may be held by the same person. The Chairman and the President shall be members of the Board of Directors and other officers may be members of the Board of Directors. The salaries of all officers of the Corporation shall be fixed by the Board of Directors. In its discretion, the Board of Directors by a majority vote may leave unfilled any offices specified in the preceding paragraph. 28. ELECTION - APPOINTMENT - TERM OF OFFICE - REMOVAL. All officers holding the title of Chairman, Vice Chairman, President, Secretary, Treasurer, Controller, Chief Examiner, Chief Auditor, 6 and such other officers as may be designated by the Board of Directors shall be elected by the Board of Directors. Any officer elected by the Board of Directors may be removed at any time by the affirmative vote of a majority of the whole Board of Directors. The Board of Directors may authorize officers elected by the Board to appoint other officers and agents pursuant to procedures established by resolution of the Board. All officers shall hold office until their successors are elected or appointed and qualified, unless theretofore they shall have resigned, become disqualified or been removed. 29. CHAIRMAN AND VICE CHAIRMAN. The Chairman may, by resolution of the Board of Directors, be designated Chief Executive Officer of the Corporation. The Chairman shall preside at all meetings of the stockholders and at all meetings of the Board. If the Chairman is not designated Chief Executive Officer, the Chairman shall assist the Chief Executive Officer in the management of the Corporation and shall perform such other duties as the Board of Directors shall prescribe. If the Chairman is not designated Chief Executive Officer, the Chairman shall in the absence or disability of the Chief Executive Officer perform the duties and exercise the powers of the Chief Executive Officer. The Vice Chairman or Chairmen shall assist the Chief Executive Officer in the management of the Corporation and shall perform such other duties as the Board of Directors shall prescribe. In the absence or disability of the Chairman, the President or a Vice Chairman shall perform the duties and exercise the powers of the Chairman. If at any time there shall be elected and serving more than one person in the office of Vice Chairman, then in the absence or disability of the Chairman, the President or the Vice Chairman as designated in writing by the Chief Executive Officer shall perform the duties and exercise the powers of the Chairman. In the absence of such designation by the Chief Executive Officer, then the duties and powers of the Chairman shall be performed and exercised by the President or the Vice Chairman with greater seniority of continuous service in that office or, in the absence of such seniority, seniority of continuous service to the Corporation and its subsidiaries. 30. PRESIDENT. The President may, by resolution of the Board of Directors, be designated Chief Executive Officer of the Corporation. If the President is not designated Chief Executive Officer, the President shall assist the Chief Executive Officer in the management of the Corporation and shall perform such other duties as the Board of Directors shall prescribe. 31. CHIEF EXECUTIVE OFFICER. The Board of Directors shall by resolution designate either the Chairman or the President as the Chief Executive Officer of the Corporation. The Chief Executive Officer shall be charged with the management of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. The Chief Executive Officer shall be charged with the duty of causing to be currently presented to the Board of Directors full information regarding the conditions and operations of the Corporation, as well as matters of a policy nature concerning the affairs of the Corporation and all information requisite to enable the Board in the discharge of its responsibilities to exercise judgment and take action upon all matters requiring its consideration. Except where by law the signature or action of any other officer is required, the Chief Executive Officer shall possess the same power as any such other officer to sign certificates, contracts and other instruments of the Corporation and to take other action on behalf of the 7 Corporation. The Chief Executive Officer shall have the general powers and duties of supervision and management usually vested in the chief executive officer of a corporation. 32. VICE PRESIDENTS. Any Vice President may, in the absence or disability of the Chairman, all Vice Chairmen and the President, perform the duties and exercise the powers of the Chairman, all Vice Chairmen and the President, and shall perform such other duties as the Board of Directors shall prescribe. 33. SECRETARY AND ASSISTANT SECRETARIES. (a) Except as may be otherwise expressly provided in these By-Laws, the Secretary shall attend all sessions of the Board and all meetings of the stockholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose, and shall perform like duties for the standing or special committees when requested. He shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or the Chief Executive Officer, under whose supervision he shall be. He shall keep in safe custody the seal of the Corporation, and, when authorized by the Board, affix the same to any instrument requiring it and when so affixed it shall be attested by his signature or by the signature of the Treasurer or an Assistant Secretary or an Assistant Treasurer. He shall be sworn to the faithful discharge of his duties. (b) Any Assistant Secretary may, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary, and shall perform such other duties as the Board of Directors shall prescribe. (c) If the Board of Directors shall appoint a Secretary to the Board, then such Secretary to the Board shall have and perform the duties of the Secretary and with respect to attendance at and recording of votes and minutes of all proceedings at sessions of the Board and meetings of the stockholders and, when requested, meetings of standing and special committees. 34. TREASURER AND ASSISTANT TREASURERS. (a) The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts thereof, and shall deposit all moneys, and other valuable effects, in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. (b) He shall disburse the funds of the Corporation as may be ordered by the Board, taking proper vouchers for such disbursements, and shall render to the Chief Executive Officer and the Board of Directors, whenever they may require it, an account of all his transactions as Treasurer and of the financial condition of the Corporation. (c) He shall give the Corporation a bond, if required by the Board of Directors, in a sum and with one or more sureties satisfactory to the Board, for the faithful performance of the duties of his office, and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all money and other property of whatever kind in his possession or under his control belonging to the Corporation. 8 (d) Any Assistant Treasurer may, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer, and shall perform such other duties as the Board of Directors shall prescribe. 35. CONTROLLER. The Controller shall supervise all accounting and bookkeeping of the Corporation, shall make such reports to the Board on the financial condition of the Corporation as shall be required by the Board, and shall perform such other duties as the Board shall prescribe. He shall be subject to removal only by the Board of Directors. 36. CHIEF EXAMINER. The Chief Examiner shall examine and appraise the assets of each affiliate of the Corporation, shall make, at least once a year, a report to the Board summarizing the condition of the assets and capital position of the Corporation and its affiliates, and shall perform such other duties as the Board shall prescribe. He shall be subject to removal only by the Board of Directors. 37. DUTIES OF OFFICERS MAY BE DELEGATED. In case of the absence of any officer of the Corporation, or for any other reason that the Board may deem sufficient, the Board may delegate, for the time being, the powers or duties, or any of them, of such officer to any other officer or to any director, provided a majority of the entire Board concurs therein. CERTIFICATED AND UNCERTIFICATED SHARES 38. Shares of the Corporation's stock may be certificated or uncertificated, as provided under Delaware law. All certificates of stock of the Corporation shall be numbered and shall be entered in the books of the Corporation as they are issued. They shall exhibit the holder's name and number of shares and shall be signed by the Chairman or a Vice Chairman or the President or a Vice President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary. Any of or all the signatures on the certificate may be a facsimile. TRANSFERS OF STOCK 39. Transfers of stock shall be made on the books of the Corporation only by the record holder of such stock, or by attorney lawfully constituted in writing, and, in the case of stock represented by a certificate, upon surrender of the certificate. CLOSING OF TRANSFER BOOKS 40. The Board of Directors shall have the power to close the stock transfer books of the Corporation for a period not exceeding fifty days preceding the date of any meeting of stockholders, or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or for a period not exceeding fifty days in connection with obtaining the consent of stockholders for any purpose; provided, however, that in lieu of closing the stock transfer books as aforesaid, the Board 9 of Directors may fix in advance a date not exceeding fifty days preceding the date of any meeting of stockholders, or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining such consent, as a record date for the determination of the stockholders entitled to notice of, and to vote at, any such meeting and any adjournment thereof, or entitled to receive payment of any such dividend, or to any such allotment of rights, or to exercise the rights in respect to any such change, conversion or exchange of capital stock, or to give such consent, and in such case such stockholders, and only such stockholders as shall be stockholders of record on the date so fixed, shall be entitled to notice of, and to vote at, such meeting and any adjournment thereof, or to receive payment of any such dividends or to receive such allotment of rights, or to exercise such rights, or to give such consent, as the case may be, notwithstanding any transfer of such stock on the books of the Corporation after any such record date fixed as aforesaid. REGISTERED STOCKHOLDERS 41. The Corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and accordingly shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person, whether or not it shall have express or other notice thereof, save as expressly provided by the laws of Delaware. LOST CERTIFICATES 42. Any person claiming a certificate of stock to be lost or destroyed shall make an affidavit or affirmation of the fact and advertise the same in such manner as the Board of Directors may require, and the Board of Directors may, in their discretion, require the owner of the lost or destroyed certificate, or his legal representative, to give the Corporation a bond in such sum as they may direct to indemnify the Corporation against any claim that may be made against it on account of the alleged loss of any such certificate, or the issuance of a new certificate; a new certificate of the same tenor and for the same number of shares as the one alleged to be lost or destroyed may be issued without requiring any bond or advertisement when, in the judgment of the directors, it is proper so to do. CONTRACTS 43. Except as may be otherwise expressly provided in these By-Laws, all contracts or other written instruments made in the Corporation's name shall be signed by the Chairman or a Vice Chairman or the President or Executive Vice President or Senior Vice President and attested by the Secretary or an Assistant Secretary, or shall be executed by such other person or persons and in such other manner as shall from time to time be directed by the Board of Directors by appropriate resolutions. STOCK HELD IN OTHER CORPORATIONS 44. VOTING - PROXIES. All capital stocks in other corporations owned by this Corporation shall be voted at the regular and/or special meeting of the stockholders of said other corporations by 10 proxy by an attorney specifically named in a proxy and given a power of attorney to represent this Corporation at such stockholders' meeting for the purposes in said power of attorney specified; and the Chairman or any Vice Chairman or any Vice President together with the Secretary or any Assistant Secretary of this Corporation are hereby authorized to execute and deliver in the name and under the seal of this Corporation proxies in such form as may be required by the corporation whose stock is to be voted thereunder naming as the attorney authorized to act by said proxy such individual or individuals as said Chairman or Vice Chairman or Vice President together with said Secretary or Assistant Secretary shall deem advisable; provided, however, that no stock in other corporations shall be voted, and no proxies to vote the same shall be given, with reference to the adoption, amendment or termination of any pension or profit sharing plan or any other plan of deferred compensation except by the affirmative vote of a majority of the Board of Directors of this Corporation at the time when such action is taken and such majority shall not include any director who is a salaried officer of this Corporation or of any affiliated bank or company. 45. LOCAL DIRECTORS. In the event that this Corporation shall own in excess of fifty percent of the capital stock of any financial or moneyed corporation or association and if in the acquisition of such stock this Corporation shall have agreed that as to the voting of such stock for the election of directors this By-Law or an agreement substantially in accord therewith shall be binding on the Corporation, then and in each such event the stock so acquired shall, at all meetings for the election of a Board of Directors of any such association or corporation, be voted in favor of the election to such Board of a sufficient number of residents of the city where the principal office of such corporation or association is located so that, if the candidate so voted for shall be elected, at least seventy-five percent of the members of said Board of Directors shall be residents of said city. This Section 41 of these By-Laws shall be amended only upon the affirmative vote of eighty percent in amount of the common stock of this Corporation outstanding at the time of such amendment or by the Board of Directors after receipt of the written consent of the holders of at least eighty percent of the common stock of this Corporation. INSPECTION OF BOOKS 46. The directors shall determine from time to time whether, and, if allowed, when and under what conditions and regulations the accounts and books of the Corporation (except as such as may by statute be specifically open to inspection) or any of them shall be open to the inspection of the stockholders, and the stockholders' rights in this respect are and shall be restricted and limited accordingly. CHECKS 47. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or employees as the Board of Directors may from time to time designate. FISCAL YEAR 48. The fiscal year shall begin the first day of January in each year. 11 DIVIDENDS 49. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property or in shares of the capital stock. Before payment of any dividend there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the directors from time to time in their absolute discretion think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the directors shall think conducive to the interests of the Corporation. ANNUAL STATEMENT 50. The Chairman or a Vice Chairman or the President or a Vice President shall present at each annual meeting of stockholders a statement of the business and condition of the Corporation. NOTICES 51. Whenever under the provisions of these By-Laws notice is required to be given to any director, officer or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, by depositing the same in the post office or letter box, in a postpaid sealed wrapper, addressed to such stockholder, officer or director at such address as appears on the books of the Corporation, or, in default of other address, to such director, officer or stockholder at the General Post Office in the City of Wilmington, Delaware, and such notice shall be deemed to be given at the time when the same shall be thus mailed. Any stockholder, director or officer may waive any notice required to be given under these By-Laws. AMENDMENTS 52. These By-Laws, except as hereinabove otherwise provided, may be altered or amended by the affirmative vote of a majority of the stock issued and outstanding and entitled to vote thereat, at any regular or special meeting of the stockholders if notice of the proposed alteration or amendment be contained in the notice of the meeting, or, except as hereinbefore and in the Certificate of Incorporation of this Corporation otherwise provided, by the affirmative vote of a majority of the Board of Directors; provided, however, that no change of the time or place for the election of directors shall be made within sixty days next before the day on which such election is to be held, and that in case of any change of such time or place notice thereof shall be given to each stockholder in person or by letter mailed to his last known post office address at least twenty days before the election is held. 12 EX-10.(A) 4 EXHIBIT 10(A) LONG-TERM INCENTIVE COMPENSATION PLAN (As amended effective February 23, 1999) 1. PURPOSE. The purpose of Wells Fargo & Company's Long-Term Incentive Compensation Plan (the "Plan") is to motivate key employees to produce a superior return to the stockholders of Wells Fargo & Company by offering them an opportunity to participate in stockholder gains, by facilitating stock ownership and by rewarding them for achieving a high level of corporate financial performance. The Plan is also intended to facilitate recruiting and retaining talented executives for key positions by providing an attractive capital accumulation opportunity. 2. DEFINITIONS. 2.1 The following terms, whenever used in this Plan, shall have the meanings set forth below: (a) "Affiliate" means any corporation or limited liability company, a majority of the voting stock or membership interests of which is directly or indirectly owned by the Company, and any partnership or joint venture designated by the Committee in which any such corporation or limited liability company is a partner or joint venturer. (b) "Award" means a grant made under this Plan in the form of Performance Shares, Restricted Stock, Stock Options, Performance Units, Stock Appreciation Rights, or Stock. (c) "Board" means the Board of Directors of the Company. (d) "Committee" means a committee selected by the Board and consisting of two or more members of the Board. (e) "Company" means Wells Fargo & Company, a Delaware corporation formerly known as Norwest Corporation. (f) "Employee" means a regular salaried employee (including an officer or director who is also an employee) of the Company or an Affiliate. (g) "Fair Market Value" as of any date means the immediately preceding trading day's closing price of a share of Stock as reported by the consolidated tape of the New York Stock Exchange. (h) "Incentive Stock Option" means any Option designated as such and granted in accordance with the requirements of Section 422A of the Internal Revenue Code of 1986, as amended. (i) "Non-Qualified Stock Option" means an Option other than an Incentive Stock Option. (j) "Option" means a right to purchase Stock. (k) "Participant" means a person designated by the Committee to receive an Award under the Plan who is an Employee at the time of such designation. (l) "Performance Cycle" means the period of time of not fewer than two years nor more than five years as specified by the Committee over which Performance Shares or Performance Units are to be earned. (m) "Performance Shares" means an Award made pursuant to Section 6 which entitles a Participant to receive Shares, their cash equivalent or a combination thereof based on the achievement of performance targets during a Performance Cycle. (n) "Performance Units" means an Award made pursuant to Section 6 which entitles a Participant to receive cash, Stock or a combination thereof based on the achievement of performance targets during a Performance Cycle. (o) "Plan" means this Long-Term Incentive Compensation Plan, as amended from time to time. (p) "Restricted Stock" means Stock granted under Section 7 that is subject to restrictions imposed pursuant to said Section. (q) For all Awards outstanding on November 2, 1998, "Retirement" means retirement which would entitle a Participant to a benefit under Section 6.1 or Section 6.2 of the Norwest Corporation Pension Plan or under Section 4.1 or Section 4.2 of the Norwest Financial Pension Plan if such plans had remained in effect under their terms as of November 2, 1998. For all Awards granted subsequent to November 2, 1998, "Retirement" means termination of employment after reaching the earlier of (i) age 55 with 10 completed years of service, or (ii) 80 points (with one point credited for each completed age year and one point credited for each completed year of service), or (iii) age 65. For purposes of this definition, a Participant is credited with one year of service after completion of each full 12-month period of employment with the Company or an Affiliate as determined by the Company or Affiliate. -2- (r) "Share" means a share of Stock. (s) "Stock" means the common stock, $1-2/3 par value per share, of the Company. (t) "Stock Appreciation Right" means the right to receive a payment in cash or in Stock or a combination thereof in an amount equal to the excess of the Fair Market Value of the Stock at the time of exercise over the Fair Market Value of the Stock at the time of grant. (u) "Successor" means the legal representative of the estate of a deceased Participant or the person or persons who may acquire the right to exercise an Option or to receive Shares issuable in satisfaction of an Award, by bequest or inheritance. (v) "Term" means the period during which an Option or Stock Appreciation Right may be exercised or the period during which the restrictions placed on Restricted Stock are in effect. 2.2 GENDER AND NUMBER. Except when otherwise indicated by context, reference to the masculine gender shall include, when used, the feminine gender and any term used in the singular shall also include the plural. 3. ADMINISTRATION. The Plan shall be administered by the Committee. Subject to the provisions of the Plan, the Committee shall have exclusive power to determine when and to whom Awards will be granted, the form of each Award, the amount of each Award, and any other terms or conditions of each Award. The Committee's interpretation of the Plan and of any Awards made under the Plan shall be final and binding on all persons with an interest therein. The Committee shall have the authority, subject to the provisions of the Plan, to establish, adopt and revise rules and regulations relating to the Plan as it may deem necessary or advisable for the administration of the Plan. 4. SHARES AVAILABLE UNDER THE PLAN; LIMITATION ON AWARDS. The maximum number of Shares that may be issued under this Plan on and after April 28, 1998 (in addition to Shares which prior to April 28, 1998 were subject to Awards) shall not exceed the sum of (i) the number of Shares available for, but not yet subject to, an Award as of April 28, 1998, plus (ii) 37,000,000 Shares. These Shares may consist, in whole or in part, of authorized but unissued Stock or treasury Stock not reserved for any other purpose. Any Shares subject to the terms and conditions of an Award under this Plan which are forfeited or not issued because the terms and conditions of the Award are not met or for which payment is not made in Stock and any Shares which are used for full or partial payment of the purchase price of Shares with respect to which an Option is exercised may again be used for an Award under the Plan. No Employee may -3- be awarded in any calendar year Options or Stock Appreciation Rights covering an aggregate of more than 7,000,000 Shares. On and after the date referred to in clause (i) above, no more than five percent of the sum of the numbers of Shares described in clauses (i) and (ii) above shall be issued pursuant to Awards of unrestricted Stock not granted in lieu of salary, cash bonus or other cash compensation, Awards of Performance Shares or Performance Units earned over a Performance Cycle of less than three years, and Awards of Restricted Stock having Terms of less than three years at the time of grant. 5. PARTICIPATION. Participation in the Plan shall be limited to key Employees of the Company or an Affiliate selected by the Committee. Participation is entirely at the discretion of the Committee, and is not automatically continued after an initial period of participation. 6. PERFORMANCE SHARES AND PERFORMANCE UNITS. An Award of Performance Shares or Performance Units under the Plan shall entitle the Participant to future payments or Shares or a combination thereof based upon the achievement of pre-established performance targets. 6.1 AMOUNT OF AWARD. The Committee shall establish a maximum amount of a Participant's Award, which amount shall be denominated in Shares in the case of Performance Shares or in dollars in the case of Performance Units. 6.2 COMMUNICATION OF AWARD. Written notice of the maximum amount of a Participant's Award and the Performance Cycle determined by the Committee shall be given to a Participant as soon as practicable after approval of the Award by the Committee. 6.3 AMOUNT OF AWARD PAYABLE. The Committee shall establish maximum and minimum performance targets to be achieved during the applicable Performance Cycle. Performance targets established by the Committee shall relate to corporate, group, unit or individual performance and may be established in terms of earnings, growth in earnings, ratios of earnings to equity or assets, or such other measures or standards determined by the Committee. Multiple performance targets may be used and the components of multiple performance targets may be given the same or different weighting in determining the amount of an Award earned, and may relate to absolute performance or relative performance measured against other groups, units, individuals or entities. Achievement of the maximum performance target shall entitle the Participant to payment (subject to Section 6.5) at the full or maximum amount specified with respect to the Award; provided, however, that notwithstanding any other provisions of this Plan, in the case of an Award of Performance Shares the Committee in its discretion may -4- establish an upper limit on the amount payable (whether in cash or Stock) as a result of the achievement of the maximum performance target. The Committee may also establish that a portion of a full or maximum amount of a Participant's Award will be paid (subject to Section 6.5) for performance which exceeds the minimum performance target but falls below the maximum performance target applicable to such Award. 6.4 ADJUSTMENTS. At any time prior to payment of a Performance Share or Performance Unit Award, the Committee may adjust previously established performance targets or other terms and conditions to reflect events such as changes in law, regulation, or accounting practice, or mergers, acquisitions or divestitures. 6.5 PAYMENT OF AWARDS. Following the conclusion of each Performance Cycle, the Committee shall determine the extent to which performance targets have been attained, and the satisfaction of any other terms and conditions with respect to an Award relating to such Performance Cycle. The Committee shall determine what, if any, payment is due with respect to an Award and whether such payment shall be made in cash, Stock or some combination. Payment shall be made in a lump sum or installments, as determined by the Committee, commencing as promptly as practicable following the end of the applicable Performance Cycle, subject to such terms and conditions and in such form as may be prescribed by the Committee. Payment in Stock may be in Restricted Stock. 6.6 TERMINATION OF EMPLOYMENT. If a Participant ceases to be an Employee before the end of a Performance Cycle by reason of his death, permanent disability or Retirement, the Performance Cycle for such Participant for the purpose of determining the amount of Award payable shall end at the end of the calendar quarter immediately preceding the date on which such Participant ceased to be an Employee. The amount of an Award payable to a Participant to whom the preceding sentence is applicable shall be paid at the end of the Performance Cycle and shall be that fraction of the Award computed pursuant to the preceding sentence the numerator of which is the number of calendar quarters during the Performance Cycle during all of which said Participant was an Employee and the denominator of which is the number of full calendar quarters in the Performance Cycle. Upon any other termination of employment of a Participant during a Performance Cycle, participation in the Plan shall cease and all outstanding Awards of Performance Shares or Performance Units to such Participant shall be cancelled. -5- 7. RESTRICTED STOCK AWARDS. An Award of Restricted Stock under the Plan shall consist of Shares subject to restrictions on transfer, conditions of forfeiture, and such other terms and conditions as the Committee shall determine. 7.1 AGREEMENTS. An Award of Restricted Stock shall be evidenced by a Restricted Stock agreement in such form and not inconsistent with this Plan as the Committee shall approve from time to time, which shall include the following terms and conditions: (a) RESTRICTIONS. A statement of the terms, conditions, and restrictions to which the Restricted Stock awarded is subject, including, without limitation, terms requiring forfeiture and imposing restriction on transfer for such Term or Terms as shall be determined by the Committee subject to the provisions of this Plan. The Committee shall have the authority to permit in its discretion an acceleration of the expiration of the applicable Term with respect to any part or all of the Restricted Stock awarded to a Participant in connection with severance arrangements or changes in law, regulation or accounting practice. (b) LAPSE OF RESTRICTIONS. A statement of the terms and any other conditions upon which any restrictions upon Restricted Stock awarded shall lapse, as determined by the Committee subject to the provisions of this Plan. Upon the lapse of the restrictions, Shares free of restrictive legend, if any, shall be issued to the Participant or his Successor. 7.2 TERM. Subject to acceleration of the expiration of the Term as provided in or permitted by this Plan, the minimum Term for Restricted Stock shall be three years unless the lapse of restrictions is conditioned on the achievement of one or more pre-established performance targets, in which case the minimum Term shall be not less than one year, or the Restricted Stock is granted in lieu of salary, cash bonus or other cash compensation, in which case there may be no minimum Term. 7.3 NONTRANSFERABILITY. Restricted Stock awarded, and the right to vote such Restricted Stock and to receive dividends thereon, may not be sold, assigned, transferred, exchanged, pledged, or otherwise encumbered, during the Term applicable to the Award. A Participant with a Restricted Stock Award shall have all the other rights of a stockholder including, but not limited to, the right to receive dividends and the right to vote the Shares. 7.4 TERMINATION OF EMPLOYMENT. If a Participant ceases to be an Employee prior to the lapse of restrictions by reason of his death, permanent -6- disability or Retirement, all restrictions on Shares of Restricted Stock held for his benefit shall immediately lapse. Upon any other termination of employment prior to the lapse of restrictions, participation in the Plan shall cease and all Shares of Restricted Stock held for the benefit of a Participant shall be forfeited by the Participant. 7.5 CERTIFICATES. Each certificate issued in respect to an Award of Restricted Stock shall be deposited with the Company or its designee and may, at the election of the Committee, bear the following legend: "This certificate and the shares of stock represented hereby are subject to the terms and conditions (including forfeiture provisions and restrictions against transfer) contained in the Long-Term Incentive Compensation Plan and an Agreement entered into between the registered owner and Wells Fargo & Company. Release from such terms and conditions shall obtain only in accordance with the provisions of the Plan and Agreement, a copy of each of which is on file in the office of the Secretary of Wells Fargo & Company." 8. STOCK AWARDS. Awards of Stock without restrictions may be made according to terms and conditions established by the Committee. 9. STOCK OPTIONS. 9.1 AGREEMENTS. An Award of an Option shall be evidenced by a document or other communication containing such terms and conditions as the Committee shall approve from time to time, which terms and conditions shall include the following: (a) TYPE OF OPTION; NUMBER OF SHARES. A statement identifying the Option represented thereby as an Incentive Stock Option or Non-Qualified Stock Option, as the case may be, and the number of Shares to which the Option applies. (b) OPTION PRICE. A statement of the purchase price of the Stock subject to Option which shall not be less than the Fair Market Value, and in any event not less than the par value, of the Stock on the date the Option is granted. (c) EXERCISE TERM. A statement of the Term of each Option granted as established by the Committee, provided that no Option shall be exercisable after ten years from the date of grant. The Committee shall have the authority to permit an acceleration of previously established Terms, at its discretion. -7- (d) PAYMENT FOR SHARES. A statement that the purchase price of the Shares with respect to which an Option is exercised shall be payable at the time of exercise in accordance with procedures established by the Company. The purchase price may be payable in cash, in Stock having a Fair Market Value on the date the Option is exercised equal to the Option price of the Stock being purchased pursuant to the Option, or a combination thereof, as the Committee shall determine. The Committee may, either at the time the Option is granted or any time before it is exercised, subject to such limitations as the Committee may determine, authorize payment of the purchase price of the Option by delivery to the Company of irrevocable instructions to a broker, or some other communication acceptable to the Company, requiring prompt delivery to the Company of the amount of sale proceeds to pay the Option purchase price and all applicable withholding taxes resulting from such exercise. (e) NONTRANSFERABILITY. Each Option agreement shall state that the Option is not transferable other than by will, the laws of descent and distribution or by the Participant designating a beneficiary in accordance with this Section 9.1(e). During the lifetime of the Participant, Options may be exercised only by the Participant or by the Participant's legal representative. The Participant may, by completing and signing a written beneficiary designation form which is delivered to and accepted by the Company, designate a beneficiary to exercise and receive any outstanding Options (and all outstanding Stock Appreciation Rights granted in conjunction with Options) upon the Participant's death. If at the time of the Participant's death there is not on file a fully effective beneficiary designation form, or if the designated beneficiary did not survive the Participant, the legal representative of the Participant's estate shall have the right to exercise the Option. (f) INCENTIVE STOCK OPTIONS. In the case of an Incentive Stock Option, each Option agreement shall be subject to any terms, conditions and provisions as the Committee determines necessary or desirable in order to qualify the Option as an Incentive Stock Option (within the meaning of Section 422A of the Internal Revenue Code of 1986, or any amendment or regulation pertaining to it) or any other law or regulation providing special tax treatment for stock options and related stock. Provided, however, that the aggregate Fair Market Value (as determined at the effective date of the grant) of the Stock with respect to which Incentive Stock Options are exercisable for the first time by the Participant during any calendar year shall not exceed $100,000. -8- 9.2 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, OR RETIREMENT. (a) If a Participant ceases to be an Employee by reason of his death, permanent disability or Retirement, each outstanding Option shall become exercisable to the extent and for such period or periods determined by the Committee but not beyond the expiration date of said Option. If a Participant dies before exercising all outstanding Options, the outstanding Options shall be exercisable by the Participant's beneficiary determined in accordance with Section 9.1(e). (b) If a Participant ceases to be an Employee by reason of his death, permanent disability or Retirement, each outstanding Stock Appreciation Right granted in conjunction with an Option shall become exercisable to the extent and for such period or periods determined by the Committee but not beyond the expiration date of said Stock Appreciation Right. If a Participant dies before exercising all outstanding Stock Appreciation Rights granted in conjunction with Options, said outstanding Stock Appreciation Rights shall be exercisable by the Participant's beneficiary determined in accordance with Section 9.1(e). 9.3 TERMINATION OF EMPLOYMENT FOR REASONS OTHER THAN DEATH, DISABILITY, OR RETIREMENT. Except as otherwise determined by the Committee, in the event a Participant ceases to be an Employee for any reason other than his death, permanent disability or Retirement, all rights of the Participant under this Plan shall immediately terminate without notice of any kind. 10. STOCK APPRECIATION RIGHTS. An Award of a Stock Appreciation Right shall entitle the Participant, subject to terms and conditions determined by the Committee, to receive upon exercise of the right all or a portion of the excess of (i) the Fair Market Value of a specified number of Shares at the time of exercise over (ii) a specified price which shall not be less than 100% of the Fair Market Value of the Shares at the time of grant. Stock Appreciation Rights may be granted in connection with a previously or contemporaneously granted Option, or independent of any Option. If issued in connection with an Option, the Committee may impose a condition that exercise of a Stock Appreciation Right cancels the Option with which it is connected. A Stock Appreciation Right may not be exercised at any time when the Fair Market Value of the Shares of Stock to which it relates does not exceed the exercise price of the Option associated with those Shares. 10.1 AGREEMENT. An Award of a Stock Appreciation Right shall be evidenced by a Stock Appreciation Right agreement in such form and not inconsistent with this Plan as the Committee shall approve from time to -9- time, which shall include a statement of the Term within which the Stock Appreciation Right may be exercised subject to terms and conditions prescribed by the Committee, provided that no Stock Appreciation Right shall be exercisable after ten years from the date of grant. The Committee shall have the authority to permit an acceleration of previously established exercise Terms. 10.2 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, OR RETIREMENT. If a Participant ceases to be an Employee by reason of his death, permanent disability or Retirement, each Stock Appreciation Right then outstanding which was granted independent of any Option shall become exercisable to the extent and for such period or periods determined by the Committee but not beyond the expiration date of said Stock Appreciation Right. 10.3 TERMINATION OF EMPLOYMENT FOR REASONS OTHER THAN DEATH, DISABILITY, OR RETIREMENT. Except as otherwise determined by the Committee, in the event a Participant ceases to be an Employee for any reason other than his death, permanent disability or Retirement, all rights of the Participant under this Plan shall immediately terminate without notice of any kind. 10.4 PAYMENT. Upon exercise of a Stock Appreciation Right, payment shall be made in the form of cash or Stock or some combination thereof as determined by the Committee. However, notwithstanding any other provisions of this Plan, in no event may the payment (whether in cash or Stock) upon exercise of a Stock Appreciation Right exceed an amount equal to 100% of the Fair Market Value of the Shares at the time of grant. 11. NONTRANSFERABILITY OF RIGHTS. Except as otherwise set forth in this Plan, no rights under any Award will be transferable other than by will or the laws of descent and distribution, and the rights and the benefits of any Award may be exercised and received during the lifetime of the Participant only by the Participant or by the Participant's legal representative. 12. TERMINATION OF EMPLOYMENT. 12.1 Transfers of employment between the Company and an Affiliate, or between Affiliates, will not constitute termination of employment for purposes of any Award. 12.2 The Committee may specify in the agreement relating to an Award whether any authorized leave of absence or absence for military or government service or for any other reasons will constitute a termination of employment for purposes of the Award and the Plan. -10- 13. REORGANIZATION. If substantially all of the assets of the Company are acquired by another corporation or in case of a reorganization of the Company involving the acquisition of the Company by another entity, then as to each Participant who is an Employee immediately prior to the consummation of the transaction: (a) All outstanding Options and Stock Appreciation Rights shall become exercisable immediately prior to the consummation of the transaction. (b) All restrictions with respect to Restricted Stock shall lapse immediately prior to the consummation of the transaction. (c) All Performance Cycles for the purpose of determining the amounts of Awards of Performance Shares and Performance Units payable shall end at the end of the calendar quarter immediately preceding the consummation of the transaction. The amount of an Award payable shall be that fraction of the Award computed pursuant to the preceding sentence the numerator of which is the number of calendar quarters completed in the Performance Cycle through the end of the calendar quarter immediately preceding the consummation of the transaction and the denominator of which is the number of full calendar quarters in the Performance Cycle. The amount of an Award payable shall be paid within sixty days after consummation of the transaction. The Committee shall take such action as in their discretion may be necessary or advisable to carry out the provisions of this Section. 14. BOARD CHANGES. On the date that a majority of the Board shall be persons other than persons (a) for whose election proxies shall have been solicited by the Board or (b) who are then serving as directors appointed by the Board to fill vacancies on the Board caused by death or resignation (but not by removal) or to fill newly-created directorships, then as to any Participant who is an Employee immediately prior to said date and who ceases to be an Employee within six months after said date for any reason other than as a result of death, permanent disability or Retirement: (i) All outstanding Options and Stock Appreciation Rights shall become immediately exercisable and may be exercised at any time within six months after the Participant ceases to be an Employee. (ii) All restrictions with respect to Restricted Stock shall lapse and Shares free of restrictive legend shall be delivered to the Participant. (iii) All Performance Cycles for the purpose of determining the amounts of Awards of Performance Shares and Performance Units payable shall end -11- at the end of the calendar quarter immediately preceding the date on which said Participant ceased to be an Employee. The amount of an Award payable to said Participant shall be that fraction of the Award computed pursuant to the preceding sentence the numerator of which is the number of calendar quarters during the Performance Cycle during all of which said Participant was an Employee and the denominator of which is the number of full calendar quarters in the Performance Cycle. The amount of an Award payable shall be paid within sixty days after said Participant ceases to be an Employee. The Committee shall take such action as in their discretion may be necessary or advisable to carry out the provisions of this Section. 15. EFFECTIVE DATE OF THE PLAN. 15.1 EFFECTIVE DATE. The Plan shall become effective as of September 25, 1984 upon the approval and ratification of the Plan by the affirmative vote of the holders of a majority of the outstanding Shares of Stock present or represented and entitled to vote in person or by proxy at a meeting of the stockholders of the Company. 15.2 DURATION OF THE PLAN. The Plan shall remain in effect until all Stock subject to it shall be distributed, until the Term of all Options or Stock Appreciation Rights granted under this Plan shall expire, until all restrictions on Restricted Stock granted under this Plan shall lapse, or until the Performance Cycle for any Performance Shares or Performance Units awarded under this Plan shall end. 16. RIGHT TO TERMINATE EMPLOYMENT. Nothing in the Plan shall confer upon any Participant the right to continue in the employment of the Company or any Affiliate or affect any right which the Company or any Affiliate may have to terminate employment of the Participant. 17. WITHHOLDING TAXES. The Company and its Affiliates shall have the right to deduct from all payments under this Plan, whether in cash or in Stock, an amount necessary to satisfy any federal, state or local withholding tax requirements. 18. DEFERRAL OF PAYMENTS. The Company may, from time to time, establish rules and conditions under which a Participant may defer the payment of Awards. Such terms and conditions shall be included in a deferral agreement signed by a Participant electing such deferral. 19. AMENDMENT, MODIFICATION AND TERMINATION OF THE PLAN. The Board or Committee may at any time terminate, suspend or modify the Plan, except that the Board or Committee will not, without authorization of the stockholders of the -12- Company, effect any change (other than through adjustment for changes in capitalization as provided in Section 20) which will: (a) Increase the total amount of Stock which may be awarded under the Plan. (b) Change the class of Employees eligible to participate in the Plan. (c) Withdraw the administration of the Plan from the Committee. (d) Permit any person, while a member of the Committee, to be eligible to participate in the Plan. (e) Extend the duration of the Plan. No termination, suspension, or modification of the Plan will adversely affect any right acquired by any Participant or any Successor under an Award granted before the date of termination, suspension, or modification, unless otherwise agreed to by the Participant; but it will be conclusively presumed that any adjustment for changes in capitalization provided for in Section 20 does not adversely affect any right. 20. ADJUSTMENT FOR CHANGES IN CAPITALIZATION. Any change in the number of outstanding Shares occurring through Stock splits, reverse Stock splits, or Stock dividends after the grant of an Award will be reflected proportionately in the aggregate number of Shares then available for Awards and in the number of Shares subject to Awards then outstanding; and a proportionate change will be made in the per share Option price as to any outstanding Options. Any fractional Shares resulting from adjustments will be rounded to the nearest whole Share. 7/22/97 10/2/97 4/28/98 7/28/98 2/23/99 -13- WELLS FARGO LONG-TERM INCENTIVE COMPENSATION PLAN RESTRICTED STOCK GRANT AGREEMENT This Restricted Stock Agreement (this "Agreement") between Wells Fargo & Company (the "Company"), and ________________________ (the "Participant") is dated as of __________________. The purpose of this Agreement is to implement the Company's Long-Term Incentive Compensation Plan, as amended ("Plan"). 1. GRANT - GRANT NUMBER: RS . The Company hereby grants Participant _______ shares of the Company's Restricted Stock (the "Restricted Stock Grant") subject to the terms of this Agreement. 2. TRANSFER RESTRICTION Participant may not sell, assign, pledge, encumber or otherwise transfer any of the shares of the Restricted Stock Grant until the Restriction Lapse described in paragraph 3 below ("Transfer Restriction"). Prior to the Restriction Lapse, any stock certificates issued to Participant for the Restricted Stock Grant shall be in the sole custody of the Company. 3. RESTRICTION LAPSE Subject to the terms of the Plan, the Transfer Restriction on the Restricted Stock Grant shall lapse in accordance with the following schedule (if not forfeited prior to that date): (a) thirty percent of the Restricted Stock Grant (rounded down to the nearest whole share) on the third anniversary of the grant (____________, 20__); and (b) an additional thirty percent of the Restricted Stock Grant (rounded down to the nearest whole share) on the fourth anniversary of the grant (_______________, 20__); and (c) the remainder of the Restricted Stock Grant on the fifth anniversary of the grant (________, 20__) Provided, however, that if Participant is an Employee immediately prior to a reorganization as described in Section 13 of the Plan, the Transfer Restriction shall lapse immediately prior to the consummation of the reorganization for the entire Restricted Stock Grant. In addition, if Participant is an Employee immediately prior to a change in the Board as described in Section 14 of the Plan and thereafter within six months after said change in the Board terminates his or her employment with the Company or an Affiliate for any reason other than death, permanent disability or Retirement, the Transfer Restriction shall lapse on said termination date for the entire Restricted Stock Grant. Upon lapse of the Transfer Restriction, stock certificates issued to Participant for said shares shall be delivered to the Participant. 4. FORFEITURE Participant's right to retain the Restricted Stock Grant, or any portion thereof, is subject to his/her continuous employment by the Company or an Affiliate until the Restriction Lapse. If Participant's employment by the Company or an Affiliate terminates for any reason prior to the Restriction Lapse, the Restricted Stock Grant (or the relevant portion(s) thereof) shall be forfeited and revert to the Company. However, no such forfeiture shall occur if the termination of the Participant's employment is due to the Participant's death, permanent disability or Retirement. 5. VOTING POWER AND TAXES Prior to the earlier of the Restriction Lapse or forfeiture of the Restricted Stock Grant, Participant shall have voting power with respect to said shares and shall receive dividends thereon. Any dividends or other distributions with respect to the Restricted Stock Grant which are payable in Stock shall be subject to the same restrictions then applicable to the Restricted Stock Grant and shall thereafter be considered Restricted Stock for purposes of this Agreement. If Participant recognizes ordinary income on the Restricted Stock Grant or any related payments, it may be necessary to withhold income taxes and social security taxes. Participant agrees to pay the Company or its Affiliate to satisfy any withholding obligations. Payment may be made by Participant in cash or, at Participant's election, the Company may withhold from the Shares to be issued the number of Shares (based on the Fair Market Value of the Stock as of the date of the Restriction Lapse) that would satisfy the withholding taxes due (except that any fractional share amount shall be paid by the Participant in cash). The Company will not be obligated to deliver any stock certificates for said Shares until withholding obligations are met. 6. DEFINITIONS Capitalized terms not otherwise defined herein are used as defined in the Plan. 7. This Agreement is subject to the Plan and to the extent this Agreement and the Plan are inconsistent, the Plan shall govern. Nothing in this Agreement shall interfere with or limit in any way the right of the Company or any of its Affiliates to terminate Participant's employment at any time, nor confer upon Participant any right to continue in the employ of the Company or any of its Affiliates. 8. This Agreement, together with the Plan, is the entire Agreement between the Participant and the Company with regard to the Restricted Stock Grant and may not be modified except in writing, signed by both parties hereto. This Agreement is binding on the parties hereto and their respective successors and assigns. It is governed and construed in accordance with the laws of Delaware. IN WITNESS WHEREOF, the Participant and the Company have executed this Agreement as of the date above. WELLS FARGO & COMPANY By: -------------------------------------- Its: Executive Vice President - ------------------------------------------ Participant -2- WELLS FARGO LONG-TERM INCENTIVE COMPENSATION PLAN NON-QUALIFIED STOCK OPTION AGREEMENT WITH RIGHT TO ACQUIRE A RELOAD STOCK OPTION NAME: Name SOC. SEC. NO.: SSN GRANT DATE: EXPIRATION DATE: [10 years from grant date] SHARES: # shares EXERCISE PRICE: 1. GRANT OF OPTION. Wells Fargo & Company (the "Company") has granted to you an option ("Option") to purchase _______ shares (the "Shares") of Wells Fargo & Company common stock ("Common Stock"). The Option is granted subject in all respects to the terms of the Company's Long-Term Incentive Compensation Plan (the "Plan"). 2. TERM, VESTING AND EXERCISE OF OPTION. The term of this Option commences on [Grant Date] and, except as provided in paragraph 3 below, ends on [Expiration Date], provided you are continuously employed by the Company or an Affiliate ("Wells Fargo"). If your employment with Wells Fargo is terminated, the Option may be exercised only as described in paragraph 3 below. While you are alive, the Option may be exercised only by you or your legal representative. Except as provided in paragraph 3 below, this Option becomes exercisable ("vests") according to the following table provided it has not been terminated before such date in accordance with the provisions of this Option: Shares shares on Date Shares shares on Date Shares shares on Date To exercise all or part of the Option you must deliver a "Notice of Exercise," in such form as the Company authorizes, along with payment as described herein of the exercise price and all applicable withholding taxes. You must pay the exercise price on the day you exercise the Option (a) in cash, (b) in whole shares of Common Stock valued at their Fair Market Value (the prior trading day's closing price), or (c) by delivering, with your Notice of Exercise, irrevocable instructions to a broker to promptly deliver to the Company the amount of the exercise price and all applicable withholding taxes. If Stock is used to pay the exercise price ("swap transaction"), the Stock used (i) must have been owned by you for at least six months prior to the date of exercise or purchased by you in the open market; and (ii) must not have been used in a stock-for-stock swap transaction within the preceding six months. You shall not have any rights as a stockholder with respect to the Shares of Common Stock subject to the Option until you have exercised the Option for such Shares. 3. RETIREMENT, DISABILITY, DEATH OR OTHER TERMINATION OF EMPLOYMENT. If your termination of employment is due to Retirement, your Option will immediately vest and become exercisable until the expiration date or until one year after your date of death, whichever occurs first. If you become permanently disabled while you are employed by Wells Fargo, then your entire Option is immediately vested and exercisable and will remain exercisable until one year after your date of death or until the Option expires, whichever occurs first. If you die while you are employed by Wells Fargo, the entire Option is immediately vested and exercisable, and the beneficiary as set forth in the Plan may exercise the Option until one year after the date of your death or until the Option expires, whichever occurs first. If you leave Wells Fargo's employment for any reason other than death, permanent disability, Retirement, or discharge for cause, you may exercise at any time within three (3) months after the date of termination that part of the Option which was exercisable on the date of termination. If you are discharged for cause, the Option will expire upon receipt by you of oral or written notice of termination. 4. COMPLIANCE AND WITHHOLDING TAXES. The issuance of Shares upon the exercise of the Option shall be subject to compliance by the Company and you with all applicable requirements of law relating thereto, including withholding tax obligations, and with all applicable regulations of any stock exchange on which the Common Stock may be listed at the time of such issuance. You agree to satisfy all withholding tax obligations applicable to the acquisition of Shares under the Option or the disposition of such Shares that the Company deems necessary. Income taxes are computed based on the difference between the Fair Market Value of the Shares acquired as of the date of exercise and the exercise price for those Shares. Taxes may be paid either in cash or, if you elect, by having the Company withhold from the Shares to be issued a number of Shares (valued at their Fair Market Value as of the date of exercise) necessary to satisfy the taxes. The Company is not obligated to exercise the Option and/or deliver the Shares until all payment obligations are met. 5. RELOAD OPTION. If you exercise this Option while you are employed by Wells Fargo and pay the exercise price in Stock as described herein, you are hereby granted a non-qualified reload stock option ("Reload Option") at the Fair Market Value as of the date of such exercise. The Reload Option will be for the number of whole Shares used in the swap exercise to pay the exercise price plus a number of Shares with respect to the tax liability related to the exercise. Subject to the provisions of paragraph 3, the Reload Option may be exercised between the date of grant and the date of expiration of this Option. The Reload Option shall be subject to the terms and conditions of this Agreement, as modified by this paragraph 5. No Reload Option is granted if this Option is exercised after your Retirement, permanent disability, death or other termination of employment. No Reload Option is granted upon exercise of the Reload Option. 6. TRANSFERABILITY OF OPTION. The Option may be transferred only by will, the laws of descent and distribution or by your designating a beneficiary in accordance with Section 9.1(e) of the Plan. 7. NO AGREEMENT FOR WELLS FARGO TO CONTINUE YOUR EMPLOYMENT. Nothing in this Agreement gives you any right to continued employment and Wells Fargo may terminate you at any time for any reason. 8. GENERAL RESTRICTIONS. The Company may delay the exercise of the Option if it determines that (a) the Shares subject to the Option should be listed, registered or qualified on any securities exchange or under any law, or (b) the consent of a regulatory body is desirable. 9. ADDITIONAL PROVISIONS AND INTERPRETATION OF THIS AGREEMENT. This Agreement is subject to the provisions of the Plan. Capitalized terms not defined in this Agreement are used as defined in the Plan. If the Plan and this Agreement are inconsistent, provisions of the Plan will govern. Interpretations of the Plan and this Agreement by the Committee are binding on you and the Company. EX-10.(M) 5 EXHIBIT 10(M) WELLS FARGO & COMPANY DIRECTORS FORMULA STOCK AWARD PLAN (As amended effective January 1, 1999) 1. PURPOSE. The purpose of the Wells Fargo & Company Directors Formula Stock Award Plan (the "Plan") is to provide compensation in the form of shares of the Company's common stock, $1 2/3 par value per share ("Common Stock"), to non-employee members of the Board of Directors (the "Board") of Wells Fargo & Company (the "Company") in consideration for personal services rendered in their capacity as directors of the Company. The Plan is intended to aid in attracting and retaining individuals of outstanding abilities and skills for service on the Board. 2. ELIGIBILITY. Any person who was a non-employee director of the Company on the last day of a calendar year preceding an Award Date (as defined below) shall be referred to hereinafter as an "Eligible Non-Employee Director" and shall be awarded shares of Common Stock determined as set forth in Section 3. 3. FORMULA AWARD. In consideration for past services rendered, on February 1 of each year beginning February 1, 1997 (the "Award Date"), each Eligible Non-Employee Director shall be awarded that number of shares of Common Stock having an aggregate fair market value on the Award Date equal to one-twelfth of the annual cash retainer established by the Board and in effect as of the immediately preceding January 1, for each month or portion of a month during which he or she served as a non-employee director of the Company, rounded up to the next whole share (an "Award"). The fair market value shall be determined using the closing price of a share of Common Stock as reported on the consolidated tape of the New York Stock Exchange. 4. DEFERRAL OF AWARDS. An Eligible Non-Employee Director may elect to defer under the terms of the 1999 Deferral Plan for Directors, in the form of shares of Common Stock, all or a portion of the Award for his or her service as a director for the calendar year (the "Deferral Year") following the year in which the deferral election is made. Such election shall be made pursuant to the terms of the 1999 Directors' Deferred Compensation Plan. 5. SHARES AVAILABLE FOR AWARDS. Subject to Section 6, no more than 200,000 shares of Common Stock may be awarded under the Plan. These shares may consist, in whole or in part, of authorized but unissued Common Stock or treasury Common Stock not reserved for any other purpose. 6. ADJUSTMENTS FOR CERTAIN CHANGES IN CAPITALIZATION. If the Company shall at any time increase or decrease the number of its outstanding shares of Common Stock or change in any way the rights and privileges of such shares by means of the payment of a stock dividend or any other distribution upon such shares payable in Common Stock, or through a stock split, subdivision, consolidation, combination, reclassification, or recapitalization involving the Common Stock, then the numbers, rights, and privileges of the shares issuable under the Plan shall be increased, decreased, or changed in like manner as if such shares had been issued and outstanding, fully paid, and nonassessable at the time of such occurrence. 7. EFFECTIVE DATE. The Plan shall become effective on January 1, 1992. 8. NO GUARANTEE OF SERVICE. Participation in the Plan does not constitute a guarantee or contract of service as a director. 9. NON-ASSIGNABILITY. No right to receive an award hereunder shall be transferable or assignable by a Plan participant other than by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Internal Revenue Code of 1986, as amended, Title I of the Employee Retirement Income Security Act ("ERISA"), or rules thereunder. The designation of a beneficiary by a participant pursuant to the terms of the 1999 Directors' Deferred Compensation Plan does not constitute a transfer. 10. ADMINISTRATION. This Plan shall be administered under such rules and procedures as shall be established from time to time by the Company's senior human resources officer (the "Plan Administrator"). 11. AMENDMENT AND TERMINATION. This Plan may be amended, suspended or terminated by action of the Board or the Board Affairs Committee, or any successor committee, of the Board and automatically shall be terminated when all Common Stock subject to the Plan has been awarded; provided, however, that (a) the provisions of the Plan may not be amended more than once every six months, other than to comport with changes in the Internal Revenue Code, the Employee Retirement Income Security Act, or the rules thereunder; (b) if the Plan has been approved by the stockholders of the Company, any amendment shall be similarly approved if the amendment would (i) materially increase the benefits accruing to participants under the Plan; or (ii) materially increase the number of securities which may be issued under the Plan; or (iii)materially modify the requirements as to eligibility for participation in the Plan; and (c) if at the time of any such proposed amendment, suspension or termination, any member of such committee does not satisfy the requirements applicable to committee approval contained in regulations of the Securities Exchange Commission promulgated under Section 16 of the Securities Exchange Act of 1934, and applicable interpretations thereof, any such amendment, suspension or termination must be approved by the Board. 2 EX-10.(N) 6 EXHIBIT 10(N) WELLS FARGO & COMPANY 1999 DIRECTORS STOCK OPTION PLAN I. PURPOSE The purpose of the Wells Fargo & Company 1999 Directors Stock Option Plan is to provide an opportunity to non-employee members of the Board of Directors of the Company to participate in stockholder gains in consideration for personal services rendered in their capacity as directors of the Company. The Plan is also intended to aid in attracting and retaining individuals of outstanding abilities and skills for service on the Company's Board of Directors. II. DEFINITIONS When used in this Plan, the following capitalized terms shall have the meanings indicated below: AWARD DATE The day of the Company's annual meeting of stockholders in each year, beginning in 1999. COMMON STOCK Common Stock of the Company, $1 2/3 par value. COMPANY Wells Fargo & Company. FAIR MARKET VALUE The closing price per share of the Common Stock reported among the New York Stock Exchange composite transactions for the trading day immediately preceding the option grant date or exercise date, as the case may be. NON-EMPLOYEE DIRECTOR Any member of the Board of Directors of the Company who is not an officer or employee of the Company or of a subsidiary of the Company. PLAN ADMINISTRATOR The Company's Director of Human Resources. III. OPTION AWARD FORMULA Every Non-Employee Director who is elected or re-elected to the Board of Directors by the stockholders of the Company shall automatically receive an option as of each Award Date to purchase Common Stock with a value of $25,000 on such date determined in accordance with the Black-Scholes option pricing model. A Non-Employee Director who joins the Board of Directors on any date other than the Award Date shall automatically receive as of such other date an option to purchase Common Stock with the same value determined as of such other date, prorated to reflect the number of months (rounded up to the next whole month) remaining until the next Award Date. The exercise price per share for each stock option granted under this Plan shall be the Fair Market Value of the Common Stock as of the date the option is granted. The number of shares subject to any such option shall be determined using parameters determined as of the business day immediately preceding the date as of which the option is granted and shall be rounded up to the next whole share. IV. EXERCISE OF OPTIONS A. EXERCISE PRICE AND VESTING. Each option granted under the Plan shall have an exercise price per share equal to the Fair Market Value as of the grant date of the option. Except as set forth in Section V, options granted under the Plan become fully exercisable six months after their grant date and, subject to paragraphs C and D below, shall remain exercisable until the tenth anniversary of their grant date. B. PAYMENT OF EXERCISE PRICE. The exercise price of any stock option awarded under the Plan shall be payable entirely in cash or entirely in Common Stock, valued at Fair Market Value on the date the option is exercised, in accordance with procedures determined by the Plan Administrator. If the option exercise price is paid using Common Stock, it (i) must have been owned by the optionee for at least six months prior to the date of exercise or purchased by the optionee in the open market; and (ii) must not have been used in a stock swap transaction within the preceding six months. Regardless of how the option exercise price is paid, any withholding taxes arising out of the option exercise may be paid in cash or in Common Stock. To the extent that no violation of Section 16(b) of the Securities Exchange Act of 1934 or any other law would result, the payment of the exercise price of options granted hereunder may also be made by delivering a properly executed exercise notice together with irrevocable instructions to a broker, or some other communication acceptable to the Company, requiring the delivery to the Company of sale or loan proceeds sufficient to pay the option exercise price, together with any related withholding taxes if no other payment for such taxes satisfactory to the Company has been arranged; provided that such exercise shall be conditioned upon, and no shares shall be issued pursuant to such exercise until, receipt of such amount by the Company. C. TERMINATION OF OPTIONS DUE TO DEATH. If a Non-Employee Director dies, all outstanding options previously granted to him or her under this Plan shall become immediately exercisable and remain exercisable for a period of one year. D. TERMINATION OF OPTIONS FOR REASONS OTHER THAN DEATH. In the event a Non-Employee Director leaves the Board of Directors of the Company for any reason other than his or her death or for cause, all options granted to him or her under this Plan shall remain outstanding and exercisable in accordance with their original terms. In the event that a Non-Employee Director shall leave the Board for cause, in which case all outstanding options granted to such Non-Employee Director under this Plan shall immediately terminate and be cancelled as of the date he or she ceases to be a director. 2 V. RELOAD AWARD If while serving on the Board of Directors of the Company, a Non-Employee Director exercises an option granted under Section III of the Plan (an "Original Option") and pays the option exercise price using Common Stock in accordance with paragraph B of Section IV, the Non-Employee Director shall automatically be granted a "reload" stock option on the date of such exercise. The reload stock option grant shall equal the number of whole shares of Common Stock used in the swap exercise to pay the option exercise price. Subject to the provisions of paragraphs B, C and D of Section IV, the reload stock option may be exercised between the date of grant and the date of expiration of the Original Option. No reload stock option is granted if the Original Option is exercised after a Non-Employee Director leaves the Board of Directors of the Company for any reason. VI. TRANSFERABILITY; ASSIGNABILITY No option granted hereunder shall be transferred or assigned other than by will, the laws of descent and distribution or by the designation of a beneficiary in accordance with this Section. During the lifetime of an optionee, options granted hereunder may be exercised only by the optionee. The optionee may, by completing and signing a written beneficiary designation form which is delivered to and accepted by the Company, designate a beneficiary to exercise and receive any outstanding options upon the optionee's death. If at the time of the optionee's death there is not a fully effective beneficiary designation form on file, or if the designated beneficiary does not survive the optionee, the legal representative of the optionee's estate shall have the right to exercise the option. No option granted under this Plan shall be assignable or transferable except as provided in this Section. VII. SHARES AVAILABLE FOR AWARDS Subject to Section VIII, options for no more than 600,000 shares of Common Stock may be awarded under the Plan; provided, however, that shares subject to options granted hereunder that are cancelled or expire without being fully exercised and shares used to pay the exercise price for options granted hereunder may again be made subject to options granted under this Plan with no effect on the foregoing limit. Shares made subject to options hereunder may consist, in whole or in part, of authorized but unissued Common Stock or treasury Common Stock not reserved for any other purpose. VIII. ADJUSTMENTS FOR CERTAIN CHANGES IN CAPITALIZATION In the event any change is made to the Common Stock subject to the Plan or subject to any outstanding option granted under the Plan (whether by reason of merger, consolidation, reorganization, recapitalization, stock dividend, stock split, combination of shares, exchange of shares, change in corporate structure or otherwise), then appropriate adjustments shall be made to the maximum number of shares that may be granted under the Plan or subject to options granted under the Plan as well as the number of shares and price per share of Common Stock subject to options then outstanding under the Plan. The grant of options under the Plan shall not affect the right of the Company to adjust, reclassify, reorganize or otherwise change its capital or 3 business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. Any fractional shares resulting from adjustments will be rounded to the nearest whole share. IX. PLAN ADMINISTRATOR The Plan Administrator's responsibilities include, but are not limited to, the following: - To adopt rules for administration of the Plan. - To interpret and implement the provisions of the Plan. - To resolve all questions regarding the administration, interpretation and application of the Plan. - To have all other powers as may be necessary to discharge responsibilities under the Plan. The Plan Administrator's determinations will be conclusive and binding on all participants in the Plan. X. TERM AND TERMINATION The Plan is effective as of January 1, 1999. The Plan will continue indefinitely, as it may be amended or modified from time to time, until terminated. XI. TAX TREATMENT All options granted under the Plan shall be non-qualified stock options not entitled to preferential tax treatment under Section 422 of the Internal Revenue Code of 1986, as it may be amended from time to time. XII. AMENDMENT, MODIFICATION, SUSPENSION OR TERMINATION The Plan may be amended, modified, suspended or terminated by action of the Board of Directors or the Board Affairs Committee, or any successor committee, of its Board of Directors; provided, however, that if at the time of any such proposed amendment, modification or termination, any member of such committee does not satisfy the requirements applicable to committee approval contained in regulations of the Securities and Exchange Commission promulgated under Section 16 of the Securities Exchange Act of 1934, and applicable interpretations thereof, any such amendment, modification or termination must be approved by the Board of Directors of the Company. The Plan shall terminate automatically when all shares reserved for issuance hereunder have been issued or made subject to options granted hereunder. No termination, suspension or modification of the Plan will adversely affect any right in any option outstanding hereunder to the extent the same has not been exercised unless otherwise agreed to by the optionee. It will be conclusively presumed that any adjustment for changes in capitalization provided for in Section VIII does not adversely affect any such right. 4 XIII. NO GUARANTEE OF SERVICE Participation in this Plan does not constitute a guarantee or contract of service as a Non-Employee Director. XIV. GOVERNING LAW The Plan and all determinations made and actions taken pursuant hereto shall be governed by and construed in accordance with the law of the State of Delaware. 5 EX-10.(U) 7 EXHIBIT 10(U) WELLS FARGO & COMPANY 1999 DEFERRAL PLAN FOR DIRECTORS I. PURPOSE The purpose of the Wells Fargo & Company 1999 Deferral Plan for Directors is to provide an opportunity to non-employee members of the Board of Directors of the Company to defer receipt of all or a portion of their compensation received in consideration for personal services rendered in their capacity as directors of the Company. This Plan is effective as of January 1, 1999 and is applicable to compensation earned after that date. II. DEFINITIONS When used in this Plan, the following capitalized terms shall have the meanings indicated below: BOARD The Board of Directors of the Company. CASH COMPENSATION The annual retainer fees and Board meeting fees. COMMON STOCK Common Stock of the Company, $1-2/3 par value. COMPANY Wells Fargo & Company. DEFERRAL ELECTION An irrevocable election to defer receipt of all or a part of Eligible Compensation. ELIGIBLE COMPENSATION Eligible compensation includes Cash Compensation, Formula Stock Awards, Stock Option Gains, Retirement Conversion Amounts or any other compensation deemed eligible by the Board. FAIR MARKET VALUE The closing price per share of the Common Stock reported on the consolidated tape of the New York Stock Exchange as of the trading day immediately preceding the transaction and/or grant date. FORMULA STOCK AWARD Any Award made pursuant to the Wells Fargo & Company Directors Formula Stock Award Plan. INTEREST The average annual rate for 3-Year Treasury Notes for the immediately preceding calendar year plus 2%. NON-EMPLOYEE DIRECTOR Any member of the Board who is not an employee of the Company or of a subsidiary of the Company. 1 PARTICIPANT Any Non-Employee Director who elects to defer Eligible Compensation under the Plan. DEFERRAL YEAR January 1 through December 31 of the year in which Eligible Compensation is earned. PLAN Wells Fargo & Company 1999 Deferral Plan for Directors. PLAN ADMINISTRATOR The Director of Human Resources of the Company. RETIREMENT CONVERSION A dollar amount equal to the accrued benefits AMOUNT under the former Wells Fargo & Company Directors' Retirement Plan or the Norwest Corporation Retirement Plan for Non-Employee Directors, calculated as if the Director's service on the Board had ended as of November 2, 1998. STOCK OPTION GAIN The difference between the stock option exercise price and the Fair Market Value of the Common Stock on the exercise date when the option is exercised using the stock swap method.
III. ELIGIBILITY Any non-employee members of the Board of Directors of the Company are eligible to participate in the Plan. An eligible Non-Employee Director becomes a Participant in the Plan by filing a Deferral Election to 1) defer receipt of all or a part of Eligible Compensation, 2) designate the year in which distributions will commence, and 3) designate the form of distribution (which may be made in either a lump sum or in up to 10 annual installments). A Deferral Election, once made, will be irrevocable and will apply to the Deferral Year for which it was made. An eligible Non-Employee Director who becomes a Participant continues as a Participant until the date of the last distribution provided in Section VII. IV. COMPENSATION ELIGIBLE FOR DEFERRAL Forms of compensation eligible for irrevocable deferral include the following: A. CASH COMPENSATION. Directors may elect to defer receipt of all or a portion of their Cash Compensation into either cash or stock deferral accounts. B. FORMULA STOCK AWARDS. Directors may elect to defer all or a portion of Formula Stock Awards into deferred stock accounts. C. STOCK OPTION GAINS. Directors may elect to defer receipt of Stock Option Gains realized by exercising stock options using the stock swap method. Stock option gain deferrals will be credited to the deferred stock accounts. 2 Gains realized from any other method of exercising stock options are not eligible for deferral. D. RETIREMENT CONVERSION AMOUNT. Directors may elect to defer the entire Retirement Conversion Amount into a deferred stock account. E. OTHER. Directors may elect to defer any other compensation deemed to be Eligible Compensation by the Board. V. DEFERRAL ELECTIONS A. CASH COMPENSATION AND FORMULA STOCK AWARD DEFERRAL ELECTIONS. Deferral Elections must be filed with the Company prior to the beginning of the year in which Eligible Compensation is earned. New Directors must make Deferral Elections within thirty days of being notified of eligibility to participate in the Plan in order to defer Eligible Compensation earned in the year they are deemed eligible. New Deferral Elections must be filed for each Deferral Year. Notwithstanding the foregoing, a Deferral Election for Cash Compensation in 1999 or for a Formula Stock Award to be issued in the year 2000 may be filed with the Company no later than March 31, 1999. B. STOCK OPTION GAINS DEFERRAL ELECTION. Deferral Elections may be filed with the Company at any time following the stock option grant date and at least one year before the stock options are exercised. A new Deferral Election must be filed for each stock option grant. The Deferral Election applies to all gains associated with a specific grant even if options are exercised on different dates. C. RETIREMENT CONVERSION AWARD. A Deferral Election must be filed no later than June 30, 1999. D. DESIGNATION OF BENEFICIARY. A Participant may, from time to time, designate and/or revoke his or her beneficiary designation and file a new beneficiary designation with the Company. The Designation of Beneficiary will apply to all of the Participant's Deferred Account balances. VI. DEFERRED ACCOUNTS A. DEFERRED CASH ACCOUNT. Any Cash Compensation deferred into the Deferred Cash Account will be credited to the account on the date the Cash Compensation would have otherwise been paid. B. DEFERRED STOCK ACCOUNT. Any Cash Compensation, Formula Stock awards, Stock Option Gains, or Retirement Conversion Amounts that are deferred into the Deferred Stock Account will receive a credit to the Deferred Stock Account on the date the Cash Compensation, Formula Stock Award, Retirement Conversion Amount, or Stock Option Gain would have otherwise been paid or realized. Cash amounts will be converted into shares of Common Stock in the Deferred Stock Account based on 3 the Fair Market Value of the Common Stock on the day prior to the date the compensation would have otherwise been paid or realized. C. INTEREST. Deferred Cash Accounts will earn Interest. Interest will be compounded annually and will be credited on the last day of each calendar quarter until all funds in the Deferred Cash Account have been distributed in accordance with Section VII.A. D. DIVIDEND EQUIVALENTS. Deferred Stock Accounts will receive dividend credits each time dividends are paid on the Common Stock. The Deferred Accounts of each Participant will be divided into a series of sub-accounts, one for each type of Eligible Compensation and one for each year Eligible Compensation is deferred. Each Stock Option Gain which is deferred will be accounted for in a separate sub-account. All Common Stock share calculations will be rounded to the third decimal place. Each Participant will, at all times, have a fully vested and non-forfeitable right to all amounts properly credited to his or her Deferred Accounts. VII. DISTRIBUTION OF DEFERRED ACCOUNTS A. DISTRIBUTION FROM THE DEFERRED CASH ACCOUNT. A Participant's deferred cash sub-accounts will be distributed in cash. Distributions will be made in a lump sum or in up to 10 annual installments, as specified in Participant's Deferral Election, as of: 1) March 1 of the first calendar year following termination of a Participant's service as a Non-Employee Director, or 2) March 1 of any other year elected by the Participant which begins at least 12 months following the year in which the deferred compensation would otherwise have been received, or 3) July 1 of the calendar year in which a Participant's service as a Non-Employee Director terminates if such termination occurs on or before June 30; provided, however, that if July 1 installments are elected, subsequent annual installments shall be payable as of March 1 of each year thereafter. The amount of each installment distribution will be equal to the total amount of the account divided by the number of installments remaining to be made, including the current installment. B. DISTRIBUTION FROM THE DEFERRED STOCK ACCOUNT. A Participant's deferred stock sub-accounts will be distributed in whole shares of Common Stock. Distributions will be made in a lump sum or in up to 10 annual installments, as specified in Participant's Deferral Election, as of: 1) March 1 of the first calendar year following termination of a Participant's service as a Non-Employee Director, or 2) March 1 of any other year elected by the Participant which begins at least 12 months following the year in which the deferred compensation would otherwise have been received, or 3) July 1 of the calendar year in which a Participant's service as a Non-Employee Director terminates if such termination occurs on or before June 30; provided, however, that if July 1 installments are elected, subsequent annual installments shall be payable as of March 1 of each year thereafter. The amount of each installment distribution will be equal to the total amount of the account divided by the number of installments remaining to be made, including the current installment, rounded up to the nearest whole share and the whole number of shares so distributed shall be 4 deducted from the total amount of the account. The final distribution will be rounded up to the nearest whole share. C. DISTRIBUTION FROM THE DEFERRED CASH ACCOUNT. A Participant's deferred cash sub-accounts will be distributed in cash. Distributions will be made in a lump sum or in up to 10 annual installments commencing, as specified in Participant's Deferral Election, on either: 1) March 1 of the first calendar year following termination of a Participant's service as a Non-Employee Director, or 2) on March 1 of any other year elected by the Participant which begins at least 12 months following the year in which the deferred compensation would otherwise have been received. If March 1 is not a business day, distribution will commence on the next succeeding business day. The amount of each installment distribution will be equal to the total amount of the account divided by the number of installments remaining to be made, including the current installment. D. DISTRIBUTION FROM THE DEFERRED STOCK ACCOUNT. A Participant's deferred stock sub-accounts will be distributed in whole shares of Common Stock. Distributions will be made in a lump sum or in up to 10 annual installments, as specified in Participant's Deferral Election, commencing on either: 1) March 1 of the first calendar year following termination of a Participant's service as a Non-Employee Director or 2) on March 1 of any other year elected by the Participant which begins at least 12 months following the year in which the deferred compensation would otherwise have been received. If March 1 is not a business day, distribution will commence on the next succeeding business day. Cash in lieu of fractional shares will be determined based on the Fair Market Value of the Common Stock on the January 31 immediately preceding the date of distribution. The amount of each installment distribution will be equal to the total amount of the account divided by the number of installments remaining to be made, including the current installment, rounded down to the nearest whole share. The final distribution will be in whole shares together with cash in lieu of a fractional share. E. IN THE EVENT OF DEATH. If a Participant dies before receiving all distributions to which he or she is entitled under the Plan, all remaining distributions will be made in one lump sum. Such distribution will be made in accordance with the Participant's Designation of Beneficiary form. In the absence of a valid designation, or if the designated beneficiary does not survive the Participant, the distribution will be made to the Participant's estate. If any beneficiary dies after becoming entitled to receive Plan distributions, the remaining distribution will be made to the beneficiary's estate. VIII. PLAN ADMINISTRATOR The Plan Administrator is the Company's Director of Human Resources. The Plan Administrator's responsibilities include, but are not limited to, the following: - To adopt rules for administration of the Plan. - To interpret and implement the provisions of the Plan. - To resolve all questions regarding the administration, interpretation and application of the Plan. 5 - To have all other powers as may be necessary to discharge responsibilities under the Plan. The Plan Administrator's determinations will be conclusive and binding on all Participants. IX. TRUST FUND Shares of Common Stock credited to Deferred Stock Account under this Plan may, in the sole discretion of the Company, be held and administered in trust ("Trust Fund") in accordance with the terms of this Plan. The Trust Fund will be held under a trust agreement between the Company and Norwest Bank Minnesota, N.A., as Trustee, or any duly appointed successor trustee. All Common Stock in the Trust Fund will be held on a commingled basis and will be subject to the claims of general creditors of the Company. The Trustee, in its discretion, will vote shares of Common Stock held in any Trust Fund under this Plan. X. UNSECURED OBLIGATION All amounts deferred pursuant to this Plan and credited to a Deferred Account will be unsecured obligations of the Company. Each Participant's right will be as an unsecured general creditor of the Company. XI. AMENDMENT, MODIFICATION, SUSPENSION OR TERMINATION The Plan may be amended, modified, suspended or terminated by action of the Board or the Board Affairs Committee, or any successor committee, of the Board; provided however, that if at the time of any such proposed amendment, modification, suspension or termination, any member of such committee does not satisfy the requirements applicable to committee approval contained in regulations of the Securities and Exchange Commission promulgated under Section 16 of the Securities Exchange Act of 1934, and applicable interpretations thereof, any such amendment, modification, suspension or termination must be approved by the Board. No termination, suspension or modification of the Plan will adversely affect any benefits to which a Participant would have been entitled under the Plan if termination of the Participant's service as a Non-Employee Director had occurred on the day prior to the date such action was taken, unless agreed to by the Participant. XII. NO GUARANTEE OF SERVICE Participation in this Plan does not constitute a guarantee or contract of service as a Non-Employee Director of the Company. XIII. NON-ASSIGNABILITY No right to receive distributions under this Plan will be assignable or transferable by a Participant except: 6 - - By will or the laws of descent and distribution. - - Pursuant to a qualified domestic relations order as defined by the Internal Revenue Code of 1986, as amended, Title I of the Employee Retirement Income Security Act, or rules thereunder. The designation of a beneficiary by a Participant as provided in Section V.D. does not constitute a transfer. XIV. CHANGE OF CONTROL At the time of a Deferral Election, a Participant may also elect to have all amounts deferred pursuant to this Plan become payable immediately if (i) a third person, including a "group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, becomes the beneficial owner, directly or indirectly, of 25% or more of the combined voting power of the Company's outstanding voting securities ordinarily having the right to vote for the election of the directors of the Company, or (ii) individuals who constitute the Board of the Company as of January 1, 1999 (Incumbent Board) cease for any reason to constitute at least two-thirds thereof, provided that any person becoming a director subsequent to said date whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board shall be, for purposes of this clause (ii), considered as though such person were a member of the Incumbent Board. The value of a Participant's Deferred Stock Account, Deferred Formula Stock Award Account and Deferred Stock Option Gain Account for purposes of a distribution under this Section XV shall be the Fair Market Value of the Common Stock for a day selected by the Plan Administrator which occurs not more than seven days prior to the date payment is made to the Participant pursuant to this Section XV. XV. GOVERNING LAW The Plan and all determinations made and actions taken pursuant hereto shall be governed by and construed in accordance with the law of the State of Delaware. 1999 Deferral Plan for Directors 1/26/99 7 EX-10.(CC) 8 EXHIBIT 10(CC) LONG-TERM INCENTIVE COMPENSATION PLAN NON-QUALIFIED STOCK OPTION AGREEMENT WITH RIGHT TO ACQUIRE ACCELERATED OWNERSHIP STOCK OPTION GRANT DATE: _____________________ EMPLOYEE'S NAME: PAUL M. HAZEN 1. GRANT OF OPTION - GRANT#______ The Corporation has granted the Employee a Non-Qualified Stock Option ("Option") to purchase _______ Shares of the Corporation's common stock ("Stock"). 2. OPTION PURCHASE PRICE. The Option purchase price is $_______ per Share. 3. TERM AND EXERCISE OF OPTION. The Option will become exercisable in increments over a period of three years [three equal installments vesting on the first, second and third anniversaries of the date of grant] as indicated in the attached Notice of Grant of Stock Options and Option Agreement. Each increment of this grant may be exercised between the vesting date and the expiration date [ten years from the date of grant] indicated in the Notice of Grant of Stock Options and Option Agreement provided you are continuously employed by the Corporation or an Affiliate ("Wells Fargo"). If your employment with Wells Fargo is terminated, the Option may be exercised only as described in paragraph 4 below. While you are alive, the Option may be exercised only by you or your legal representative. To exercise all or part of the Option, deliver a "Notice of Exercise" to the Corporation's Stock Option Administrator, Norwest Center, Sixth and Marquette, Minneapolis, MN 55479-1037, specifying the number of whole Shares you wish to purchase. You must pay the total Option price for that number of Shares on the day that you exercise either (a) in cash or (b) in whole Shares of Stock valued at its Fair Market Value on the date of exercise (except that cash may be used to buy up to the next whole Share). If Stock is used to pay the purchase price, the Stock used must have been (x) owned by you for at least six months prior to the date of exercise or purchased by you in the open market and (y) must not have been used in a stock-for-stock swap transaction within the preceding six months. 4. TERMINATION OF EMPLOYMENT. If your termination of employment is due to your "Disability" or is by the Corporation for other than "Cause" or by you for "Good Reason," this Option grant will immediately vest and remain exercisable until the expiration date indicated in the Notice of Grant of Stock Options and Option Agreement or until one year after your date of death, whichever occurs first. If you die while you are employed by Wells Fargo, the entire Option is immediately vested and exercisable, and the beneficiary as set forth in the Plan may exercise the Option until one year after the date of your death or until the Option expires, whichever occurs first. If your termination of employment is by the Corporation for "Cause" or by you without "Good Reason," this Option grant will expire on your termination date. Terms in quotation marks in this paragraph are used as defined in your Employment Agreement with the Corporation dated as of June 7, 1998. 5. WITHHOLDING TAXES. When you exercise this Option, you agree to pay all required withholding taxes to your Wells Fargo employer. Income taxes are computed based on the difference between the Fair Market Value (the average of the highest and lowest prices of Wells Fargo common stock) of the Shares acquired on the date of exercise and the Option price for those Shares. Taxes may be paid either in cash or, if you elect, by having the Corporation withhold from the Shares to be issued a number of shares (valued at their Fair Market Value on the date of exercise) necessary to satisfy the taxes. The Corporation is not obligated to deliver the Shares until withholding obligations are met. 6. AWARD OF ACCELERATED OWNERSHIP NON-QUALIFIED STOCK OPTION ("AO"). If you exercise this Option while you are employed by Wells Fargo and pay the purchase price in Stock, you are hereby granted an AO at the Fair Market Value on the date of such exercise. The AO grant equals the number of whole Shares used in the swap exercise to pay the purchase price plus a number of Shares with respect to taxes payable upon exercise, determined in accordance with procedures approved by the Committee which take into account estimated incremental tax rates. Subject to the provisions of paragraphs 3 and 4, the AO may be exercised between the date of grant and the date of expiration of this Option. The AO shall be evidenced by an agreement containing such other terms and conditions as the Committee approves. No AO is granted if the Option is exercised after your Retirement, permanent disability, death or other termination of employment. 7. TRANSFERABILITY OF OPTION. This Option may be transferred only by will, the laws of descent and distribution or by your designating a beneficiary in accordance with Section 9.1(e) of the Plan. 8. NO AGREEMENT FOR WELLS FARGO TO CONTINUE YOUR EMPLOYMENT. Nothing in this Agreement gives you any right to continued employment . 9. GENERAL RESTRICTIONS. The Corporation may delay the exercise of any Option if it determines that (a) the Shares subject to the Option should be listed, registered or qualified on any securities exchange or under any law, or (b) the consent of a regulatory body is desirable. 10. ADDITIONAL PROVISIONS AND INTERPRETATION OF THIS AGREEMENT. Capitalized terms not defined in this Agreement are used as defined in the Plan. Interpretations of the Plan and this Agreement by the Committee are binding on you and the Corporation. WELLS FARGO LONG-TERM INCENTIVE COMPENSATION PLAN RESTRICTED STOCK GRANT AGREEMENT This Restricted Stock Agreement (this "Agreement") between Wells Fargo & Company, formerly known as Norwest Corporation (the "Corporation"), and Paul M. Hazen (the "Participant") is dated as of __________________. 1. GRANT - GRANT NUMBER: The Corporation hereby grants Participant _______ shares of the Corporation's Restricted Stock (the "Restricted Stock Grant") subject to the terms of this Agreement. 2. TRANSFER RESTRICTION: Participant may not sell, assign, pledge, encumber or otherwise transfer any of the shares of the Restricted Stock Grant until the Restriction Lapse described in paragraph 3 below ("Transfer Restriction"). Prior to the Restriction Lapse, any stock certificates issued to Participant for the Restricted Stock Grant shall be in the sole custody of the Corporation. 3. RESTRICTION LAPSE: Subject to the terms of this Agreement, the Transfer Restriction on the Restricted Stock Grant shall lapse in twenty percent increments (rounded down to the nearest whole share) on each anniversary of the date of grant (if not forfeited prior to the date of the restriction lapse). Provided, however, that if Participant is an Employee immediately prior to a reorganization as described in Section 13 of the Plan, the Transfer Restriction shall lapse immediately prior to the consummation of the reorganization for the entire Restricted Stock Grant. In addition, if Participant is an Employee immediately prior to a change in the Board as described in Section 14 of the Plan and thereafter within six months after said change in the Board terminates his or her employment with the Corporation or an Affiliate for any reason other than death, permanent disability or Retirement, the Transfer Restriction shall lapse on said termination date for the entire Restricted Stock Grant. Upon lapse of the Transfer Restriction, stock certificates issued to Participant for said shares shall be delivered to the Participant. 4. FORFEITURE: Participant's right to retain the Restricted Stock Grant, or any portion thereof, is subject to his/her continuous employment by the Corporation or an Affiliate until the Restriction Lapse. If Participant's employment by the Corporation or an Affiliate terminates prior to the Restriction Lapse, the Restricted Stock Grant (or the relevant portion(s) thereof) shall be treated as follows: If Participant's termination of employment is due to his "Disability" or death or is by the Corporation for other than "Cause" or by the Participant for "Good Reason," the Transfer Restriction shall lapse and this Restricted Stock Grant will immediately vest. If Participant's termination of employment is by the Corporation for "Cause" or by the Participant without "Good Reason," any unvested portion of this Restricted Stock Grant shall be forfeited and revert to the Corporation on the termination date. Terms in quotation marks in this paragraph are used as defined in Participant's Employment Agreement with the Corporation dated as of June 7, 1998. 5. VOTING POWER AND TAXES: Prior to the earlier of the Restriction Lapse or forfeiture of the Restricted Stock Grant, Participant shall have voting power with respect to said shares and shall receive dividends thereon. Any dividends or other distributions with respect to the Restricted Stock Grant which are payable in Stock shall be subject to the same restrictions then applicable to the Restricted Stock Grant and shall thereafter be considered Restricted Stock for purposes of this Agreement. If Participant recognizes ordinary income on the Restricted Stock Grant or any related payments, it may be necessary to withhold income taxes and social security taxes. Participant agrees to pay the Corporation or its Affiliate to satisfy any withholding obligations. Payment may be made by Participant in cash or, at Participant's election, the Corporation may withhold from the Shares to be issued the number of Shares (based on the Fair Market Value of the Stock as of the date of the Restriction Lapse) that would satisfy the withholding taxes due (except that any fractional share amount shall be paid by the Participant in cash). The Corporation will not be obligated to deliver any stock certificates for said Shares until withholding obligations are met. 6. DEFINITIONS: Capitalized terms not otherwise defined herein are used as defined in the Corporation's Long-Term Incentive Compensation Plan, as amended (the "Plan"). 7. Nothing in this Agreement shall confer upon Participant any right to continue in the employ of the Corporation or any of its Affiliates. 8. This Agreement is binding on the parties hereto and their respective successors and assigns. It is governed and construed in accordance with the laws of Minnesota. IN WITNESS WHEREOF, the Participant and the Corporation have executed this Agreement as of the date above. WELLS FARGO & COMPANY FORMERLY KNOWN AS NORWEST CORPORATION By: ---------------------------- Its: Executive Vice President - ------------------------------------------ Paul Hazen EX-10.(DD) 9 EXHIBIT 10(DD) EMPLOYMENT AGREEMENT AGREEMENT by and between Wells Fargo & Company, formerly known as Norwest Corporation, (the"Company") and Rodney L. Jacobs (the "Executive") dated as of the 1st day of January, 1999. On November 2, 1998, Norwest Corporation changed its name to Wells Fargo & Company upon the merger of the former Wells Fargo & Company into a wholly owned subsidiary of Norwest Corporation ("the Merger"). Prior to the announcement of the Merger, the Executive was employed by the former Wells Fargo & Company without there being an employment agreement. The Company desires to assure that during the periods provided in the Agreement the Executive will provide services to the Company and will not compete with the Company, in order to maximize the future success of the Company. As an inducement to future performance by the Executive, the Company desires to enter into this Agreement with the Executive and to provide the consideration described in this Agreement. The Company has determined that entering into this Agreement with the Executive is in the best interests of its shareholders. Therefore, in order to accomplish these objectives, the Executive and the Company desire to enter into this Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. EFFECTIVE DATE. The "Effective Date" shall mean the effective date of the Merger. 2. EMPLOYMENT PERIOD. The Company hereby agrees to employ the Executive, and the Executive hereby agrees to enter into the employ of the Company subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the third anniversary thereof (the "Employment Period"). 3. TERMS OF EMPLOYMENT. (a) POSITION AND DUTIES. (i) During the Employment Period, the Executive shall serve as a senior executive of the Company, reporting to either the Chief Executive Officer or Chairman of the Company, with appropriate authority, duties and responsibilities. The Executive shall serve on the Company's Board of Directors during the Employment Period. (ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote substantially all of his attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) COMPENSATION (i) BASE SALARY. During the Employment Period, the Executive shall receive an annual base salary ("Annual Base Salary") as set by the Human Resources Committee of the Board of Directors of the Company. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term "affiliated companies" shall include any company controlled by, controlling or under common control with the Company. (ii) ANNUAL BONUS. During the Employment Period, the Executive shall receive an annual bonus ("Annual Bonus"), whether payable in cash or otherwise, as determined by the Human Resources Committee of the Board of Directors of the Company. (iii) RETIREMENT BENEFITS. Commencing immediately upon the Executive's termination of employment for any reason, the Executive shall be paid an annual retirement benefit pursuant to the terms of a non-qualified supplemental retirement plan to be established (the "Retirement Benefit"), provided, however, that such Retirement Benefit shall be at least equal to 25% of the Executive's 1997 Compensation (as defined below), less any benefit payable pursuant to any qualified defined benefit pension plan or other non-qualified defined benefit retirement plan of the Company accrued after the Effective Date. The Executive shall be fully vested in the Retirement Benefit as of the Effective Date. For purposes of this Agreement, "1997 Compensation" means the compensation (within the meaning of Section 61(a)(1) of the Internal Revenue Code of 1986, as 2 amended) includable in the Executive's gross income for federal income tax purposes with respect to the calendar year 1997. (iv) OTHER EMPLOYEE BENEFIT PLANS. During the Employment Period, except as otherwise expressly provided herein, the Executive shall be entitled to participate in, and shall receive awards under, all employee benefit, stock or other incentive, welfare and other plans, practices, policies and programs, including perquisites (collectively, "Employee Benefit Plan") applicable to other comparable executives of the Company in accordance with the provisions of said Plans. For purposes of all Employee Benefit Plans, service rendered by the Executive to the former Wells Fargo & Company shall be deemed service with the Company, provided that service credit shall only be granted to the Executive under the Company's qualified defined benefit plans to the extent such credit is granted to employees of the former Wells Fargo & Company on or after the Effective Date. 4. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 11(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. (b) CAUSE. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean: (i) the continued failure of the Executive to perform substantially the Executive's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board or the Chief 3 Executive Officer of the Company which specifically identifies the manner in which the Board or Chief Executive Officer believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company, or (iii) conviction of a felony or guilty or nolo contendere plea by the Executive with respect thereto. For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than two-thirds of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail. (c) GOOD REASON. The Executive's employment may be terminated by the Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall mean in the absence of a written consent of the Executive: (i) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 3(a) of this Agreement, or any other action by the Company which, in the Executive's reasonable judgment, results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 3(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; 4 (iii) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or (iv) any failure by the Company to comply with and satisfy Section 10(c) of this Agreement. For purposes of this Section 4(c), any good faith determination of "Good Reason" made by the Executive shall be conclusive. (d) NOTICE OF TERMINATION. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 11(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (e) DATE OF TERMINATION. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein within 30 days of such notice, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. 5. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) GOOD REASON; OTHER THAN FOR CAUSE, DEATH OR DISABILITY. If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause or Disability or the Executive shall terminate employment for Good Reason: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not yet paid, and (2) the product of (x) the highest annual bonus 5 paid to the Executive for any of the three years prior to the Date of Termination (the "Recent Annual Bonus") and (y)a fraction, the numerator of which is the number of days in the fiscal year in which the Date of Termination occurs through the Date of Termination and the denominator of which is 365, to the extent not yet paid (referred to herein as "the Accrued Obligations); (ii) for the remainder of the Executive's life and the life of his spouse, the Company shall continue to provide medical and dental benefits to the Executive and his spouse on the same basis as such benefits are provided to the Executive immediately prior to the Date of Termination (collectively "Medical Benefits"); (iii) until the third anniversary of the Effective Date, the Executive shall continue to be provided with the benefits described in Section 3(b)(iv) and shall be deemed to be an employee for purposes of such plans, provided that the Executive shall not be entitled to additional awards under any of the Company's stock or other incentive plans and shall cease to accrue additional benefits under the Company's qualified and non-qualified retirement plans; and (iv) to the extent not yet paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies through the Date of Termination (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (b) DEATH. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. In addition, all Stock Awards shall vest immediately. Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 5(b) shall include death benefits as in effect on the date of the Executive's death with respect to the Peer Executive and his beneficiaries and the continued provision of Medical Benefits to the Executive's spouse. (c) DISABILITY. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. In 6 addition, all Stock Awards shall vest immediately. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 5(c) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits as in effect at any time thereafter generally with respect to the Peer Executive and the continued provision of Medical Benefits to the Executive and his spouse. (d) CAUSE; OTHER THAN FOR GOOD REASON. If the Executive's employment shall be terminated for Cause or the Executive terminates his employment without Good Reason during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (x) his Annual Base Salary through the Date of Termination, and (y) Other Benefits, in each case to the extent not yet paid. 6. NON-EXCLUSIVITY OF RIGHTS. Except as specifically provided, nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor, subject to Section 11(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 7. FULL SETTLEMENT. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and, such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). 8. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid 7 or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 8) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), icluding, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 8(a), if it shall be determined that the Executive is entitled to a Gross-Up Payment, but that the Payments do not exceed 110% of the greatest amount (the "Reduced Amount") that could be paid to the Executive such that the receipt of Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall be made to the Executive and the Payments, in the aggregate, shall be reduced to the Reduced Amount. (b) Subject to the provisions of Section 8(c), all determinations required to be made under this Section 8, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by KPMG Peat Marwick LLP or such other certified public accounting firm reasonably acceptable to the Company as may be designated by the Executive (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the Company to the Executive within five days of the later of (i) the due date for the payment of any Excise Tax, and (ii) the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 8(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. 8 (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 8(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to 9 any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 8(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 8(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 8(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 9. CONFIDENTIAL INFORMATION/NONCOMPETITION. (a) The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. Except as expressly provided in Section 9(c), in no event shall an asserted violation of the provisions of this Section 9 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. (b) During the Employment Period and for one year thereafter, the Executive will not directly or indirectly, own, manage, operate, control or participate in the ownership, management, operation or control of, or be connected as an officer, employee, partner, director or otherwise with, or have any financial interest in, 10 any business principally engaged in the commercial banking business in California which is in material competition with the business conducted by the Company. Ownership for personal investment purposes only of less than 5% of the voting stock of any publicly held corporation shall not constitute a violation hereof. (c) In the event of a breach or threatened breach of Section 9(a), the Executive agrees that the Company shall be entitled to injunctive relief in a court of appropriate jurisdiction to remedy any such breach or threatened breach, the Executive acknowledges that damages would be inadequate and insufficient. In the event of a breach of Section 9(b), the Company's obligation to pay the Retirement Benefit shall cease while the Executive is in violation of Section 9(b) and the Retirement Benefit shall commence again when the Executive is no longer engaged in activity prohibited by Section 9(b) but such benefit shall thereafter be reduced by 50%. (d) Any termination of the Executive's employment or of this Agreement shall have no effect on the continuing operation of this Section 9. 10. SUCCESSORS. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as defined herein and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 11. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. 11 (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: IF TO THE EXECUTIVE: Rodney L. Jacobs c/o Wells Fargo & Company 420 Montgomery Street San Francisco, CA 94104 IF TO THE COMPANY: Norwest Center Sixth and Marquette Minneapolis, Minnesota 55479 Attention: General Counsel or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 4(c)(i)-(iv) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) Upon and after the Effective Date of this Agreement, the terms of this Agreement shall supersede any employment, severance or change of control agreement(s) between the parties with respect to the subject matter hereof. 12 IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. /s/ Rodney L. Jacobs ------------------------------------- RODNEY L. JACOBS WELLS FARGO & COMPANY By Richard M. Kovacevich /s/ Richard M. Kovacevich -------------------------------------- 13 EX-10.(EE) 10 EXHIBIT 10(EE) SEVERANCE AGREEMENT THIS AGREEMENT between Norwest Corporation, a Delaware corporation (the "Corporation"), and (name) ("Executive"), dated this day of , 19 . WITNESSETH: WHEREAS, the Corporation wishes to attract and retain well-qualified executive and key personnel and to assure both itself and the Executive of continuity of management in the event of any Change of Control (as defined in Section 2) of the Corporation; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, it is hereby agreed by and between the Corporation and the Executive as follows: 1. OPERATION OF AGREEMENT. The "Effective Date of this Agreement" (or "Effective Date") shall be the date during the Contract Period (as defined in Section 3) on which a Change of Control occurs. Anything in this Agreement to the contrary notwithstanding, if the Executive's employment with the Corporation is terminated or the Executive ceases to be an officer of the Corporation prior to the date on which a Change of Control occurs, and it is reasonably demonstrated that such termination of employment or cessation of status as an officer was at the request of a third party who has taken steps reasonably calculated to effect the Change of Control, then for all purposes of this Agreement the "Effective Date" shall mean the date immediately prior to the date of such termination of employment or cessation of status as an officer. 2. CHANGE OF CONTROL. For purposes of this Agreement, a "Change of Control" shall mean: (a) The acquisition, other than from the Corporation, by any individual, entity or group within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of the then outstanding shares of voting securities ordinarily having the right to vote for the election of directors of the Corporation, provided, however, that the following acquisitions shall not constitute a change of control: (i) any acquisition by the Corporation of any of its subsidiaries, or (ii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any of its subsidiaries; or (b) Individuals who constitute the Board of Directors of the Corporation as of the date of this Agreement (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the date of this Agreement whose election, or nomination for election by the Corporation's stockholders was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board for purposes of this clause (b), but excluding, for this purpose, any such individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Corporation (as such terms are used in Rule 14A-11 of Regulation 14A promulgated under the Exchange Act). 3. CONTRACT PERIOD. The "Contract Period" is the period commencing on the date of this Agreement and ending on the earlier to occur of (i) the third anniversary of such date; (ii) the first day of the month coinciding with or next following the date on which the Executive qualifies for regular retirement under the Corporation's Retirement Plan then in effect; or (iii) the Executive's death provided, however, that commencing on the date three years after the date of the this Agreement, and on each successive third anniversary of such date thereafter (hereinafter referred to as the "Renewal Date"), the Contract Period shall be automatically extended so as to terminate on the earlier of (w) the day prior to the next Renewal Date, if prior to such day the Executive ceases to be an elected officer of the Corporation; (x) the first day of the month coinciding with or next following the date on which the Executive qualifies for regular retirement under the Corporation's Retirement Plan, then in effect; (y) the Executive's death (unless the Effective Date occurs prior to the Executive's death); or (z) the day prior to the next Renewal Date if at least 60 days prior to such day, the Corporation shall give notice to the Executive that the Contract Period shall not be -2- extended, provided, however, that in no event may the Corporation terminate this Agreement after the Effective Date. 4. CERTAIN DEFINITIONS. (a) CAUSE. The Executive's employment will be terminated for Cause if a majority of the Board of Directors, after the Executive shall have been afforded a reasonable opportunity to appear in person before the Board of Directors and to present such evidence as the Executive deems appropriate, determines that Cause (as defined in this Agreement) exists. For purposes of this Agreement, "Cause" means (i) an act or acts of fraud or misappropriation on the Executive's part which result in or are intended to result in his substantial personal enrichment at the expense of the Corporation; or (ii) conviction of a felony. (b) GOOD REASON. For purposes of this Agreement, "Good Reason" means, without the express written consent of the Executive: (i) the assignment to the Executive of any duties inconsistent in any substantial respect with the Executive's position, authority or responsibilities as in effect during the 90-day period immediately preceding the Effective Date of this Agreement, or any other substantial adverse change in such position (including titles), authority or responsibilities, excluding, for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Corporation promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Corporation to furnish the Executive with compensation and benefits at a level equal to or exceeding those received by the Executive from the Corporation during the 90-day period preceding the Effective Date of this Agreement, including a failure by the Corporation to maintain its policy of paying retirement benefits which would be payable under the Norwest Corporation Retirement Plan but for limits imposed by the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), other than an insubstantial and -3- inadvertent failure remedied by the Corporation promptly after receipt of notice thereof given by the Executive; (iii) the Corporation's requiring the Executive to be based or to perform services at any office or location other than at the Corporation's headquarters in Minneapolis, Minnesota, except for travel reasonably required in the performance of the Executive's responsibilities; (iv) any failure by the Corporation to obtain the assumption and agreement to perform this Agreement by a successor as contemplated by Section 9(b); or (v) any failure by the Corporation to deposit amounts which may become payable to the Executive with the Trustee as contemplated by Section 8. For the purposes of this Section 4(b), any determination of "Good Reason" made by the Executive shall be conclusive. (c) NOTICE OF TERMINATION. Any termination of Executive's employment after the Effective Date by the Corporation for Cause or by the Executive for Good Reason or otherwise shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 10(b). For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, and (iii) if the termination date is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 15 days after the giving of such notice). The failure by the Executive or the Corporation to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Corporation hereunder or preclude the Executive or the Corporation from asserting such fact or circumstance in enforcing the Executive's or the Corporation's right hereunder. -4- (d) DATE OF TERMINATION. Date of Termination means the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, or if the Executive's employment is terminated by reason of death, the date of the Executive's death. 5. OBLIGATIONS OF THE CORPORATION UPON TERMINATION. (a) GOOD REASON AND OTHER THAN FOR CAUSE OR DISABILITY. Subject to Sections 5(c) and 5(d), if: (i) within three years after the Effective Date of this Agreement, the Corporation shall terminate the Executive's employment for any reason other than for Cause or Disability; or (ii) within three years after the Effective Date of this Agreement, the Executive shall terminate his employment for Good Reason: (I) the Corporation shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination, the aggregate of the amounts determined pursuant to the following clauses (A) through (C) inclusive; (A) if not theretofore paid, the Executive's base salary through the Date of Termination at the rate in effect at the time the Notice of Termination was given; and (B) in lieu of any further payments to the Executive for periods subsequent to the Date of Termination, a lump sum payment ("Severance Payment") in an amount equal to two times the sum of (x) the Executive's annual base salary at the highest rate in effect between the Effective Date of this Agreement and the time the Notice of Termination was given, (y) an amount equal to the annualized value of the perquisites provided to the Executive as in effect at the beginning of the year during which a Change of Control occurs and (z) -5- an amount equal to the highest bonus that would be payable to the Executive for the year during which a Change in Control occurs if all criteria necessary for payment had been satisfied (highest bonus shall be determined solely by reference to the maximum amount that would be payable to the Executive if he were a participant in the EICP), provided, however, that in no event shall the Executive be entitled to receive under this clause (B) more than the product obtained by multiplying the amount determined as hereinabove provided in this clause (B) by a fraction whose numerator shall be the number of months (including fractions of a month) which at the Date of Termination remain until the first day of the month coinciding with or next following the date on which the Executive qualifies for regular retirement under the Corporation's Retirement Plan then in effect and whose denominator shall equal thirty-six (36); and (C) until the earlier to occur of (i) the date three years following the Date of Termination, or (ii) the first day of the first month coinciding with or next following the date on which the Executive qualifies for regular retirement under the Corporation's Retirement Plan, then in effect (the period of time from the Date of Termination until the earlier of (i) or (ii) is hereinafter referred to as the "Unexpired Period"), the Corporation shall continue to provide all benefits which the Executive and/or his spouse is or would have been entitled to receive under all medical, dental and group life insurance plans and programs of the Corporation, in each case on a basis providing the Executive or his spouse with the opportunity to receive benefits at least equal to the greatest benefits provided by the Corporation for the Executive and/or his spouse under such plans and programs if and as -6- in effect at any time during the 90-day period immediately preceding the Effective Date. (b) CAUSE OR DISABILITY. If the Corporation shall terminate the Executive's employment for Cause or at a time the Executive is entitled to receive benefits under the Norwest Corporation Long-Term Salary Continuation Plan or any plan adopted as a substitute or replacement therefor, the Corporation shall pay to the Executive in a lump sum in cash within 20 days after the Date of Termination all unpaid compensation earned through the Date of Termination. (c) DEATH. If the Executive dies before the Effective Date of this Agreement (as defined in paragraph 1 herein), the Corporation shall have no obligation to make any payments under this Agreement. If the Executive dies after the Effective Date of this Agreement, the Corporation shall make all payments due under Section 5(a) to the designated beneficiary of the Executive, or in the event no beneficiary is named or living, to the Executive's estate. (d) CERTAIN ADDITIONAL PAYMENTS BY THE CORPORATION. (i) Anything in this Agreement to the contrary notwithstanding, if it shall be determined that any payment or distribution by the Corporation to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a "Payment") would impose an excise tax liability on the Executive pursuant to Sections 1 and 4999 of the Code and its regulations, or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes and Excise Tax imposed upon the -7- Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (ii) Subject to the provisions of Section 5(d)(iii), determinations to be required under this Section 5(d), including whether a Gross-Up Payments is required and the amount of such Gross-Up Payment, shall be made by Arthur Andersen & Co. or another big eight accounting firm selected by the Executive within 5 days after the Date of Termination ("Accounting Firm") which shall provide detailed supporting calculations both to the Corporation and to the Executive within fifteen (15) business days of the Date of Termination, if applicable, or such earlier time as is requested by the Corporation. All fees and expenses of the Accounting Firm shall be borne solely by the Corporation. The initial Gross-Up Payment, if any, as determined pursuant to this Section 5(d)(ii), shall be paid to the Executive within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with an opinion that failure to report the Excise Tax on the Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Corporation and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Corporation should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Corporation exhausts its remedies pursuant to 5(d)(iii) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Corporation to or for the benefit of the Executive. -8- (iii) The Executive shall notify the Corporation in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Corporation of the Gross-Up Payment or Underpayment. Such notification shall be given as soon as practicable but no later then ten (10) business days after the Executive knows of such claim and shall apprise the Corporation of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Corporation (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Corporation notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (aa) give the Corporation any information reasonably requested by the Corporation relating to such claim, (bb) take such action in connection with contesting such claim as the Corporation shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Corporation, (cc) cooperate with the Corporation in good faith in order effectively to contest such claim, (dd) permit the Corporation to participate in any proceedings relating to such claim; provided, however, that the Corporation shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis for all such costs, expenses and any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation. Without limitation on the foregoing provisions of this Section, the Corporation shall control all proceedings taken in connection with -9- such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Corporation shall determine; provided, however, that if the Corporation directs the Executive to pay such claim and sue for a refund, the Corporation shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any costs, expenses, Excise Tax or income tax, including interest or penalties with respect thereto, imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Corporation's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (iv) If, after the receipt by the Executive of an amount advanced by the Corporation pursuant to Section 5(d)(iii), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall promptly pay to the Corporation the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Corporation pursuant to Section 5(d)(iii), -10- a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Corporation does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 6. NON-EXCLUSIVITY OF RIGHTS. Except as set forth in Section 5(d), nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plan, policy, program, or practice provided by the Corporation or any of its affiliated companies and for which the Executive may qualify, nor shall anything herein limit or otherwise affect such rights as the Executive may have under any employment, stock option or other agreements with the Corporation or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan or program of the Corporation or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan or program, except as specifically modified hereunder. 7. FULL SETTLEMENT. The Corporation's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any setoff, counterclaim, recoupment, defense or other right which the Corporation may have against the Executive or others or by any amounts received by Executive from others. In no event shall the Executive be obligated to seek other employment by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement. The Corporation agrees to pay, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Corporation or others of the validity or enforceability of, or liability under any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to Section 5(d) of this Agreement), plus interest in each case at the applicable federal rate provided for in Section 7872(f)(2) of the Code. -11- 8. TRUSTEE. Immediately upon execution of this Agreement, the Corporation shall use its best efforts to establish a trust with an institutional trustee selected by the Corporation (the "Trustee") for the purpose of distributing payments pursuant to this Agreement. Upon written demand by the Executive given at any time after a Change of Control occurs, the Corporation shall deposit with the Trustee designated by the Corporation prior to the Effective Date of this Agreement, or by the Executive in such written demand if the Corporation has not designated the Trustee, amounts which may become payable to the Executive pursuant to Section 5 with irrevocable instructions to pay amounts to the Executive when due in accordance with the terms of this Agreement. All charges of the Trustee shall be paid by the Corporation. The Trustee shall be entitled to rely conclusively on the Executive's or the Accounting Firm's written statement as to the fact that payments are due under this Agreement and the amount of such payments. If the Trustee is not notified that payments are due under this Agreement within three years and 20 days after receipt of a deposit hereunder, all amounts deposited with the Trustee and earnings with respect thereto shall be delivered to the Corporation on demand. 9. SUCCESSORS. (a) This Agreement is personal to the Executive and without the prior written consent of the Corporation shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's designated beneficiary or, if none, estate. (b) This Agreement shall inure to the benefit of and be binding upon the Corporation and its successors. The Corporation shall require any successor to all or substantially all of the business and/or assets of the Corporation, whether directly or indirectly, by purchase, merger, consolidation, acquisition of stock, or otherwise, by an agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent as the Corporation would be required to perform if no such succession had taken place. -12- 10. MISCELLANEOUS. (a) This Agreement shall be governed by and construed in accordance with the laws of the state of Minnesota, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: IF TO THE EXECUTIVE: (name) Address City, State, Zip IF TO THE CORPORATION: Norwest Corporation Sixth & Marquette Minneapolis, Minnesota 55479 Attention: Secretary or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Corporation may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation, provided, however, that such withholding shall be consistent with the calculations made by Accounting Firm under Section 5(d) of the Agreement. (e) This Agreement contains the entire understanding with the Executive with respect to the subject matter hereof. -13- (f) The employment of Executive by the Corporation may be terminated by either the Executive or the Corporation at any time and for any reason. Nothing contained in the Agreement shall affect such rights to terminate, provided, however, that nothing in this Section 10(f) shall prevent the Executive from receiving any amounts payable pursuant to Section 5 of this Agreement. However, if prior to the Effective Date of this Agreement, (i) the Executive's employment with the Corporation terminates, or (ii) the Executive ceases to be an officer of the Corporation, then the Executive shall have no further rights under this Agreement. (g) The Executive's failure to insist upon strict compliance with any provision hereof or the failure to assert any right the Executive or the Corporation may have hereunder shall not be deemed to be a waiver of such provision or any other provision thereof. (h) If, at any time prior to the Effective Date, the Executive ceases to be an employee of the Corporation or its subsidiaries, this Agreement shall terminate and the Executive shall have no right to receive any payments described herein. IN WITNESS WHEREOF, the Executive has hereunto set his hand and, pursuant to the authorization from its Board of Directors, the Corporation has caused these presents to be executed in its name on its behalf, and its corporate seal to be hereunto affixed and attested by its secretary, all as of the day and year first above written. ------------------------------------ Executive NORWEST CORPORATION ATTEST: By: -------------------------------- Its: ------------------------------- - ------------------------------------ Secretary (Seal) -14- DESIGNATION OF BENEFICIARY For purposes of any and all payments due me pursuant to the Severance Agreement entered into by me (name) and Norwest Corporation on _____________, 1995, as amended, I hereby make the following designation of beneficiary(ies): PRIMARY BENEFICIARY(IES):
NAME DATE OF BIRTH ADDRESS RELATIONSHIP - ---- ------------- ------- ------------
Unless otherwise designated on this form, all primary beneficiaries shall be paid equal shares of the total payment. CONTINGENT BENEFICIARY(IES): (To be paid only if no primary beneficiary is alive at the time of payment.)
NAME DATE OF BIRTH ADDRESS RELATIONSHIP - ---- ------------- ------- ------------
Unless otherwise designated, all contingent beneficiaries shall be paid equal shares of the total payment. I understand that the above designation of beneficiary(ies) may only be changed by me, in writing. DATE: Name: ----------------- ----------------------------- Type in Name: (name) ----------------- -15- November 18, 1998 Terri Dial Group Executive Vice President Wells Fargo 420 Montgomery Street San Francisco, CA 94104 Dear Terri: I am very pleased that we were able to come to an agreement that allows you to feel comfortable being part of the senior management of the new Wells Fargo. I'd like to recap our commitment: - - You will have a job as Group Executive Vice President. In this job you will be responsible for California, Distribution Strategies, Telephone Banking and Business Banking. In this job you will report directly to me. - - If during the time period from April to October 2000 you decide that you no longer want to be a part of this organization, you may elect to leave the company with a severance package of $1,800,000.00 payable over an 18 month period. - - If, during the period between November 3, 1998 and October 31, 2000, Wells Fargo participates in a merger of equals or is acquired as defined in the Wells Fargo & Company Change of Control Severance Plan, you may elect to leave the organization and participate in the original Change of Control Severance Plan approved by the Wells Fargo board in June 1998. The Plan provides, in general, for salary continuation leave of three years (base and bonus). - - If you were to leave under either of these circumstances, we would expect you to sign an employee and customer non-solicitation agreement for the period of the salary continuation leave. This agreement would restrict your personal involvement in soliciting key Wells Fargo employees to leave employment with Wells Fargo. It would not prohibit recruiting efforts by the corporation for which you may be working during this period. - - If you remain employed by Wells Fargo through October 31, 2000 and you have earned incentive pay in the year 2000, you will be paid the incentive earned through the last date of your active employment. - - With the approval of the compensation committee of the board, you will be awarded an extraordinary option grant with a Black Scholes value of $600,000 following the closing of the Norwest/Wells merger. This will not impact the option grant you would be eligible for at the next routine option distribution to Wells senior management. - - It is in our mutual interest that the terms of this agreement be kept confidential. All this said Terri, I want to be clear that my hope is that you will come to the end of the year 2000 wanting to be a part of the ongoing senior management team of this corporation. I believe that we will be successful. I know you can be a big part of that success. I am looking forward to working together with you as we build the new Wells Fargo into one of America's great companies. Sincerely, Les Biller -16- EX-10.(GG) 11 EXHIBIT 10(GG) January 25, 1999 Chang-Lin Tien 1451 Olympus Avenue Berkeley, CA 94708 Dear Chang-Lin: As you are aware, in addition to your director relations with Wells Fargo & Company, since May 2, 1997, you have been retained by the Company as a consultant. In that connection, the terms of the consultant arrangement are set forth in that certain letter dated May 2, 1997 as extended by letter dated June 23, 1998. The purpose of this letter is to restate and expand the consultant relationship that currently exists between you and Wells Fargo & Company. DESCRIPTION OF SERVICES: We believe your background and experience together with your stature in the international marketplace puts you in a unique position to assist us in developing our business and competitive presence in this market area. In that regard, we request that for the term of this Agreement you provide us with the following services: 1. Be our representative and spokesperson in such international market place and such communities located therein as we may designate; 2. Be one of our representatives on the Board of Shanghai Commercial Bank. In such capacity, you shall act on our behalf and for such term as we may designate; 3. Provide us with advice and counsel in the development of our marketing strategies for such market areas as we may designate; and 4. Provide us with such other services as may mutually discuss and agree upon. COMPENSATION: In consideration of obtaining the services contemplated hereby, we agree to pay you the sum of $200,000.00 per annum. Such compensation shall be paid in 12 equal installments of $16,666.66 each, commencing on the 1st day of the month next following the effective date of this Agreement. We will also reimburse you for reasonable expenses incurred in the performance of the services contemplated hereby, including travel expenses. Reimbursement of such expenses will be on a monthly basis upon receipt by us of a statement therefore, and will be made in accordance with the procedures applicable to our own employees. In addition to the foregoing, we will provide you with office space and such clerical and support help as you may need to perform the services described herein. OTHER BENEFITS: You shall be free to exercise your discretion and independent judgment as to the method and means of performance of the services contemplated hereby. As a consultant, you will not be considered an employee of the Company, and shall not, by virtue of the agreement be entitled to any benefits or privileges provided by the Company to its employees. TAXES: You should treat the compensation received hereunder as self-employment income for Federal Tax purposes. In that regard, we will neither withhold federal Income Tax nor pay FICA, State unemployment or other employment taxes. CONFIDENTIALITY: The information, knowledge and data you will receive and develop in performing these services contemplated hereby will be extremely sensitive and should be kept confidential and should not be disclosed to any third party except as we may from time to time mutually agree. INDEMNITY: We will indemnify you against and hold you harmless from any and all losses, damages, liabilities, claims, costs and expenses and attorney fees which you may expend or incur as a result of the performance of the services contemplated hereby. TERM: The effective date of this Agreement shall be the date upon which it is signed by you, in the place and manner so designated below. The Agreement will continue thereafter unless and until 2 one of us elects to terminate the Agreement. The Agreement may be terminated at any time upon either of us sending notice of termination to the other. No such termination shall in any manner effect the rights and obligations existing as of the date of such termination; including without limitation, your rights in connection with our obligations to indemnify you as set forth herein. SUPERCEDE OTHER AGREEMENTS: This Agreement shall be deemed the only agreement between the parties hereto concerning the matters discussed herein; as such it supercedes, replaces and restates the earlier letter agreement dated May 2, 1997, as extended June 23, 1998, which as of the effective date hereof, shall be deemed of no further force or effect. Chang-Lin, we greatly appreciate your efforts and the results thereof since the inception of our consultant relationship as of July 1, 1997. We are also most appreciative of your willingness to continue the relationship and expand its activities to include the board representation in connection with Shanghai Commercial Bank. We continue to believe that in your role as a consultant you are able to play a significant role on behalf of Wells Fargo & Company as we continue to seek to take advantage of the many opportunities presented by the international market place. If you are in agreement please execute this letter in the place so designated and return it to my attention at your convenience. Best regards, /s/ David J. Zuercher David J. Zuercher ACKNOWLEDGEMENT: By: /s/ Chang-Lin Tien Printed: Chang-Lin Tien Date: January 26, 1999 3 EX-10.(HH) 12 EXHIBIT 10(HH) RETIREMENT PLAN FOR NON-EMPLOYEE DIRECTORS OF THE FORMER NORWEST CORPORATION (AS AMENDED AND RESTATED AS OF NOVEMBER 2, 1998) 1. PURPOSE: The purpose of the Retirement Plan for Non-Employee Directors of the former Norwest Corporation (the "Plan") is to provide unfunded retirement benefits for certain non-employee members of the Board of Directors of the former Norwest Corporation (the "Corporation") in consideration for personal services rendered in their capacity as members of the Board of Directors (the "Board") of the Corporation through November 2, 1998. The Corporation changed its name to "Wells Fargo & Company" (the "Company") effective November 2, 1998. 2. EFFECTIVE DATE: The effective date of the Plan shall be January 1, 1988, as amended and restated as of November 2, l998. 3. ADMINISTRATION: The Plan shall be administered by the Company's Vice President-Compensation and Benefits (the "Administrator"), who shall have the authority to adopt rules for carrying out the Plan and to interpret and implement the provisions of the Plan and whose determinations shall be conclusive and binding on all participants. 4. ELIGIBILITY: Any person who served as a member of the Board who was not an officer or employee of the Corporation or of a subsidiary of the Corporation ("Non-Employee Director") shall be eligible to participate in the Plan. Any Non-Employee Director shall be a Plan participant as of the later of the date on which he or she has completed five full years of service as a Non-Employee Director of the Board or January 1, 1988; provided, however, that any Non-Employee Director who remained a Non-Employee Director of the Company on and after November 2, 1998 (a "Continuing Director") shall be eligible to participate in the Plan without regard to the length of their service on the Board. The years of service need not be consecutive for purposes of becoming a Plan participant. Prior years of service as a Non- Employee Director of a subsidiary of the Corporation will be included in the calculation of years of service for the determination of status as a Plan participant only. In calculating length of service on the Board for purposes of determining whether a Non-Employee Director qualifies as a Plan participant, only full years of service will be included for those who are not Continuing Directors. 5. RETIREMENT BENEFIT: Each Plan participant will be entitled to receive a cash retirement benefit equal in amount to the product of (i) the annual retainer rate paid in cash for Non-Employee Directors in effect at the time of the participant's last day of service as a Non-Employee Director of the Corporation or the Company, as the case may be (the "Final Retainer"), and (ii) the length of service on the Board of the Corporation, up to a maximum of 10 years, by the Non-Employee Director. For Non-Employee Directors who are not Continuing Directors, only full years of service will be included; for Continuing Directors, the length of service will be the number of months served on the Board of the Corporation (rounded up to the next full month) divided by 12. A participant's retirement benefit will be paid in annual installments equal in number (as to a participant the participant's "Benefit Duration") to the greater of (A) the number of whole years (or whole and partial years in the case of a Continuing Director) up to a maximum of ten years that the participant served as a Non-Employee Director on the Board of the Corporation through November 2, l998, or (B) such other whole number as the participant may irrevocably elect pursuant to a benefit payment election form (a copy of which is attached hereto as Exhibit A) filed with the Administrator prior to the date the Non-Employee Director becomes entitled to receive benefits under the Plan, provided that in no event may a participant's Benefit Duration exceed 10 years. For Non-Employee Directors whose Benefit Duration is a whole number of years, the amount of each annual installment will equal the participant's total retirement benefit payable under this paragraph divided by such participant's Benefit Duration. A Continuing Director whose Benefit Duration is measured in other than whole years will receive, first, annual installments equal in amount to the Final Retainer for the number of whole years of such Continuing Director's actual service on the Board and, after all such annual installments have been paid, a final installment consisting of the pro rata portion of the Final Retainer corresponding to the partial year of his or her actual service. Payment of a participant's retirement benefit will 2 commence on February 28 of the year immediately following the year in which the participant retires from service on the Board or such subsequent year as the participant may irrevocably elect pursuant to a benefit payment election form filed with the Administrator prior to the date the Non-Employee Director becomes a Plan participant. For purposes of calculating the retirement benefit to which a participant is entitled under this paragraph, years of service as a Non-Employee Director of a subsidiary of the Corporation will not be counted. Except as specifically provided in paragraph 7 below with respect to deferred benefits, no interest shall accrue on any benefits payable hereunder to Plan participants. 6. DEATH BENEFITS: If a Plan participant dies while serving as a Non-Employee Director, the benefit to which the Director is then entitled pursuant to paragraph 5 of this Plan shall be paid in annual installments commencing on February 28 of the year immediately following the year during which the participant dies to the beneficiary designated by the Non-Employee Director pursuant to the Plan beneficiary designation form (a copy of which is attached as Exhibit B) or, in the absence of a valid designation or if the designated beneficiary does not survive the participant, to such participant's estate. If a Plan participant dies after completing his or her service as a Non-Employee Director but before he or she has received all of the retirement benefits to which he or she is entitled under the terms of this Plan, the remaining benefits (as determined by paragraph 5) shall be paid in annual installments to the beneficiary designated by the Non-Employee Director pursuant to the Plan beneficiary designation form or, in the absence of a valid designation or if the designated beneficiary does not survive the participant, to such participant's estate. The Corporation may, in its discretion, pay to the beneficiary or the participant's estate the present value of the entire remaining benefit (as determined by the Administrator) to which the Non-Employee Director is entitled, in one lump sum payment. If any beneficiary dies after becoming entitled to receive payments hereunder, the remaining payments shall be made to such beneficiary's estate. 7. INTEREST ON DEFERRED BENEFITS: If a Plan participant files an election to defer the receipt of benefits, in accordance with paragraph 5, all deferred benefits shall bear interest from the date on which the 3 participant, in absence of the deferral, would have received benefits under this Plan until such benefits are paid at a rate per annum equal to the interest equivalent of the secondary market yield for three-month United States Treasury Bills as reported for the preceding month in FEDERAL RESERVE STATISTICAL RELEASE H.15(519), which shall be credited to the amount of benefit due a participant as of the last day of each month. The amount of each benefit payment will be equal to the total amount of all benefit payments remaining to be paid together with all interest accrued thereon divided by the number of benefit payments to be made, including the current payment. 8. BENEFITS NOT FUNDED: All benefits under this Plan shall be unsecured obligations of the Corporation, and each participant's right thereto shall be as an unsecured creditor of the Corporation. 9. CHANGE OF CONTROL: Pursuant to a benefit payment election form filed with the Administrator prior to the date the Non-Employee Director becomes a Plan participant, a participant may irrevocably elect to have all amounts payable to the participant pursuant to this Plan, including all amounts deferred pursuant to a benefit election form filed with the Plan Administrator, become payable immediately in cash if (i) a third person, including a "group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, becomes the beneficial owner, directly or indirectly, of 25% or more of the combined voting power of the Corporation's outstanding voting securities ordinarily having the right to vote for the election of directors of the Company or (ii) individuals who constitute the Board of Directors of the Company as of November 24, 1987 (the "Incumbent Board"), cease for any reason to constitute at least two-thirds thereof, provided that any person becoming a director subsequent to said date whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board, shall be, for purposes of this clause (ii), considered as though such person were a member of the Incumbent Board. 10. NO GUARANTEE OF SERVICE: Participation in this Plan does not constitute a guarantee or contract of service as a Non-Employee Director. 4 11. BENEFICIARY DESIGNATION AND NON-ASSIGNABILITY: No right to receive payments hereunder shall be transferable or assignable by a Plan participant, except as provided in paragraph 6 of this Plan. 12. AMENDMENT AND TERMINATION: This Plan may at any time or from time to time be amended, suspended or terminated by action of the Board. However, no such action shall deprive any Plan Participant of any benefits to which he or she is entitled under paragraph 5 as of the day of amendment, suspension, or termination of the Plan, as the case may be. 13. FORFEITURE OF BENEFITS: Unless an exception to this paragraph is requested by a Plan participant and approved by the Board Affairs Committee of the Board, a Plan Participant who, after ceasing to be a Non-Employee Director of the Corporation, becomes a "management official" of a competing "depository organization" shall immediately forfeit all future benefits under the Plan to which such participant is entitled. The terms "management official" and "depositary organization" shall have the meanings set forth in the Depository Institution Management Interlocks Act (the "Act") and Federal Reserve Regulation L ("Regulation L"). A depository organization shall be deemed to be a competing depository organization if the Plan participant would be prohibited by the Act and Regulation L from serving as a Non-Employee Director of the Corporation and as a management official of such depository organization at the same time. 14. ONE-TIME CONVERSION OPTION: In lieu of all benefits otherwise payable under this Plan, any Non-Employee Director of the Corporation who was a Plan participant on November 2, 1998, may elect to receive an amount ("Retirement Conversion Amount") under the Wells Fargo & Company 1999 Deferral Plan for Directors equal to the sum of all benefits the Plan participant would have been otherwise entitled to receive under the Plan if the Plan participant's service on the Board had ended on November 2, 1998. Any such election must be made in writing on a form provided by the Company for that purpose and shall be irrevocable. Any such election will not be effective unless it is received by the Corporate Secretary of 5 the Company on or before June 30, 1999, and prior to termination of the participant's service as a Non-Employee Director of the Company. Retirement Conversion Amounts under the Wells Fargo & Company l999 Deferral Plan for Directors in fulfillment of a participant's election hereunder shall be effective as of July l, l999. Retirement Conversion Amounts will be credited in accordance with the terms of the Wells Fargo & Company 1999 Deferral Plan for Directors. After a Retirement Conversion Amount is credited under the Wells Fargo & Company l999 Deferral Plan for Directors in fulfillment of a Plan participant's election hereunder, neither the Plan participant nor his or her beneficiaries shall have any further right to any benefit under this Plan whatsoever. 11/17/87 7/24/90 2/26/96 1/28/97 11/2/98 6 EX-10.(II) 13 EXHIBIT 10(II) WFC HOLDINGS CORPORATION DIRECTORS' RETIREMENT PLAN (Amended and Restated as of November 2, l998) I. PURPOSE OF THE PLAN The purpose of this Plan is to assume the obligations of the former Wells Fargo & Company ("Old Wells Fargo"), the predecessor of WFC Holdings Corporation, under its Directors' Retirement Plan to former non-employee Directors of Old Wells Fargo for the purpose of recognizing the value of their past service to Old Wells Fargo and compensating them for their availability as a resource to the current Wells Fargo & Company, formerly Norwest Corporation ("New Wells Fargo"). II. EFFECTIVE DATE The Plan is effective January 1, 1988, and is amended and restated as of November 2, l998. III. ADMINISTRATION OF THE PLAN The Plan will be administered by the Board of Directors (the "Board") of WFC Holdings Corporation (the "Corporation") or its delegate, which will have sole authority to interpret and construe the provisions of the Plan and to adopt rules and regulations for administering the Plan. Decisions of the Board or its delegate will be final and binding on all parties who have an interest in the Plan. IV. ELIGIBILITY Any person who was a member of Old Wells Fargo's Board of Directors on or after the effective date of the Plan but before April 16, l996, and who during that time was not a full-time employee of Old Wells Fargo or one of its subsidiaries ("Outside Director") will be eligible to participate in the Plan. V. RETIREMENT BENEFITS A Director who is a participant in the Plan will be entitled to a retirement benefit payable at an annual rate equal to the annual cash retainer in effect for non-employee Directors of Old Wells Fargo or New Wells Fargo, as the case may be, at the time of his or her retirement (in either case not including any additional retainer paid for being a member or chairman of a committee of the Board of Directors). For Outside Directors who joined the Board of Directors of New Wells Fargo on November 2, 1998 ("Continuing Directors"), the retirement benefit will be payable for the lesser of ten years or the period of actual service as an Outside Director, including service as a non-employee director of First Interstate Bancorp, through November 2, l998, rounded up to the nearest month. For all other Outside Directors, the retirement benefit will be payable for the lesser of ten years or the number of full years of actual service, including service as a non-employee director of First Interstate Bancorp. Payment will commence on any date following retirement elected by the participant, but not earlier than the date the participant attains age 65. If a participant is an Outside Director on January 1, 1988, the election must be filed by March 31, 1988. If a participant first becomes an Outside Director after January l, 1988, the election must be filed within 90 days of the date he or she becomes an Outside Director. If no election is filed, payment will commence on the later of the date the participant retires or the date the participant attains age 65. VI. SURVIVOR BENEFITS In the event of the death of a participant prior to retirement, the participant's designated beneficiary will receive an annual benefit equal in amount and duration to the annual benefit to which the participant would have been entitled hereunder if the participant had retired on the date of his or her death. Payment of the survivor benefit will commence the month following the Director's death. However, a Director may elect for benefits to commence on any date following his or her death. If a participant is an Outside Director on January 1, 1988, any such election must be filed by March 31, 1988. If a participant first becomes an Outside Director after January 1, 1988, the election must be filed within 90 days of the date he or she becomes an Outside Director. VII. ONE-TIME CONVERSION OPTION In lieu of all benefits otherwise payable under the Plan, any Continuing Director may elect to receive an amount ("Retirement Conversion Amount") under the New Wells Fargo 1999 Deferral Plan for Directors equal to the sum of all benefits the Plan participant would have been otherwise entitled to receive 2 under the Plan for service as an Outside Director of Old Wells Fargo through November 2, 1998. Any such election must be made in writing on a form provided by New Wells Fargo for that purpose and shall be irrevocable. Any such election will not be effective unless it is received by the Corporate Secretary of New Wells Fargo on or before June 30, 1999, and prior to termination of the participant's service as a non-employee Director of New Wells Fargo. Retirement Conversion Amounts under the New Wells Fargo l999 Deferral Plan for Directors in fulfillment of a participant's election hereunder shall be effective as of July 1, l999. Retirement Conversion Amounts will be credited in accordance with the terms of the New Wells Fargo 1999 Deferral Plan for Directors. After a Retirement Conversion Amount is credited under the New Wells Fargo l999 Deferral Plan for Directors in fulfillment of a Plan participant's election hereunder, neither the Plan participant nor his or her beneficiaries shall have any further right to any benefit under this Plan whatsoever. VIII. GENERAL PROVISIONS (A) The obligation to pay retirement or survivor benefits will at all times be an unfunded and unsecured obligation of the Corporation. The Corporation will not be under any obligation to invest any portion of its general assets in mutual funds, stocks, bonds, securities or other similar investments in order to accumulate funds for the satisfaction of its obligations under the Plan. The participant and his or her beneficiary must look solely and exclusively to the general assets of the Corporation for the payment of the participant's benefits. (B) The Board may at any time amend, suspend or terminate the Plan; provided, however, that such action may not adversely affect rights previously vested and non-forfeitable under the Plan. (C) A participant will have no right to alienate, pledge or encumber his interest in his or her benefits under the Plan, nor will such benefits be subject in any way to the claims of a participant's creditors or to attachment, execution or other process of law. (D) In the event of a participant's death following retirement, the balance of his or her retirement benefits, if any, will be paid to the participant's designated beneficiary or, in the absence of such designation, in accordance with the participant's will or the laws of descent and distribution. In 3 the event of a beneficiary's death, the balance of his or her benefits, if any, will be paid in accordance with the beneficiary's will or the laws of descent and distribution. A participant may from time to time revoke his or her beneficiary designation and file a new beneficiary designation with the Board. All beneficiary designations must be on the form prescribed by the Board or its delegate. 4 EX-12.(A) 14 EXHIBIT 12(A) EXHIBIT 12(a) WELLS FARGO & COMPANY AND SUBSIDIARIES COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
- ----------------------------------------------------------------------------------------------------------------------------- Year ended December 31, ------------------------------------------------------------------ (in millions) 1998 1997 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------------------- EARNINGS, INCLUDING INTEREST ON DEPOSITS (1): Income before income tax expense $3,293 $4,193 $3,767 $3,201 $2,635 Fixed charges 5,218 5,149 4,816 4,000 2,854 ------ ------ ------ ------ ------ $8,511 $9,342 $8,583 $7,201 $5,489 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Fixed charges (1): Interest expense $5,065 $4,954 $4,619 $3,879 $2,745 Estimated interest component of net rental expense 153 195 197 121 109 ------ ------ ------ ------ ------ $5,218 $5,149 $4,816 $4,000 $2,854 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Ratio of earnings to fixed charges (2) 1.63 1.81 1.78 1.80 1.92 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ EARNINGS, EXCLUDING INTEREST ON DEPOSITS: Income before income tax expense $3,293 $4,193 $3,767 $3,201 $2,635 Fixed charges 2,107 1,999 1,905 1,847 1,137 ------ ------ ------ ------ ------ $5,400 $6,192 $5,672 $5,048 $3,772 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Fixed charges: Interest expense $5,065 $4,954 $4,619 $3,879 $2,745 Less interest on deposits 3,111 3,150 2,911 2,153 1,717 Estimated interest component of net rental expense 153 195 197 121 109 ------ ------ ------ ------ ------ $2,107 $1,999 $1,905 $1,847 $1,137 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Ratio of earnings to fixed charges (2) 2.56 3.10 2.98 2.73 3.32 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ - -----------------------------------------------------------------------------------------------------------------------------
(1) As defined in Item 503(d) of Regulation S-K. (2) These computations are included herein in compliance with Securities and Exchange Commission regulations. However, management believes that fixed charge ratios are not meaningful measures for the business of the Company because of two factors. First, even if there were no change in net income, the ratios would decline with an increase in the proportion of income which is tax-exempt or, conversely, they would increase with a decrease in the proportion of income which is tax-exempt. Second, even if there were no change in net income, the ratios would decline if interest income and interest expense increase by the same amount due to an increase in the level of interest rates or, conversely, they would increase if interest income and interest expense decrease by the same amount due to a decrease in the level of interest rates. EX-12.(B) 15 EXHIBIT 12(B) EXHIBIT 12(b) WELLS FARGO & COMPANY AND SUBSIDIARIES COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS
- ------------------------------------------------------------------------------------------------------------------------------------ Year ended December 31, ------------------------------------------------------------------- (in millions) 1998 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------ EARNINGS, INCLUDING INTEREST ON DEPOSITS (1): Income before income tax expense $3,293 $4,193 $3,767 $3,201 $2,635 Fixed charges 5,218 5,149 4,816 4,000 2,854 ------ ------- ------- ------- ------ $8,511 $9,342 $8,583 $7,201 $5,489 ------ ------- ------- ------- ------ ------ ------- ------- ------- ------ Preferred dividend requirement $ 35 $ 43 $ 85 $ 83 $ 71 Ratio of income before income tax expense to net income 1.69 1.68 1.69 1.61 1.60 ------ ------- ------- ------- ------ Preferred dividends (2) $ 59 $ 72 $ 144 $ 134 $ 114 ------ ------- ------- ------- ------ Fixed charges (1): Interest expense 5,065 4,954 4,619 3,879 2,745 Estimated interest component of net rental expense 153 195 197 121 109 ------ ------- ------- ------- ------ 5,218 5,149 4,816 4,000 2,854 ------ ------- ------- ------- ------ Fixed charges and preferred dividends $5,277 $5,221 $4,960 $4,134 $2,968 ------ ------- ------- ------- ------ ------ ------- ------- ------- ------ Ratio of earnings to fixed charges and preferred dividends (3) 1.61 1.79 1.73 1.74 1.85 ------ ------- ------- ------- ------ ------ ------- ------- ------- ------ EARNINGS, EXCLUDING INTEREST ON DEPOSITS: Income before income tax expense $3,293 $4,193 $3,767 $3,201 $2,635 Fixed charges 2,107 1,999 1,905 1,847 1,137 ------ ------- ------- ------- ------ $5,400 $6,192 $5,672 $5,048 $3,772 ------ ------- ------- ------- ------ ------ ------- ------- ------- ------ Preferred dividends (2) $ 59 $ 72 $ 144 $ 134 $ 114 ------ ------- ------- ------- ------ Fixed charges: Interest expense 5,065 4,954 4,619 3,879 2,745 Less interest on deposits 3,111 3,150 2,911 2,153 1,717 Estimated interest component of net rental expense 153 195 197 121 109 ------ ------- ------- ------- ------ 2,107 1,999 1,905 1,847 1,137 ------ ------- ------- ------- ------ Fixed charges and preferred dividends $2,166 $2,071 $2,049 $1,981 $1,251 ------ ------- ------- ------- ------ ------ ------- ------- ------- ------ Ratio of earnings to fixed charges and preferred dividends (3) 2.49 2.99 2.77 2.55 3.02 ------ ------- ------- ------- ------ ------ ------- ------- ------- ------ - ----------------------------------------------------------------------------------------------------------------------------------
(1) As defined in Item 503(d) of Regulation S-K. (2) The preferred dividends were increased to amounts representing the pretax earnings that would be required to cover such dividend requirements. (3) These computations are included herein in compliance with Securities and Exchange Commission regulations. However, management believes that fixed charge ratios are not meaningful measures for the business of the Company because of two factors. First, even if there was no change in net income, the ratios would decline with an increase in the proportion of income which is tax-exempt or, conversely, they would increase with a decrease in the proportion of income which is tax-exempt. Second, even if there was no change in net income, the ratios would decline if interest income and interest expense increase by the same amount due to an increase in the level of interest rates or, conversely, they would increase if interest income and interest expense decrease by the same amount due to a decrease in the level of interest rates. EX-13 16 EXHIBIT 13
FINANCIAL REVIEW 34 Overview 37 Merger of Norwest and Wells Fargo 37 Operating Segment Results 38 Earnings Performance 38 Net Interest Income 39 Noninterest Income 42 Noninterest Expense 44 Earnings/Ratios Excluding Goodwill and Nonqualifying CDI 44 Balance Sheet Analysis 44 Securities Available for Sale (table on page 63) 45 Loan Portfolio (table on page 64) 45 Nonaccrual and Restructured Loans and Other Assets 47 Allowance for Loan Losses (table on page 66) 47 Deposits 47 Market Risks 48 Derivative Financial Instruments 48 Liquidity and Capital Management 49 Comparison of 1997 to 1996 50 Additional Information FINANCIAL STATEMENTS 51 Consolidated Statement of Income 52 Consolidated Balance Sheet 53 Consolidated Statement of Changes in Stockholders' Equity and Comprehensive Income 54 Consolidated Statement of Cash Flows 55 Notes to Financial Statements (index on page 96) 96 INDEPENDENT AUDITORS' REPORT 96 INDEX OF SPECIAL TOPICS
33 OVERVIEW On November 2, 1998, Norwest Corporation changed its name to "Wells Fargo & Company" upon the merger (the Merger) of the former Wells Fargo & Company (the former Wells Fargo) into a wholly-owned subsidiary of Norwest Corporation. Norwest Corporation as it was before the Merger is referred to as the former Norwest. The Merger was accounted for as a pooling of interests and, accordingly, the information included in the financial review presents the combined results as if the Merger had been in effect for all periods presented. Certain amounts in the financial review for prior years have been reclassified to conform with the current financial statement presentation. Wells Fargo & Company is a $202 billion diversified financial services company providing banking, mortgage and consumer finance through about 6,000 stores and other distribution channels throughout North America, including all 50 states, and elsewhere internationally. It ranks seventh in assets at December 31, 1998 among U.S. bank holding companies. In this Annual Report, Wells Fargo & Company together with its subsidiaries is referred to as the Company and Wells Fargo & Company alone is referred to as the Parent. Net income in 1998 was $1,950 million, compared with $2,499 million in 1997, a decrease of 22%. Diluted earnings per common share were $1.17, compared with $1.48 in 1997, a decrease of 21%. Return on average assets (ROA) was 1.04% and return on average common equity (ROE) was 9.86% in 1998, compared with 1.37% and 12.81%, respectively, in 1997. Diluted earnings before the amortization of goodwill and nonqualifying core deposit intangible (CDI) ("cash" or "tangible" earnings) were $1.50 per share in 1998, compared with $1.83 per share in 1997. On the same basis, ROA was 1.39% and ROE was 23.15% in 1998, compared with 1.78% and 30.49%, respectively, in 1997. Net interest income on a taxable-equivalent basis was $9,049 million in 1998, compared with $8,705 million a year ago. The Company's net interest margin was 5.79% for 1998, compared with 5.86% in 1997. Noninterest income increased from $5,675 million in 1997 to $6,427 million in 1998, an increase of 13%. Noninterest expense totaled $10,579 million in 1998, compared with $8,990 million in 1997. The increase was primarily due to the Merger-related charges incurred during the fourth quarter. The provision for loan losses was $1,545 million in 1998, compared with $1,140 million in 1997. During 1998, net charge-offs were $1,617 million, or 1.52% of average total loans, compared with $1,305 million, or 1.25%, during 1997. The allowance for loan losses was $3,134 million, or 2.90% of total loans, at December 31, 1998, compared with $3,062 million, or 2.88%, at December 31, 1997. At December 31, 1998, total nonaccrual and restructured loans were $710 million, or .7% of total loans, compared with $715 million, or .7%, at December 31, 1997. Other real estate (ORE) was $173 million at December 31, 1998, compared with $264 million at December 31, 1997. The Company's direct credit risk related to the ongoing volatility of the financial markets in Asia and, more recently, Latin America is predominantly short-term in nature and is relatively insignificant. However, the primary risk to the Company is the long-term effect of the Asian and Latin American financial markets on the economy of the U.S. and the Company's borrowers. Understanding this risk is more difficult and depends on the passage of time. To date, while certain domestic sectors to which the Company has direct credit exposure have been adversely impacted by the disruptions in Asian financial markets, the results have not been material enough to create any significant credit losses for the Company. At December 31, 1998, the ratio of common stockholders' equity to total assets was 10.02%, compared with 10.40% at December 31, 1997. The Company's total risk-based capital (RBC) ratio at December 31, 1998 was 10.90% and its Tier 1 RBC ratio was 8.08%, exceeding the minimum regulatory guidelines of 8% and 4%, respectively, for bank holding companies. The Company's ratios at December 31, 1997 were 11.20% and 8.16%, respectively. The Company's leverage ratios were 6.58% and 6.72% at December 31, 1998 and 1997, respectively, exceeding the minimum regulatory guideline of 3% for bank holding companies. This Annual Report (including information incorporated by reference herein) includes forward-looking statements about the Company's financial condition, results of operations, plans, objectives and future performance and business. These statements generally include the words "believe," "expect," "anticipate," "estimate," "may," "will" or similar expressions that suggest the statements are forward looking in nature. 34 These forward-looking statements involve inherent risks and uncertainties. The Company cautions readers that a number of factors -- many of which are beyond the control of the Company -- could cause actual results to differ materially from those in the forward-looking statements. Among these factors are changes in political and economic conditions, interest rate fluctuations, technological changes (including the "Year 2000" data systems compliance issue), customer disintermediation, competitive product and pricing pressures in the Company's geographic and product markets, equity and fixed income market fluctuations, personal and commercial customers' bankruptcies, inflation, changes in law, changes in fiscal, monetary, regulatory and tax policies, monetary fluctuations, credit quality and credit risk management, mergers and acquisitions, the integration of merged and acquired companies, and success in gaining regulatory approvals when required. Also, actual results may differ materially from those in the forward- looking statements because of factors relating to the combination of the former Wells Fargo and the former Norwest Corporation, including the following: expected cost savings from the Merger are not fully realized within the expected time frame or additional or unexpected costs are incurred; and costs or difficulties related to the integration of the former Wells Fargo and the former Norwest Corporation are greater than expected. RECENT ACCOUNTING STANDARDS The Company adopted on January 1, 1998, Statement of Financial Accounting Standards No. 130 (FAS 130), Reporting Comprehensive Income. This Statement sets standards for reporting and displaying comprehensive income and its components in the financial statements. It requires that a company classify items of other comprehensive income, as defined by accounting standards, by their nature in the financial statements. Other comprehensive income, as defined, is net of income taxes. Cumulative other comprehensive income is displayed separately in the equity section of the balance sheet and the consolidated statement of changes in stockholders' equity and comprehensive income. For comparative purposes, financial statements for earlier periods provided have been reclassified. The amount of income tax expense or benefit allocated to each component of other comprehensive income is presented in Note 16 to Financial Statements. TABLE 1: RATIOS AND PER COMMON SHARE DATA
- ---------------------------------------------------------------------- ($ in millions, except Year ended December 31, per share amounts) ---------------------- 1998 1997 1996 PROFITABILITY RATIOS Net income to average total assets (ROA) 1.04% 1.37% 1.31% Net income applicable to common stock to average common stockholders' equity (ROE) 9.86 12.81 12.73 Net income to average stockholders' equity 9.81 12.67 12.52 EFFICIENCY RATIO (1) 68.5% 62.8% 67.0% NET INCOME AND RATIOS EXCLUDING GOODWILL AND NONQUALIFYING CORE DEPOSIT INTANGIBLE (CDI) AMORTIZATION AND BALANCES ("CASH" OR "TANGIBLE") (2) Net income applicable to common stock $2,465 $3,031 $2,616 Earnings per common share 1.52 1.85 1.68 Diluted earnings per common share 1.50 1.83 1.67 ROA 1.39% 1.78% 1.66% ROE 23.15 30.49 28.55 Efficiency ratio 64.3 57.8 63.5 CAPITAL RATIOS At year end: Common stockholders' equity to assets 10.02% 10.40% 10.21% Stockholders' equity to assets 10.25 10.65 10.63 Risk-based capital (3) Tier 1 capital 8.08 8.16 7.96 Total capital 10.90 11.20 11.11 Leverage (3) 6.58 6.72 6.36 Average balances: Common stockholders' equity to assets 10.31 10.52 9.91 Stockholders' equity to assets 10.56 10.82 10.48 PER COMMON SHARE DATA Dividend payout (4) 59% 41% 38% Book value $12.35 $11.92 $11.66 Market prices (5): High $43.88 $39.50 $23.44 Low 27.50 21.63 15.25 Year end 39.94 38.75 21.75 - ----------------------------------------------------------------------
(1) The efficiency ratio is defined as noninterest expense divided by the total of net interest income and noninterest income. (2) Nonqualifying core deposit intangible (acquired after regulatory rule changes in 1992) 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 $129 million and $906 million, respectively, for the year ended December 31, 1998. Goodwill amortization and average balance (which are not tax effected) were $421 million and $7,865 million, respectively, for the year ended December 31, 1998. See page 44 for additional information. (3) See Note 22 to Financial Statements for additional information. (4) Dividends declared per common share as a percentage of earnings per common share. (5) Based on daily prices reported on the New York Stock Exchange Composite Transaction Reporting System. 35 The Company adopted on December 31, 1998, FAS 131, Disclosures about Segments of an Enterprise and Related Information. The Statement requires that a public business enterprise report financial and descriptive information about its reportable operating segments on the basis that is used internally for evaluating segment performance and deciding how to allocate resources to segments. The Company adopted on December 31, 1998, FAS 132, Employers' Disclosures about Pensions and Other Postretirement Benefits. The Statement only addresses disclosure issues; it does not address measurement and recognition of pensions and other postretirement benefits. This Statement requires the reconciliation of changes in benefit obligations and plan assets for both pensions and other postretirement benefits, showing the effects of the major components separately for each reconciliation. In June 1998, the Financial Accounting Standards Board (FASB) issued FAS 133, Accounting for Derivative Instruments and Hedging Activities, which will be effective for the Company's financial statements for periods beginning January 1, 2000. This Statement requires companies to record derivatives on the balance sheet, measured at fair value. Changes in the fair values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. The key criterion for hedge accounting is that the hedging relationship must be highly effective in achieving offsetting changes in fair value or cash flows. The Company has not yet determined when it will implement the Statement nor has it completed the complex analysis required to determine the impact on the financial statements. In October 1998, the FASB issued FAS 134, Accounting for Mortgage-Backed Securities Retained after Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise. This Statement requires that after mortgage loans held for sale are securitized, an entity engaged in mortgage banking activities classify the resulting mortgage-backed securities or other retained interests based on its ability and intent to sell or hold investments. The Company implemented FAS 134 in the fourth quarter of 1998, and, accordingly, classifies its retained interests from securitizations as securities available for sale. The Statement did not have a material impact on the financial statements. TABLE 2: SIX-YEAR SUMMARY OF SELECTED FINANCIAL DATA
- ---------------------------------------------------------------------------------------------------------------------------------- (in millions, except % CHANGE FIVE-YEAR per share amounts) 1998/ COMPOUND 1998 1997 1996 1995 1994 1993 1997 GROWTH RATE INCOME STATEMENT Net interest income $ 8,990 $ 8,648 $ 8,222 $ 5,923 $ 5,414 $ 5,160 4% 12% Provision for loan losses 1,545 1,140 500 312 365 708 36 17 Noninterest income 6,427 5,675 4,769 3,179 2,813 2,649 13 19 Noninterest expense 10,579 8,990 8,724 5,589 5,225 5,192 18 15 Net income 1,950 2,499 2,228 1,988 1,642 1,130 (22) 12 Earnings per common share $ 1.18 $ 1.50 $ 1.38 $ 1.66 $ 1.40 $ 1.85 (21) (9) Diluted earnings per common share 1.17 1.48 1.36 1.62 1.36 1.74 (21) (8) Dividends declared per common share (1) .70 .615 .525 .45 .383 .32 14 17 BALANCE SHEET (at year end) Securities available for sale $ 31,997 $ 27,872 $ 29,752 $ 24,163 $ 25,949 $ 25,530 15% 5% Loans 107,994 106,311 105,760 70,780 66,575 59,829 2 13 Allowance for loan losses 3,134 3,062 3,059 2,711 2,872 2,911 2 1 Goodwill 7,664 8,062 8,200 1,212 574 618 (5) 65 Assets 202,475 185,685 188,633 122,200 112,674 107,170 9 14 Core deposits 132,289 122,327 128,178 77,355 72,738 75,379 8 12 Long-term debt 19,709 17,335 18,142 16,726 12,039 11,072 14 12 Guaranteed preferred beneficial interests in Company's subordinated debentures 785 1,299 1,150 -- -- -- (40) -- Common stockholders' equity 20,296 19,315 19,262 8,448 6,628 6,928 5 24 Stockholders' equity 20,759 19,778 20,051 9,239 7,629 7,947 5 21 - ----------------------------------------------------------------------------------------------------------------------------------
(1) Dividends declared per common share represent the dividends of the former Norwest. Dividends declared per common share for the former Wells Fargo were $5.20, $5.20, $5.20, $4.60, $4.00 and $2.25 for 1998, 1997, 1996, 1995, 1994 and 1993, respectively. 36 MERGER OF NORWEST AND WELLS FARGO On November 2, 1998, the former Wells Fargo merged with a subsidiary of Norwest Corporation, and Norwest changed its name to "Wells Fargo & Company." The Merger resulted in a combined diversified financial services company with $202 billion in assets at December 31, 1998, the seventh largest bank holding company in the United States. As a condition to the Merger, the Company was required by regulatory agencies to divest stores in Arizona and Nevada having aggregate deposits of approximately $1 billion. In the fourth quarter of 1998, the Company entered into contracts to sell these stores. These sales are expected to be completed during the second quarter of 1999. In connection with the Merger, approximately $1 billion of Merger-related expenses were recognized in the fourth quarter of 1998, which included approximately $600 million of costs related to the restructuring of systems and operations resulting from the Merger that qualified for immediate recognition. The remainder of the Merger-related expenses were primarily for irrevocable commitments to the Company's Foundation and fees for investment banking and other professional services resulting from the Merger. The restructuring charges include write-downs of approximately $100 million for premises. The remaining charges of approximately $500 million primarily represent future cash outflows, substantially comprised of severance-related costs and costs related to the disposition of leased premises. These future cash outflows are not expected to have a significant effect on the Company's liquidity, capital resources or results of operations. The restructuring charges for premises result from the identification of specific premises that are held for sale or remarketing and are expected to be removed from operations during 1999, pursuant to Merger plans. Severance-related costs result from plans to eliminate redundant headquarters, back office and other positions into 2000. Based on accounting rules, not all Merger-related expenses qualified for recognition in the fourth quarter of 1998. Additional Merger-related expenses will be expensed when incurred as systems and operations are combined. The Company estimates that Merger-related expenses will total about $1.15 billion. The Company originally estimated total Merger-related expenses would be about $950 million. The increase is due to the irrevocable commitments made to the Company's Foundation. Because of inherent uncertainties associated with merging two large companies, additional Merger-related costs, including additional restructuring charges, may result as the integration process continues. The Company expects to meet its pre-Merger target of approximately $650 million in annual pre-tax cost savings not later than 36 months after Merger consummation. About 50% of the cost savings are expected to be achieved within the first two years. OPERATING SEGMENT RESULTS COMMUNITY BANKING'S net income was $1,644 million in 1998 compared with $2,081 million in 1997, a decrease of 21%. Net interest income declined by $121 million. A significant portion of the decrease in net interest income is due to the run-off and sales of credit card receivables and a decline in the former Wells Fargo real estate mortgage loans. Other loan portfolios remained stable. The provision for loan losses decreased by $99 million. A significant portion of the $607 million, or 17%, increase in noninterest income is due to increased fee revenue. The number of checking accounts grew 2% from year-end 1997 to 1998. Community Banking also experienced significant growth in assets under management. Total noninterest expense increased by $1,359 million from 1997 due to Merger expense accruals, including irrevocable commitments to the Company's Foundation in connection with the Merger. Major changes in Community Banking from 1996 to 1997 are attributed to the acquisition of First Interstate Bancorp (First Interstate) effective April 1, 1996. First Interstate results prior to April 1, 1996 are not included and, therefore, the year 1997 is not comparable to 1996. WHOLESALE BANKING'S net income was $780 million in 1998 compared with $792 million in 1997. Net interest income was flat for the year-over-year period. The increasing competitive lending environment in 1998 led to a decrease in the yields realized on the core commercial loan portfolio. In addition, interest recoveries were lower in 1998 compared with 1997. Offsetting these unfavorable conditions was an increase in commercial loan volume of $2 billion. Real estate and 37 construction loan balances were flat from 1997 to 1998. The year-over-year improvement in noninterest income was due to a $54 million increase in fee revenue, as well as foreign exchange gains and acquisition, development and construction (ADC) income. The increase was primarily offset by mark-to-market adjustments of the high-yield trading portfolio and commercial mortgages originated for sale. The adjustments occurred as a result of the general market volatility that occurred near the end of the third quarter of 1998. Noninterest expense increased $56 million from 1997 due to a $34 million reduction in foreclosed asset gains and an increase in incentive compensation related to increased loan volume. Other operating expenses remained relatively flat. Major changes in Wholesale Banking from 1996 to 1997 are attributed to the acquisition of First Interstate effective April 1, 1996. First Interstate results prior to April 1, 1996 are not included and, therefore, the year 1997 is not comparable to 1996. MORTGAGE BANKING earned $217 million in 1998, a 44% increase over the $151 million earned in 1997, which was 21% over the $125 million earned in 1996. The increases were principally due to increases in mortgage loan fundings and the growth in the servicing portfolio. Fundings were $109 billion in 1998, compared with $55 billion and $52 billion in 1997 and 1996, respectively. The increases in funding volume were attributable in part to the low mortgage interest rates in 1998 which encouraged homeowners to refinance their mortgage loans. The percentage of fundings attributed to mortgage loan refinancings was approximately 52% in 1998 compared to 23% and 22% in 1997 and 1996, respectively. The servicing portfolio increased to $245 billion at December 31, 1998 from $206 billion at December 31, 1997. The weighted average coupon of loans in the servicing portfolio was 7% at December 31, 1998 compared with 8% a year earlier. Total capitalized mortgage servicing rights amounted to $3 billion or 126 basis points of the servicing portfolio at December 31, 1998. Amortization of capitalized mortgage servicing rights was $785 million in 1998, compared with $444 million and $301 million in 1997 and 1996, respectively. Higher levels of amortization reflect increased assumed prepayments due to a lower interest rate environment and increased balances of capitalized mortgage servicing associated with a larger servicing portfolio. Combined gains on sales of mortgages and servicing rights were $312 million in 1998, compared with $89 million and $70 million in 1997 and 1996, respectively. NORWEST FINANCIAL reported a net loss of $19 million in 1998, which included a $351 million charge to the provision for loan losses in the fourth quarter. This charge includes losses at Island Finance reflecting a fourth quarter review of the loan portfolio and realignment of charge-off policies in other operating units. Norwest Financial's earnings for 1997 decreased 9% from the $265 million earned in 1996. The 1997 net earnings include $27 million in charges related to the acquisition of Fidelity Acceptance Corporation, an automobile finance company with $1 billion in receivables and 150 locations in 31 states and Guam. Net interest income rose 12% in 1998 and 9% in 1997. Increases in average loans reflect internal growth as well as acquisitions. The net interest margin decreased 37 basis points in 1998 and 17 basis points in 1997 reflecting a change in the portfolio mix. Norwest Financial's noninterest expense increased 16% in 1998 and 10% in 1997 primarily due to higher expenses from acquisitions. EARNINGS PERFORMANCE NET INTEREST INCOME Net interest income is the difference between interest income (which includes yield-related loan fees) and interest expense. Net interest income on a taxable-equivalent basis was $9,049 million in 1998, compared with $8,705 million in 1997. Net interest income on a taxable-equivalent basis expressed as a percentage of average total earning assets is referred to as the net interest margin, which represents the average net effective yield on earning assets. For 1998, the net interest margin was 5.79%, compared with 5.86% in 1997. Table 4 presents the individual components of net interest income and net interest margin. The increase in net interest income for 1998 compared with 1997 was primarily due to an increase in earning assets, which includes the effects of a significantly higher volume of mortgage origination activity during 1998. This activity also served to reduce the net interest margin in 1998 due to the lower yields provided by mortgages held for sale relative to the average yield of all other earning assets. 38 Interest income included hedging income of $93 million in 1998, compared with $79 million in 1997. Interest expense included hedging income of $94 million in 1998, compared with $81 million in 1997. NONINTEREST INCOME Table 3 shows the major components of noninterest income. TABLE 3: NONINTEREST INCOME
- -------------------------------------------------------------------------------- (in millions) Year ended December 31, % Change ------------------------ ------------ 1998 1997 1996 1998/ 1997/ 1997 1996 Service charges on deposit accounts $1,357 $1,244 $1,198 9% 4% Trust and investment fees and commissions: Asset management and custody fees 676 603 510 12 18 Mutual fund and annuity sales fees 300 273 190 10 44 All other 92 78 75 18 4 ------ ------ ------ Total trust and investment fees and commissions 1,068 954 775 12 23 Credit card fee revenue 520 448 350 16 28 Other fees and commissions: ATM network fees 229 176 107 30 64 Charges and fees on loans 290 254 209 14 22 All other 427 396 373 8 6 ------ ------ ------ Total other fees and commissions 946 826 689 15 20 Mortgage banking: Origination and other closing fees 530 314 305 69 3 Servicing fees, net of amortization 19 324 318 (94) 2 Net gains (losses) on sales of mortgage servicing rights 16 (8) 57 -- -- Net gains on sales of mortgages 296 120 13 147 823 Other 245 177 151 38 17 ------ ------ ------ Total mortgage banking 1,106 927 844 19 10 Insurance 348 336 280 4 20 Net venture capital gains 113 191 256 (41) (25) Net gains on securities available for sale 169 99 12 71 725 Income from equity investments accounted for by the: Cost method 151 157 137 (4) 15 Equity method 47 57 24 (18) 138 Net gains (losses) from dispositions of operations 100 15 (95) 567 -- Net gains on sales of loans 61 30 22 103 36 All other 441 391 277 13 41 ------ ------ ------ Total $6,427 $5,675 $4,769 13% 19% ====== ====== ====== === === - --------------------------------------------------------------------------------
The increase in service charges on deposit accounts and other fees and commissions reflects overall increases in business activity due to acquisitions and marketing efforts along with an increase in fees. The increase in trust and investment fees and commissions for 1998 was primarily due to an overall increase in mutual fund management fees, reflecting the overall growth in fund families' net assets. The Company managed 85 mutual funds consisting of $51.4 billion of assets at December 31, 1998 that included 42 Stagecoach Funds ($27.6 billion) and 43 Norwest Advantage Funds ($23.8 billion), compared with 78 mutual funds consisting of $41.9 billion of assets at December 31, 1997 that included 36 Stagecoach Funds ($23.3 billion) and 42 Norwest Advantage Funds ($18.6 billion). The Company also managed or maintained personal trust, employee benefit trust and agency assets of approximately $324.8 billion and $285.0 billion at December 31, 1998 and 1997, respectively. The increase in mortgage banking revenue is attributed to increases in origination and other closing fees and gains on sales of mortgages and servicing rights, net of increased amortization of capitalized mortgage servicing rights, related to the low mortgage interest rate environment. The majority of the gains from disposition of operations were related to the sale by the former Wells Fargo of its mortgage servicing business to GMAC Mortgage Corporation in the second quarter of 1998. At December 31, 1997, the Company had a liability of $48 million related to the disposition of premises and, to a lesser extent, severance and miscellaneous expenses associated with 65 stores not acquired as a result of the acquisition of First Interstate Bancorp or with former First Interstate stores that were identified in the fourth quarter of 1997 for closure in 1998. Of the 65 stores, 33 stores were closed in 1998. In 1998, the Company evaluated the remaining 32 stores scheduled to close and decided to retain them, which resulted in reducing the liability by $18 million. The decision was made based on numerous factors, including the need to maintain customer service levels, as well as improved profitability for these 32 stores. These developments were not anticipated or foreseen at the time these accruals were originally recorded. At December 31, 1998, there was no remaining liability. 39 TABLE 4: AVERAGE BALANCES, YIELDS AND RATES PAID (TAXABLE-EQUIVALENT BASIS) (1)(2)
- ------------------------------------------------------------------------------------------------------------------------------- (in millions) 1998 1997 ------------------------------- ------------------------------- AVERAGE YIELDS/ INTEREST Average Yields/ Interest BALANCE RATES INCOME/ balance rates income/ EXPENSE expense EARNING ASSETS Federal funds sold and securities purchased under resale agreements $ 1,652 5.58% $ 92 $ 1,131 5.39% $ 61 Securities available for sale (3): Securities of U.S. Treasury and federal agencies 4,868 5.94 287 5,078 6.16 312 Securities of U.S. states and political subdivisions 1,528 8.50 124 1,352 8.49 112 Mortgage-backed securities: Federal agencies 17,194 7.05 1,187 19,844 7.13 1,403 Private collateralized mortgage obligations 2,841 6.74 190 3,024 6.81 206 -------- -------- -------- -------- Total mortgage-backed securities 20,035 7.01 1,377 22,868 7.09 1,609 Other securities 1,783 5.06 103 1,373 4.72 67 -------- -------- -------- -------- Total securities available for sale 28,214 6.80 1,891 30,671 6.88 2,100 Securities held to maturity -- -- -- -- -- -- -------- -------- -------- -------- Total securities 28,214 6.80 1,891 30,671 6.88 2,100 Loans held for sale (3) 4,804 7.71 371 3,849 8.11 312 Mortgages held for sale (3) 12,978 6.92 898 6,741 7.27 490 Loans: Commercial 33,271 8.93 2,971 29,951 9.18 2,748 Real estate 1-4 family first mortgage 13,652 8.90 1,215 15,866 8.75 1,341 Other real estate mortgage 16,257 9.37 1,523 16,205 9.58 1,552 Real estate construction 3,601 9.39 338 3,298 9.92 327 Consumer: Real estate 1-4 family junior lien mortgage 9,983 9.17 903 9,880 9.39 949 Credit card 6,012 14.96 900 6,663 14.53 968 Other revolving credit and monthly payment 16,497 12.78 2,109 16,947 12.42 2,105 -------- -------- -------- -------- Total consumer 32,492 12.55 3,912 33,490 12.28 4,022 Lease financing 5,608 8.22 461 4,285 8.38 359 Foreign 1,324 20.96 277 1,042 20.31 212 -------- -------- -------- -------- Total loans (4)(5) 106,205 10.07 10,697 104,137 10.14 10,561 Other 2,853 5.82 166 2,273 5.93 134 -------- -------- -------- -------- Total earning assets $156,706 9.03 14,115 $148,802 9.19 13,658 ======== -------- ======== -------- FUNDING SOURCES Deposits: Interest-bearing checking $ 2,221 1.23 27 $ 3,016 1.66 50 Market rate and other savings 52,909 2.60 1,375 51,182 2.58 1,322 Savings certificates 27,749 5.22 1,448 28,581 5.27 1,506 Other time deposits 4,040 5.49 222 3,708 5.64 209 Deposits in foreign offices 801 4.82 39 1,287 4.85 62 -------- -------- -------- -------- Total interest-bearing deposits 87,720 3.55 3,111 87,774 3.59 3,149 Short-term borrowings 14,454 5.37 777 11,362 5.37 610 Long-term debt 17,411 6.30 1,097 17,149 6.38 1,093 Guaranteed preferred beneficial interests in Company's subordinated debentures 1,010 8.06 81 1,287 7.82 101 -------- -------- -------- -------- Total interest-bearing liabilities 120,595 4.20 5,066 117,572 4.21 4,953 Portion of noninterest-bearing funding sources 36,111 -- -- 31,230 -- -- -------- -------- -------- -------- Total funding sources $156,706 3.24 5,066 $148,802 3.33 4,953 ======== -------- ======== -------- NET INTEREST MARGIN AND NET INTEREST INCOME ON A TAXABLE-EQUIVALENT BASIS (6) 5.79% $ 9,049 5.86% $ 8,705 ===== ======== ===== ======== NONINTEREST-EARNING ASSETS Cash and due from banks $ 10,669 $ 11,609 Goodwill 7,865 8,186 Other 13,115 13,653 -------- -------- Total noninterest-earning assets $ 31,649 $ 33,448 ======== ======== NONINTEREST-BEARING FUNDING SOURCES Deposits $ 40,922 $ 37,710 Other liabilities 6,958 7,243 Preferred stockholders' equity 463 554 Common stockholders' equity 19,417 19,171 Noninterest-bearing funding sources used to fund earning assets (36,111) (31,230) -------- -------- Net noninterest-bearing funding sources $ 31,649 $ 33,448 ======== ======== TOTAL ASSETS $188,355 $182,250 ======== ======== - --------------------------------------------------------------------------------------------------------
(1) The average prime rate of the Company was 8.35%, 8.44%, 8.27%, 8.83% and 7.14% for 1998, 1997, 1996, 1995 and 1994, respectively. The average three-month London Interbank Offered Rate (LIBOR) was 5.56%, 5.74%, 5.51%, 6.04% and 4.75% for the same years, respectively. (2) Interest rates and amounts include the effects of hedge and risk management activities associated with the respective asset and liability categories. (3) Yields are based on amortized cost balances. 40
- ------------------------------------------------------------------------------------------------------------------------------ (in millions) 1996 1995 --------------------------------- ------------------------------- Average Yields/ Interest Average Yields/ Interest balance rates income/ balance rates income/ expense expense EARNING ASSETS Federal funds sold and securities purchased under resale agreements $ 1,596 5.46% $ 87 $ 645 5.83% $ 38 Securities available for sale (3): Securities of U.S. Treasury and federal agencies 3,730 5.95 221 1,604 6.60 105 Securities of U.S. states and political subdivisions 907 8.89 79 124 20.80 9 Mortgage-backed securities: Federal agencies 20,199 6.98 1,410 13,897 7.27 1,017 Private collateralized mortgage obligations 2,852 6.51 187 1,252 6.39 82 -------- -------- -------- -------- Total mortgage-backed securities 23,051 6.92 1,597 15,149 7.19 1,099 Other securities 1,567 5.03 77 750 12.06 50 -------- -------- -------- -------- Total securities available for sale 29,255 6.76 1,974 17,627 7.48 1,263 Securities held to maturity -- -- -- 7,666 5.40 477 -------- -------- -------- -------- Total securities 29,255 6.76 1,974 25,293 5.40 1,740 Loans held for sale (3) 3,560 9.22 328 2,557 8.88 227 Mortgages held for sale (3) 6,889 7.68 529 4,996 7.86 393 Loans: Commercial 27,547 9.15 2,520 17,773 9.67 1,718 Real estate 1-4 family first mortgage 15,522 8.64 1,301 11,883 8.51 976 Other real estate mortgage 15,612 9.21 1,438 11,742 9.40 1,104 Real estate construction 2,940 10.25 301 1,833 10.06 184 Consumer: Real estate 1-4 family junior lien mortgage 8,995 9.11 844 7,512 8.64 678 Credit card 6,505 15.03 979 5,939 15.54 923 Other revolving credit and monthly payment 16,505 12.25 2,022 10,887 13.26 1,444 -------- -------- -------- -------- Total consumer 32,005 12.24 3,845 24,338 13.16 3,045 Lease financing 3,347 8.15 272 2,284 8.51 194 Foreign 950 20.52 195 704 23.01 162 -------- -------- -------- -------- Total loans (4)(5) 97,923 10.08 9,872 70,557 10.47 7,383 Other 1,696 5.51 94 940 5.87 55 -------- -------- -------- -------- Total earning assets $140,919 9.15 12,884 $104,988 9.36 9,836 ======== -------- ======== -------- FUNDING SOURCES Deposits: Interest-bearing checking $ 6,749 1.38 93 $ 6,423 1.24 80 Market rate and other savings 45,049 2.68 1,207 28,622 2.78 796 Savings certificates 26,853 5.17 1,390 18,889 5.33 1,007 Other time deposits 3,245 5.77 187 2,244 5.81 131 Deposits in foreign offices 719 4.76 34 2,381 5.86 139 -------- -------- -------- -------- Total interest-bearing deposits 82,615 3.52 2,911 58,559 3.68 2,153 Short-term borrowings 10,692 5.25 562 12,682 5.88 746 Long-term debt 18,283 6.24 1,140 14,996 6.53 980 Guaranteed preferred beneficial interests in Company's subordinated debentures 82 7.81 6 -- -- -- -------- -------- -------- -------- Total interest-bearing liabilities 111,672 4.14 4,619 86,237 4.50 3,879 Portion of noninterest-bearing funding sources 29,247 -- -- 18,751 -- -- -------- -------- -------- -------- Total funding sources $140,919 3.28 4,619 $104,988 3.69 3,879 ======== -------- ======== -------- NET INTEREST MARGIN AND NET INTEREST INCOME ON A TAXABLE-EQUIVALENT BASIS (6) 5.87% $ 8,265 5.67% $ 5,957 ===== ======== ===== ======== NONINTEREST-EARNING ASSETS Cash and due from banks $ 11,442 $ 5,858 Goodwill 6,477 895 Other 11,051 5,273 -------- -------- Total noninterest-earning assets $ 28,970 $ 12,026 ======== ======== NONINTEREST-BEARING FUNDING SOURCES Deposits $ 34,952 $ 19,070 Other liabilities 5,466 3,246 Preferred stockholders' equity 968 942 Common stockholders' equity 16,831 7,519 Noninterest-bearing funding sources used to fund earning assets (29,247) (18,751) -------- -------- Net noninterest-bearing funding sources $ 28,970 $ 12,026 ======== ======== TOTAL ASSETS $169,889 $117,014 ======== ======== (in millions) 1994 --------------------------------- Average Yields/ Interest balance rates income/ expense EARNING ASSETS Federal funds sold and securities purchased under resale agreements $ 629 4.22% $ 27 Securities available for sale (3): Securities of U.S. Treasury and federal agencies 1,836 5.84 107 Securities of U.S. states and political subdivisions 123 23.25 29 Mortgage-backed securities: Federal agencies 11,822 6.63 801 Private collateralized mortgage obligations 1,372 6.16 88 -------- -------- Total mortgage-backed securities 13,194 6.58 889 Other securities 597 13.89 77 -------- -------- Total securities available for sale 15,750 6.88 1,102 Securities held to maturity 10,180 5.39 549 -------- -------- Total securities 25,930 6.37 1,651 Loans held for sale (3) 1,713 7.49 128 Mortgages held for sale (3) 3,764 7.19 271 Loans: Commercial 15,017 8.64 1,298 Real estate 1-4 family first mortgage 13,522 7.77 1,022 Other real estate mortgage 11,513 8.51 980 Real estate construction 1,553 9.00 140 Consumer: Real estate 1-4 family junior lien mortgage 6,309 7.77 519 Credit card 4,771 15.14 722 Other revolving credit and monthly payment 8,935 12.27 1,096 -------- -------- Total consumer 20,015 12.18 2,337 Lease financing 1,952 8.32 162 Foreign 555 21.58 120 -------- -------- Total loans (4)(5) 64,127 9.45 6,059 Other 746 6.77 50 -------- -------- Total earning assets $ 96,909 8.42 8,186 ======== -------- FUNDING SOURCES Deposits: Interest-bearing checking $ 6,801 1.17 80 Market rate and other savings 31,846 2.32 740 Savings certificates 16,824 4.44 748 Other time deposits 1,843 5.01 93 Deposits in foreign offices 1,257 4.62 58 -------- -------- Total interest-bearing deposits 58,571 2.93 1,719 Short-term borrowings 9,075 4.39 399 Long-term debt 10,948 5.73 627 Guaranteed preferred beneficial interests in Company's subordinated debentures -- -- -- -------- -------- Total interest-bearing liabilities 78,594 3.49 2,745 Portion of noninterest-bearing funding sources 18,315 -- -- -------- -------- Total funding sources $ 96,909 2.82 2,745 ======== -------- NET INTEREST MARGIN AND NET INTEREST INCOME ON A TAXABLE-EQUIVALENT BASIS (6) 5.60% $5,441 ====== ======== NONINTEREST-EARNING ASSETS Cash and due from banks $ 5,559 Goodwill 600 Other 3,853 -------- Total noninterest-earning assets $ 10,012 ======== NONINTEREST-BEARING FUNDING SOURCES Deposits $ 17,723 Other liabilities 2,681 Preferred stockholders' equity 865 Common stockholders' equity 7,058 Noninterest-bearing funding sources used to fund earning assets (18,315) -------- Net noninterest-bearing funding sources $ 10,012 ======== TOTAL ASSETS $106,921 ======== - ---------------------------------------------------------------
(4) Interest income includes loan fees, net of deferred costs, of approximately $120 million, $103 million, $86 million, $40 million and $37 million in 1998, 1997, 1996, 1995 and 1994, respectively. (5) Nonaccrual loans and related income are included in their respective loan categories. (6) Includes taxable-equivalent adjustments that primarily relate to income on certain loans and securities that is exempt from federal and applicable state income taxes. The federal statutory tax rate was 35% for all years presented. 41 NONINTEREST EXPENSE Table 5 shows the major components of noninterest expense. TABLE 5: NONINTEREST EXPENSE
- -------------------------------------------------------------------------------- (in millions) Year ended December 31, % Change --------------------------- ------------ 1998 1997 1996 1998/ 1997/ 1997 1996 Salaries and benefits $ 4,416 $3,811 $3,624 16% 5% Equipment 900 739 724 22 2 Net occupancy 764 719 688 6 5 Goodwill 421 433 339 (3) 28 Core deposit intangible: Nonqualifying (1) 217 240 227 (10) 6 Qualifying 26 33 38 (21) (13) Net losses on dispositions of premises and equipment 325 76 45 328 69 Operating losses 152 374 189 (59) 98 Outside professional services 391 262 254 49 3 Contract services 342 271 329 26 (18) Telecommunications 252 241 234 5 3 Outside data processing 250 217 216 15 -- Advertising and promotion 237 202 234 17 (14) Postage 228 210 206 9 2 Travel and entertainment 212 188 188 13 -- Stationery and supplies 178 182 192 (2) (5) Insurance 132 122 90 8 36 Security 84 87 56 (3) 55 All other 1,052 583 851 80 (31) ------- ------ ------ Total $10,579 $8,990 $8,724 18% 3% ======= ====== ====== === === - --------------------------------------------------------------------------------
(1) Amortization of core deposit intangible acquired after February 1992 that is subtracted from stockholders' equity in computing regulatory capital for bank holding companies. A major portion of the increase in salaries and benefits was due to severance and other employee-related costs related to the Merger. The increase was also due to an increase in staff levels. The Company's active full-time equivalent (FTE) staff, including hourly employees, was 92,178 at December 31, 1998, compared with 88,671 at December 31, 1997. The increase in equipment expense was primarily due to personal computer purchases during the fourth quarter, mostly related to the replacement of personal computers. The increase in net losses on dispositions of premises and equipment was due to Merger-related costs associated with the disposition of leased and owned premises. Goodwill and CDI amortization resulting from the First Interstate acquisition were $288 million and $199 million, respectively, for the year ended December 31, 1998, compared with $292 million and $223 million, respectively, for the year ended December 31, 1997. The core deposit intangible is amortized on an accelerated basis based on an estimated useful life of 15 years. The effect on noninterest expense from the amortization of the nonqualifying core deposit intangible in 1999, 2000 and 2001 is expected to be $178 million, $162 million and $147 million, respectively. The related effect on income tax expense is expected to be a benefit of $68 million, $62 million and $56 million in 1999, 2000 and 2001, respectively. The increase in outside professional services was primarily due to fees for investment banking and other professional services resulting from the Merger. A major portion of the increase in the "All Other" category was due to the accrual of $208 million of irrevocable commitments to the Company's Foundation in connection with the Merger. During 1998, the former Norwest and the former Wells Fargo continued with their enterprise-wide project to prepare the Company's systems for Year 2000 compliance. The Year 2000 issue relates to computer systems that use two digits rather than four to define the applicable year and whether such systems will properly process information when the year changes to 2000. "Systems" includes hardware, networks, system and application software, and commercial "off the shelf" software, and embedded technology such as properties/date impacted processors in automated systems such as elevators, telephone systems, security systems, vault systems, heating and cooling systems and others. Priority is given to "mission critical" systems. A system is considered "mission critical" if it is vital to the successful continuation of a core business activity. The former Norwest's Year 2000 readiness project is divided into four phases -- Phase I: a comprehensive assessment and inventory of applicable software, system hardware devices, data and voice communication devices and embedded technology to determine Year 2000 vulnerability and risk; Phase II: date detection on systems to determine which systems must be remediated and which systems are compliant and require testing only, determination of the resources and costs, and the development of schedules; Phase III: repair, replacement and/or retirement of systems that are determined not to be Year 2000 compliant, and planning the integration testing for those systems that have interfaces with other systems both internal and external to the Company, such as customers and suppliers; and Phase IV: integration testing on applicable systems to validate that interfaces are Year 2000 compliant and contingency planning. The former Norwest has substantially completed Phases I, II and III of its Year 2000 project. The former Wells Fargo uses a four-phase plan for achieving Year 2000 readiness. The Assessment Phase (Phase I) determines which computers, operating systems, applications and facilities require remediation and prioritizing those remediation efforts. This has been completed except for the on-going assessment of new systems. The Renovation Phase (Phase II) corrects or replaces any non-compliant hardware, software or facilities. This phase has been substantially completed. All renovated software, 42 both in-house applications and vendor software, was placed back into production before the Validation Phase (Phase III). The Validation Phase, which tests in-house systems, vendor software and service providers, is in process. During Phase IV, the Implementation Phase, remediated and validated code will be tested in interfaces with customers, business partners, government institutions and others. It is anticipated that the Company will have substantially completed the unfinished phases discussed in the preceding two paragraphs by June 30, 1999. The Company's Year 2000 Project Office oversees the Year 2000 efforts of the Company and all of its subsidiaries. Representatives from other areas of the Company, including the law department, audit, risk management and corporate communications, provide support for the Year 2000 project. In addition, as a financial services organization, the Company is under the supervision of federal regulatory agencies which have provided guidelines and are performing ongoing monitoring of the Year 2000 readiness of the Company. The Company may be affected by the Year 2000 compliance issues of governmental agencies, businesses and other entities who provide data to, or receive data from, the Company, and by entities, such as borrowers, vendors, customers and business partners, whose financial condition or operational capability is significant to the Company. The Company's Year 2000 project also includes assessing the Year 2000 readiness of certain customers, borrowers, vendors, business partners, counterparties and governmental entities and the testing of major external interfaces with third parties which the Company has determined are critical. Using a combination of surveys and direct communication, the Company has evaluated its major credit customers, assessed their Year 2000 efforts, and incorporated any identified Year 2000 customer risks into the Company's credit risk analysis processes. In addition to assessing the readiness of these external parties, the Company is developing contingency plans which will include plans to recover operations and alternatives to mitigate the effects of counterparties whose failure to properly address Year 2000 issues may adversely affect the Company's ability to perform certain functions. These contingency plans are expected to be substantially completed by June 30, 1999. The Company currently estimates that its total cost for the Year 2000 project will approximate $315 million. Through December 31, 1998, the Company has incurred charges of $202 million related to its Year 2000 project of which $176 million total expenditures were incurred in 1998. Charges for the former Norwest include the cost of internal staff redeployed to the Year 2000 project, as well as external consulting costs and costs of accelerated replacement of hardware and software due to Year 2000 issues. Charges for the former Wells Fargo include the cost of external consulting and costs of accelerated replacement of hardware and software, but do not include the cost of internal staff redeployed to the Year 2000 project. The Company does not believe that the redeployment of internal staff for the former Wells Fargo will have a material impact on the financial condition or results of operations for the Company. The previous paragraphs contain a number of forward-looking statements. These statements reflect management's best current estimates, which were based on numerous assumptions about future events, including the continued availability of certain resources, representations received from third party service providers and other third parties, and additional factors. There can be no guarantee that these estimates, including Year 2000 costs, will be achieved, and actual results could differ materially from those estimates. A number of important factors could cause management's estimates and the impact of the Year 2000 issue to differ materially from what is described in the forward-looking statements contained in the above paragraphs. Those factors include, but are not limited to, uncertainties in the cost of hardware and software, the availability and cost of programmers and other systems personnel, inaccurate or incomplete execution of the phases, ineffective remediation of computer code, and whether the Company's customers, vendors, competitors and counterparties effectively address the Year 2000 issue. If Year 2000 issues are not adequately addressed by the Company and significant third parties, the Company's business, results of operations and financial position could be materially adversely affected. Failure of certain vendors to be Year 2000 compliant could result in disruption of important services upon which the Company depends, including, but not limited to, such services as telecommunications, electrical power and data processing. Failure of the Company's loan customers to properly prepare for the Year 2000 could also result in increases in problem loans and credit losses in future years. Notwithstanding the Company's efforts, there can be no assurance that the Company or significant third party vendors or other significant third parties will adequately address their Year 2000 issues. The Company is continuing to assess the Year 2000 readiness of third parties but does not know at this time whether the failure of third parties to be Year 2000 compliant will have a material effect on the Company's results of operations, liquidity and financial condition. The forward-looking statements made in the foregoing Year 2000 discussion speak only as of the date on which such statements are made, and the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. 43 The Year 2000 disclosures contained in this Annual Report are designated as Year 2000 Readiness Disclosures related to the Year 2000 Information and Readiness Disclosure Act. EARNINGS/RATIOS EXCLUDING GOODWILL AND NONQUALIFYING CDI Table 6 reconciles reported earnings to net income excluding goodwill and nonqualifying core deposit intangible amortization ("cash" or "tangible") for the year ended December 31, 1998. Table 7 presents the calculation of the ROA, ROE and efficiency ratios excluding goodwill and nonqualifying core deposit intangible amortization and balances for the year ended December 31, 1998. These calculations were specifically formulated by the Company and may not be comparable to similarly titled measures reported by other companies. Also, "cash" or "tangible" earnings are not entirely available for use by management. See the Consolidated Statement of Cash Flows and Note 3 to Financial Statements for other information regarding funds available for use by management. TABLE 6: EARNINGS EXCLUDING GOODWILL AND NONQUALIFYING CDI
- ------------------------------------------------------------------------------- (in millions, except per share amounts) Year ended December 31, 1998 -------------------------------------------------- Reported Amortization "Cash" earnings --------------------------- earnings Goodwill Nonqualifying core deposit intangible Income before income tax expense $3,293 $421 $217 $3,931 Income tax expense 1,343 -- 88 1,431 ------ ---- ---- ------ Net income 1,950 421 129 2,500 Preferred stock dividends 35 -- -- 35 ------ ---- ---- ------ Net income applicable to common stock $1,915 $421 $129 $2,465 ====== ==== ==== ====== Earnings per common share $ 1.18 $.26 $.08 $ 1.52 ====== ==== ==== ====== Diluted earnings per common share $ 1.17 $.25 $.08 $ 1.50 ====== ==== ==== ====== - -------------------------------------------------------------------------------
TABLE 7: RATIOS EXCLUDING GOODWILL AND NONQUALIFYING CDI
- ------------------------------------------------------------------------------- (in millions) Year ended December 31, 1998 --------------------------------------- ROA: A/(C-E) = 1.39% ROE: B/(D-E) = 23.15% Efficiency: (F-G)/H = 64.31% --------------------------------------- Net income $ 2,500 (A) Net income applicable to common stock 2,465 (B) Average total assets 188,355 (C) Average common stockholders' equity 19,417 (D) Average goodwill ($7,865) and after-tax nonqualifying core deposit intangible ($906) 8,771 (E) Noninterest expense 10,579 (F) Amortization expense for goodwill and nonqualifying core deposit intangible 638 (G) Net interest income plus noninterest income 15,417 (H) - -------------------------------------------------------------------------------
BALANCE SHEET ANALYSIS A comparison between the year-end 1998 and 1997 balance sheets is presented below. SECURITIES AVAILABLE FOR SALE Total securities available for sale averaged $28.2 billion in 1998, an 8% decrease from $30.7 billion in 1997. Total securities available for sale were $32.0 billion at December 31, 1998, a 15% increase from $27.9 billion at December 31, 1997. The securities available for sale portfolio includes both debt and marketable equity securities. At December 31, 1998, the securities available for sale portfolio had an unrealized net gain of $830 million, comprised of unrealized gross gains of $919 million and unrealized gross losses of $89 million. At December 31, 1997, the securities available for sale portfolio had an unrealized net gain of $740 million, comprised of unrealized gross gains of $787 million and unrealized gross losses of $47 million. The unrealized net gain or loss on securities available for sale is reported on an after-tax basis as a valuation allowance that is a component of cumulative other comprehensive income. At December 31, 1998, the valuation allowance amounted to an unrealized net gain of $477 million, compared with an unrealized net gain of $474 million at December 31, 1997. The unrealized net gain in the debt securities portion of the securities available for sale portfolio at December 31, 1998 was primarily attributable to mortgage-backed securities, reflecting a decrease in interest rates since the time of purchase. The Company may decide to 44 sell certain of the securities available for sale to manage the level of earning assets (for example, to offset loan growth that may exceed expected maturities and prepayments of securities). (See Note 4 to Financial Statements for securities available for sale by security type.) At December 31, 1998, mortgage-backed securities, including collateralized mortgage obligations (CMOs), represented $24.2 billion, or 76% of the Company's securities available for sale portfolio. The CMO securities held by the Company (including the private issues) are primarily shorter-maturity class bonds that were structured to have more predictable cash flows by being less sensitive to prepayments during periods of changing interest rates. As an indication of interest rate risk, the Company has estimated the effect of a 200 basis point increase in interest rates on the value of the mortgage-backed securities and the corresponding expected remaining maturities. Based on this rate scenario, mortgage-backed securities would decrease in fair value from $24.2 billion to $22.7 billion and the expected remaining maturity of these securities would increase from 4 years and 6 months to 6 years and 5 months. LOAN PORTFOLIO A comparative schedule of average loan balances is presented in Table 4; year-end balances are presented in Note 5 to Financial Statements. Loans averaged $106.2 billion in 1998, compared with $104.1 billion in 1997. Total loans at December 31, 1998 were $108.0 billion, compared with $106.3 billion at year-end 1997. The Company's total unfunded loan commitments increased to $71.5 billion at December 31, 1998, from $66.5 billion at December 31, 1997. Commercial loans grew 10.6% to $35.5 billion at year-end 1998, from $32.1 billion at December 31, 1997. Total unfunded commercial loan commitments were $34.9 billion at December 31, 1998 compared with $33.7 billion at December 31, 1997. NONACCRUAL AND RESTRUCTURED LOANS AND OTHER ASSETS Table 8 presents comparative data for nonaccrual and restructured loans and other assets. Management's classification of a loan as nonaccrual or restructured does not necessarily indicate that the principal of the loan is uncollectible in whole or in part. Table 8 excludes loans that are contractually past due 90 days or more as to interest or principal, but are both well-secured and in the process of collection or are real estate 1-4 family first mortgage loans or consumer loans that are exempt under regulatory rules from being classified as nonaccrual. This information is presented in Table 9. Notwithstanding, real estate 1-4 family loans (first and junior liens) are placed on nonaccrual within 120 days of becoming past due and are shown in the table below. (Note 1 to Financial Statements describes the Company's accounting policy relating to nonaccrual and restructured loans.) TABLE 8: NONACCRUAL AND RESTRUCTURED LOANS AND OTHER ASSETS
- --------------------------------------------------------------------------------------------------------------------------- (in millions) December 31, ---------------------------------------------------------- 1998 1997 1996 1995 1994 Nonaccrual loans (1)(2) $709 $706 $ 871 $705 $ 695 Restructured loans (3) 1 9 10 16 17 ---- ---- ------ ---- ------ Nonaccrual and restructured loans 710 715 881 721 712 As a percentage of total loans .7% .7% .8% 1.0% 1.1% Other real estate (ORE) 173 264 308 244 306 Real estate investments(4) 1 4 4 13 18 ---- ---- ------ ---- ------ Total nonaccrual and restructured loans and other assets $884 $983 $1,193 $978 $1,036 ==== ==== ====== ==== ====== - ---------------------------------------------------------------------------------------------------------------------------
(1) Includes commercial agricultural loans of $32 million, $24 million, $25 million, $13 million and $4 million and agricultural loans secured by real estate of $16 million, $18 million, $13 million, $5 million and $9 million at December 31, 1998, 1997, 1996, 1995 and 1994, respectively. (2) Of the total nonaccrual loans, $388 million, $411 million, $587 million and $508 million at December 31, 1998, 1997, 1996 and 1995, respectively, were considered impaired under FAS 114 (Accounting by Creditors for Impairment of a Loan). (3) In addition to originated loans that were subsequently restructured, there were loans of $23 million, $23 million, $50 million and $50 million at December 31, 1998, 1997, 1996 and 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, $23 million, $23 million, $50 million and $50 million were considered impaired under FAS 114 at December 31, 1998, 1997, 1996 and 1995, respectively. (4) Represents the amount of real estate investments (contingent interest loans accounted for as investments) that would be classified as nonaccrual if such assets were loans. Real estate investments totaled $128 million, $172 million, $154 million, $96 million and $55 million at December 31, 1998, 1997, 1996, 1995 and 1994, respectively. 45 The Company anticipates normal influxes of nonaccrual loans as it further increases its lending activity as well as resolutions of loans in the nonaccrual portfolio. The performance of any individual loan can be affected by external factors, such as the interest rate environment or factors particular to a borrower such as actions taken by a borrower's management. In addition, from time to time, the Company purchases loans from other financial institutions that may be classified as nonaccrual based on its policies. The Company generally identifies loans to be evaluated for impairment under FAS 114, Accounting by Creditors for Impairment of a Loan, when such loans are on nonaccrual or have been restructured. However, not all nonaccrual loans are impaired. Generally, a loan is placed on nonaccrual status upon becoming 90 days past due as to interest or principal (unless both well-secured and in the process of collection), when the full timely collection of interest or principal becomes uncertain or when a portion of the principal balance has been charged off. Real estate 1-4 family loans (both first liens and junior liens) are placed on nonaccrual status within 120 days of becoming past due as to interest or principal, regardless of security. In contrast, under FAS 114, loans are considered impaired when it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement, including scheduled interest payments. For a loan that has been restructured, the contractual terms of the loan agreement refer to the contractual terms specified by the original loan agreement, not the contractual terms specified by the restructuring agreement. Not all impaired loans are necessarily placed on nonaccrual status. That is, restructured loans performing under restructured terms beyond a specified performance period are classified as accruing but may still be deemed impaired under FAS 114. For loans covered under FAS 114, the Company makes an assessment for impairment when and while such loans are on nonaccrual, or the loan has been restructured. When a loan with unique risk characteristics has been identified as being impaired, the Company will measure the amount of impairment using discounted cash flows, except when the sole (remaining) source of repayment for the loan is the operation or liquidation of the underlying collateral. In such cases, the current 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. If interest due on the book balances of all nonaccrual and restructured loans (including loans no longer on nonaccrual or restructured at year end) had been accrued under their original terms, $68 million of interest would have been recorded in 1998, compared with $26 million actually recorded. Other real estate (ORE) at December 31, 1998 decreased to $173 million from $264 million at December 31, 1997. A majority of ORE at December 31, 1998 has been in the portfolio three years or less, with land and agricultural properties representing a significant portion of the amount greater than three years old. LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING Table 9 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, within 180 days). Notwithstanding, real estate 1-4 family loans (first liens and junior liens) are placed on nonaccrual within 120 days of becoming past due and such nonaccrual loans are excluded from Table 9. TABLE 9: LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING
- --------------------------------------------------------------------- (in millions) December 31, --------------------------------------- 1998 1997 1996 1995 1994 Commercial $ 9 $ 11 $ 69 $ 13 $ 8 Real estate 1-4 family first mortgage 17 37 43 9 18 Other real estate mortgage 41 35 78 32 52 Real estate construction 6 13 10 3 1 Consumer: Real estate 1-4 family junior lien mortgage 32 42 23 4 4 Credit card 133 154 140 113 70 Other revolving credit and monthly payment 104 105 81 62 23 ---- ---- ---- ---- ---- Total consumer 269 301 244 179 97 ---- ---- ---- ---- ---- Total $342 $397 $444 $236 $176 ==== ==== ==== ==== ==== - ---------------------------------------------------------------------
46 ALLOWANCE FOR LOAN LOSSES An analysis of the changes in the allowance for loan losses, including charge-offs and recoveries by loan category, is presented in Note 5 to Financial Statements. At December 31, 1998, the allowance for loan losses was $3,134 million, or 2.90% of total loans, compared with $3,062 million, or 2.88%, at December 31, 1997 and $3,059 million, or 2.89%, at December 31, 1996. The provision for loan losses totaled $1,545 million in 1998, $1,140 million in 1997 and $500 million in 1996. Of these amounts, the former Wells Fargo provided $670 million for loan losses in 1998, $615 million in 1997 and $105 million in 1996. This trend of increasing provision expense at the former Wells Fargo followed a period from 1993 to 1995 during which the Company had reduced its provision as its loan portfolio (particularly in California) had made a gradual recovery in credit quality following the recessionary economic environment of 1991 and 1992. Throughout this period the Company considered its allowance for loan losses adequate in relation to its existing loan portfolio. The provision for loan losses in 1998 approximated net charge-offs, and the Company anticipates that it will continue to make a provision in 1999 which is similarly close to the level of actual net losses. Net charge-offs in 1998 were $1,617 million, or 1.52% of average total loans, compared with $1,305 million, or 1.25%, in 1997 and $1,022 million, or 1.04%, in 1996. Loan loss recoveries were $427 million in 1998, compared with $426 million in 1997 and $349 million in 1996. The largest category of net charge-offs in 1998 was other revolving credit and monthly payment loans, comprising 52% of the total net charge-offs. This product category includes approximately $300 million of losses in Island Finance reflecting a fourth quarter review of its loan portfolio. Results of the portfolio review revealed the recent deterioration of economic conditions in Puerto Rico. These problems were compounded by hurricane damage in the latter part of 1998. In 1997 and 1996 credit card loans comprised the largest category of net charge-offs, accounting for approximately 40% of total net charge-offs. During 1998, credit card gross charge-offs due to bankruptcies were $214 million, or 40%, of total credit card charge-offs, compared with $244 million, or 42%, and $215 million, or 44%, in 1997 and 1996, respectively. In addition, credit card loans 30 to 89 days past due and still accruing totaled $154 million at December 31, 1998, compared with $200 million and $228 million at December 31, 1997 and 1996, respectively. Any loan that is past due as to principal or interest and that is not both well-secured and in the process of collection is generally charged off (to the extent that it exceeds the fair value of any related collateral) after a predetermined period of time that is based on loan category. Additionally, loans are charged off when classified as a loss by either internal loan examiners or regulatory examiners. The Company considers the allowance for loan losses of $3,134 million adequate to cover losses inherent in loans, commitments to extend credit and standby letters of credit at December 31, 1998. However, no assurance can be given that the Company will not, in any particular period, sustain loan losses that are sizable in relation to the amount reserved, or that subsequent evaluations of the loan portfolio, in light of the factors then prevailing, including economic conditions and the Company's ongoing examination process and that of its regulators, will not require significant increases in the allowance for loan losses. For discussion of the process by which the Company determines the adequacy of the allowance for loan losses, see Note 5 to Financial Statements. DEPOSITS Comparative detail of average deposit balances is presented in Table 4. Average core deposits increased 3% in 1998 compared with 1997. Average core deposits funded 66% of the Company's average total assets in 1998 and 1997. Year-end deposit balances are presented in Table 10. TABLE 10: DEPOSITS
- --------------------------------------------------------------------- (in millions) December 31, % --------------------- Change 1998 1997 Noninterest-bearing $ 46,732 $ 40,206 16% Interest-bearing checking 2,402 2,759 (13) Market rate and other savings 55,658 51,038 9 Savings certificates 27,497 28,324 (3) -------- -------- Core deposits 132,289 122,327 8 Other time deposits 3,753 3,927 (4) Deposits in foreign offices 746 1,402 (47) -------- -------- Total deposits $136,788 $127,656 7% ======== ======== === - ---------------------------------------------------------------------
MARKET RISKS Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, commodity prices and equity prices. The primary market risk to which the Company is exposed is interest rate risk. The majority of the Company's interest rate risk arises from the instruments, positions and transactions entered into for purposes other than trading. They include loans, securities available for sale, deposit liabilities, short-term borrowings, long-term debt and derivative financial instruments used for asset/liability management. Interest rate risk occurs when assets and liabilities reprice at different times as interest rates change. For example, if fixed-rate assets are funded with floating-rate debt, the spread between asset and liability 47 rates will decline or turn negative if rates increase. The Company refers to this type of risk as "term structure risk." There is, however, another source of interest rate risk which results from changing spreads between asset and liability rates. The Company calls this type of risk "basis risk;" it is a significant source of interest rate risk for the Company and is more difficult to quantify and manage than term structure risk. Two primary components of basis risk for the Company are the spread between Prime-based loans and market rate account (MRA) savings deposits and the rate paid on savings and interest-bearing checking accounts as compared to LIBOR-based loans. Interest rate risk is managed within an overall asset/liability framework for the Company. The principal objectives of asset/liability management are to manage the sensitivity of net interest spreads and net income to potential changes in interest rates and to enhance profitability in ways that promise sufficient reward for understood and controlled risk. Funding positions are kept within predetermined limits designed to ensure that risk-taking is not excessive and that liquidity is properly managed. The Company employs a sensitivity analysis in the form of a net interest income simulation to help characterize the market risk arising from changes in interest rates in the other-than-trading portfolio. The Company's net interest income simulation includes all other-than- trading financial assets, financial liabilities, derivative financial instruments and leases where the Company is the lessor. It captures the dynamic nature of the balance sheet by anticipating probable balance sheet and off- balance sheet strategies and volumes under different interest rate scenarios over the course of a one-year period. This simulation measures both the term structure risk and the basis risk in the Company's positions. The simulation also captures the option characteristics of products, such as caps and floors on floating rate loans, the right to prepay mortgage loans without penalty and the ability of customers to withdraw deposits on demand. These options are modeled directly in the simulation either through the use of option pricing models, in the case of caps and floors on loans, or through statistical analysis of historical customer behavior, in the case of mortgage loan prepayments or non- maturity deposits. The simulation model is used to measure the impact on after-tax net income, relative to a base case scenario, of rates increasing or decreasing 100 basis points over the next 12 months. The simulation showing the largest drop in net income relative to the base case scenario over the next twelve months is a 100 basis point increase in rates which will result in a decrease in net income of $26 million. In the simulation which was run at December 31, 1997, the largest drop in net income relative to the base case scenario over the next twelve months was a 100 basis point decrease in rates which would result in a decrease in net income of $17 million. The Company uses interest rate derivative financial instruments as an asset/liability management tool to hedge mismatches in interest rate exposures indicated by the net interest income simulation described above. They are used to reduce the Company's exposure to interest rate fluctuations and provide more stable spreads between loan yields and the rates on their funding sources. For example, the Company uses interest rate futures to shorten the rate maturity of MRA savings deposits to better match the maturity of Prime-based loans. The Company also purchases interest rate floors to protect against the loss in interest income on LIBOR-based loans during a declining interest rate environment. Additionally, receive-fixed rate swaps are used to convert floating-rate loans into fixed rates to better match the liabilities that fund the loans. The Company also uses derivatives including floors, futures contracts and options on futures contracts to hedge the Company's mortgage servicing rights. Looking toward managing interest rate risk in 1999, the Company will continue to face term structure risk and basis risk and may be confronted with several risk scenarios. If interest rates rise, net income may actually increase if deposit rates lag increases in market rates (e.g., Prime, LIBOR). The Company could, however, experience pressure on net income in this scenario if deposits are aggressively repriced as market rates increase. A declining interest rate environment might result in a decrease in loan rates, while deposit rates remain relatively stable, as they did between 1994 and 1996. This rate scenario could also create significant risk to net income. The Company has partially hedged against this risk with interest rate floors, receive-fixed rate swap contracts and fixed-rate mortgage backed securities. As mentioned above, the Company has also partially hedged the mortgage servicing rights against this rate scenario using primarily floors, futures contracts and options on futures contracts. Based on its current and projected balance sheet, the Company does not expect that a change in interest rates would affect its liquidity position. The Company considers the fair values and the potential near term losses to future earnings related to its customer accommodation derivative financial instruments to be immaterial. DERIVATIVE FINANCIAL INSTRUMENTS The Company uses interest rate derivative financial instruments as asset/liability management tools to hedge the Company's exposure to interest rate fluctuations. The Company also offers contracts to its customers, but offsets such contracts by purchasing other financial contracts or uses the contracts for asset/liability management. For further discussion of derivative financial instruments, refer to Note 23 to Financial Statements. 48 LIQUIDITY AND CAPITAL MANAGEMENT The Company manages its liquidity and capital at both the parent and subsidiary levels. In addition to the immediately liquid resources of cash and due from banks and federal funds sold and securities purchased under resale agreements, asset liquidity is provided by the Company's securities available for sale portfolio. The weighted average expected remaining maturity of the debt securities within this portfolio was 4 years and 9 months at December 31, 1998. Of the $31.2 billion debt securities in this portfolio at December 31, 1998, $8.2 billion, or 26%, is expected to mature or be prepaid in 1999 and an additional $4.6 billion, or 16%, is expected to mature or be prepaid in 2000. Asset liquidity is further enhanced by the Company's ability to securitize assets such as mortgage loans. Core deposits have historically provided the Company with a sizeable source of relatively stable and low-cost funds. The Company's average core deposits and stockholders' equity funded 76% and 77% of its average total assets in 1998 and 1997, respectively. The remaining funding of average total assets was mostly provided by long-term debt, deposits in foreign offices, short-term borrowings (federal funds purchased and securities sold under repurchase agreements, commercial paper and other short-term borrowings) and trust preferred securities. Short-term borrowings averaged $14.5 billion and $11.4 billion in 1998 and 1997, respectively. Long-term debt averaged $17.4 billion and $17.1 billion in 1998 and 1997, respectively. Trust preferred securities averaged $1.0 billion and $1.3 billion in 1998 and 1997, respectively. Liquidity for the Parent is provided by dividend and interest income from its subsidiaries, potential disposition of readily marketable assets and through its ability to raise funds in a variety of domestic and international money and capital markets. In 1996, the Company filed a universal registration statement with the Securities and Exchange Commission (SEC) that allows for the issuance of $5 billion of domestic debt and equity securities, excluding common stock. In 1996, the Parent established a $2 billion Euro Medium-Term Note program (Euro MTN). The proceeds from the sale of any securities are expected to be used for general corporate purposes. As of December 31, 1998, the Company had issued $1.7 billion of domestic securities under the universal registration statement and $300 million under the Euro MTN program. To accommodate future growth and current business needs, the Company has a capital expenditure program. Capital expenditures for 1999 are estimated at about $470 million for equipment for stores, relocation and remodeling of Company facilities and routine replacement of furniture and equipment. The Company will fund these expenditures from various sources, including retained earnings of the Company and borrowings of various maturities. The Company and each of the subsidiary banks are subject to various regulatory capital adequacy requirements administered by the Federal Reserve Board and the Office of the Comptroller of the Currency. RBC guidelines establish a risk-adjusted ratio relating capital to different categories of assets and off-balance sheet exposures. (See Note 22 to Financial Statements for additional information.) Since 1986, the Company has repurchased common stock in the open market in a systematic pattern to meet the common stock issuance requirements of the Company's benefit plans and other common stock issuance requirements, including acquisitions accounted for as purchases. As of December 31, 1998, the total common stock purchase authority was approximately 3.1 million shares. In January of 1999, the Board of Directors authorized the repurchase of up to 8 million additional shares of the Company's outstanding common stock. COMPARISON OF 1997 TO 1996 On April 1, 1996, the Company completed its acquisition of First Interstate, which was accounted for as a purchase business combination. As a result, the financial information presented in this Annual Report reflects the effects of the acquisition subsequent to the consummation date (i.e., the year 1997 reflects twelve months of combined operations, compared with nine months for the year 1996). Since the Company's results of operations subsequent to April 1, 1996 reflect amounts recognized from the combined operations, they cannot be divided between or attributed directly to either of the two former entities nor can they be directly compared with prior periods. Net interest income increased $426 million in 1997 compared to 1996. The increase in net interest income was due to an increase in earning assets. Net income in 1997 was $2,499 million, compared with $2,228 million in 1996, an increase of 12%. Diluted earnings per common share were $1.48 in 1997, compared with $1.36 in 1996, an increase of 9%. Return on average assets (ROA) was 1.37% and return on average common equity (ROE) was 12.81% in 1997, compared with 1.31% and 12.73%, respectively, in 1996. 49 Diluted earnings before the amortization of goodwill and nonqualifying core deposit intangible (CDI) ("cash" or "tangible" earnings) were $1.83 per share in 1997, compared with $1.67 in 1996. On the same basis, ROA was 1.78% and ROE was 30.49% in 1997, compared with 1.66% and 28.55%, respectively, in 1996. Net interest income on a taxable-equivalent basis was $8,705 million in 1997, compared with $8,265 million in 1996. The Company's net interest margin was 5.86% for 1997, compared with 5.87% in 1996. Noninterest income in 1997 was $5,675 million, compared with $4,769 million in 1996, an increase of 19%. The increases in noninterest income were due to increases in fee-based revenues, including trust and investment fees, credit card fees, other fees and commissions and increased earnings for Mortgage Banking. The increases for Mortgage Banking were principally due to increases in mortgage loan funding and the servicing portfolio. These increases were partially offset by higher levels of amortization in 1997 compared to 1996, which reflected increased balances of capitalized servicing associated with a larger servicing portfolio and increased assumed prepayments due to a lower interest rate environment. Noninterest expense in 1997 was $8,990 million, compared with $8,724 million in 1996. The largest of the increases were in salaries and operating losses. The increase in salaries was due to increased staff levels due to acquisitions. The increase in operating losses was predominantly a result of back-office problems which arose subsequent to certain systems conversions and other changes to operating processes that were a part of the First Interstate integration. There was a provision for loan losses of $1,140 million in 1997, compared with $500 million in 1996. Of these amounts, the former Wells Fargo provided $615 million for loan losses in 1997 and $105 million in 1996. Throughout this period the Company considered its allowance for loan losses adequate in relation to its existing loan portfolio, which had gradually improved in credit quality following the economic environment of 1991 and 1992. Net charge-offs in 1997 were $1,305 million, or 1.25% of average total loans, compared with $1,022 million, or 1.04%, in 1996. The allowance for loan losses was 2.88% of total loans at December 31, 1997, compared with 2.89% at December 31, 1996. Total nonaccrual and restructured loans were $715 million, or .7% of total loans, at December 31, 1997, compared with $881 million, or .8% of total loans, at December 31, 1996. ORE was $264 million at December 31, 1997, compared with $308 million at December 31, 1996. ADDITIONAL INFORMATION Common stock of the Company is traded on the New York Stock Exchange and the Chicago Stock Exchange. The high, low and end-of-period annual and quarterly closing prices of the Company's common stock as reported on the New York Stock Exchange Composite Transaction Reporting System are presented in the graphs. The number of holders of record of the Company's common stock was 88,275 as of January 31, 1999. PRICE RANGE OF COMMON STOCK -- ANNUAL ($) [BAR GRAPH] PRICE RANGE OF COMMON STOCK -- QUARTER ($) [BAR GRAPH] 50 WELLS FARGO & COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME
- --------------------------------------------------------------------------------------------------------------------------- (in millions, except per share amounts) Year ended December 31, --------------------------------------------- 1998 1997 1996 INTEREST INCOME Securities available for sale $ 1,844 $ 2,063 $ 1,950 Mortgages held for sale 898 490 529 Loans held for sale 371 312 328 Loans 10,685 10,539 9,854 Other interest income 257 198 180 -------- -------- -------- Total interest income 14,055 13,602 12,841 -------- -------- -------- INTEREST EXPENSE Deposits 3,111 3,150 2,911 Short-term borrowings 777 610 562 Long-term debt 1,097 1,093 1,140 Guaranteed preferred beneficial interests in Company's subordinated debentures 80 101 6 -------- -------- -------- Total interest expense 5,065 4,954 4,619 -------- -------- -------- NET INTEREST INCOME 8,990 8,648 8,222 Provision for loan losses 1,545 1,140 500 -------- -------- -------- Net interest income after provision for loan losses 7,445 7,508 7,722 -------- -------- -------- NONINTEREST INCOME Service charges on deposit accounts 1,357 1,244 1,198 Trust and investment fees and commissions 1,068 954 775 Credit card fee revenue 520 448 350 Other fees and commissions 946 826 689 Mortgage banking 1,106 927 844 Insurance 348 336 280 Net venture capital gains 113 191 256 Net gains on securities available for sale 169 99 12 Other 800 650 365 -------- -------- -------- Total noninterest income 6,427 5,675 4,769 -------- -------- -------- NONINTEREST EXPENSE Salaries and benefits 4,416 3,811 3,624 Equipment 900 739 724 Net occupancy 764 719 688 Goodwill 421 433 339 Core deposit intangible 243 273 265 Net losses on dispositions of premises and equipment 325 76 45 Operating losses 152 374 189 Other 3,358 2,565 2,850 -------- -------- -------- Total noninterest expense 10,579 8,990 8,724 -------- -------- -------- INCOME BEFORE INCOME TAX EXPENSE 3,293 4,193 3,767 Income tax expense 1,343 1,694 1,539 -------- -------- -------- NET INCOME $ 1,950 $ 2,499 $ 2,228 ======== ======== ======== NET INCOME APPLICABLE TO COMMON STOCK $ 1,915 $ 2,456 $ 2,143 ======== ======== ======== EARNINGS PER COMMON SHARE $ 1.18 $ 1.50 $ 1.38 ======== ======== ======== DILUTED EARNINGS PER COMMON SHARE $ 1.17 $ 1.48 $ 1.36 ======== ======== ======== DIVIDENDS DECLARED PER COMMON SHARE $ .70 $ .615 $ .525 ======== ======== ======== Average common shares outstanding 1,621.5 1,634.6 1,553.3 ======== ======== ======== Diluted average common shares outstanding 1,641.8 1,657.8 1,570.5 ======== ======== ======== - ---------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. 51 WELLS FARGO & COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------------------------------------------------- (in millions, except shares) December 31, ----------------------- 1998 1997 ASSETS Cash and due from banks $ 12,731 $ 13,081 Federal funds sold and securities purchased under resale agreements 1,517 1,049 Securities available for sale 31,997 27,872 Mortgages held for sale 19,770 9,706 Loans held for sale 5,322 4,494 Loans 107,994 106,311 Allowance for loan losses 3,134 3,062 -------- -------- Net loans 104,860 103,249 -------- -------- Mortgage servicing rights 3,080 3,048 Premises and equipment, net 3,130 3,311 Core deposit intangible 1,510 1,737 Goodwill 7,664 8,062 Interest receivable and other assets 10,894 10,076 -------- -------- Total assets $202,475 $185,685 ======== ======== LIABILITIES Noninterest-bearing deposits $ 46,732 $ 40,206 Interest-bearing deposits 90,056 87,450 -------- -------- Total deposits 136,788 127,656 Short-term borrowings 15,897 13,381 Accrued expenses and other liabilities 8,537 6,236 Long-term debt 19,709 17,335 Guaranteed preferred beneficial interests in Company's subordinated debentures 785 1,299 STOCKHOLDERS' EQUITY Preferred stock 547 543 Unearned ESOP shares (84) (80) -------- -------- Total preferred stock 463 463 Common stock-$1 2/3 par value, authorized 4,000,000,000 shares; issued 1,661,392,590 shares and 1,630,640,939 shares 2,769 2,718 Additional paid-in capital 8,673 8,126 Retained earnings 9,045 8,292 Cumulative other comprehensive income 463 464 Notes receivable from ESOP (3) (10) Treasury stock -- 17,334,787 shares and 10,493,685 shares (651) (275) -------- -------- Total stockholders' equity 20,759 19,778 -------- -------- Total liabilities and stockholders' equity $202,475 $185,685 ======== ======== - ---------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. 52 WELLS FARGO & COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
- --------------------------------------------------------------------------------------------------------------- (in millions, except shares) Unearned Additional Number Preferred ESOP Common paid-in of shares stock shares stock capital BALANCE DECEMBER 31, 1995 $ 830 $(39) $1,381 $ 1,321 ----- ---- ------ ------- Comprehensive income Net income-1996 Other comprehensive income, net of tax: Translation adjustments Unrealized gains (losses) on securities available for sale arising during the year Reclassification adjustment for (gains) losses on securities available for sale included in net income Total comprehensive income Common stock issued 15,490,268 13 164 Preferred stock issued for acquisitions 1,750,000 350 10 Common stock issued for acquisitions 560,380,462 895 10,580 Preferred stock issued, net of issuance costs 4,000,000 200 (3) Preferred stock repurchased 1,127,125 (552) Common stock repurchased 101,936,842 (140) (2,018) Preferred stock issued to ESOP 59,000 59 (61) 2 Preferred stock released to ESOP 39 (1) Preferred stock (37,777) converted to common shares 1,970,310 (37) 4 Preferred stock dividends Common stock dividends Fair value adjustment related to acquiree's options 111 Cash payments received on notes receivable from ESOP ----- ---- ------ ------- Net change 20 (22) 768 8,849 ----- ---- ------ ------- BALANCE DECEMBER 31, 1996 850 (61) 2,149 10,170 ----- ---- ------ ------- Comprehensive income Net income-1997 Other comprehensive income, net of tax: Translation adjustments Unrealized gains (losses) on securities available for sale arising during the year Reclassification adjustment for (gains) losses on securities available for sale included in net income Total comprehensive income Common stock issued 18,793,327 10 155 Common stock issued for acquisitions 23,835,535 21 20 Preferred stock repurchased 1,100,000 (325) Common stock repurchased 74,627,681 (97) (1,591) Preferred stock issued to ESOP 51,700 52 (54) 2 Preferred stock released to ESOP 35 (1) Preferred stock (34,074) converted to common shares 1,212,871 (34) 6 Preferred stock dividends Common stock dividends Cash payments received on notes receivable from ESOP Stock split 635 (635) ----- ---- ------ ------- Net change (307) (19) 569 (2,044) ----- ---- ------ ------- BALANCE DECEMBER 31, 1997 543 (80) 2,718 8,126 ----- ---- ------ ------- Comprehensive income Net income-1998 Other comprehensive income, net of tax: Translation adjustments Unrealized gains (losses) on securities available for sale arising during the year Reclassification adjustment for (gains) losses on securities available for sale included in net income Total comprehensive income Common stock issued 39,048,384 49 910 Common stock issued for acquisitions 16,743,233 24 38 Common stock repurchased 32,676,277 (22) (407) Preferred stock issued to ESOP 35 (37) 2 Preferred stock released to ESOP 33 (1) Preferred stock (31,043) converted to common shares 799,216 (31) 3 Preferred stock dividends Common stock dividends Cash payments received on notes receivable from ESOP 2 Rabbi trust asset classified as treasury stock ----- ---- ------ ------- Net change 4 (4) 51 547 ----- ---- ------ ------- BALANCE DECEMBER 31, 1998 $ 547 $(84) $2,769 $ 8,673 ===== ==== ====== ======= - --------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- (in millions, except shares) Notes Cumulative Total receivable other stock- Retained from Treasury comprehensive holders' earnings ESOP stock income equity BALANCE DECEMBER 31, 1995 $5,542 $(13) $(126) $ 343 $ 9,239 ------ ---- ----- ----- ------- Comprehensive income Net income-1996 2,228 2,228 Other comprehensive income, net of tax: Translation adjustments (1) (1) Unrealized gains (losses) on securities available for sale arising during the year (19) (19) Reclassification adjustment for (gains) losses on securities available for sale included in net income (7) (7) ------- Total comprehensive income 2,201 Common stock issued (71) 116 222 Preferred stock issued for acquisitions 360 Common stock issued for acquisitions 72 (2) 99 11,644 Preferred stock issued, net of issuance costs 197 Preferred stock repurchased (552) Common stock repurchased (355) (2,513) Preferred stock issued to ESOP -- Preferred stock released to ESOP 38 Preferred stock (37,777) converted to common shares 33 -- Preferred stock dividends (85) (85) Common stock dividends (815) (815) Fair value adjustment related to acquiree's options 111 Cash payments received on notes receivable from ESOP 4 4 ------ ---- ----- ----- ------- Net change 1,329 2 (107) (27) 10,812 ------ ---- ----- ----- ------- BALANCE DECEMBER 31, 1996 6,871 (11) (233) 316 20,051 ------ ---- ----- ----- ------- Comprehensive income Net income-1997 2,499 2,499 Other comprehensive income, net of tax: Translation adjustments 1 1 Unrealized gains (losses) on securities available for sale arising during the year 206 206 Reclassification adjustment for (gains) losses on securities available for sale included in net income (59) (59) ------- Total comprehensive income 2,647 Common stock issued (151) 282 296 Common stock issued for acquisitions 41 131 213 Preferred stock repurchased (325) Common stock repurchased (483) (2,171) Preferred stock issued to ESOP -- Preferred stock released to ESOP 34 Preferred stock (34,074) converted to common shares 28 -- Preferred stock dividends (43) (43) Common stock dividends (925) (925) Cash payments received on notes receivable from ESOP 1 1 Stock split -- ------ ---- ----- ----- ------- Net change 1,421 1 (42) 148 (273) ------ ---- ----- ----- ------- BALANCE DECEMBER 31, 1997 8,292 (10) (275) 464 19,778 ------ ---- ----- ----- ------- Comprehensive income Net income-1998 1,950 1,950 Other comprehensive income, net of tax: Translation adjustments (4) (4) Unrealized gains (losses) on securities available for sale arising during the year 104 104 Reclassification adjustment for (gains) losses on securities available for sale included in net income (101) (101) ------- Total comprehensive income 1,949 Common stock issued (191) 319 1,087 Common stock issued for acquisitions 11 84 157 Common stock repurchased (741) (1,170) Preferred stock issued to ESOP -- Preferred stock released to ESOP 32 Preferred stock (31,043) converted to common shares 28 -- Preferred stock dividends (35) (35) Common stock dividends (982) (982) Cash payments received on notes receivable from ESOP 7 9 Rabbi trust asset classified as treasury stock (66) (66) ------ ---- ----- ----- ------- Net change 753 7 (376) (1) 981 ------ ---- ----- ----- ------- BALANCE DECEMBER 31, 1998 $9,045 $ (3) $(651) $ 463 $20,759 ====== ==== ===== ===== ======= - 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The accompanying notes are an integral part of these statements. 53 WELLS FARGO & COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------------------------------------------------- (in millions) Year ended December 31, 1998 1997 1996 -------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,950 $ 2,499 $ 2,228 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 1,545 1,140 500 Depreciation and amortization 1,205 1,734 1,458 Securities available for sale gains (169) (99) (12) Gains on sales of loans (61) (30) (22) (Gains) losses from disposition of operations (100) (15) 95 Release of preferred shares to ESOP 32 34 38 Net (increase) decrease in trading assets 542 (711) (440) Deferred income tax expense (benefit) (129) 173 467 Net (increase) decrease in accrued interest receivable (5) 96 (75) Net (decrease) increase in accrued interest payable (9) 43 37 Originations of mortgages held for sale (111,262) (56,297) (53,088) Proceeds from sales of mortgages held for sale 101,371 53,252 55,920 Net (increase) decrease in loans held for sale (822) (846) 673 Other, net 752 978 (3,634) --------- --------- -------- Net cash provided (used) by operating activities (5,160) 1,951 4,145 --------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Securities available for sale: Proceeds from sales 11,073 9,798 5,905 Proceeds from prepayments and maturities 10,354 6,998 7,853 Purchases (24,650) (13,140) (10,100) Net cash (paid for) acquired from acquisitions (286) (67) 3,561 Net (increase) decrease in banking subsidiaries' loans resulting from originations and collections (1,383) 843 4,053 Proceeds from sales (including participations) of banking subsidiaries' loans 1,648 437 364 Purchases (including participations) of banking subsidiaries' loans (135) (314) (133) Principal collected on nonbank subsidiaries' loans 7,788 8,456 5,503 Nonbank subsidiaries' loans originated (8,962) (8,748) (6,950) Proceeds from (cash paid for) disposition of operations 484 16 6 Proceeds from sales of other real estate (ORE) 279 278 200 Net (increase) decrease in federal funds sold and securities purchased under resale agreements (468) 415 1,385 Other, net (2,776) (320) (929) --------- --------- -------- Net cash provided (used) by investing activities (7,034) 4,652 10,718 --------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in deposits 6,749 (7,273) (2,198) Net increase (decrease) in short-term borrowings 2,414 2,838 (1,970) Proceeds from issuance of long-term debt 7,970 4,003 6,403 Repayment of long-term debt (5,642) (5,394) (6,293) Proceeds from issuance of guaranteed preferred beneficial interests in Company's subordinated debentures -- 149 1,150 Proceeds from issuance of preferred stock -- -- 197 Proceeds from issuance of common stock 1,087 238 199 Repurchases of preferred stock -- (325) (552) Repurchases of common stock (1,170) (2,171) (2,513) Net decrease in notes receivable from ESOP 9 1 4 Payment of cash dividends on preferred and common stock (1,017) (968) (900) Other, net 1,444 (1,213) 508 --------- --------- -------- Net cash provided (used) by financing activities 11,844 (10,115) (5,965) --------- --------- -------- NET CHANGE IN CASH AND DUE FROM BANKS (350) (3,512) 8,898 Cash and due from banks at beginning of year 13,081 16,593 7,695 --------- --------- -------- CASH AND DUE FROM BANKS AT END OF YEAR $ 12,731 $ 13,081 $ 16,593 ========= ========= ======== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 5,074 $ 4,911 $ 4,582 Income taxes $ 1,289 $ 1,238 $ 684 Noncash investing and financing activities: Transfers from loans to ORE $ 223 $ 162 $ 192 - ---------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. 54 NOTES TO FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Wells Fargo & Company (Parent) is a bank holding company. Wells Fargo & Company and Subsidiaries (Company) is a diversified financial services company providing banking, mortgage and consumer finance through about 6,000 stores and other distribution channels throughout North America, including all 50 states and elsewhere internationally. The accounting and reporting policies of the Company conform with generally accepted accounting principles (GAAP) and prevailing practices within the financial services industry. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and income and expenses during the reporting period. Actual results could differ from those estimates. On November 2, 1998, Norwest Corporation changed its name to "Wells Fargo & Company" upon the merger (the Merger) of the former Wells Fargo & Company (the former Wells Fargo) into a wholly-owned subsidiary of Norwest Corporation. The Merger was accounted for as a pooling of interests and, accordingly, the information included in the financial statements presents the combined results as if the Merger had been in effect for all periods presented. Certain amounts in the financial statements for prior years have been reclassified to conform with the current financial statement presentation. The following is a description of the significant accounting policies of the Company. CONSOLIDATION The consolidated financial statements of the Company include the accounts of the Parent, and its majority-owned subsidiaries, which are consolidated on a line-by-line basis. Significant intercompany accounts and transactions are eliminated in consolidation. Other subsidiaries and affiliates in which there is at least 20% ownership are generally accounted for by the equity method; those in which there is less than 20% ownership are generally carried at cost. Investments that are accounted for by either the equity or cost method are included in other assets. SECURITIES Securities are accounted for according to their purpose and holding period. SECURITIES AVAILABLE FOR SALE Debt securities that may not be held until maturity and marketable equity securities are classified as securities available for sale and are reported at fair value, with unrealized gains and losses, after applicable taxes, reported as a component of cumulative other comprehensive income. The estimated fair value of a security is determined based on current quotations, where available. Where current quotations are not available, the estimated fair value is determined based primarily on the present value of future cash flows, adjusted for the quality rating of the securities, prepayment assumptions and other factors. Declines in the value of debt securities and marketable equity securities that are considered other than temporary are recorded in noninterest income as a loss on securities available for sale. Realized gains and losses are recorded in noninterest income using the identified certificate method. For certain debt securities (for example, Government National Mortgage Association securities), the Company anticipates prepayments of principal in the calculation of the effective yield. 55 TRADING SECURITIES Securities acquired for short-term appreciation or other trading purposes are recorded in a trading portfolio and are carried at fair value, with unrealized gains and losses recorded in noninterest income. NONMARKETABLE EQUITY SECURITIES Nonmarketable equity securities include the venture capital subsidiaries' equity securities that are not publicly traded and securities acquired for various purposes, such as troubled debt restructurings and as a regulatory requirement (for example, Federal Reserve Bank stock). These securities are accounted for at cost. The asset value is reduced when declines in value are considered to be other than temporary and the estimated loss is recorded in noninterest income as a loss from equity investments along with income recognized on these assets. MORTGAGES HELD FOR SALE Mortgages held for sale are stated at the lower of aggregate cost or market value. The determination of market value includes consideration of all open positions, outstanding commitments from investors, related fees paid and related hedging gains and losses. Gains and losses on sales of mortgages are recognized at settlement dates and are determined by the difference between sales proceeds and the carrying value of the mortgages. Gains and losses are recorded in noninterest income. LOANS HELD FOR SALE Loans held for sale include student loans which are classified as held for sale because the Company does not intend to hold these loans until maturity or sales of the loans are pending. Such loans are carried at the lower of aggregate cost or market value. Gains and losses are recorded in noninterest income, based on the difference between sales proceeds and carrying value. LOANS Loans are reported at the principal amount outstanding, net of unearned income. Unearned income, which includes deferred fees net of deferred direct incremental loan origination costs, is amortized to interest income generally over the contractual life of the loan using an interest method or the straight-line method if it is not materially different. NONACCRUAL LOANS Generally, loans are placed on nonaccrual status upon becoming 90 days past due as to interest or principal (unless both well-secured and in the process of collection), when the full timely collection of interest or principal becomes uncertain or when a portion of the principal balance has been charged off. Real estate 1-4 family loans (both first liens and junior liens) are placed on nonaccrual status within 120 days of becoming past due as to interest or principal, regardless of security. Generally, consumer loans not secured by real estate are placed on nonaccrual status only when a portion of the principal has been charged off. Such loans are entirely charged off when deemed uncollectible or when they reach a predetermined number of days past due depending upon loan product, country, terms and other factors. When a loan is placed on nonaccrual status, the accrued and unpaid interest receivable is reversed and the loan is accounted for on the cash or cost recovery method thereafter, until qualifying for return to accrual status. Generally, a loan may be returned to accrual status when all delinquent interest and principal become current in accordance with the terms of the loan agreement or when the loan is both well-secured and in the process of collection and collectibility is no longer doubtful. IMPAIRED LOANS Loans, other than those included in large groups of smaller-balance homogeneous loans, are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement, including scheduled interest payments. For a loan that has been restructured, the contractual terms of the loan agreement refer to the contractual terms specified by the original loan agreement, not the contractual terms specified by the restructuring agreement. This assessment for impairment occurs 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. 56 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. RESTRUCTURED LOANS In cases where a borrower experiences financial difficulties and the Company makes certain concessionary modifications to contractual terms, the loan is classified as a restructured (accruing) loan. Loans restructured at a rate equal to or greater than that of a new loan with comparable risk at the time the contract is modified may be excluded from the impairment assessment and may cease to be considered impaired loans in the calendar years subsequent to the restructuring if they are not impaired based on the modified terms. Generally, a nonaccrual loan that is restructured remains on nonaccrual for a period of six months to demonstrate that the borrower can meet the restructured terms. However, performance prior to the restructuring, or significant events that coincide with the restructuring, are included in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual at the time of restructuring or after a shorter performance period. If the borrower's ability to meet the revised payment schedule is uncertain, the loan remains classified as a nonaccrual loan. ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is a valuation allowance for probable losses inherent in the portfolio as of the balance sheet date. The Company's determination of the level of the allowance for loan losses rests upon various judgments and assumptions, including general economic conditions, loan portfolio composition, prior loan loss experience, evaluation of credit risk related to certain individual borrowers and the Company's ongoing examination process and that of its regulators. The Company considers the allowance for loan losses adequate to cover losses inherent in loans, loan commitments and standby letters of credit. TRANSFERS AND SERVICING OF FINANCIAL ASSETS A transfer of financial assets is accounted for as a sale when control is surrendered over the assets transferred. Servicing rights and other retained interests in the assets sold are recorded by allocating the previous recorded investment between the asset sold and the interest retained based on their relative fair values, if practicable to determine, at the date of transfer. The Company recognizes as separate assets the rights to service mortgage loans for others, whether the servicing rights are acquired through purchases or retained upon sales of loan originations. For purposes of evaluating and measuring impairment of mortgage servicing rights, the Company stratifies its portfolio on the basis of certain risk characteristics including loan type and note rate. Based upon current fair values and considering outstanding positions of derivative financial instruments used as hedges, mortgage servicing rights are periodically assessed for impairment. Impairment is recognized in the statement of income during the period in which impairment occurs as an adjustment to the corresponding valuation allowance. Mortgage servicing rights are amortized over the period of estimated net servicing income and take into account appropriate prepayment assumptions. PREMISES AND EQUIPMENT Premises and equipment are stated at cost less accumulated depreciation and amortization. Capital leases are included in premises and equipment, at the capitalized amount less accumulated amortization. Depreciation and amortization are computed primarily using the straight-line method. Estimated useful lives range up to 40 years for buildings, 2 to 10 years for furniture and equipment, and up to the lease term for leasehold improvements. Capitalized leased assets are amortized on a straight-line basis over the lives of the respective leases, which generally range from 20 to 35 years. 57 GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS Goodwill, representing the excess of purchase price over the fair value of net assets acquired, results from acquisitions made by the Company. Substantially all of the Company's goodwill is being amortized using the straight-line method over 25 years. Core deposit intangibles are amortized on an accelerated basis based on an estimated useful life of 10 to 15 years. Certain identifiable intangible assets that are included in other assets are generally amortized using an accelerated method over an original life of 5 to 15 years. The Company reviews its intangible assets periodically for other-than-temporary impairment. If such impairment is indicated, recoverability of the asset is assessed based on expected undiscounted net cash flows. INCOME TAXES The Company files a consolidated federal income tax return. Federal income tax is generally allocated to individual subsidiaries as if each had filed a separate return. Combined state tax returns are filed in certain states. State taxes are also allocated to individual subsidiaries. Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the differences between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws. Foreign taxes paid are applied as credits to reduce federal income taxes payable. EARNINGS PER COMMON SHARE Earnings per common share are presented under two formats: earnings per common share and diluted earnings per common share. Earnings per common share are computed by dividing net income (after deducting dividends on preferred stock) by the average number of common shares outstanding during the year. Diluted earnings per common share are computed by dividing net income (after deducting dividends on preferred stock) by the average number of common shares outstanding during the year, plus the impact of those common stock equivalents (i.e., stock options, restricted share rights and convertible subordinated debentures) that are dilutive. DERIVATIVE FINANCIAL INSTRUMENTS INTEREST RATE DERIVATIVES The Company uses interest rate derivative financial instruments (futures contracts, forward contracts, swaps, caps, floors and options) primarily to hedge mismatches in the rate maturity of loans and their funding sources and the price risk of interest-rate sensitive assets. These instruments serve to reduce rather than increase the Company's exposure to movements in interest rates. At the inception of the hedge, the Company identifies an individual asset or liability, or an identifiable group of essentially similar assets or liabilities, that expose the Company to interest rate risk at the consolidated or enterprise level. Interest rate derivatives are accounted for by the deferral or accrual method only if they are designated as a hedge and are expected to be and are effective in substantially reducing the risk arising from the asset or liability identified as exposing the Company to risk. Futures contracts must meet specific high correlation tests. For caps, floors and swaps hedging mismatches between interest-bearing assets and liabilities, their notional amount, interest rate index and life must closely match the related terms of the hedged asset or liability. Caps, floors, swaps and options and the mortgage servicing rights that they hedge must correlate based on certain duration and convexity parameters. For futures contracts, if the underlying financial instrument differs from the hedged asset or liability, there must be a clear economic relationship between the prices of the two financial instruments. If periodic assessment indicates derivatives no longer provide an effective hedge, the derivatives are closed out or settled; previously unrecognized hedge results and the net settlement upon close-out or termination that offset changes in value of the hedged asset or liability are deferred and amortized over the life of the asset or liability with excess amounts recognized in noninterest income or noninterest expense. Gains and losses on futures contracts, which result from the daily settlement of their open positions, and on forward contracts are deferred and classified on the balance sheet consistent with the hedge strategy. They are recognized in income along with and when the effects of the related changes of the hedged asset or liability are recognized. Amounts payable or receivable for swaps, caps and floors are accrued with the passage of time, the effect of which is included in income along with and when the effects of the related changes of the hedged 58 asset or liability are recognized. Gains and losses on options are recognized as a component of the income reported on the hedged asset or liability. Fees associated with these financial contracts are included on the balance sheet at the time that the fee is paid and are classified consistent with the hedge strategy. These fees are fully recognized by the end of their contractual life. If a hedged asset or liability settles before maturity of the hedging interest rate derivatives, the derivatives are closed out or settled, and previously unrecognized hedge results and the net settlement upon close-out or termination are accounted for as part of the gains and losses on the hedged asset or liability. If interest rate derivatives used in an effective hedge are closed out or terminated before the hedged item settles, previously unrecognized hedge results and the net settlement upon close-out or termination are deferred and amortized over the life of the hedged asset or liability. Cash flows resulting from interest rate derivatives (including any related fees) that are accounted for as hedges of assets and liabilities are classified in the cash flow statement in the same category as the cash flows from the items being hedged and are reflected in that statement when the cash receipts or payments due under the terms of the instruments are collected, paid or settled. Interest rate derivatives entered into as an accommodation to customers, interest rate derivatives used to offset the interest rate risk of those contracts and positions taken based on the Company's market expectations or to benefit from price differentials between financial instruments and markets are carried at fair value with unrealized gains and losses recorded in noninterest income. Losses are recognized currently on put options written when the fair value of the underlying security falls below the contractual price at which the security may be put to the Company plus the premium received. Premiums received on covered call options written are deferred until the option terminates. If the fair value of the underlying asset is greater than the contractual price at which the Company must sell the asset, the option should be exercised, at which time the premium will be recorded as an adjustment of the gain or loss recognized on the underlying asset. If the option expires, the premium is recognized in other noninterest income. The fair value of interest rate derivative financial instruments with an unrealized gain is included in trading assets (i.e., within other assets) while the fair value of instruments with an unrealized loss is included in other liabilities. Cash flows resulting from instruments carried at fair value are classified in the cash flow statement as operating cash flows and are reflected in that statement when the cash receipts or payments due under the terms of the instruments are collected, paid or settled. Credit risk related to interest rate derivative financial instruments is considered and, if material, provided for separately from the allowance for loan losses. FOREIGN EXCHANGE DERIVATIVES The Company enters into foreign exchange derivative financial instruments (forward and spot contracts and options) primarily as an accommodation to customers and offsets the related foreign exchange risk with other foreign exchange derivatives. Those contracts are carried at fair value, with unrealized gains and losses recorded in noninterest income. Cash flows resulting from foreign exchange derivatives are classified in the cash flow statement as operating cash flows and are reflected in that statement when the cash receipts or payments due under the terms of the foreign exchange derivatives are collected, paid or settled. The Company also uses forward foreign exchange contracts to hedge uncertainties in funding costs related to specific liabilities denominated in foreign currencies. Gains and losses on those contracts are recognized in income and classified on the balance sheet consistent with the hedged item. Cash flows resulting from these foreign exchange derivatives (including any related fees) are classified in the cash flow statement in the same category as the cash flows from the item being hedged and are reflected in that statement when the cash receipts or payments due under the terms of the instruments are collected, paid or settled. Credit risk related to all foreign exchange derivatives is considered and, if material, provided for separately from the allowance for loan losses. FOREIGN CURRENCY TRANSLATION The accounts of the Company's foreign consumer finance subsidiaries are measured using local currency as the functional currency. Assets and liabilities are translated into United States dollars at period-end exchange rates, and income and expense accounts are translated at average monthly exchange rates. Net exchange gains or losses resulting from such translation are excluded from net income and included as a component of cumulative other comprehensive income. 59 NOTE 2 BUSINESS COMBINATIONS The Company regularly explores opportunities to acquire financial institutions and related businesses. Generally, management of the Company does not make a public announcement about an acquisition opportunity until a definitive agreement is signed. At December 31, 1998, the Company had five pending transactions with total assets of approximately $1.4 billion and anticipated that approximately $200 million in cash and approximately 5.7 million common shares will be issued upon consummation of these transactions. These pending acquisitions, subject to approval by regulatory agencies, are expected to be completed by the end of the second quarter of 1999. Transactions completed in the years ended December 31, 1998, 1997 and 1996 include:
- ----------------------------------------------------------------------------------------------------------------------------------- (in millions, except shares) Date Assets Cash Common Method of paid shares accounting issued 1998 Finvercon S.A. Compania, Financiera, Argentina January 8 $ 57 $ 20 -- Purchase Fidelity Bancshares, Inc., Fort Worth, Texas January 13 111 16 -- Purchase Heritage Trust Company, Grand Junction, Colorado February 20 2 -- 136,950 Purchase Founders Trust Company, Dallas, Texas March 2 2 7 -- Purchase The T. Eaton Acceptance Company Limited and National Retail Credit Services Limited, Don Mills, Ontario, Canada April 21 370 248 -- Purchase WMC Mortgage Corporation, Woodland Hills, California April 30 5 22 -- Purchase First Bank, Katy, Texas May 22 310 -- 1,999,980 Pooling of interests* First Bank of Grants, Grants, New Mexico May 28 45 -- 212,487 Purchase Spring Mountain Escrow Corporation, Irvine, California May 29 1 1 -- Purchase Emjay Corporation, Milwaukee, Wisconsin June 15 6 -- 297,979 Purchase Six affiliated bank holding companies and related entities, located in Minnesota, Wisconsin, New Mexico, Arizona and Colorado, including MidAmerica July 2, 23 1,317 -- 8,060,664 Pooling of interests* First Bancshares of Valley City, Inc., Valley City, North Dakota July 31 96 -- 451,943 Purchase Peoples Insurance Agency, Inc., Valley City, North Dakota July 31 -- -- 6,804 Purchase Star Bancshares, Inc., Austin, Texas August 31 582 -- 4,275,077 Pooling of interests* Freedom Trailer Leasing, Inc., Chesterfield, Missouri August 31 5 4 -- Purchase Little Mountain Bancshares, Inc., Monticello, Minnesota September 8 82 -- 561,016 Purchase First National Bank of Missouri City, Missouri City, Texas October 30 91 -- 740,333 Purchase Franklin Bancshares, Inc., Franklin, Texas December 1 72 12 -- Purchase ------ ---- ---------- $3,154 $330 16,743,233 ====== ==== ========== 1997 Franklin Federal Bancorp., F.S.B., Austin, Texas January 1 $ 621 $ 90 -- Purchase of assets Central Bancorporation, Inc., Fort Worth, Texas January 28 1,105 -- 9,399,576 Pooling of interests* Reliable Financial Services, Inc., San Juan, Puerto Rico February 21 39 -- 1,753,086 Pooling of interests* Statewide Mortgage Company, Birmingham, Alabama February 26 28 -- 1,049,992 Purchase The United Group, Inc., Charlotte, North Carolina March 21 41 -- 648,348 Purchase Farmers National Bancorp, Inc., Geneseo, Illinois March 24 198 -- 1,207,198 Purchase The First National Bankshares, Inc., Tucumcari, New Mexico June 17 90 -- 608,900 Purchase Tennessee Credit Corporation, Nashville, Tennessee July 18 13 3 -- Purchase Western National Trust Company, National Association, Odessa, Texas July 31 -- 1 -- Purchase Fidelity Acceptance Corporation, St. Louis, Missouri August 31 1,135 344 -- Purchase The Bank of the Southwest, National Association, Pagosa Springs, Colorado September 2 85 -- 490,790 Purchase International Bancorporation, Inc., Golden Valley, Minnesota October 21 483 -- 3,601,935 Pooling of interests* Subsidiaries of Cityside Holding L.L.C., Eden Prairie, Minnesota October 30 104 42 -- Purchase J.L.J. Financial Services Corporation, Montvale, New Jersey October 31 26 6 -- Purchase Myers Bancshares Inc., Dallas, Texas November 14 135 -- 613,247 Purchase Packers Management Company, Inc., Omaha, Nebraska November 25 162 -- 1,171,161 Purchase First Valley Bank Group, Inc., Los Fresnos, Texas December 1 519 -- 3,291,302 Pooling of interests* ------ ---- ---------- $4,784 $486 23,835,535 ====== ==== ==========
60
(in millions, except shares) Date Assets Cash Common Method of paid shares accounting issued 1996 The Bank of Robstown, Robstown, Texas January 12 $ 71 $ 9 -- Purchase AMFED Financial, Inc., Reno, Nevada January 18 1,519 -- 12,093,272 Pooling of interests* Irene Bancorporation, Inc., Viborg, South Dakota January 31 40 7 -- Purchase Canton Bancshares, Inc., Canton, Illinois February 15 50 -- 558,540 Purchase Henrietta Bancshares, Inc., Henrietta, Texas March 12 164 24 -- Purchase First Interstate Bancorp, Los Angeles, California April 1 55,797 -- 520,019,700 Purchase Victoria Bankshares, Inc., Victoria, Texas April 11 1,919 -- 17,021,602 Pooling of interests* The Prudential Home Mortgage Company, Inc. May 7 3,336 3,336 -- Purchase of assets Cardinal Credit Corporation, Lexington, Kentucky May 13 34 34 -- Purchase of assets Benson Financial Corporation, San Antonio, Texas May 31 464 -- 4,088,070 Pooling of interests* Regional Bank of Colorado, N.A., Rifle, Colorado June 1 56 -- 709,934 Purchase AmeriGroup, Incorporated, Minneapolis, Minnesota June 4 155 -- 1,832,400 Purchase Union Texas Bancorporation, Inc., Laredo, Texas June 27 245 -- 789,958 Purchase B & G Investment Company, San Antonio, Texas July 3 71 -- 541,996 Purchase PriMerit Bank, F.S.B., Las Vegas, Nevada July 19 1,578 191 -- Purchase of assets Aman Collection Service, Inc., Aberdeen, South Dakota August 2 4 -- 1,200,000 Pooling of interests* Rapid Finance, Inc., Jacksonville, Mississippi August 16 29 29 -- Purchase of assets National Business Finance, Inc., Denver, Colorado September 30 8 7 -- Purchase American Bank Moorhead, Moorhead, Minnesota October 1 155 24 -- Purchase Texas Bancorporation, Inc., Odessa, Texas November 1 174 -- 1,524,990 Purchase West Columbia National Bank, West Columbia, Texas December 27 34 5 -- Purchase ------- ------ ----------- $65,903 $3,666 560,380,462 ======= ====== =========== - ----------------------------------------------------------------------------------------------------------------------------------
* Pooling of interests transaction was not material to the Company's consolidated financial statements; accordingly, previously reported results were not restated. MERGER OF NORWEST AND WELLS FARGO On November 2, 1998, the former Wells Fargo merged with a subsidiary of Norwest Corporation, and Norwest changed its name to "Wells Fargo & Company." Under the terms of the Merger agreement, stockholders of the former Wells Fargo received 10 shares of common stock of the Company for each share of common stock owned. Each share of former Wells Fargo preferred stock was converted into one share of the Company's preferred stock. These shares will rank on parity with the Company's preferred stock as to dividends and upon liquidation. Each outstanding and unexercised option granted by the former Wells Fargo was converted into an option to purchase common stock of the Company based on the agreed-upon exchange ratio. As a condition to the Merger, the Company was required by regulatory agencies to divest stores in Arizona and Nevada having aggregate deposits of approximately $1 billion. In the fourth quarter of 1998, the Company entered into contracts to sell these stores. These sales are expected to be completed during the second quarter of 1999. Merger-related expenses of approximately $1 billion that were recognized in the fourth quarter of 1998 included restructuring charges of approximately $600 million. The following table presents the major components of the restructuring charges:
- ----------------------------------------------------------- Amounts Income statement (in millions) classification Severance- Salaries and related costs $280 benefits Premises: Owned 100 (1) Net losses on Leased 150 dispositions of ---- premises and Total premises- equipment related costs 250 (2) Other 70 Various ---- Total restructuring charges $600 ==== - -----------------------------------------------------------
(1) Carrying value of these assets totaled approximately $70 million at December 31, 1998. (2) These premises are held for sale or remarketing and are expected to be removed from operations during 1999, pursuant to Merger plans. 61 Accrued severance-related costs relate to the elimination into 2000 of about 5% of the Company's positions. The majority of these reductions are the result of eliminating redundant headquarters, back office and other positions. Previously reported financial information for Norwest and the former Wells Fargo is shown in the table below.
- --------------------------------------------------------------------- Year ended (in millions) NINE MONTHS ENDED December 31, SEPTEMBER 30, 1998 -------------------- (UNAUDITED) 1997 1996 Revenue (1) Norwest $5,913 $6,996 $6,266 Wells Fargo 5,623 7,318 6,721 Net Income Norwest $1,143 $1,351 $1,154 Wells Fargo 999 1,155 1,071 - ---------------------------------------------------------------------
(1) Revenue equals net interest income plus noninterest income. The combined financial results of the Company include adjustments to conform the accounting policies of the former Norwest and the former Wells Fargo. The December 31, 1995 balances of certain balance sheet accounts were adjusted to reflect the conforming accounting treatment. Other liabilities increased $75 million and retained earnings decreased $75 million to conform the accounting treatment for the postretirement transition obligation identified with the implementation of FAS 106, Employers' Accounting for Postretirement Benefits Other than Pensions. Premises and equipment decreased $53 million and retained earnings decreased $53 million to reflect the conforming of the capitalization policies. In noninterest expense, salaries and benefits decreased $6 million for the nine months ended September 30, 1998 and $8 million for the years ended December 31, 1997 and 1996 and equipment expense increased $2 million for the nine months ended September 30, 1998 and $18 million and $3 million for the years ended December 31, 1997 and 1996, respectively. Net income increased $2 million for the nine months ended September 30, 1998 and (decreased) increased $(7) million and $3 million for the years ended December 31, 1997 and 1996, respectively. NOTE 3 CASH, LOAN AND DIVIDEND RESTRICTIONS Federal Reserve Board (FRB) regulations require reserve balances on deposits to be maintained by each of the banking subsidiaries with the Federal Reserve Banks. The average required reserve balance was $2.2 billion and $2.3 billion in 1998 and 1997, respectively. Federal law prevents the Company and its nonbank subsidiaries from borrowing from its subsidiary banks unless the loans are secured by specified collateral. Such secured loans by any subsidiary bank are generally limited to 10% of the subsidiary bank's capital and surplus (as defined, which for this purpose represents Tier 1 and Tier 2 capital, as calculated under the risk-based capital guidelines, plus the balance of the allowance for loan losses excluded from Tier 2 capital) and aggregate loans to the Company and its nonbank subsidiaries are limited to 20% of the subsidiary bank's capital and surplus. (For further discussion of risk-based capital, see Note 22 to Financial Statements.) The payment of dividends to the Parent by subsidiary banks is subject to various federal and state regulatory limitations. Dividends payable by a national bank to the Parent without the express approval of the Office of the Comptroller of the Currency (OCC) are limited to that bank's retained net profits for the preceding two calendar years plus retained net profits up to the date of any dividend declaration in the current calendar year. Retained net profits are defined by the OCC as net income, less dividends declared during the period, both of which are based on regulatory accounting principles. The Company also has state-chartered subsidiary banks that are subject to state regulations that limit dividends. Under these provisions and except for Wells Fargo Bank, N.A. (WFB, N.A.), the Company's national and state-chartered subsidiary banks could have declared dividends of $687 million and $495 million in 1998 and 1997, respectively, without obtaining prior regulatory approval. With the express approval of the OCC, WFB, N.A. declared dividends in 1998 and 1997 of $1.5 billion in excess of its net income of $2.0 billion for those years. (The total dividends declared by WFB, N.A. in 1998, 1997 and 1996 were $1.5 billion, $2.0 billion and $1.5 billion, respectively.) Therefore, before it can declare dividends in 1999 without the approval of the OCC, WFB, N.A. must have net income of $1.5 billion plus an amount equal to or greater than the dividends declared in 1999. Since it is not expected to have net income of $1.5 billion plus an amount equal to or greater than the dividends expected to be declared in 1999, WFB, N.A. will again need to obtain the approval of the OCC before any dividends are declared in 1999. In addition, the Company's non-bank subsidiaries could have declared dividends of $1.2 billion and $1.0 billion at December 31, 1998 and 1997, respectively. 62 NOTE 4 SECURITIES AVAILABLE FOR SALE The following table provides the cost and fair value for the major components of securities available for sale carried at fair value (there were no securities held to maturity at the end of the last three years):
- ------------------------------------------------------------------------------------------------------------------------------- (in millions) December 31, ------------------------------------------------------------------------------------------- 1998 1997 ------------------------------------------- ------------------------------------------- Cost Estimated Estimated Estimated Cost Estimated Estimated Estimated unrealized unrealized fair value unrealized unrealized fair value gross gains gross losses gross gains gross losses Securities of U.S. Treasury and federal agencies $ 3,260 $ 45 $18 $ 3,287 $ 3,594 $ 38 $ 6 $ 3,626 Securities of U.S. states and political subdivisions 1,683 115 4 1,794 1,652 76 2 1,726 Mortgage-backed securities: Federal agencies 20,539 293 28 20,804 18,203 369 20 18,552 Private collateralized mortgage obligations (1) 3,420 29 9 3,440 2,646 21 13 2,654 ------- ---- --- ------- ------- ---- --- ------- Total mortgage-backed securities 23,959 322 37 24,244 20,849 390 33 21,206 Other 1,879 41 21 1,899 729 18 3 744 ------- ---- --- ------- ------- ---- --- ------- Total debt securities 30,781 523 80 31,224 26,824 522 44 27,302 Marketable equity securities 386 396 9 773 308 265 3 570 ------- ---- --- ------- ------- ---- --- ------- Total $31,167 $919 $89 $31,997 $27,132 $787 $47 $27,872 ======= ==== === ======= ======= ==== === ======= December 31, ------------------ 1996 ------------------ Cost Estimated fair value Securities of U.S. Treasury and federal agencies $ 3,998 $ 4,017 Securities of U.S. states and political subdivisions 928 962 Mortgage-backed securities: Federal agencies 19,694 19,834 Private collateralized mortgage obligations (1) 3,403 3,403 ------- ------- Total mortgage-backed securities 23,097 23,237 Other 844 844 ------- ------- Total debt securities 28,867 29,060 Marketable equity securities 374 692 ------- ------- Total $29,241 $29,752 ======= ======= - ------------------------------------------------------
(1) Substantially all private collateralized mortgage obligations are AAA-rated bonds collateralized by 1-4 family residential first mortgages. At December 31, 1998, the Company held no securities of any single issuer (excluding the U.S. Treasury and federal agencies) with a book value that exceeded 10% of stockholders' equity. Proceeds from the sale of securities in the securities available for sale portfolio totaled $11.1 billion, $9.8 billion and $5.9 billion in 1998, 1997 and 1996. For the year ended December 31, 1998, the sales of securities in the securities available for sale portfolio resulted in a realized net gain of $169 million, comprised of realized gross gains of $209 million and realized gross losses of $40 million. The sales of securities in the securities available for sale portfolio resulted in a realized net gain of $99 million and $12 million, comprised of realized gross gains of $168 million and $184 million, and realized gross losses of $69 million and $172 million for the year ended December 31, 1997 and 1996, respectively. The following table provides the remaining contractual principal maturities and yields (taxable-equivalent basis) of debt securities available for sale. The remaining contractual principal maturities for mortgage-backed securities were allocated assuming no prepayments. Expected remaining maturities will differ from contractual maturities because borrowers may have the right to prepay obligations with or without penalties.
- ---------------------------------------------------------------------------------------------------------------------------------- (in millions) December 31, 1998 ------------------------------------------------------------------------------------------- Remaining contractual principal maturity Total Weighted ------------------------------------------------------------------------ amount average After one year After five years yield Within one year through five years through ten years After ten years ---------------- ------------------ ----------------- --------------- Amount Yield Amount Yield Amount Yield Amount Yield Securities of U.S. Treasury and federal agencies $ 3,287 5.76% $1,241 5.91% $1,109 5.93% $ 872 5.38% $ 65 5.05% Securities of U.S. states and political subdivisions 1,794 6.54 79 5.58 423 6.58 293 6.94 999 6.49 Mortgage-backed securities: Federal agencies 20,804 6.88 454 6.37 1,448 6.62 1,092 6.59 17,810 6.93 Private collateralized mortgage obligations 3,440 6.71 274 6.28 843 6.54 644 7.12 1,679 6.71 ------- ------ ------ ------ ------- Total mortgage-backed securities 24,244 6.86 728 6.34 2,291 6.59 1,736 6.79 19,489 6.91 Other 1,899 7.04 100 6.51 813 5.57 695 8.17 291 7.58 ------- ------ ------ ------ ------- ESTIMATED FAIR VALUE OF DEBT SECURITIES (1) $31,224 6.73% $2,148 6.06% $4,636 6.28% $3,596 6.72% $20,844 6.90% ======= ==== ====== ==== ====== ==== ====== ==== ======= ==== TOTAL COST OF DEBT SECURITIES $30,781 $2,086 $4,430 $3,576 $20,689 ======= ====== ====== ====== ======= - ----------------------------------------------------------------------------------------------------------------------------------
(1) The weighted average yield is computed using the amortized cost of debt securities available for sale. Securities pledged primarily to secure trust and public deposits and for other purposes as required or permitted by law was $11.2 billion, $13.8 billion and $11.8 billion at December 31, 1998, 1997 and 1996, respectively. 63 NOTE 5 LOANS AND ALLOWANCE FOR LOAN LOSSES A summary of the major categories of loans outstanding is shown in the following table.
- -------------------------------------------------------------------------------------------------------------------------- (in millions) December 31, ---------------------------------------------- 1998 1997 Commercial $ 35,450 $ 32,061 Real estate 1-4 family first mortgage 11,629 14,165 Other real estate mortgage 16,668 16,326 Real estate construction 3,790 3,326 Consumer: Real estate 1-4 family junior lien mortgage 10,996 10,618 Credit card 5,795 6,671 Other revolving credit and monthly payment 15,677 17,021 -------- -------- Total consumer 32,468 34,310 Lease financing 6,380 4,968 Foreign 1,609 1,155 -------- -------- Total loans (1) $107,994 $106,311 ======== ======== - --------------------------------------------------------------------------------------------------------------------------
(1) Outstanding loan balances at December 31, 1998 and 1997 are net of unearned income, including net deferred loan fees, of $2,967 million and $2,938 million, respectively. Total unfunded commitments to extend credit were $71,467 million and $66,511 million at December 31, 1998 and 1997, respectively. Unfunded commitments are defined as all legally binding agreements to extend credit, net of all funds lent and all standby and commercial letters of credit issued under the terms of those commitments. At December 31, 1998 and 1997, the commercial loan category and related unfunded commitments did not have an industry concentration that exceeded 10% of total loans and unfunded commitments. The table below summarizes the major categories of unfunded commitments to extend credit:
- ----------------------------------------------------------- (in millions) December 31, 1998 Commercial $34,892 Real estate 1-4 family first mortgage 1,311 Other real estate mortgage 1,302 Real estate construction 3,007 Consumer: Real estate 1-4 family junior lien mortgage 5,792 Credit card 18,874 Other revolving credit and monthly payment 6,236 ------- Total consumer 30,902 Lease financing -- Foreign 53 ------- Total unfunded commitments to extend credit $71,467 ======= - -----------------------------------------------------------
In the course of evaluating the credit risk presented by a customer and the pricing that will adequately compensate the Company for assuming that risk, management may determine a requisite amount of collateral support. The type of collateral held varies, but may include accounts receivable, inventory, land, buildings, equipment, income-producing commercial properties and residential real estate. The Company has the same collateral policy for loans whether they are funded immediately or on a delayed basis (commitment). A commitment to extend credit is a legally binding agreement to lend funds to a customer and is usually for a specified interest rate and purpose. These commitments have fixed expiration dates and generally require a fee. The extension of a commitment gives rise to credit risk. The actual liquidity needs or the credit risk that the Company will experience will be lower than the contractual amount of commitments to extend credit shown in the table to the left because a significant portion of these commitments is expected to expire without being drawn upon. Certain commitments are subject to a loan agreement containing covenants regarding the financial performance of the customer that must be met before the Company is required to fund the commitment. The Company uses the same credit policies in making commitments to extend credit as it does in making loans. In addition, the Company manages the potential credit risk in commitments to extend credit by limiting the total amount of arrangements, both by individual customer and in the aggregate; by monitoring the size and maturity structure of these portfolios; and by applying the same credit standards maintained for all of its related credit activities. The credit risk associated with these commitments is considered in management's determination of the allowance for loan losses. Standby letters of credit totaled $3,332 million and $3,716 million at December 31, 1998 and 1997, respectively. Standby letters of credit are issued on behalf of customers in connection with contracts between the customers and third parties. Under standby letters of credit, the Company assures that the third 64 parties will receive specified funds if customers fail to meet their contractual obligations. The liquidity risk to the Company arises from its obligation to make payment in the event of a customer's contractual default. The credit risk involved in issuing letters of credit and the Company's management of that credit risk is considered in management's determination of the allowance for loan losses. Standby letters of credit are net of participations sold to other institutions of $837 million in 1998 and $573 million in 1997. Included in standby letters of credit are those that back financial instruments (financial guarantees). The Company had issued or purchased participations in financial guarantees of approximately $2,188 million and $2,140 million at December 31, 1998 and 1997, respectively. The Company also had commitments for commercial and similar letters of credit of $691 million and $751 million at December 31, 1998 and 1997, respectively. Substantially all fees received from the issuance of financial guarantees are deferred and amortized on a straight-line basis over the term of the guarantee. Losses on standby letters of credit and other similar letters of credit have been immaterial. The Company has an established process to determine the adequacy of the allowance for loan losses which assesses the risk and losses inherent in its portfolio. This process provides an allowance consisting of two components, allocated and unallocated. To arrive at the allocated component of the allowance, the Company combines estimates of the allowances needed for loans analyzed individually (including impaired loans subject to Statement of Financial Accounting Standards No. 114 (FAS 114), Accounting by Creditors for Impairment of a Loan) and loans analyzed on a pool basis. The determination of allocated reserves for portfolios of larger commercial and commercial real estate loans involves a review of individual higher-risk transactions, focusing on the accuracy of loan grading, assessments of specific loss content, and, in some cases, strategies for resolving problem credits. These considerations supplement the application of loss factors delineated by individual loan grade to the existing distribution of risk exposures, thus framing an assessment of inherent losses across the entire wholesale lending portfolio segment which is responsive to shifts in portfolio risk content. The loss factors used for this analysis have been derived from migration models which track actual portfolio movements from problem asset loan grades to loss over a 5 to 10 year period. In the case of pass loan grades, the loss factors are derived from analogous loss experience in public debt markets, calibrated to the long-term average loss experience of the Company's portfolios. The loan loss reserve allocations arrived at through this loss factor methodology are adjusted by management's judgment concerning the effect of recent economic events on portfolio performance. In the case of more homogeneous portfolios, such as consumer loans and leases, residential mortgage loans, and some segments of small business lending, the determination of allocated reserves is conducted at a more aggregate, or pooled, level. For portfolios of this nature, the risk assessment process emphasizes the development of rigorous forecasting models, which focus on recent delinquency and loss trends in different portfolio segments to project relevant risk metrics over an intermediate-term horizon. Such analyses are updated frequently to capture the most recent behavioral characteristics of the subject portfolios, as well as any changes in management's loss mitigation or customer solicitation strategies, in order to reduce the differences between estimated and observed losses. A reserve which approximates one year of projected net losses is provided as the baseline allocation for most homogeneous portfolios, to which management will add certain adjustments to ensure that a prudent amount of conservatism is present in the specific assumptions underlying that forecast. While coverage of one year's losses is often adequate (particularly for homogeneous pools of loans and leases), the time period covered by the allowance may vary by portfolio, based on the Company's best estimate of the inherent losses in the entire portfolio as of the evaluation date. To mitigate the imprecision inherent in most estimates of expected credit losses, the allocated component of the allowance is supplemented by an unallocated component. The unallocated component includes management's judgmental determination of the amounts necessary for concentrations, economic uncertainties and other subjective factors; correspondingly, the relationship of the unallocated component to the total allowance for loan losses may fluctuate from period to period. At December 31, 1998, the unallocated portion amounted to 37% of the total allowance, compared to 33% at December 31, 1997. Although management has allocated a portion of the allowance to specific loan categories, the adequacy of the allowance must be considered in its entirety. The Company's determination of the level of the allowance and, correspondingly, the provision for loan losses rests upon various judgments and assumptions, including general economic conditions, loan portfolio composition, prior loan loss experience and the Company's ongoing examination process and that of its regulators. The Company has an internal risk analysis and review staff that reports to the Board of Directors and continuously reviews loan quality. Such reviews also assist management in establishing the level of the allowance. Like all national banks, subsidiary national banks continue to be subject to examination by their primary regulator, the Office of the Comptroller of the Currency (OCC), and some have OCC examiners in residence. These examinations occur throughout the year and target various activities of the 65 subsidiary national banks, including specific segments of the loan portfolio (for example, commercial real estate and shared national credits). In addition to the subsidiary national banks being examined by the OCC, the Parent and its nonbank subsidiaries are examined by the Federal Reserve. The Company considers the allowance for loan losses of $3,134 million adequate to cover losses inherent in loans, loan commitments and standby letters of credit at December 31, 1998. Changes in the allowance for loan losses were as follows:
- --------------------------------------------------------------------- (in millions) Year ended December 31, ---------------------------------- 1998 1997 1996 BALANCE, BEGINNING OF YEAR $ 3,062 $ 3,059 $ 2,711 Allowances related to assets acquired, net 144 168 870 Provision for loan losses 1,545 1,140 500 Loan charge-offs: Commercial (261) (357) (200) Real estate 1-4 family first mortgage (26) (26) (24) Other real estate mortgage (54) (26) (50) Real estate construction (3) (5) (14) Consumer: Real estate 1-4 family junior lien mortgage (31) (37) (38) Credit card (535) (579) (487) Other revolving credit and monthly payment (1,002) (618) (488) ------- ------- ------- Total consumer (1,568) (1,234) (1,013) Lease financing (48) (46) (35) Foreign (84) (37) (35) ------- ------- ------- Total loan charge-offs (2,044) (1,731) (1,371) ------- ------- ------- Loan recoveries: Commercial 82 105 89 Real estate 1-4 family first mortgage 11 9 12 Other real estate mortgage 78 62 57 Real estate construction 4 12 12 Consumer: Real estate 1-4 family junior lien mortgage 7 10 10 Credit card 56 61 50 Other revolving credit and monthly payment 163 144 101 ------- ------- ------- Total consumer 226 215 161 Lease financing 12 13 9 Foreign 14 10 9 ------- ------- ------- Total loan recoveries 427 426 349 ------- ------- ------- Total net loan charge-offs (1,617) (1,305) (1,022) ------- ------- ------- BALANCE, END OF YEAR $ 3,134 $ 3,062 $ 3,059 ======= ======= ======= Total net loan charge-offs as a percentage of average total loans 1.52% 1.25% 1.04% ======= ======= ======= Allowance as a percentage of total loans 2.90% 2.88% 2.89% ======= ======= ======= - ---------------------------------------------------------------------
In accordance with FAS 114, the table below shows the recorded investment in impaired loans by methodology used to measure impairment at December 31, 1998 and 1997:
- -------------------------------------------------------------------- (in millions) December 31, ------------------ 1998 1997 Impairment measurement based on: Collateral value method $329 $346 Discounted cash flow method 67 61 Historical loss factors 15 27 ---- ---- Total (1)(2) $411 $434 ==== ==== - --------------------------------------------------------------------
(1) Includes accruing loans of $23 million at December 31, 1998 and 1997 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. (2) Includes $155 million and $115 million of impaired loans with a related FAS 114 allowance of $37 million and $36 million at December 31, 1998 and 1997, respectively. The average recorded investment in impaired loans during 1998, 1997 and 1996 was $456 million, $513 million and $655 million, respectively. Total interest income recognized on impaired loans during 1998, 1997 and 1996 was $13 million, $15 million and $21 million, respectively, which was primarily recorded using the cash method. The Company uses either the cash or cost recovery method to record cash receipts on impaired loans that are on nonaccrual. Under the cash method, contractual interest is credited to interest income when received. This method is used when the ultimate collectibility of the total principal is not in doubt. Under the cost recovery method, all payments received are applied to principal. This method is used when the ultimate collectibility of the total principal is in doubt. Loans on the cost recovery method may be changed to the cash method when the application of the cash payments has reduced the principal balance to a level where collection of the remaining recorded investment is no longer in doubt. 66 NOTE 6 PREMISES, EQUIPMENT, LEASE COMMITMENTS AND OTHER ASSETS The following table presents comparative data for premises and equipment:
- ------------------------------------------------------------------------------- (in millions) December 31, -------------------- 1998 1997 Land $ 357 $ 364 Buildings 2,135 2,403 Furniture and equipment 2,688 2,474 Leasehold improvements 732 609 Premises leased under capital leases 80 125 ------ ------ Total 5,992 5,975 Less accumulated depreciation and amortization 2,862 2,664 ------ ------ Net book value $3,130 $3,311 ====== ====== - -------------------------------------------------------------------------------
Depreciation and amortization expense was $491 million, $457 million and $451 million in 1998, 1997 and 1996, respectively. Losses on disposition of premises and equipment, recorded in noninterest expense, were $325 million, $76 million and $45 million in 1998, 1997 and 1996, respectively. Gains (losses) from disposition of operations, recorded in noninterest income, were $100 million, $15 million and $(95) million in 1998, 1997 and 1996, respectively. The Company is obligated under a number of noncancelable operating leases for premises (including vacant premises) and equipment with terms, including renewal options, up to 100 years, many of which provide for periodic adjustment of rentals based on changes in various economic indicators. The following table shows future minimum payments under noncancelable operating leases and capital leases, net of sublease rentals, with terms in excess of one year as of December 31, 1998:
- ------------------------------------------------------------------------------- (in millions) Operating leases Capital leases Year ended December 31, 1999 $ 397 $ 8 2000 322 7 2001 248 6 2002 187 5 2003 144 5 Thereafter 905 25 ------ ---- Total minimum lease payments $2,203 56 ====== Executory costs (2) Amounts representing interest (18) ---- Present value of net minimum $ 36 lease payments ==== - -------------------------------------------------------------------------------
Rental expense, net of rental income, for all operating leases was $473 million, $441 million and $427 million in 1998, 1997 and 1996, respectively. The components of interest receivable and other assets at December 31, 1998 and 1997 were as follows:
- ------------------------------------------------------------------------------- (in millions) December 31, --------------------- 1998 1997 Nonmarketable equity investments $ 2,392 $ 1,860 Interest receivable 1,062 1,057 Trading assets 760 1,302 Certain identifiable intangible assets 212 206 Other real estate (ORE) 173 264 Due from customers on acceptances 128 129 Interest-earning deposits 113 68 Other 6,054 5,190 ------- ------- Total interest receivable and other assets $10,894 $10,076 ======= ======= - -------------------------------------------------------------------------------
Income from nonmarketable equity investments accounted for using the cost method was $151 million, $157 million and $137 million in 1998, 1997 and 1996, respectively. Trading assets consist predominantly of securities, including corporate debt and U.S. government agency obligations. Income from trading assets was $206 million, $151 million and $79 million in 1998, 1997 and 1996, respectively. Amortization expense for certain identifiable intangible assets included in other assets was $79 million, $74 million and $78 million in 1998, 1997 and 1996, respectively. 67 NOTE 7 DEPOSITS The aggregate amount of time certificates of deposit and other time deposits issued by domestic offices was $31,252 million and $32,257 million at December 31, 1998 and 1997, respectively. At December 31, 1998, the contractual maturities of these deposits were as follows: $24,931 million in 1999, $3,752 million in 2000, $1,485 million in 2001, $454 million in 2002, $380 million in 2003 and $250 million thereafter. Substantially all of these deposits were interest bearing. Of the total above, the amount of time deposits with a denomination of $100,000 or more was $8,053 million and $7,571 million at December 31, 1998 and 1997, respectively. At December 31, 1998, the contractual maturities of these deposits were as follows: $3,391 million in 3 months or less, $1,893 million over 3 through 6 months, $1,999 million over 6 through 12 months and $770 million over 12 months. Time certificates of deposit and other time deposits issued by foreign offices with a denomination of $100,000 or more represent substantially all of the foreign deposit liabilities of $746 million and $1,402 million at December 31, 1998 and 1997, respectively. Demand deposit overdrafts that have been reclassified as loan balances were $678 million and $703 million at December 31, 1998 and 1997, respectively. NOTE 8 SHORT-TERM BORROWINGS The table below shows selected information for short-term borrowings. These borrowings generally mature in less than 30 days. At December 31, 1998, the Company had available lines of credit totaling $2,521 million, all of which was obtained by a subsidiary, Norwest Financial. A portion of these financing arrangements require the maintenance of compensating balances or payment of fees, which are not material.
- --------------------------------------------------------------------------------------------------------------------------- (in millions) 1998 1997 1996 ---------------------- ----------------------- --------------------- AMOUNT RATE Amount Rate Amount Rate AS OF DECEMBER 31, Commercial paper and other short-term borrowings $ 9,553 5.26% $ 6,456 5.73% $ 5,309 5.37% Federal funds purchased and securities sold under agreements to repurchase 6,344 4.18 6,925 5.59 4,694 5.26 ------- ------- ------- Total $15,897 4.83 $13,381 5.65 $10,003 5.32 ======= ======= ======= YEAR ENDED DECEMBER 31, AVERAGE DAILY BALANCE Commercial paper and other short-term borrowings $ 7,676 5.60% $ 5,473 5.59% $ 5,998 5.37% Federal funds purchased and securities sold under agreements to repurchase 6,778 5.11 5,889 5.17 4,694 5.10 ------- ------- ------- Total $14,454 5.37 $11,362 5.37 $10,692 5.26 ======= ======= ======= MAXIMUM MONTH-END BALANCE Commercial paper and other short-term borrowings (1) $10,236 NA $ 6,456 NA $ 7,785 NA Federal funds purchased and securities sold under agreements to repurchase (2) 10,364 NA 8,722 NA 6,320 NA NA-Not applicable. - ---------------------------------------------------------------------------------------------------------------------------
(1) Highest month-end balance in each of the last three years appeared in October 1998, December 1997 and July 1996, respectively. (2) Highest month-end balance in each of the last three years appeared in April 1998, June 1997 and January 1996, respectively. 68 NOTE 9 LONG-TERM DEBT The following is a summary of long-term debt (reflecting unamortized debt discounts and premiums, where applicable) owed by the Parent and its subsidiaries:
- --------------------------------------------------------------------------------------------------------------------------- Maturity Interest (in millions) date rate 1998 1997 WELLS FARGO & COMPANY (PARENT ONLY) SENIOR Medium-Term Notes (1) 1999-2006 5.625% - 8.15% $ 3,275 $ 4,225 Medium-Term Notes 1999-2027 4.90% - 7.75% 1,125 233 Floating Rate Medium-Term Notes 1999 Various 700 330 Floating Rate Euro Medium-Term Notes 2001 Various 300 300 Notes (1) 2004 6.00% 2 100 Notes (1) 2000 6.00% 202 200 ESOP Notes 1999 8.52% 4 9 ------- ------- Total senior debt - Parent 5,608 5,397 ------- ------- SUBORDINATED Notes 2003 6.625% 200 200 Debentures 2023 6.65% 200 200 Other notes (1) 2003-2004 6.0% - 6.625% 2 8 ------- ------- Total subordinated debt - Parent 402 408 ------- ------- Total long-term debt - Parent 6,010 5,805 ------- ------- WFC HOLDINGS CORPORATION AND SUBSIDIARIES SENIOR Floating-Rate Medium-Term Notes 1999 Various 150 1,460 Notes (1) 1998 11.00% -- 55 Medium-Term Notes (1)(2) 1999-2002 7.78% - 10.90% 243 356 Notes payable by subsidiaries 51 53 Obligations of subsidiaries under capital leases (Note 6) 20 59 ------- ------- Total senior debt - WFC Holdings 464 1,983 ------- ------- SUBORDINATED Floating-Rate Capital Notes (3)(4)(5) 1998 Various -- 200 Floating-Rate Notes (3)(4) 2000 Various 118 118 Capital Notes (5) 1999 8.625% 183 186 Notes (1)(2)(6) 2002 8.15% -- 101 Notes 2002 8.75% 195 200 Notes 2002 8.375% 138 149 Notes 2003 6.875% 150 150 Notes 2003 6.125% 249 249 Notes (1)(2) 2004 9.125% 136 137 Notes (1)(2)(6) 2004 9.0% 127 124 Notes (1) 2006 6.875% 499 499 Notes (1)(2) 2006 7.125% 299 299 Notes 2008 6.25% 199 -- Medium-Term Notes (1) 2001-2002 9.38% - 11.25% 157 173 Medium-Term Notes 2013 6.50% - 6.63% 50 -- ------- ------- Total subordinated debt - WFC Holdings 2,500 2,585 ------- ------- Total long-term debt - WFC Holdings 2,964 4,568 ------- ------- NORWEST FINANCIAL, INC. AND ITS SUBSIDIARIES (NFI) Senior debt 1999-2009 4.79% - 8.65% 5,273 5,219 ------- ------- Subordinated debt 1998 7.34% -- 2 ------- ------- Total long-term debt - NFI 5,273 5,221 ------- ------- OTHER CONSOLIDATED SUBSIDIARIES SENIOR FHLB Notes and Advances (7) 1999-2027 3.15% - 8.38% 2,768 377 Floating Rate FHLB Advances (7) 1999-2011 Various 2,655 1,326 Senior Notes 1999-2000 12.25% 1 2 Other notes and debentures 1999-2006 3.00% - 12.72% 22 20 Capital lease obligations (Note 6) 16 16 ------- ------- Total long-term debt - other consolidated subsidiaries 5,462 1,741 ------- ------- Total consolidated long-term debt $19,709 $17,335 ======= ======= - ----------------------------------------------------------------------------------------------------------------------------
(1) The Company entered into interest rate swap agreements for substantially all of these Notes, whereby the Company receives fixed-rate interest payments approximately equal to interest on the Notes and makes interest payments based on an average three-month or six-month LIBOR rate. (2) The interest rate swap agreement for these Notes is callable by the counterparty prior to the maturity of the Notes. (3) Notes are currently redeemable in whole or in part, at par. (4) May be redeemed in whole, at par, at any time in the event withholding taxes are imposed by the United States. (5) Mandatory Equity Notes. (6) These Notes are redeemable in whole or in part, at par, prior to maturity. (7) The maturities of the FHLB advances are determined quarterly, based on the outstanding balance, the then current LIBOR rate, and the maximum life of the advance. Advances maturing within the next year are expected to be refinanced, extending the maturity of such borrowings beyond one year. 69 At December 31, 1998, the principal payments, including sinking fund payments, on long-term debt are due as follows in the table below.
- ------------------------------------------------------------------------------- (in millions) Parent Company 1999 $1,781 $ 7,679 2000 802 1,928 2001 801 1,687 2002 526 1,611 2003 400 1,820 Thereafter 1,700 4,984 ------ ------- Total $6,010 $19,709 ====== ======= - -------------------------------------------------------------------------------
The interest rates on floating-rate notes are determined periodically by formulas based on certain money market rates, subject, on certain notes, to minimum or maximum interest rates. The terms of the Mandatory Equity Notes of $183 million, due in 1999, require the Company to sell or exchange with the noteholder the Company's common stock, perpetual preferred stock or other capital securities at maturity or earlier redemption of the Notes. At December 31, 1998, $183 million of stockholders' equity had been designated for the retirement or redemption of these Notes. Repayment is subordinated, but only to the extent described in the indenture relating to the debentures, to the prior payment in full of all the Company's obligations for borrowed money. They are redeemable at the principal amount. Certain of the agreements under which debt has been issued contain provisions that may limit the merger or sale of certain subsidiary banks and the issuance of capital stock or convertible securities by certain subsidiary banks. The Company was in compliance with the provisions of the borrowing agreements at December 31, 1998. NOTE 10 GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANY'S SUBORDINATED DEBENTURES In 1996, the former Wells Fargo established four separate special purpose trusts, which collectively issued $1,150 million in trust preferred securities. In 1997, the former Wells Fargo issued an additional $150 million in trust preferred securities through a separate trust. The proceeds from such issuances, together with the proceeds of the related issuances of common securities of the trusts, were invested in junior subordinated deferrable interest debentures (debentures) of the former Wells Fargo. Concurrent with the issuance of the preferred securities by the trusts, the former Wells Fargo issued guarantees for the benefit of the security holders. These trust preferred securities provide the Company with a more cost-effective means of obtaining Tier 1 capital for regulatory purposes than if the Company itself were to issue additional preferred stock because the Company is allowed to deduct, for income tax purposes, distributions to the holders of the trust preferred securities. The sole assets of these special purpose trusts are the debentures. WFC Holdings Corporation (WFC Holdings), as successor to the former Wells Fargo, owns all of the common securities of the five trusts. The preferred securities issued by the trusts rank senior to the common securities. The obligations of WFC Holdings under the debentures, the indentures, the relevant trust agreements and the guarantees, in the aggregate, constitute a full and unconditional guarantee by WFC Holdings of the obligations of the trusts under the trust preferred securities and rank subordinate and junior in right of payment to all other liabilities of WFC Holdings. The Parent guarantees the obligations of WFC Holdings. Listed below are the series of trust preferred securities of Wells Fargo Capital A, Wells Fargo Capital B, Wells Fargo Capital C, Wells Fargo Capital I and Wells Fargo Capital II issued at $1,000 per security. The distributions are cumulative and payable semi-annually on the first day of June and December for Wells Fargo Capital A, Wells Fargo Capital B and Wells Fargo Capital C and on the fifteenth day of June and December for Wells Fargo Capital I. The distributions are cumulative and payable 70 quarterly on the 30th of January, April, July and October for Wells Fargo Capital II. The trust preferred securities are subject to mandatory redemption at the stated maturity date of the debentures, upon repayment of the debentures, or earlier, pursuant to the terms of the Trust Agreement. WELLS FARGO CAPITAL A: This trust issued $300 million in trust preferred securities in November 1996 and concurrently invested $309 million in debentures of WFC Holdings with a stated maturity of December 1, 2026. The Company repurchased $85 million in this class of trust preferred securities in the open market in 1998. The repurchased securities were cancelled and the trust decreased its investment by $88 million in debentures of WFC Holdings. This class of trust preferred securities will accrue semi-annual distributions of $40.63 per security (8.13% annualized rate). WELLS FARGO CAPITAL B: This trust issued $200 million in trust preferred securities in November 1996 and concurrently invested $206 million in debentures of WFC Holdings with a stated maturity of December 1, 2026. The Company repurchased $153 million in this class of trust preferred securities on the open market in 1998. The repurchased securities were cancelled and the trust decreased its investment by $158 million in debentures of WFC Holdings. This class of trust preferred securities will accrue semi-annual distributions of $39.75 per security (7.95% annualized rate). WELLS FARGO CAPITAL C: This trust issued $250 million in trust preferred securities in November 1996 and concurrently invested $258 million in debentures of WFC Holdings with a stated maturity of December 1, 2026. The Company repurchased $186 million in this class of trust preferred securities on the open market in 1998. The repurchased securities were cancelled and the trust decreased its investment by $192 million in debentures of WFC Holdings. This class of trust preferred securities will accrue semi-annual distributions of $38.65 per security (7.73% annualized rate). WELLS FARGO CAPITAL I: This trust issued $400 million in trust preferred securities in December 1996 and concurrently invested $412 million in debentures of WFC Holdings with a stated maturity of December 15, 2026. The Company repurchased $212 million in this class of trust preferred securities on the open market in 1998. The repurchased securities were cancelled and the trust decreased its investment by $219 million in debentures of WFC Holdings. This class of trust preferred securities will accrue semi-annual distributions of $39.80 per security (7.96% annualized rate). WELLS FARGO CAPITAL II: This trust issued $150 million in trust preferred securities in January 1997 and concurrently invested $155 million in debentures of WFC Holdings with a stated maturity of January 30, 2027. This class of trust preferred securities will accrue quarterly distributions at a variable annual rate of LIBOR plus 0.5%. On or after December 2006 for Wells Fargo Capital A, Wells Fargo Capital B, Wells Fargo Capital C and Wells Fargo Capital I and on or after January 2007 for Wells Fargo Capital II, each of the series of trust preferred securities may be redeemed and the corresponding debentures may be prepaid at the option of WFC Holdings, subject to Federal Reserve approval, at declining redemption prices. Prior to December 2006 for Wells Fargo Capital A, Wells Fargo Capital B, Wells Fargo Capital C and Wells Fargo Capital I and prior to January 2007 for Wells Fargo Capital II, the securities may be redeemed at the option of WFC Holdings on the occurrence of certain events that result in a negative tax impact, negative regulatory impact on the trust preferred securities of WFC Holdings or negative legal or regulatory impact on the appropriate special purpose trust which would define it as an investment company. In addition, WFC Holdings has the right to defer payment of interest on the debentures and, therefore, distributions on the trust preferred securities for up to five years. 71 NOTE 11 PREFERRED STOCK The Company is authorized to issue 20,000,000 shares of preferred stock and 4,000,000 shares of preference stock, without par value. Of the 20,000,000 preferred shares authorized, there were 6,535,362 shares and 6,531,405 shares of preferred stock issued and outstanding at December 31, 1998 and 1997, respectively. No shares of preference stock are currently outstanding. All preferred shares outstanding rank senior to common shares both as to dividends and liquidation preference but have no general voting rights. The following table is a summary of preferred stock (adjustable and fixed):
- -------------------------------------------------------------------------------------------------------------------------------- Shares issued Carrying amount Dividends declared and outstanding (in millions) (in millions) -------------------- ----------------- Adjustable ---------------------- December 31, December 31, dividends rate Year ended December 31, -------------------- ----------------- -------------------- ---------------------- 1998 1997 1998 1997 Minimum Maximum 1998 1997 1996 Adjustable-Rate Cumulative, Series B (Liquidation preference $50) 1,500,000 1,500,000 $ 75 $ 75 5.5% 10.5% $ 4 $ 4 $ 4 9% Cumulative, Series C (Liquidation preference $500)(1) -- -- -- -- -- -- -- -- 21 8-7/8% Cumulative, Series D (Liquidation preference $500)(2) -- -- -- -- -- -- -- 3 16 9-7/8% Cumulative, Series F (Liquidation preference $200)(3)(4) -- -- -- -- -- -- -- -- 12 9% Cumulative, Series G (Liquidation preference $200)(3)(5) -- -- -- -- -- -- -- 5 10 6.59%/Adjustable-Rate Noncumulative Preferred Stock, Series H (Liquidation preference $50) 4,000,000 4,000,000 200 200 7.0 13.0 13 13 4 Cumulative Tracking (Liquidation preference $200) 980,000 980,000 196 196 9.30 9.30 18 18 18 1998 ESOP Cumulative Convertible (Liquidation preference $1,000) 8,740 -- 9 -- 10.75 11.75 -- -- -- 1997 ESOP Cumulative Convertible (Liquidation preference $1,000) 19,698 22,927 20 23 9.50 10.50 -- -- -- 1996 ESOP Cumulative Convertible (Liquidation preference $1,000) 22,068 22,831 22 23 8.50 9.50 -- -- -- 1995 ESOP Cumulative Convertible (Liquidation preference $1,000) 20,130 20,625 20 21 10.0 10.0 -- -- -- ESOP Cumulative Convertible (Liquidation preference $1,000) 9,726 10,022 10 10 9.0 9.0 -- -- -- Unearned ESOP shares (6) -- -- (84) (80) -- -- -- -- -- Less: Cumulative Tracking held by subsidiary (Liquidation preference $200) 25,000 25,000 5 5 9.30 9.30 -- -- -- --------- --------- ---- ---- --- --- --- Total 6,535,362 6,531,405 $463 $463 $35 $43 $85 ========= ========= ==== ==== === === === - --------------------------------------------------------------------------------------------------------------------------------
(1) In December 1996, the Company redeemed all $239 million (477,500 shares) of its Series C preferred stock. (2) In March 1997, the Company redeemed all $175 million (350,000 shares) of its Series D preferred stock. (3) In April 1996, the Series F and Series G preferred stock were converted from First Interstate preferred stock into the right to receive one share of the Company's preferred stock. (4) In November 1996, the Company redeemed all $200 million (1,000,000 shares) of its Series F preferred stock. (5) In May 1997, the Company redeemed all $150 million (750,000 shares) of its Series G preferred stock. (6) In accordance with the American Institute of Certified Public Accountants (AICPA) Statement of Position 93-6, "Employers' Accounting for Employee Stock Ownership Plans," the Company recorded a corresponding charge to unearned ESOP shares in connection with the issuance of the ESOP Preferred Stock. The unearned ESOP shares are reduced as shares of the ESOP Preferred Stock are committed to be released. For information on dividends declared, see Note 12. 72 ADJUSTABLE-RATE CUMULATIVE PREFERRED STOCK, SERIES B These shares are redeemable at the option of the Company at $50 per share plus accrued and unpaid dividends. Dividends are cumulative and payable quarterly on the 15th of February, May, August and November. For each quarterly period, the dividend rate is 76% of the highest of the three-month Treasury bill discount rate, 10-year constant maturity Treasury security yield or 20-year constant maturity Treasury bond yield, but limited to a minimum of 5.5% and a maximum of 10.5% per year. The average dividend rate was 5.5% during 1998, 1997 and 1996. 6.59%/ADJUSTABLE-RATE NONCUMULATIVE PREFERRED STOCK, SERIES H These shares are redeemable at the option of the Company on or after October 1, 2001 at a price of $50 per share plus accrued and unpaid dividends. Dividends are noncumulative and payable on the first day of each calendar quarter at an annualized rate of 6.59% through October 1, 2001. The dividend rate after October 1, 2001 will be equal to .44% plus the highest of the Treasury bill discount rate, the 10-year constant maturity rate and the 30-year constant maturity rate, as determined in advance of such dividend period, limited to a minimum of 7% and a maximum of 13%. CUMULATIVE TRACKING PREFERRED STOCK On December 30, 1994, the Company issued 980,000 shares of Cumulative Tracking Preferred Stock, $200 liquidation value per share, of which 25,000 shares were held by a subsidiary at December 31, 1998, 1997 and 1996. Dividends on shares of Cumulative Tracking Preferred Stock are cumulative from the date of issue and are payable quarterly. The initial dividend rate is 9.30 percent per annum. The dividend rate is reset on January 1, 2000, and on January 1 of each fifth year thereafter. The reset rate is the greater of the 5-, 10-, or 30-year Treasury rate or three-month LIBOR plus 250 basis points. At the time of initial issuance of the shares of Cumulative Tracking Preferred Stock, the holders thereof became assignees of the Company's beneficial interest in an equivalent number of Class A preferred limited liability company interests of Residential Home Mortgage, L.L.C., a subsidiary of the Company. Holders of shares of Cumulative Tracking Preferred Stock are entitled to receive, in addition to the dividends, certain additional cash distributions that are based on the results of operations of the limited liability company. The shares of Cumulative Tracking Preferred Stock may be redeemed after December 31, 1999, at the option of the Company. The shares of Cumulative Tracking Preferred Stock rank on a parity, both as to payment of dividends and the distribution of assets on liquidation, with the Company's ESOP Preferred Stock. The Cumulative Tracking Preferred Stock ranks prior, both as to payment of dividends and the distribution of assets upon liquidation, to common stock and, if any, the Company's junior participating preferred stock. At December 31, 1998, there were two holders of record of Cumulative Tracking Preferred Stock. ESOP CUMULATIVE CONVERTIBLE PREFERRED STOCK All shares of the Company's 1998 ESOP Cumulative Convertible Preferred Stock, 1997 ESOP Cumulative Convertible Preferred Stock, 1996 ESOP Cumulative Convertible Preferred Stock, 1995 ESOP Cumulative Convertible Preferred Stock and ESOP Cumulative Convertible Preferred Stock (collectively, ESOP Preferred Stock) were issued to a trustee acting on behalf of the Norwest Corporation Savings Investment Plan and Master Savings Trust (the Plan). Dividends on the ESOP Preferred Stock are cumulative from the date of initial issuance and are payable quarterly at annual rates ranging from 8.50 percent to 11.75 percent, depending upon the year of issuance. Each share of ESOP Preferred Stock released from the unallocated reserve of the Plan is converted into shares of common stock of the Company based on the stated value of the ESOP Preferred Stock and the then current market price of the Company's common stock. The ESOP Preferred Stock is also convertible at the option of the holder at any time, unless previously redeemed. The ESOP Preferred Stock is redeemable at any time, in whole or in part, at the option of the Company at a redemption price per share equal to the higher of (a) $1,000 per share plus accrued and unpaid dividends and (b) the fair market value, as defined in the Certificates of Designation of the ESOP Preferred Stock. 73 NOTE 12 COMMON STOCK AND STOCK PLANS COMMON STOCK - -------------------------------------------------------------------------------- The table below summarizes common stock reserved, issued and authorized as of December 31, 1998:
- ------------------------------------------------------------------------------- Number of shares Convertible subordinated debentures and warrants (1) 35,962,948 Dividend reinvestment and common stock purchased plans 2,903,154 Director plans 1,288,212 Employee stock plans 184,997,869 ------------- Total shares reserved 225,152,183 Shares issued 1,661,392,590 Shares not reserved 2,113,455,227 ------------- Total shares authorized 4,000,000,000 ============= - -------------------------------------------------------------------------------
(1) Includes warrants issued by the Company to subsidiaries to purchase shares of the Company's common stock as follows: 8,928,172 shares at $42.50 per share in 1996, 11,000,176 shares at $37.50 per share in 1995 and 16,000,000 shares at $35.00 per share in 1994. Under the terms of mandatory convertible debt, the Company must exchange with the noteholder, or sell, various capital securities of the Company as described in Note 9. Each share of the Company's common stock includes one preferred share purchase right. These rights will become exercisable only if a person or group acquires or announces an offer to acquire 15 percent or more of the Company's common stock. When exercisable, each right will entitle the holder to buy one one-thousandth of a share of a new series of junior participating preferred stock at a price of $160 for each one one-thousandth of a preferred share. In addition, upon the occurrence of certain events, holders of the rights will be entitled to purchase either the Company's common stock or shares in an "acquiring entity" at one-half of the then current market value. The Company will generally be entitled to redeem the rights at one cent per right at any time before they become exercisable. The rights will expire on November 23, 2008, unless extended, previously redeemed or exercised. The Company has reserved 1.125 million shares of preferred stock for issuance upon exercise of the rights. DIVIDEND REINVESTMENT AND COMMON STOCK PURCHASE PLANS The Company's dividend reinvestment and common stock direct purchase plans permit participants to purchase at fair market value shares of the Company's common stock by reinvestment of dividends and/or optional cash payments, subject to the terms of the plans. DIRECTOR PLANS Under the Company's director plans, directors receive stock as a part of their annual retainer or could elect to receive stock options in lieu of an annual cash retainer, subject to the terms of the respective plans. Another plan provides for annual grants of options to purchase common stock to each non-employee director elected or re-elected at the annual meeting of stockholders. Options granted become exercisable after one year and may be exercised until the tenth anniversary of the date of grant. Compensation expense for the options is measured as the quoted market price of the stock at the date of grant less the exercise price and is accrued over the vesting period. EMPLOYEE STOCK PLANS LONG-TERM INCENTIVE PLANS The Company's stock incentive plans provide for awards of incentive and nonqualified stock options, stock appreciation rights, restricted shares, restricted share rights, performance awards and stock awards without restrictions. Employee stock options can be granted with exercise prices at or above the quoted market price of the stock at the date of grant and with terms of up to ten years. The options generally become fully exercisable over three years from the date of grant. Upon termination of employment for reasons other than retirement, permanent disability or death, the option period is reduced or the options are canceled. Options also may include the right to acquire an Accelerated Ownership Non-Qualified Stock Option (AO). If an option contains the AO feature and if a participant pays all or part of the exercise price of the option with shares of stock purchased in the market or held by the participant for at least six months, upon 74 exercise of the option, the participant is granted an AO to purchase, at the quoted market price at the date of the AO grant, the number of shares of stock equal to the sum of the number of shares used in payment of the exercise price and a number of shares with respect to taxes. No compensation expense was recorded for the options granted under the plans, as the exercise price was equal to the quoted market price of the stock at the date of grant. The total number of shares of common stock available for grant under the plans as of December 31, 1998 is 60,528,277. Holders of restricted shares and restricted share rights are entitled at no cost to the related shares of common stock generally five years after the restricted shares or restricted share rights were granted. Upon grant of the restricted shares or restricted share rights, generally holders are entitled to receive quarterly cash payments equal to the cash dividends that would be paid on common stock equal to the number of restricted shares or restricted share rights. Except in limited circumstances, restricted shares and restricted share rights are canceled upon termination of employment. In 1998, 1997 and 1996, there were 371,560, 280,020 and 952,330 restricted shares and restricted share rights granted, respectively, with a weighted-average grant-date fair value of $37.72, $30.89 and $23.69, respectively. As of December 31, 1998, 1997 and 1996, there were 3,086,500, 2,084,540 and 1,097,000 restricted shares and restricted share rights outstanding, respectively. The compensation expense for the restricted shares and restricted share rights equals the quoted market price of the related stock at the date of grant and is accrued on a straight-line basis over the vesting period. The total compensation expense recognized for the restricted shares and restricted share rights was $9 million, $11 million and $10 million in 1998, 1997 and 1996, respectively. In connection with various acquisitions and mergers since 1992, the Company converted employee and director stock options of acquired or merged companies into stock options to purchase the Company's common stock based on the original stock option plan and the agreed-upon exchange ratio. BROAD-BASED PLANS In 1996, the Company adopted the Best Practices PartnerShares Plan, a broad-based employee stock option plan covering full- and part-time employees who were not participants in the long-term incentive plans described above. The total number of shares of common stock issuable under the plan as of December 31, 1998 is 56,569,400, including 16,082,000 shares available for grant. Options granted under the PartnerShares Plan have an exercise date that generally is the earlier of five years after the date of grant or when the quoted market price of the stock exceeds a predetermined price. Options generally expire ten years after the date of grant. No compensation expense has been recorded for the options, as the exercise prices were equal to or higher than the quoted market price of the Company's common stock at the respective dates of grant. The Company also offers participation in the Employee Stock Purchase Plan (ESPP). Options to purchase 1,318,580 shares of common stock were outstanding as of December 31, 1998 under the ESPP. Employees of the former Wells Fargo who have completed their introductory period of employment, except hourly employees, are eligible to participate. Certain highly compensated employees may be excluded from participation at the discretion of a committee of the Board of Directors. The ESPP provides for a purchase price of the lower of the quoted market price of the stock at the date of grant or 85% to 100% (as determined by the Board of Directors for each period) of the quoted market price at the end of a one-year period. For the current period ending August 31, 1999, the Board approved a closing purchase price of 85% of the quoted market price. The ESPP is noncompensatory and results in no expense to the Company. 75 The following table summarizes the Company's stock option activity and related information for the three years ended December 31, 1998:
- --------------------------------------------------------------------------------------------------------------------------- Director Plans Long-Term Incentive Plans Broad-Based Plans --------------------- ------------------------- ------------------------- Number Weighted- Number Weighted- Number Weighted- average average average exercise exercise exercise price price price OPTIONS OUTSTANDING AS OF DECEMBER 31, 1995 335,710 $ 9.67 47,289,664 $11.33 1,299,800 $18.23 ------- ---------- ---------- 1996: Granted 113,910(1) 22.57 6,568,650(2)(3) 21.35 11,330,580(4) 17.43 Acquired (5) -- -- 9,379,334 9.33 -- -- Canceled -- -- (719,358) 14.10 (1,087,990) 17.91 Exercised (5,000) 6.63 (13,416,038) 10.08 (768,330) 18.23 ------- ---------- ---------- OPTIONS OUTSTANDING AS OF DECEMBER 31, 1996 444,620 13.01 49,102,252 12.59 10,774,060 17.42 ------- ---------- ---------- 1997: Granted 103,890(1) 23.49 29,985,212(2)(3) 30.31 23,678,530(4) 30.11 Canceled -- -- (1,356,735) 22.89 (3,935,110) 17.93 Exercised (29,230) 9.87 (14,801,394) 10.30 (5,275,570) 17.57 ------- ---------- ---------- OPTIONS OUTSTANDING AS OF DECEMBER 31, 1997 519,280 15.28 62,929,335 21.34 25,241,910 29.21 ------- ---------- ---------- 1998: Granted 84,860(1) 34.38 9,695,931(2)(3) 36.25 21,295,860(4) 37.29 Canceled -- -- (1,521,074) 27.08 (2,866,310) 31.22 Exercised (102,610) 11.72 (10,330,783) 15.50 (1,865,480) 21.40 ------- ---------- ---------- OPTIONS OUTSTANDING AS OF DECEMBER 31, 1998 501,530 $19.24 60,773,409 $24.58 41,805,980 $33.60 ======= ====== ========== ====== ========== ====== Outstanding options exercisable as of: December 31, 1996 330,710 $ 9.71 37,222,532 $10.94 -- $ -- December 31, 1997 417,920 13.23 33,930,575 14.12 3,315,200 16.90 DECEMBER 31, 1998 434,020 17.29 35,990,530 19.57 3,255,200 22.05 - ---------------------------------------------------------------------------------------------------------------------------
(1) The weighted-average per share fair value of options granted was $11.85, $10.26 and $9.05 for 1998, 1997 and 1996, respectively. (2) The weighted-average per share fair value of options granted was $7.40, $5.08 and $5.10 for 1998, 1997 and 1996, respectively. (3) Includes 2,094,111, 2,687,762 and 2,680,800 AO grants at December 31, 1998, 1997 and 1996, respectively. (4) The weighted-average per share fair value of options granted was $5.42, $4.92 and $3.18 for 1998, 1997 and 1996, respectively. (5) Options assumed in connection with the acquisition of First Interstate and Benson Financial Corporation. 76 The following table is a summary of selected information for the Company's stock option plans described on the preceding page:
- ----------------------------------------------------------------------------- December 31, 1998 ------------------------------------- Weighted- Number Weighted- average average remaining exercise contractual price life (in yrs.) RANGE OF EXERCISE PRICES DIRECTOR PLANS $.10 Options outstanding/exercisable 4.0 29,730 $ .10 $4.46-$6.69 Options outstanding 3.1 32,520 6.46 Options exercisable 27,520 6.43 $6.70-$10.05 Options outstanding/exercisable 2.0 45,000 7.45 $10.06-$15.09 Options outstanding/exercisable 5.7 105,570 13.07 $15.10-$22.65 Options outstanding 6.9 59,470 16.24 Options exercisable 46,580 16.03 $22.66-$33.99 Options outstanding/exercisable 7.7 159,620 25.67 $34.00-$51.00 Options outstanding 9.3 69,620 38.19 Options exercisable 20,000 38.20 LONG-TERM INCENTIVE PLANS $2.24-$3.36 Options outstanding/exercisable 2.3 83,090 2.51 $3.37-$5.06 Options outstanding/exercisable 4.3 285,254 4.62 $5.07-$7.60 Options outstanding 2.8 4,197,516 7.22 Options exercisable 4,188,508 7.22 $7.61-$11.41 Options outstanding 4.1 3,321,876 10.70 Options exercisable 3,319,728 10.70 $11.42-$17.13 Options outstanding 5.1 11,450,694 13.84 Options exercisable 11,295,928 13.84 $17.14-$25.71 Options outstanding 6.2 4,495,337 20.60 Options exercisable 4,430,509 20.56 $25.72-$38.58 Options outstanding 8.5 35,970,343 31.57 Options exercisable 11,566,066 30.82 $38.59-$57.89 Options outstanding 6.7 969,299 40.22 Options exercisable 821,447 40.33 BROAD-BASED PLANS $16.56-$24.84 Options outstanding/exercisable 7.5 2,191,000 16.56 $24.85-$37.81 Options outstanding 9.0 39,614,980 34.53 Options exercisable 1,064,200 33.37 - -----------------------------------------------------------------------------
In October 1995, the FASB issued FAS 123, Accounting for Stock-Based Compensation. As provided for under FAS 123, the Company elected to continue to apply the provisions of Accounting Principles Board Opinion 25, Accounting for Stock Issued to Employees, in accounting for the stock plans described above. Had compensation cost for these stock plans been determined based on the (optional) fair value method established by FAS 123, the Company's net income and earnings per common share would have been reduced to the pro forma amounts indicated below.
- ------------------------------------------------------------------------------- Year ended December 31, (in millions, except per ------------------------ common share amounts) 1998 1997 1996 Net income As reported $1,950 $2,499 $2,228 Pro forma (1) 1,867 2,448 2,210 Earnings per common share As reported $ 1.18 $ 1.50 $ 1.38 Pro forma (1) 1.13 1.43 1.36 Diluted earnings per common share As reported $ 1.17 $ 1.48 $ 1.36 Pro forma (1) 1.12 1.42 1.33 - -------------------------------------------------------------------------------
(1) The pro forma amounts noted above only reflect the effects of stock-based compensation grants made after 1994. Because stock options may be granted each year and generally vest over three years, these pro forma amounts may not reflect the full effect of applying the (optional) fair value method established by FAS 123 that would be expected if all outstanding stock option grants were accounted for under this method. The fair value of each option grant is estimated based on the date of grant using an option-pricing model. The following weighted-average assumptions were used in 1998, 1997 and 1996: expected dividend yield ranging from 1.4% to 2.2%; expected volatility ranging from 20.0% to 29.0%; risk-free interest rates ranging from 5.5% to 7.8% and expected life ranging from 1 to 5.4 years. 77 EMPLOYEE STOCK OWNERSHIP PLAN The Savings Investment Plan (SIP), a defined contribution plan, contains Employee Stock Ownership Plan (ESOP) provisions under which SIP may borrow money to purchase the Company's common or preferred stock. Beginning in 1994, the Company has loaned money to SIP which has been used to purchase shares of the Company's ESOP Preferred Stock. As ESOP Preferred Stock is released and converted into common shares, compensation expense is recorded equal to the current market price of the common shares. Dividends on the common shares allocated as a result of the release and conversion of the ESOP Preferred Stock are recorded as a reduction of retained earnings and the shares are considered outstanding for purposes of earnings per share computations. Dividends on the unallocated ESOP Preferred Stock are not recorded as a reduction of retained earnings, and the shares are not considered to be common stock equivalents for purposes of earnings per share computations. Loan principal and interest payments are made from the Company's contributions to SIP, along with dividends paid on the ESOP Preferred Stock. With each principal and interest payment, a portion of the ESOP Preferred Stock is released and, after conversion of the ESOP Preferred Stock into common shares, allocated to SIP participants. In 1989, the Company loaned money to SIP which was used to purchase shares of the Company's common stock (the 1989 ESOP shares). The Company accounts for the 1989 ESOP shares in accordance with AICPA Statement of Position 76-3, Accounting Practices for Certain Employee Stock Ownership Plans. Accordingly, the Company's ESOP loans to SIP related to the purchase of the 1989 ESOP shares are recorded as a reduction of stockholders' equity, and compensation expense based on the cost of the shares is recorded as shares are released and allocated to participants' accounts. The 1989 ESOP shares are considered outstanding for purposes of earnings per share computations and dividends on the shares are recorded as a reduction to retained earnings. The 1989 ESOP shares also include ESOP shares acquired in conjunction with business combinations accounted for under the pooling of interests method of accounting. The loans from the Company to SIP are repayable in monthly installments through April 26, 1999, with interest at 8.45%. Interest income on these loans was $1 million in 1998, 1997 and 1996 and is included as a reduction in employee benefits expense. Total interest expense on the Series A and B ESOP Notes was $1 million, $1 million and $4 million in 1998, 1997 and 1996, respectively. Total dividends paid to SIP on ESOP shares were as follows:
- ------------------------------------------------------------------------------ (in millions) Year ended December 31, ------------------------- 1998 1997 1996 ESOP Preferred Stock: Common dividends $ 6 $ 4 $ 3 Preferred dividends 9 4 3 1989 ESOP shares: Common dividends 11 11 9 --- --- --- Total $26 $19 $15 === === === - ------------------------------------------------------------------------------
The ESOP shares as of December 31, 1998 and 1997 were as follows:
- ------------------------------------------------------------------------------ December 31, ----------------------- 1998 1997 ESOP Preferred Stock: Allocated shares (common) 8,592,898 7,793,681 Unreleased shares (preferred) 80,362 76,405 1989 ESOP shares: Allocated shares 15,018,861 15,555,673 Unreleased shares 320,285 1,053,925 Fair value of unearned ESOP shares (in millions) $80 $76 - ------------------------------------------------------------------------------
78 NOTE 13 EMPLOYEE BENEFITS AND OTHER EXPENSES EMPLOYEE BENEFITS - -------------------------------------------------------------------------------- The Company's noncontributory defined benefit pension plans cover substantially all full-time employees of the former Norwest. The Company also has a defined benefit plan acquired as a result of the First Interstate Bancorp (First Interstate) acquisition. Pursuant to the First Interstate merger agreement, accrued benefits as of June 30, 1996 for all participants employed as of March 28, 1996 became fully vested. Effective June 30, 1996, all accrued benefits under the plan were frozen. The Company also provides health care and life insurance benefits for certain retired employees. The Company reserves the right to terminate those benefits at any time. The following table shows the changes in the benefit obligation and the fair value of plan assets during 1998 and 1997 and the amounts included in the Company's Consolidated Balance Sheet as of December 31, 1998 and 1997 for the Company's defined benefit pension and other postretirement benefit plans:
- --------------------------------------------------------------------------- (in millions) December 31, ------------------------------------------------- 1998 1997 --------------------- ---------------------- PENSION OTHER Pension Other BENEFITS BENEFITS benefits benefits CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year $2,141 $ 457 $1,903 $ 424 Service cost 67 18 49 14 Interest cost 151 33 141 29 Plan participants' contributions -- 5 -- 7 Amendments 1 -- -- -- Actuarial loss 231 58 144 15 Acquisitions 5 -- -- -- Benefits paid (109) (35) (96) (32) ------ ----- ------ ----- Benefit obligation at end of year $2,487 $ 536 $2,141 $ 457 ====== ===== ====== ===== CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year $2,521 $ 140 $2,100 $ 124 Actual return on plan assets 115 12 477 17 Acquisitions 4 -- -- -- Employer contribution 17 96 40 24 Plan participants' contributions -- 5 -- 7 Benefits paid (109) (35) (96) (32) ------ ----- ------ ----- Fair value of plan assets at end of year $2,548 $ 218 $2,521 $ 140 ====== ===== ====== ===== Funded status $ 61 $(318) $ 380 $(317) Unrecognized net actuarial gain (48) (5) (350) (52) Unrecognized net transition asset (7) -- (9) -- Unrecognized prior service cost 7 1 7 -- ------ ----- ------ ----- Prepaid (accrued) benefit cost $ 13 $(322) $ 28 $(369) ====== ===== ====== ===== - ---------------------------------------------------------------------------
The following table sets forth the components of net periodic benefit cost for 1998, 1997 and 1996:
- ------------------------------------------------------------------------------- (in millions) Year ended December 31, ---------------------------------------------------------- 1998 1997 1996 ------------------ ------------------ ------------------ PENSION OTHER Pension Other Pension Other BENEFITS BENEFITS benefits benefits benefits benefits Service cost $ 67 $ 18 $ 49 $ 14 $ 50 $14 Interest cost 151 33 141 29 110 27 Expected return on plan assets (205) (11) (174) (10) (132) (8) Recognized net actuarial (gain) loss (1) 21 (1) 13 (9) (3) (5) Amortization of prior service cost 1 -- 1 -- -- -- Amortization of unrecognized transition asset (2) -- (2) -- (2) -- ----- ---- ----- ---- ----- --- Net periodic benefit cost $ 33 $ 39 $ 28 $ 24 $ 23 $28 ===== ==== ===== ==== ===== === - -------------------------------------------------------------------------------
(1) Net gains and losses are generally amortized over five years. The weighted-average assumptions used in calculating the amounts above were:
- ----------------------------------------------------------------------------- Year ended December 31, ----------------------------------------------- 1998 1997 --------------------- -------------------- PENSION OTHER Pension Other BENEFITS BENEFITS benefits benefits Discount rate 6.5% 6.5% 7.0% 6.9%-7.0% Expected return on plan assets 8.5%-9.0% 9.0% 8.5%-9.0% 5.4% Rate of compensation increase 5.0% --% 5.0% --% - ------------------------------------------------------------------------------
Accounting for the health care plans uses a health care cost trend rate to recognize the effect of expected changes in future health care costs due to medical inflation, utilization changes, technological changes, regulatory requirements and Medicare cost shifting. Average annual increases of 5.5% for HMOs and 9.0% to 10.0% for all other types of coverage in the per capita cost of covered health care benefits were assumed for 1999. By 2006 and thereafter, rates were assumed to remain level for HMOs at 5.5% and for all other types of coverage at 5.5% to 8.0%. Increasing the assumed health care trend by one percentage point in each year would increase the benefit obligation as of December 31, 1998 by $62 million and the aggregate of the interest cost and service cost components of the net periodic benefit cost for 1998 by $8 million. Decreasing the assumed health care trend by one percentage point in each year would decrease the benefit 79 obligation as of December 31, 1998 by $53 million and the aggregate of the interest cost and service cost components of the net periodic benefit cost for 1998 by $6 million. The Company sponsors two primary defined contribution plans. Expenses for all defined contribution plans were $174 million, $174 million, and $143 million in 1998, 1997 and 1996, respectively. OTHER EXPENSES The table to the right shows expenses which exceeded 1% of total interest income and noninterest income and which are not otherwise shown separately in the financial statements or notes thereto.
- ------------------------------------------------------------------------------ (in millions) Year ended December 31, ---------------------------- 1998 1997 1996 Outside professional services $391 $262 $254 Contract services 342 271 329 Donations 257 44 20 Telecommunications 252 241 234 Outside data processing 250 217 216 Advertising and promotion 237 202 234 Postage 228 210 206 Travel and entertainment 212 188 188 Stationery and supplies 178 182 192 - ------------------------------------------------------------------------------
NOTE 14 INCOME TAXES The following is a summary of the components of income tax expense applicable to income before income taxes:
- ------------------------------------------------------------------------------ (in millions) Year ended December 31, ------------------------------------- 1998 1997 1996 Current: Federal $1,201 $1,242 $ 874 State and local 272 246 161 Foreign (1) 33 37 ------ ------ ------ 1,472 1,521 1,072 ------ ------ ------ Deferred: Federal (82) 147 371 State and local (32) 37 100 Foreign (15) (11) (4) ------ ------ ------ (129) 173 467 ------ ------ ------ Total $1,343 $1,694 $1,539 ====== ====== ====== - ------------------------------------------------------------------------------
The Company's tax benefit related to the exercise of employee stock options that were allocated to stockholders' equity was $90 million, $93 million and $37 million for 1998, 1997 and 1996, respectively. The Company had a net deferred tax liability of $177 million and $163 million at December 31, 1998 and 1997, respectively. The tax effect of temporary differences that gave rise to significant portions of deferred tax assets and liabilities at December 31, 1998 and 1997 are presented below:
- ----------------------------------------------------------------------------- (in millions) Year ended December 31, ---------------------- 1998 1997 DEFERRED TAX ASSETS Allowance for loan losses $1,143 $1,087 Net tax-deferred expenses 1,325 1,137 Other 271 365 ------ ------ Total deferred tax assets 2,739 2,589 ------ ------ DEFERRED TAX LIABILITIES Core deposit intangible 498 624 Leasing 878 763 Mark to market 201 122 Mortgage servicing 871 747 FAS 115 adjustment 278 271 Other 190 225 ------ ------ Total deferred tax liabilities 2,916 2,752 ------ ------ NET DEFERRED TAX LIABILITY $ (177) $ (163) ====== ====== - -----------------------------------------------------------------------------
80 The Company has determined that it is not required to establish a valuation reserve for any of the deferred tax assets since it is more likely than not that these assets will be principally realized through carryback to taxable income in prior years, and future reversals of existing taxable temporary differences, and, to a lesser extent, future taxable income and tax planning strategies. The Company's conclusion that it is "more likely than not" that the deferred tax assets will be realized is based on federal taxable income of nearly $6 billion in the carryback period, substantial state taxable income in the carryback period, as well as a history of growth in earnings and the prospects for continued growth. The deferred tax liability related to unrealized gains and losses on securities available for sale had no impact on 1998, 1997 or 1996 income tax expense as these gains and losses, net of taxes, were recorded in cumulative other comprehensive income. The following table is a reconciliation of the statutory federal income tax expense and rate to the effective income tax expense and rate:
- --------------------------------------------------------------------------------------------------------------------------- (in millions) Year ended December 31, ----------------------------------------------------------------------- 1998 1997 1996 ------------------- ------------------- ------------------ AMOUNT % Amount % Amount % Statutory federal income tax expense and rate $1,153 35.0% $1,468 35.0% $1,320 35.0% Change in tax rate resulting from: State and local taxes on income, net of federal income tax benefit 156 4.7 162 3.8 155 4.1 Amortization of goodwill not deductible for tax return purposes 125 3.8 151 3.6 118 3.1 Tax exempt income (57) (1.7) (37) (.9) (27) (.7) Other (34) (1.0) (50) (1.1) (27) (.7) ------ ---- ------ ---- ------ ---- Effective income tax expense and rate $1,343 40.8% $1,694 40.4% $1,539 40.8% ====== ==== ====== ==== ====== ==== - ---------------------------------------------------------------------------------------------------------------------------
The Company has not recognized a federal deferred tax liability of $36 million on $102 million of undistributed earnings of a foreign subsidiary because such earnings are indefinitely reinvested in the subsidiary and are not taxable under current law. A deferred tax liability would be recognized to the extent the Company changed its intent to not indefinitely reinvest a portion or all of such undistributed earnings. In addition, a current tax liability would be recognized if the Company recovered those undistributed earnings in a taxable manner, such as through the receipt of dividends or sale of the entity, or if the tax law changed. 81 NOTE 15 EARNINGS PER COMMON SHARE The table below shows dual presentation of earnings per common share and diluted earnings per common share and a reconciliation of the numerator and denominator of both earnings per common share calculations.
- ------------------------------------------------------------------------------------------------------------------------- (in millions, except per share amounts) Year ended December 31, ------------------------------------------------------- 1998 1997 1996 Net income $ 1,950 $ 2,499 $ 2,228 Less: Preferred stock dividends 35 43 85 -------- -------- -------- Net income applicable to common stock $ 1,915 $ 2,456 $ 2,143 ======== ======== ======== EARNINGS PER COMMON SHARE Net income applicable to common stock (numerator) $ 1,915 $ 2,456 $ 2,143 ======== ======== ======== Average common shares outstanding (denominator) 1,621.5 1,634.6 1,553.3 ======== ======== ======== Per share $ 1.18 $ 1.50 $ 1.38 ======== ======== ======== DILUTED EARNINGS PER COMMON SHARE Net income applicable to common stock (numerator) $ 1,915 $ 2,456 $ 2,143 ======== ======== ======== Average common shares outstanding 1,621.5 1,634.6 1,553.3 Add: Stock options 18.3 20.6 14.3 Restricted share rights 2.0 2.6 2.9 -------- -------- -------- Diluted average common shares outstanding (denominator) 1,641.8 1,657.8 1,570.5 ======== ======== ======== Per share $ 1.17 $ 1.48 $ 1.36 ======== ======== ======== - -------------------------------------------------------------------------------------------------------------------------
82 NOTE 16 COMPREHENSIVE INCOME On January 1, 1998, the Company adopted FAS 130, Reporting Comprehensive Income. The Statement requires that a company classify items of other comprehensive income (and the related tax effect) by their nature (e.g., unrealized gains or losses on securities and foreign currency translation adjustments) in a financial statement. The following table presents the related tax effect allocated to each component of other comprehensive income:
- ------------------------------------------------------------------------------------ (in millions) Before Tax Net of tax effect tax amount 1996: Translation adjustments $ (1) $ -- $ (1) ----- ---- ----- Unrealized losses on securities available for sale arising during the year (39) (20) (19) Reclassification adjustment for gains on securities available for sale included in net income (12) (5) (7) ----- ---- ----- Net unrealized losses arising during the year (51) (25) (26) ----- ---- ----- Other comprehensive income $ (52) $(25) $ (27) ===== ==== ===== 1997: Translation adjustments $ 1 $ -- $ 1 ----- ---- ----- Unrealized gains on securities available for sale arising during the year 339 133 206 Reclassification adjustment for gains on securities available for sale included in net income (99) (40) (59) ----- ---- ----- Net unrealized gains arising during the year 240 93 147 ----- ---- ----- Other comprehensive income $ 241 $ 93 $ 148 ===== ==== ===== 1998: Translation adjustments $ (6) $ (2) $ (4) ----- ---- ----- Unrealized gains on securities available for sale arising during the year 172 68 104 Reclassification adjustment for gains on securities available for sale included in net income (169) (68) (101) ----- ---- ----- Net unrealized gains arising during the year 3 -- 3 ----- ---- ----- Other comprehensive income $ (3) $ (2) $ (1) ===== ==== ===== - ------------------------------------------------------------------------------------
The following table presents cumulative other comprehensive income balances:
- ---------------------------------------------------------------------------------------------- (in millions) Translation Unrealized Cumulative adjustments gains (losses) other on securities comprehensive income Balance, December 31, 1995 $ (10) $ 353 $ 343 ----- ----- ----- Net change (1) (26) (27) ----- ----- ----- Balance, December 31, 1996 (11) 327 316 ----- ----- ----- Net change 1 147 148 ----- ----- ----- Balance, December 31, 1997 (10) 474 464 ----- ----- ----- Net change (4) 3 (1) ----- ----- ----- BALANCE, DECEMBER 31, 1998 $ (14) $ 477 $ 463 ===== ===== ===== - ----------------------------------------------------------------------------------------------
83 NOTE 17 OPERATING SEGMENTS
- ---------------------------------------------------------------------------------------------------------------------------------- (income/expense in millions, Community Wholesale Mortgage Norwest Reconciliation Consolidated average balances in billions) Banking Banking Banking Financial column (7) Company 1998 Net interest income (1) $6,192 $1,344 $ 254 $1,303 $ (103) $ 8,990 Provision for loan losses (2) 653 148 4 752 (12) 1,545 Noninterest income (3) 4,186 892 1,078 303 (32) 6,427 Noninterest expense (3) 7,109 787 986 878 819 10,579 ------ ------ ------ ------ ------ ------- Income (loss) before income tax expense (benefit) 2,616 1,301 342 (24) (942) 3,293 Income tax expense (benefit) (4) 972 521 125 ( 5) (270) 1,343 ------ ------ ------ ------ ------ ------- Net income (loss) $1,644 $ 780 $ 217 $ (19) $ (672) $ 1,950 ====== ====== ====== ====== ====== ======= 1997 Net interest income (1) $6,313 $1,343 $ 69 $1,167 $ (244) $ 8,648 Provision for loan losses (2) 752 156 18 332 (118) 1,140 Noninterest income (3) 3,579 877 961 303 (45) 5,675 Noninterest expense (3) 5,750 731 774 758 977 8,990 ------ ------ ------ ------ ------ ------- Income (loss) before income tax expense (benefit) 3,390 1,333 238 380 (1,148) 4,193 Income tax expense (benefit) (4) 1,309 541 87 138 (381) 1,694 ------ ------ ------ ------ ------ ------- Net income (loss) $2,081 $ 792 $ 151 $ 242 $ (767) $ 2,499 ====== ====== ====== ====== ====== ======= 1996 Net interest income (1) $5,655 $1,307 $ 98 $1,067 $ 95 $ 8,222 Provision for loan losses (2) 652 141 1 247 (541) 500 Noninterest income (3) 2,867 713 874 280 35 4,769 Noninterest expense (3) 5,451 650 778 692 1,153 8,724 ------ ------ ------ ------ ------ ------- Income (loss) before income tax expense (benefit) 2,419 1,229 193 408 (482) 3,767 Income tax expense (benefit) (4) 952 499 68 143 (123) 1,539 ------ ------ ------ ------ ------ ------- Net income (loss) $1,467 $ 730 $ 125 $ 265 $ (359) $ 2,228 ====== ====== ====== ====== ====== ======= 1998 Average loans $ 64 $ 32 $ 1 $ 9 $ -- $ 106 Average assets 97 39 23 11 18 188 Average core deposits 110 9 5 -- -- 124 Return on equity (5) 24% 23% 16% --% --% 10% Risk-adjusted efficiency ratio (6) 69% 35% 74% 55% --% --% 1997 Average loans $ 65 $ 30 $ 1 $ 8 $ -- $ 104 Average assets 100 37 13 9 23 182 Average core deposits 107 10 3 -- -- 120 Return on equity (5) 22% 25% 18% 20% --% 13% Risk-adjusted efficiency ratio (6) 58% 33% 75% 52% --% --% - ----------------------------------------------------------------------------------------------------------------------------------
(1) Net interest income is the primary source of income for most of the operating segments. Net interest income is the difference between actual interest earned on assets (and interest paid on liabilities) owned by a group and a funding charge (and credit) based on the Company's cost of funds. Operating segments 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. (Mortgage Banking's net interest income comprises interest revenue of $1,023 million, $549 million and $567 million for 1998, 1997 and 1996, respectively, and interest expense of $769 million, $480 million and $469 million for 1998, 1997 and 1996, respectively.) (2) The provision allocated to the operating segments is based on actual provisions and adjusted in certain lines of business for management's current assessment of what would have been a normalized net charge-off ratio for these businesses. In any particular year, the actual net charge-offs can be higher or lower than the normalized provision allocated to those operating segments that were adjusted. The difference between the normalized provision and the Company provision for these lines of business are included in the reconciling column. (3) Community Banking's charges to the product groups are shown as noninterest income (intersegment revenues) to the physical distribution channels and noninterest expense (intersegment expenditures) to the other operating segments. They amounted to $35 million in 1998 and 1997, and none in 1996. These charges are eliminated in the reconciliation column in arriving at the Consolidated Company totals for noninterest income and expense. All other noninterest revenues and expenses are derived from external sources. (4) Businesses are taxed at the Company's marginal (statutory) tax rate, adjusted for any nondeductible expenses. The differences between the marginal and effective tax rate are in the reconciliation column. (5) Equity is allocated to the operating segments based on an assessment of the inherent risk associated with each business so that the returns on allocated equity are on a risk-adjusted basis and comparable across operating segments. (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. (7) The material items in the reconciliation column related to the revenue (i.e., net interest income plus noninterest income) and net income consist of Treasury activities, eliminations and unallocated items. Revenue includes Treasury activities of $125 million, $87 million and $185 million; eliminations of $(101) million, $(127) million and $(2) million; and unallocated items of $(159) million, $(249) million, and $(53) million for 1998, 1997 and 1996, respectively. Net income includes Treasury activities of $64 million, $46 million and $107 million; eliminations of $(39) million, $(54) million and $(27) million; and unallocated items of $(697) million, $(759) million and $(439) million for 1998, 1997 and 1996, respectively. The material items in the reconciliation column related to noninterest expense include goodwill and nonqualifying CDI amortization of $549 million, $566 million and $484 million for 1998, 1997 and 1996, respectively. The material items in the reconciliation column related to average assets include investment securities in Treasury of $10 billion and $14 billion and goodwill and nonqualifying CDI of $8 billion and $9 billion for 1998 and 1997, respectively. 84 The Company has identified four distinct lines of business for the purposes of management reporting: Community Banking, Wholesale Banking, Mortgage Banking and Norwest Financial. The results are determined based on the Company's management accounting process, which assigns balance sheet and income statement items to each responsible operating segment. This process is dynamic and somewhat subjective. Unlike financial accounting, there is no comprehensive, authoritative body of guidance for management accounting equivalent to generally accepted accounting principles. The management accounting process measures the performance of the operating segments based on the management structure of the Company and is not necessarily comparable with similar information for any other financial institution. The Company's operating segments are defined by product type and customer segments. Changes in management structure and/or the allocation process may result in changes in allocations, transfers and assignments. In that case, results for prior periods would be restated to allow comparability. Internal expense allocations are independently negotiated between operating segments and, where possible, service and price is measured against comparable services available in the external marketplace. THE COMMUNITY BANKING GROUP offers a complete line of diversified financial products and services for consumers and small businesses including retail and trust services. These services include retail and business banking services, consumer checking, lines of credit and direct installment loans and residential mortgage products. Community Banking offers a full array of consumer loan products, including credit cards, transportation (auto, recreational vehicle, marine) financing, home equity lines and loans, lines of credit and installment loans. Community Banking, through affiliates, also offers insurance, securities brokerage, and investment banking services. Community Banking offers consumer and business deposit products, which include checking and savings deposits. Community Banking provides access to customers through a wide range of channels. The Group encompasses a network of traditional banking stores, banking centers, in-store banking centers, business centers and ATMs. Community Banking serves consumers and small business customers through its 24-hour telephone centers, the Telephone Banking Centers and the National Business Banking Center. Online banking services include Wells Fargo's Online Financial Services, the Company's personal computer banking service, and Business Gateway, a personal computer banking service exclusively for the small business customer. A full range of credit products and financial services are offered to small businesses and their owners. These include lines of credit, receivables and inventory financing, equipment loans and leases, real estate financing, SBA financing, cash management, deposit and investment accounts, payroll services, retirement plans, medical savings accounts and credit and debit card processing. Community Banking customers are individual consumers and small businesses with annual sales up to $10 million in which the owner is also the principal financial decision maker. Community Banking distributes credit products in all 50 states and Canada through national direct marketing and 140 commercial loan specialists in small business lending offices in 22 markets in the western United States. Community Banking jointly owns a merchant card processing alliance with First Data Corp. which acquires customers through a 150-person sales force. The Community Banking Group is also responsible for the sales and management of savings and investment products, investment management and fiduciary and brokerage services to institutions, retail customers and high net worth individuals. This includes the Stagecoach and Advantage family of mutual 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. Within this Group, Private Client Services operates as a fully integrated financial services organization focusing on banking/credit, trust services, investment management and full-service and discount brokerage. THE WHOLESALE BANKING GROUP serves businesses with annual sales in excess of $5 million and maintains relationships with major corporations throughout the United States. The Wholesale Banking Group provides a complete line of commercial and corporate banking services. These include traditional commercial loans and lines, letters of credit, international trade facilities, foreign exchange services, cash management and electronic products. It includes the majority ownership interest in the Wells Fargo HSBC Trade Bank which provides trade and Eximbank (a public corporation offering export finance support programs for American-made products) financing, letters of credit and collection services. The Group also supports the commercial real estate market with products and services such as equipment leasing, construction loans for commercial and residential development, land acquisition and development loans, secured and unsecured lines of credit, interim financing arrangements for completed structures, rehabilitation loans, affordable housing loans and letters of credit. Secondary market services are provided through the Real Estate Capital Markets Group. Its business includes senior loan financing, mezzanine financing, financing for leveraged transactions, purchasing distressed real estate loans and high yield debt, origination of permanent loans for securitization, loan syndications and commercial real estate loan servicing. 85 THE MORTGAGE BANKING GROUP is comprised of Norwest Mortgage Banking. The group's activities include the origination and purchase of residential mortgage loans for sale to various investors as well as providing servicing of mortgage loans for others. NORWEST FINANCIAL includes consumer finance and auto finance operations. Consumer finance operations make direct loans to consumers and purchase sales finance contracts from retail merchants from offices throughout the United States, Canada, the Caribbean and Latin America. Automobile finance operations specialize in purchasing sales finance contracts directly from automobile dealers and making loans secured by automobiles in the United States and Puerto Rico. Credit cards are issued to its consumer finance customers through two credit card banks. Norwest Financial also provides accounts receivable, lease, and other commercial financing and provides information services to the consumer finance industry. THE RECONCILIATION COLUMN includes the Company's 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 interest rate sensitivity at the enterprise level. NOTE 18 MORTGAGE BANKING ACTIVITIES Mortgage banking activities include Norwest Mortgage Banking and certain mortgage banking activities in other operating segments. The following table presents the components of mortgage banking noninterest income:
- ------------------------------------------------------------------------------ (in millions) Year ended December 31, --------------------------- 1998 1997 1996 Origination and other closing fees $ 530 $314 $305 Servicing fees, net of amortization 19 324 318 Net gains (losses) on sales of servicing rights 16 (8) 57 Net gains on sales of mortgages 296 120 13 Other 245 177 151 ------ ---- ---- Total mortgage banking noninterest income $1,106 $927 $844 ====== ==== ====
- ------------------------------------------------------------------------------ Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets. The outstanding balances of serviced loans were $245 billion, $230 billion and $202 billion at December 31, 1998, 1997 and 1996, respectively. The following table summarizes the changes in capitalized mortgage loan servicing rights:
- ---------------------------------------------------------------------------- (in millions) Year ended December 31, ------------------------- 1998 1997 1996 Balance, beginning of year $3,112 $2,957 $1,443 Originations 756 361 361 Purchases 720 462 1,624 Sales (346) (34) (72) Amortization (816) (513) (364) Other (282) (121) (35) ------ ------ ------ 3,144 3,112 2,957 Less valuation allowance 64 64 65 ------ ------ ------ Balance, end of year $3,080 $3,048 $2,892 ====== ====== ====== - ----------------------------------------------------------------------------
The fair value of capitalized mortgage servicing rights included in the consolidated balance sheet at December 31, 1998 was approximately $3.3 billion, calculated using discount rates ranging from 500 to 700 basis points over the ten-year U.S. Treasury rate. The following table summarizes the changes in the valuation allowance for capitalized mortgage servicing rights:
- ------------------------------------------------------------------------------ (in millions) Year ended December 31, ------------------------ 1998 1997 1996 Balance, beginning of year $64 $65 $64 Provision for (reversal of) capitalized mortgage servicing rights in excess of fair value -- (1) 1 --- --- --- Balance, end of year $64 $64 $65 === === === - ------------------------------------------------------------------------------
86 NOTE 19 PARENT COMPANY Condensed financial information of the Parent follows. For information regarding the Parent's long-term debt, see Note 9.
CONDENSED STATEMENT OF INCOME - ----------------------------------------------------------------------------------------------------------- (in millions) Year ended December 31, --------------------------------------------------- 1998 1997 1996 INCOME Dividends from subsidiaries: Bank $1,354 $1,282 $1,292 Nonbank 403 343 713 Interest income from subsidiaries 459 388 431 Service fees from subsidiaries 127 118 113 Noninterest income 21 152 158 ------ ------ ------ Total income 2,364 2,283 2,707 ------ ------ ------ EXPENSE Interest on: Short-term borrowings 275 153 165 Long-term debt 341 364 377 Noninterest expense 379 177 96 ------ ------ ------ Total expense 995 694 638 ------ ------ ------ Income before income tax benefit and undistributed income of subsidiaries 1,369 1,589 2,069 Income tax benefit (expense) 105 16 (32) Equity in undistributed income of subsidiaries 476 894 191 ------ ------ ------ NET INCOME $1,950 $2,499 $2,228 ====== ====== ====== - -----------------------------------------------------------------------------------------------------------
CONDENSED BALANCE SHEET - ----------------------------------------------------------------------------------------------------------- (in millions) December 31, ----------------------------- 1998 1997 ASSETS Cash and due from: Subsidiary banks $ 678 $ 548 Non-affiliates 5 2 Securities available for sale 1,541 1,191 Advances to nonbank subsidiaries 6,800 5,590 Loans and advances to subsidiaries: Bank 10 10 Nonbank 2,631 1,562 Investment in subsidiaries (1): Bank 19,642 18,045 Nonbank 1,862 2,009 Other assets 1,603 1,235 ------- ------- Total assets $34,772 $30,192 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Short-term borrowings $ 5,418 $ 3,574 Other liabilities 1,279 658 Long-term debt 6,010 5,805 Indebtedness to subsidiaries 1,296 367 Stockholders' equity 20,769 19,788 ------- ------- Total liabilities and stockholders' equity $34,772 $30,192 ======= ======= - -----------------------------------------------------------------------------------------------------------
(1) The double leverage ratio, which represents the ratio of the Parent's total equity investment in subsidiaries to its total stockholders' equity, was 104% and 101% at December 31, 1998 and 1997, respectively. 87
CONDENSED STATEMENT OF CASH FLOWS - --------------------------------------------------------------------------------------------------------------- (in millions) Year ended December 31, --------------------------------------------------- 1998 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,950 $2,499 $ 2,228 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed income of subsidiaries (476) (894) (191) Depreciation and amortization 10 19 21 Securities available for sale (gains) losses (3) (6) (5) Release of preferred shares to ESOP 33 34 38 Other assets, net (401) (798) (103) Accrued expenses and other liabilities 618 304 (65) ------- ------ ------- Net cash provided by operating activities 1,731 1,158 1,923 ------- ------ ------- CASH FLOWS FROM INVESTING ACTIVITIES: Securities available for sale: Proceeds from sales 185 164 62 Proceeds from prepayments and maturities 665 299 70 Purchases (1,273) (326) (349) Advances to non-bank subsidiaries (1,210) (140) (901) Principal collected on notes/loans of subsidiaries 89 46 841 Capital notes and term loans made to subsidiaries (1,158) (113) (165) Net increase in investment in subsidiaries (295) (384) (852) ------- ------ ------- Net cash used by investing activities (2,997) (454) (1,294) ------- ------ ------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in short-term borrowings and indebtedness to subsidiaries 2,773 1,709 (6) Proceeds from issuance of long-term debt 500 403 1,803 Repayment of long-term debt (295) (981) (1,260) Proceeds from issuance of common stock 171 150 83 Issuance of stock warrants to subsidiaries -- -- 2 Repurchases of preferred stock -- -- (113) Repurchases of common stock (742) (483) (402) Net decrease in ESOP loans 9 1 4 Payment of cash dividends (1,017) (968) (900) ------- ------ ------- Net cash provided (used) by financing activities 1,399 (169) (789) ------- ------ ------- NET CHANGE IN CASH AND CASH EQUIVALENTS 133 535 (160) Cash and cash equivalents at beginning of year 550 15 175 ------- ------ ------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 683 $ 550 $ 15 ======= ====== ======= - ---------------------------------------------------------------------------------------------------------------
88 NOTE 20 WFC HOLDINGS CORPORATION WFC Holdings is a wholly owned subsidiary of the Parent and the survivor of the Merger with the former Wells Fargo. WFC Holdings is the sole stockholder of Wells Fargo Bank, N.A. The Parent guarantees the debt obligations of WFC Holdings. In view of this, the summarized assets, liabilities and results of operations of WFC Holdings are presented below:
SUMMARIZED CONSOLIDATED INCOME STATEMENT - ---------------------------------------------------------------------------------------------------------------- (in millions) Year ended December 31, ----------------------------------------------------------------- 1998 1997 1996 Interest income $6,654 $6,904 $6,523 Interest expense 2,107 2,290 2,002 Provision for loan losses 670 615 105 Noninterest income 2,911 2,712 2,203 Noninterest expense 4,818 4,547 4,633 ------ ----- ----- Income before income tax expense 1,970 2,164 1,986 Income tax expense 938 1,002 911 ------ ----- ----- Net income $1,032 $1,162 $1,075 ====== ====== ====== - ----------------------------------------------------------------------------------------------------------------
SUMMARIZED CONSOLIDATED BALANCE SHEET - ---------------------------------------------------------------------------------------------------------------- (in millions) December 31, --------------------------------- 1998 1997 ASSETS Cash and due from banks $ 7,513 $ 8,169 Securities available for sale 9,737 9,888 Loans, net 63,721 63,906 Other assets 17,185 15,541 ------- ------- Total assets $98,156 $97,504 ======= ======= LIABILITIES AND STOCKHOLDER'S EQUITY Short-term borrowings $ 1,473 $3,825 Long-term debt 3,729 4,568 Other liabilities 78,341 74,990 Guaranteed preferred beneficial interest in Company's subordinated debentures 785 1,299 Stockholder's equity 13,828 12,822 ------- ------- Total liabilities and stockholder's equity $98,156 $97,504 ======= ======= - ----------------------------------------------------------------------------------------------------------------
NOTE 21 LEGAL ACTIONS In the normal course of business, the Company is at all times subject to numerous pending and threatened legal actions, some for which the relief or damages sought are substantial. After reviewing pending and threatened actions with counsel, management believes that the outcome of such actions will not have a material adverse effect on stockholders' equity of the Company; the Company is not able to predict whether the outcome of such actions may or may not have a material adverse effect on results of operations in a particular future period as the timing and amount of any resolution of such actions and its relationship to the future results of operations are not known. 89 NOTE 22 RISK-BASED CAPITAL The Company and each of the subsidiary banks are subject to various regulatory capital adequacy requirements administered by the FRB and the OCC, respectively. The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) required that the federal regulatory agencies adopt regulations defining five capital tiers for banks: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Quantitative measures, established by the regulators to ensure capital adequacy, require that the Company and each of the subsidiary banks maintain minimum ratios (set forth in the table below) of capital to risk-weighted assets. There are two categories of capital under the guidelines. Tier 1 capital includes common stockholders' equity, qualifying preferred stock and trust preferred securities, less goodwill and certain other deductions (including the unrealized net gains and losses, after applicable taxes, on available-for-sale securities carried at fair value). Tier 2 capital includes preferred stock not qualifying as Tier 1 capital, mandatory convertible debt, subordinated debt, certain unsecured senior debt issued by the Parent, the allowance for loan losses and net unrealized gains on marketable equity securities, subject to limitations by the guidelines. Tier 2 capital is limited to the amount of Tier 1 capital (i.e., at least half of the total capital must be in the form of Tier 1 capital). Under the guidelines, capital is compared to the relative risk related to the balance sheet. To derive the risk included in the balance sheet, one of four risk weights (0%, 20%, 50% and 100%) is applied to the different balance sheet and off-balance sheet assets, primarily based on the relative credit risk of the counterparty. For example, claims guaranteed by the U.S. government or one of its agencies are risk-weighted at 0%. Off-balance sheet items, such as loan commitments and derivative financial instruments, are also applied a risk weight after calculating balance sheet equivalent amounts. One of four credit conversion factors (0%, 20%, 50% and 100%) is assigned to loan commitments based on the likelihood of the off-balance sheet item becoming an asset. For example, certain loan commitments are converted at 50% and then risk-weighted at 100%. Derivative financial instruments are converted to balance sheet equivalents based on notional values, replacement costs and remaining contractual terms. (See Notes 5 and 23 for further discussion of off-balance sheet items.) The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Management believes that, as of December 31, 1998, the Company and each of the significant subsidiary banks met all capital adequacy requirements to which they are subject. Under the FDICIA prompt corrective action provisions applicable to banks, the most recent notification from the OCC categorized each of the significant subsidiary banks as well capitalized. To be categorized as well capitalized, the institution must maintain a total risk-based capital ratio as set forth in the following table and not be subject to a capital directive order. There are no conditions or events since that notification that management believes have changed the risk-based capital category of any of the significant subsidiary banks.
- ---------------------------------------------------------------------------------------------------------------------------- (in billions) To be well capitalized under the FDICIA For capital prompt corrective Actual adequacy purposes action provisions -------------------- ---------------------- ---------------------- Amount Ratio Amount Ratio Amount Ratio As of December 31, 1998: Total capital (to risk-weighted assets) Wells Fargo & Company $16.7 10.90% >$12.3 >8.00% - - Norwest Bank Minnesota, N.A. 2.1 10.02 > 1.7 >8.00 >$2.1 >10.00% - - - - Wells Fargo Bank, N.A. 7.9 11.21 > 5.6 >8.00 > 7.0 >10.00 - - - - Tier 1 capital (to risk-weighted assets) Wells Fargo & Company $12.4 8.08% >$ 6.1 >4.00% - - Norwest Bank Minnesota, N.A. 1.8 8.51 > .8 >4.00 >$1.3 >6.00% - - - - Wells Fargo Bank, N.A. 5.0 7.18 > 2.8 >4.00 > 4.2 >6.00 - - - - Tier 1 capital (to average assets) (Leverage ratio) Wells Fargo & Company $12.4 6.58% >$ 7.5 >4.00%(1) - - Norwest Bank Minnesota, N.A. 1.8 6.25 > 1.1 >4.00 (1) >$1.4 >5.00% - - - - Wells Fargo Bank, N.A. 5.0 6.39 > 3.2 >4.00 (1) > 3.9 >5.00 - - - - - ----------------------------------------------------------------------------------------------------------------------------
(1) The leverage ratio consists of Tier 1 capital divided by quarterly average total assets, excluding goodwill and certain other items. The minimum leverage ratio guideline is 3% for banking organizations that do not anticipate significant growth and that have well-diversified risk, excellent asset quality, high liquidity, good earnings, effective management and monitoring of market risk and, in general, are considered top-rated, strong banking organizations. 90 NOTE 23 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, options and interest rate swap agreements. The contract or notional amount of a derivative is used to determine, along with the other terms of the derivative, the amounts to be exchanged between the counterparties. It does not in itself represent amounts exchanged by the parties and therefore is not a measure of exposure through the use of derivatives nor of exposure to liquidity risk. The Company is primarily an end-user of these instruments. The Company also offers contracts to its customers but offsets such contracts by purchasing other financial contracts or uses the contracts for asset/liability management. To a lesser extent, the Company takes positions based on market expectations or to benefit from price differentials between financial instruments and markets. The Company is exposed to credit risk in the event of nonperformance by counterparties to financial instruments. The Company controls the credit risk of its financial contracts except for contracts for which credit risk is de minimus through credit approvals, limits and monitoring procedures. Credit risk related to derivative financial instruments is considered and, if material, provided for separately from the allowance for loan losses. As the Company generally enters into transactions only with high quality counterparties, losses associated with counterparty nonperformance on derivative financial instruments have been immaterial. Further, the Company obtains collateral where appropriate and uses master netting arrangements in accordance with FASB Interpretation No. 39, Offsetting of Amounts Related to Certain Contracts, as amended by FASB Interpretation No. 41, Offsetting of Amounts Related to Certain Repurchase and Reverse Repurchase Agreements. 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 December 31, 1998 and 1997.
- --------------------------------------------------------------------------------------------------------------------------- (in millions) December 31, ------------------------------------------------------------------------------------- 1998 1997 ----------------------------------------- --------------------------------------- NOTIONAL OR CREDIT ESTIMATED Notional or Credit Estimated CONTRACTUAL RISK FAIR contractual risk fair AMOUNT AMOUNT (3) VALUE amount amount (3) value ASSET/LIABILITY MANAGEMENT HEDGES Interest rate contracts: Swaps (1) $24,429 $735 $686 $24,052 $424 $364 Futures 62,348 -- -- 10,949 -- -- Floors and caps (1) 33,598 504 504 35,344 350 350 Options (2) 25,822 112 101 11,168 12 41 Forwards (1) 41,283 11 (58) 27,507 6 (29) Foreign exchange contracts: Forward contracts (1) 168 -- (1) 548 1 (5) CUSTOMER ACCOMMODATIONS Interest rate contracts: Swaps (1) 7,795 81 10 4,297 17 3 Futures 8,440 -- -- 2,404 -- -- Floors and caps purchased (1) 5,619 42 42 4,448 22 22 Floors and caps written 5,717 -- (42) 4,567 -- (24) Options purchased (1) -- -- -- 77 -- -- Options written -- -- -- 27 -- -- Forwards (1) 850 24 4 59 2 2 Commodity contracts: Swaps (1) 78 4 -- 10 1 -- Floors and caps purchased (1) 4 -- -- 7 -- -- Floors and caps written 4 -- -- 10 -- -- Foreign exchange contracts: Forwards and spots (1) 3,524 37 2 2,966 50 4 Options purchased (1) 44 2 2 116 -- -- Options written 43 -- (2) 114 -- -- - ---------------------------------------------------------------------------------------------------------------------------
(1) The Company anticipates performance by substantially all of the counterparties for these or the underlying financial instruments. (2) At December 31, 1997 the options contracts were substantially options on futures contracts which are exchange traded for which the exchange assumes the counterparty risk. (3) Credit risk amounts reflect the replacement cost for those contracts in a gain position in the event of nonperformance by counterparties. 91 Interest rate futures and forward contracts are contracts in which the buyer agrees to purchase and the seller agrees to make delivery of a specific financial instrument at a predetermined price or yield. These contracts may be settled either in cash or by delivery of the underlying financial instrument. Futures contracts are standardized and are traded on exchanges. Gains and losses on futures contracts are settled daily with the exchange based on a notional principal value. The exchange assumes the risk that a counterparty will not pay and generally requires margin payments to minimize such risk. Market risks arise from movements in interest rates and security values. The Company uses 90- to 120-day futures contracts on Eurodollar deposits and U.S. Treasury notes to shorten the interest rate maturity of deposits ($5 billion at December 31, 1998) and to reduce the price risk of interest-sensitive assets ($57 billion at December 31, 1998), primarily mortgage servicing rights. Initial margin requirements on futures contracts are provided by investment securities pledged as collateral. Interest rate floors and caps are interest rate protection instruments that involve the payment from the seller to the buyer of an interest differential. This differential represents the difference between a short-term rate (e.g., three-month LIBOR) and an agreed-upon rate, the strike rate, applied to a notional principal amount. By purchasing a floor, the Company will be paid the differential by a counterparty, should the current short-term rate fall below the strike level of the agreement. The Company generally receives cash quarterly on purchased floors (when the current interest rate falls below the strike rate) and purchased caps (when the current interest rate exceeds the strike rate). The primary risk associated with purchased floors and caps is the ability of the counterparties to meet the terms of the contract. Of the total purchased floors and caps for asset/liability management of $34 billion at December 31, 1998, the Company had $14 billion of floors to protect variable-rate loans from a drop in interest rates. The Company also uses purchased floors and caps of $17 billion at December 31, 1998 to hedge mortgage servicing rights. Cash flows from the floors and caps offset lost future servicing revenue caused by increased levels of loan prepayments associated with lower interest rates. The remaining purchased floors and caps of $3 billion at December 31, 1998 were used to hedge interest rate risk of various other specific assets and liabilities. Interest rate swap contracts are entered into primarily as an asset/liability management strategy to reduce interest rate risk. Interest rate swap contracts are exchanges of interest payments, such as fixed-rate payments for floating-rate payments, based on a notional principal amount. Payments related to the Company's swap contracts are made either monthly, quarterly or semi-annually by one of the parties depending on the specific terms of the related contract. The primary risk associated with all swaps is the exposure to movements in interest rates and the ability of the counterparties to meet the terms of the contract. At December 31, 1998, the Company had $24 billion of interest rate swaps outstanding for interest rate risk management purposes on which the Company receives payments based on fixed interest rates and makes payments based on variable rates (e.g., three-month LIBOR). Included in this amount, $14 billion was used to convert floating-rate loans into fixed-rate assets. The remaining swap contracts used for interest rate risk management of $10 billion at December 31, 1998 were used to hedge interest rate risk of various other specific assets and liabilities. Options are contracts that grant the purchaser, for a premium payment, the right, but not the obligation, to either purchase or sell the underlying financial instrument at a set price during a period or at a specified date in the future. The writer of the option is obligated to purchase or sell the underlying financial instrument, if the purchaser chooses to exercise the option. The writer of the option receives a premium when the option is entered into and bears the risk of an unfavorable change in the price of the underlying financial instrument. Of the total options for asset/liability management of $26 billion at December 31, 1998, the Company had $12 billion of options on futures contracts hedging mortgage servicing rights. The futures exchange assumes the risk that a counterparty will not pay. Market risks arise from movements in interest rates and/or security values. The remaining options used for interest rate risk management of $14 billion at December 31, 1998 were used to hedge interest rate risk of various other specific assets. The Company has entered into futures contracts and mandatory and standby forward contracts, including options on futures and forward contracts, to reduce interest rate risk on certain mortgage loans held for sale and other commitments. For forward contracts, the primary risk is the exposure to movements in interest rates and the ability of the counterparties to meet the terms of the contracts. The net unrealized loss on these futures and forward contracts at December 31, 1998 and 1997 was $12 million and $29 million, respectively. These contracts mature within 180 days. 92 NOTE 24 FAIR VALUE OF FINANCIAL INSTRUMENTS FAS 107, Disclosures about Fair Value of Financial Instruments, requires that the Company disclose estimated fair values for its financial instruments. Fair value estimates, methods and assumptions set forth below for the Company's financial instruments are made solely to comply with the requirements of this Statement and should be read in conjunction with the financial statements and notes in this Annual Report. The carrying amounts in the table are recorded in the Consolidated Balance Sheet under the indicated captions, except for the derivative financial instruments, which are recorded in the specific asset or liability balance being hedged or in other assets if the derivative financial instrument is a customer accommodation. Fair values are based on estimates or calculations using present value techniques in instances where quoted market prices are not available. Because broadly traded markets do not exist for most of the Company's financial instruments, the fair value calculations attempt to incorporate the effect of current market conditions at a specific time. Fair valuations are management's estimates of the values, and they are often calculated based on current pricing policy, the economic and competitive environment, the characteristics of the financial instruments and other such factors. These calculations are subjective in nature, involve uncertainties and matters of significant judgment and do not include tax ramifications; therefore, the results cannot be determined with precision, substantiated by comparison to independent markets and may not be realized in an actual sale or immediate settlement of the instruments. There may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results. The Company has not included certain material items in its disclosure, such as the value of the long-term relationships with the Company's deposit, credit card and trust customers, since these intangibles are not financial instruments. For all of these reasons, the aggregation of the fair value calculations presented herein do not represent, and should not be construed to represent, the underlying value of the Company. The following table presents a summary of the Company's financial instruments, as defined by FAS 107:
- --------------------------------------------------------------------------------------------------------------------------- (in millions) December 31, ----------------------------------------------------------- 1998 1997 -------------------------- ----------------------- CARRYING ESTIMATED Carrying Estimated AMOUNT FAIR VALUE amount fair value FINANCIAL ASSETS Mortgages held for sale $ 19,770 $ 20,015 $ 9,706 $ 9,821 Loans, net (1) 104,714 105,253 103,091 105,110 Nonmarketable equity investments 2,392 2,719 1,860 2,101 FINANCIAL LIABILITIES Deposits $136,788 $136,719 $127,656 $127,695 Long-term debt (2) 19,673 19,948 17,260 17,293 Guaranteed preferred beneficial interests in Company's subordinated debentures 785 874 1,299 1,339 DERIVATIVE FINANCIAL INSTRUMENTS (3) Interest rate contracts: Floors and caps purchased $ 189 $ 546 $ 240 $ 372 Floors and caps written (42) (42) (24) (24) Options purchased 154 161 34 64 Options written (62) (60) (23) (23) Swaps (24) 696 1 367 Forwards (54) (54) (29) (27) Foreign exchange contracts 1 1 5 (1) - ---------------------------------------------------------------------------------------------------------------------------
(1) Loans are net of deferred fees on loan commitments and standby letters of credit of $146 million and $158 million at December 31, 1998 and 1997, respectively. (2) The carrying amount and fair value exclude obligations under capital leases of $36 million and $75 million at December 31, 1998 and 1997, respectively. (3) The carrying amounts include unamortized fees paid or received, deferred gains or losses and gains or losses on derivative financial instruments receiving mark-to-market treatment. 93 FINANCIAL ASSETS SHORT-TERM FINANCIAL ASSETS Short-term financial assets include cash and due from banks, federal funds sold and securities purchased under resale agreements and due from customers on acceptances. The carrying amount is a reasonable estimate of fair value because of the relatively short period of time between the origination of the instrument and its expected realization. SECURITIES AVAILABLE FOR SALE Securities available for sale at December 31, 1998 and 1997 are set forth in Note 4. LOANS The fair valuation calculation process differentiates loans based on their financial characteristics, such as product classification, loan category, pricing features and remaining maturity. Prepayment estimates are evaluated by product and loan rate. The fair value of commercial loans, other real estate mortgage loans and real estate construction loans is calculated by discounting contractual cash flows using discount rates that reflect the Company's current pricing for loans with similar characteristics and remaining maturity. For real estate 1-4 family first and junior lien mortgages, fair value is calculated by discounting contractual cash flows, adjusted for prepayment estimates, using discount rates based on current industry pricing for loans of similar size, type, remaining maturity and repricing characteristics. For credit card loans, the portfolio's yield is equal to the Company's current pricing and, therefore, the fair value is equal to book value. For other consumer loans, the fair value is calculated by discounting the contractual cash flows, adjusted for prepayment estimates, based on the current rates offered by the Company for loans with similar characteristics. For auto lease financing, the fair value is calculated by discounting the contractual cash flows at the Company's current pricing for items of similar remaining term, without including any tax benefits. Commitments, standby letters of credit and commercial and similar letters of credit not included in the previous table have contractual values of $71,467 million, $3,332 million and $691 million, respectively, at December 31, 1998, and $66,511 million, $3,716 million and $751 million, respectively, at December 31, 1997. These instruments generate ongoing fees at the Company's current pricing levels. Of the commitments at December 31, 1998, 60% mature within one year. NONMARKETABLE EQUITY INVESTMENTS There are restrictions on the sale and/or liquidation of the Company's nonmarketable equity investments, which are generally in the form of limited partnerships; and the Company has no direct control over the investment decisions of the limited partnerships. To estimate fair value, a significant portion of the underlying limited partnerships' investments are valued based on market quotes. 94 FINANCIAL LIABILITIES DEPOSIT LIABILITIES FAS 107 states that the fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, interest-bearing checking and market rate and other savings, is equal to the amount payable on demand at the measurement date. Although the FASB's requirement for these categories is not consistent with the market practice of using prevailing interest rates to value these amounts, the amount included for these deposits in the previous table is their carrying value at December 31, 1998 and 1997. The fair value of other time deposits is calculated based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for like deposits with similar remaining maturities. SHORT-TERM FINANCIAL LIABILITIES Short-term financial liabilities include federal funds purchased and securities sold under repurchase agreements, commercial paper and other short-term borrowings. The carrying amount is a reasonable estimate of fair value because of the relatively short period of time between the origination of the instrument and its expected realization. LONG-TERM DEBT The fair value of the Company's underwritten long-term debt is estimated based on the quoted market prices of the instruments. The fair value of the medium-term note programs, which are part of long-term debt, is calculated based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for new notes with similar remaining maturities. GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANY'S SUBORDINATED DEBENTURES The fair value of the Company's trust preferred securities is estimated based on the quoted market prices of the instruments. DERIVATIVE FINANCIAL INSTRUMENTS The fair value of derivative financial instruments is based on the estimated amounts that the Company would receive or pay to terminate the contracts at the reporting date (i.e., mark-to-market value). Dealer quotes are available for substantially all of the Company's derivative financial instruments. LIMITATIONS These fair value disclosures are made solely to comply with the requirements of FAS 107. The calculations represent management's best estimates; however, due to the lack of broad markets and the significant items excluded from this disclosure, the calculations do not represent the underlying value of the Company. The information presented is based on fair value calculations and market quotes as of December 31, 1998 and 1997. These amounts have not been updated since year end; therefore, the valuations may have changed significantly since that point in time. As discussed above, certain of the Company's asset and liability financial instruments are short-term, and therefore, the carrying amounts in the consolidated balance sheets approximate fair value. Other significant assets and liabilities, which are not considered financial assets or liabilities and for which fair values have not been estimated, include premises and equipment, goodwill and other intangibles, deferred taxes and other liabilities. 95 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders of Wells Fargo & Company: We have audited the accompanying consolidated balance sheet of Wells Fargo & Company and Subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, changes in stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Wells Fargo & Company and Subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1998, in conformity with generally accepted accounting principles. KPMG LLP Certified Public Accountants San Francisco, California January 19, 1999 INDEX OF SPECIAL TOPICS 40 Average balances, yields and rates 52 Balance sheet 66 Charge-offs 35, 50 Common stock book value and market price 48, 91 Derivative financial instruments 34, 82 Earnings per share 35, 44 Earnings/ratios excluding goodwill and nonqualifying CDI Financial Accounting Standards Board statements: 35, 83 FAS 130 -- Reporting Comprehensive Income 36 FAS 131 -- Disclosures about Segments of an Enterprise and Related Information 36 FAS 132 -- Employers' Disclosures about Pension and Other Postretirement Benefits 36 FAS 133 -- Accounting for Derivative Instruments and Hedging Activities 36 FAS 134 -- Accounting for Mortgage-Backed Securities Retained after Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise 36 Five-year compound growth rate 51 Income statement Loans: 40 Average balances 45, 64 Commitments 64 Mix at year end 47 Market risks 37, 61 Merger of Norwest and Wells Fargo 38, 40 Net interest margin 55 Notes to financial statements: 55 Summary of significant accounting policies 60 Business combinations 62 Cash, loan and dividend restrictions 63 Securities available for sale 64 Loans and allowance for loan losses 67 Premises, equipment, lease commitments and other assets 68 Deposits 68 Short-term borrowings 69 Long-term debt 70 Guaranteed preferred beneficial interests in Company's subordinated debentures 72 Preferred stock 74 Common stock and stock plans 79 Employee benefits and other expenses 80 Income taxes 82 Earnings per common share 83 Comprehensive income 84 Operating segments 86 Mortgage banking activities 87 Parent company 89 WFC Holdings Corporation 89 Legal actions 90 Risk-based capital 91 Derivative financial instruments 93 Fair value of financial instruments 37, 84 Operating Segments Ratios: 35 Profitability (ROA and ROE) 35 Efficiency 35 Common stockholders' equity to assets 35, 90 Risk-based capital and leverage 36 Six-year summary of selected financial data 42 Year 2000 (Y2K) 96 EX-21 17 EXHIBIT 21 EXHIBIT 21 SUBSIDIARIES OF THE COMPANY The following is a list of subsidiaries of the Company as of February 15, 1999. The Company's bank subsidiaries which have the words "National Association" (N.A.), or "National" in their respective titles are organized under the laws of the United States; and all state bank subsidiaries are incorporated under the laws of the state in which each is domiciled. Each non-bank subsidiary is incorporated or organized in the jurisdiction appearing opposite its name. BANK SUBSIDIARIES ARIZONA Norwest Bank Arizona, N.A Wells Fargo Bank (Arizona), N.A. CALIFORNIA Wells Fargo Bank, N.A. Wells Fargo Bank, Ltd. Wells Fargo Central Bank Wells Fargo HSBC Trade Bank, N.A. COLORADO Norwest Bank Colorado, N.A. Norwest Bank Grand Junction, N.A. Norwest Bank Grand Junction-Downtown, N.A. ILLINOIS Norwest Bank Illinois, N.A. INDIANA Norwest Bank Indiana, N.A. IOWA Dial National Bank Norwest Bank Iowa, N.A. MINNESOTA First National Bank of Monticello Norwest Bank Faribault, N.A. Norwest Bank Minnesota, N.A. Norwest Bank Minnesota North, N.A. Norwest Bank Minnesota South, N.A. Norwest Bank Minnesota Southwest, N.A. Norwest Bank Minnesota West, N.A. Norwest Bank Red Wing, N.A. 1 MONTANA Norwest Bank Montana, N.A. NEBRASKA Norwest Bank Nebraska, N.A. NEVADA Norwest Bank Nevada, N.A. NEW MEXICO First Bank of Grants, N.A. Norwest Bank New Mexico, N.A. NORTH DAKOTA Norwest Bank North Dakota, N.A. OHIO Norwest Bank Ohio, N.A. SOUTH DAKOTA Dial Bank Norwest Bank South Dakota, N.A. TEXAS First Bank Katy, N.A. First National Bank of Missouri City First Valley Bank Norwest Bank El Paso, N.A. Norwest Bank Texas, N.A. The First National Bank of Franklin Wells Fargo Bank (Texas), N.A. WISCONSIN Norwest Bank Hudson, N.A. Norwest Bank La Crosse, N.A. Norwest Bank Wisconsin, N.A. WYOMING Norwest Bank Wyoming, N.A. EDGE ACT CORPORATIONS Norwest Bank International 2 NON-BANK SUBSIDIARIES
JURISDICTION OF INCORPORATION OR DIRECTLY OWNED: ORGANIZATION - --------------- ------------ B & G Investment Company Texas Bancdata Processing Corporation Minnesota Benson Financial Corporation Texas Blackhawk Bancorporation Iowa Canton Bancshares, Inc. Illinois Central Bancorporation, Inc. Texas Charter Bancorporation, Inc. Arizona Charter Holdings, Inc. Nevada Century Business Credit Corporation New York Credisol, S.A. Costa Rica Emjay Corporation Wisconsin Farmers National Bancorp, Inc. Delaware Fidelity Bancshares, Inc. Texas Fidelity National Life Insurance Company Arizona Financiera El Sol, S.A. Panama First Bancshares of Valley City, Inc. North Dakota First Valley Bank Group, Inc. Texas Franklin Bancshares, Inc. Delaware GST Co. Delaware Goldenrod Asset Management Delaware Henrietta Bancshares, Inc. Texas Independent Bancorp of Arizona, Inc. Delaware International Bancorporation, Inc. Minnesota Irene Bancorporation, Inc. South Dakota Island Finance (Aruba) N.V. Aruba Island Finance (Bonaire) N.V. Netherlands Antilles Island Finance (Cuaracao) N.V. Netherlands Antilles Island Finance (St. Maarten) N.V. Netherlands Antilles Island Finance Puerto Rico, Inc. Delaware Island Finance Virgin Islands, Inc. Delaware Lindeberg Financial Corporation Minnesota Little Mountain Bancshares, Inc. Minnesota Lowry Hill Investment Advisors, Inc. Minnesota MidAmerica Bancshares, Inc. South Dakota Midwest Credit Life Insurance Company Arizona Minnesota Bancshares, Inc. Minnesota Mountain Bancshares, Inc. Colorado 3 JURISDICTION OF INCORPORATION OR DIRECTLY OWNED: ORGANIZATION - --------------- ------------ Myers Bancshares Inc. Texas Northern Prairie Indemnity Limited Cayman Islands, BWI Norwest Agricultural Credit, Inc. Minnesota Norwest AMG, Inc. Delaware Norwest Asia Limited Hong Kong Norwest Audit Services, Inc. Minnesota Norwest Auto Receivables Corporation Delaware Norwest Credit, Inc. Minnesota Norwest Escrow Funding, Inc. Delaware Norwest Financial Services, Inc. Delaware Norwest Foundation Minnesota Norwest Holding Company Delaware Norwest Home Improvement, Inc. Texas Norwest Insurance, Inc. Minnesota Norwest Investment Services, Inc. Minnesota Norwest Investors, Inc. Minnesota Norwest Limited, LLC Delaware Norwest Nova, Inc. Minnesota Norwest Properties, Inc. Minnesota Norwest Services, Inc. Minnesota Norwest Trust Company, Cayman Islands Cayman Islands, BWI Packers Management Company, Inc. Nebraska Peoples Mortgage and Investment Company Iowa Rose Asset Management, Inc. Delaware Star Bancshares, Inc. Texas Texas Bancorporation, Inc. Texas Texas National Bankshares, Inc. Texas The Bank of New Mexico Holding Company New Mexico The First National Bankshares, Inc. New Mexico The Foothill Group, Inc. Delaware The Wells Fargo Foundation California Union Texas Bancorporation, Inc. Texas Victoria Bankshares, Inc. Texas WFC Holdings Corporation Delaware Wisconsin Bancshares, Inc. Wisconsin 4 JURISDICTION OF INCORPORATION OR INDIRECTLY OWNED: ORGANIZATION - ----------------- ------------ Admiral Life Insurance Company of America Arizona Allied Business Systems, Inc. Iowa AMAN Collection Service 1, Inc. Nevada AMAN Collection Service, Inc. South Dakota American Community Bank Group Service Corporation Minnesota American Securities Company California American Securities Company of Nevada Nevada Americorp Financial, Inc. Nevada ATC Realty Fifteen, Inc. California ATC Realty Nine, Inc. California ATC Realty Sixteen, Inc. California ATI Foreclosure Services, Inc. California ATI Title Agency of Arizona, Inc. (inactive) Arizona ATI Title Agency of Ohio, Inc. Ohio ATI Title Company, LLC Delaware ATI Title Company of California California ATI Title Company of Nevada Nevada Bancshares Insurance Company Vermont Blue Jay Asset Management, Inc. Delaware Blue Spirit Insurance Company Vermont Bluebonnet Asset Management, Inc. Delaware Cardinal Asset Management, Inc. Delaware CCC Investment NV, Inc. Nevada Central Bancorporation of Delaware, Inc. Delaware Central Casualty Insurance Agency, Inc. Oklahoma Central Pacific Corporation Delaware Century Data Services, Inc. New York Centurion Agencies, Co. Iowa Centurion Agency Nevada, Inc. Nevada Centurion Casualty Company Iowa Centurion Life Insurance Company Missouri CGT Insurance Company Barbados CHM Insurance Company South Dakota Cityside Insurance Company, Ltd. Turks & Caicos Islands Clinton Street Garage Company, Inc. Indiana 5 JURISDICTION OF INCORPORATION OR INDIRECTLY OWNED: ORGANIZATION - ----------------- ------------ Collin Equities, Inc. Texas Columbine Asset Management, Inc. Delaware Commonwealth Leasing Corporation Minnesota Community Casualty Co. (1) Vermont Community Pacific Broadcasting Corporation Nevada Community Credit Co. Minnesota Copper Asset Management, Inc. Delaware Crestone Capital Management, Inc. Colorado Crocker Grande, Inc. California Crocker Life Insurance Company California Crocker Properties, Inc. California DAG Management, Inc. Colorado Dial National Community Benefits, Inc. Nevada EZG Associates Limited Partnership Delaware Ellis Advertising, Inc. Iowa Falcon Asset Management, Inc. Delaware FCC Holdings California Fidelity Acceptance Corporation (2) Minnesota Fidelity Acceptance Holding, Inc. Nevada Fidelity Bancorporation, Inc. Delaware Fidelity National Life Insurance Company Arizona Finvercon S.A. Compania Financiera Argentina Finvercon USA, Inc. Nevada - --------------- (1) Community Credit Co. is the parent and directly owns all the voting securities of certain subsidiaries operating as consumer finance companies in the United States (27 as of February 15, 1999). Such subsidiaries were incorporated or otherwise organized in Arizona, California, Colorado, Georgia, Illinois, Indiana, Iowa, Kentucky, Missouri, Montana, Nebraska, Nevada, New Mexico, Ohio, Oklahoma, Oregon, Pennsylvania, Tennessee, Utah, Washington, Wisconsin and Wyoming. (2) Fidelity Acceptance Corporation is the parent and directly or indirectly beneficially owns all the voting securities of certain subsidiaries operating as consumer finance companies in the United States and Guam (34 as of February 15, 1999). Such subsidiaries were incorporated or otherwise organized in Alabama, Arizona, California, Colorado, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Michigan, Minnesota, Mississippi, Missouri, Nebraska, Nevada, New Jersey, New Mexico, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, Wisconsin and Guam. 6 JURISDICTION OF INCORPORATION OR INDIRECTLY OWNED: ORGANIZATION - ----------------- ------------ First City Life Insurance Company Arizona First DialWest Escrow Company, Inc. California First Interstate Bancorporation, Inc. (inactive) Kansas First Interstate Commercial Mortgage Company Delaware First Interstate Insurance Company Arizona First Interstate Mortgage Holding Company Arizona First Valley Delaware Financial Corporation Delaware Foothill Capital Corporation California Fremont Properties, Inc. Colorado Galliard Capital Management, Inc. Minnesota Garces Water Company, Inc. California Golden Pacific Insurance Company Vermont Great Plains Insurance Company Vermont Green Bay Asset Management, Inc. Delaware Henrietta Delaware Financial Corporation Delaware IntraWest Asset Management, Inc. Delaware IntraWest Insurance Company Arizona Iowa Asset Management, Inc. Delaware Island Finance Credit Services, Inc. New York Island Finance New York, Inc. New York La Crosse Asset Management, Inc. Delaware Las Vegas Building Corporation New Mexico Lilac Asset Management, Inc. Delaware Lily Asset Management, Inc. Delaware Lincoln Building Corporation Colorado Magnolia Asset Management, Inc. Delaware Maier/Hauswirth Investment Advisors, LLC Wisconsin Mail Systems Co. Iowa Marigold Asset Management, Inc. Delaware Mercury Marine Finance, Inc. Iowa Mission Savings and Loan Association U.S. Modern Casualty Insurance Agency Arizona Montgomery Estates, Inc. Texas National Letter Service Company Minnesota NISI Nevada Insurance, Inc. Nevada NISI Wyoming Insurance Wyoming North Star Mortgage Guaranty Reinsurance Company Vermont Norwest Asset Acceptance Corporation Delaware Norwest Asset Company Iowa Norwest Asset Securities Corporation Delaware Norwest Auto Finance, Inc. Minnesota 7 JURISDICTION OF INCORPORATION OR INDIRECTLY OWNED: ORGANIZATION - ----------------- ------------ Norwest Auto Lease, Inc. Minnesota Norwest Business Credit, Inc. Minnesota Norwest Colorado Community Development Corporation Colorado Norwest do Brasil Servicos Ltda Brazil Norwest Electronic Tax Service, LLC Delaware Norwest Energy Capital, Inc. Texas Norwest Equipment Finance & Leasing, Inc. New Jersey Norwest Equity Capital, L.L.C. Minnesota Norwest Financial Alabama, Inc. Alabama Norwest Financial Business Credit, Inc. Iowa Norwest Financial Canada DE, Inc. Ontario Norwest Financial Capital, Inc. Delaware Norwest Financial Coast, Inc. California Norwest Financial Credit Services, Inc. Florida Norwest Financial DE Asset Management, Inc. Delaware Norwest Financial Information Services Group, Inc. Iowa Norwest Financial Investment 1, Inc. Nevada Norwest Financial Investment 2, Inc. Nevada Norwest Financial Investment, Inc. Nevada Norwest Financial Leasing, Inc. Iowa Norwest Financial North Carolina 2, Inc. North Carolina Norwest Financial North Carolina 3, Inc. North Carolina Norwest Financial NV Asset Management, Inc. Nevada Norwest Financial Resources, Inc. Iowa Norwest Financial Security Services, Inc. Iowa Norwest Financial South Carolina 1, Inc. North Carolina Norwest Financial, Inc.(3) Iowa Norwest Funding, Inc. Minnesota Norwest Funding II, Inc. Minnesota Norwest Insurance New Mexico, Inc. New Mexico Norwest Insurance Wyoming, Inc. Wyoming Norwest Integrated Structured Assets, Inc. Delaware Norwest International Commercial Services Limited Hong Kong Norwest Investment Advisors, Inc. Iowa Norwest Investment Management, Inc. Minnesota - --------------- (3) Norwest Financial, Inc. is the parent and directly or indirectly beneficially owns all the voting securities of certain subsidiaries operating as consumer finance companies in the United States, Canada, Guam and Saipan. (64 subsidiaries as of February 15, 1999). Such subsidiaries were incorporated or otherwise organized in: Alaska, Arizona, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Washington, West Virginia, Wisconsin, Wyoming, Canada, Guam and Saipan. 8 JURISDICTION OF INCORPORATION OR INDIRECTLY OWNED: ORGANIZATION - ----------------- ------------ Norwest Mortgage Asset Management Corporation Minnesota Norwest Mortgage Closing Services, LLC Iowa Norwest Mortgage Conventional 1, Inc. Delaware Norwest Mortgage Insured 1, Inc. Delaware Norwest Mortgage Insured 2, Inc. Delaware Norwest Mortgage of Massachusetts, Inc. Massachusetts Norwest Mortgage of New Mexico, Inc. New Mexico Norwest Mortgage of New York, Inc. New York Norwest Mortgage Real Estate Funding 1, Inc. Delaware Norwest Mortgage Real Estate Funding 2, Inc. Delaware Norwest Mortgage, Inc. California Norwest Rural Insurance Services, Inc. Minnesota Norwest Venture Capital Management, Inc. Minnesota Norwest Ventures, LLC Delaware Old Henry, Inc. Illinois Osprey Asset Management, Inc. Delaware Peregrine Capital Management, Inc. Minnesota PGD, Inc. Texas Premium Service/Norwest Financial Coast, Inc. South Carolina Raven Asset Management, Inc. Delaware Regency Insurance Agency, Inc. Minnesota Reliable Financial Services, Inc. Puerto Rico RELS, LLC Delaware RELS Reporting Services, LLC Iowa RELS Title Services, LLC Delaware Residential Home Mortgage Investment, LLC Delaware Residential Home Mortgage, LLC Delaware Robin Asset Management, Inc. Delaware Rural Community Insurance Agency, Inc. Minnesota Rural Community Insurance Company Minnesota Sagebrush Asset Management, Inc. Delaware Saguaro Asset Management, Inc. Delaware Scott Life Insurance Company Arizona South Dakota Asset Management, Inc. Delaware Spring Cypress Water Supply Corporation Texas Spring Mountain Escrow Company California Statewide Acceptance Corporation Texas Superior Asset Management, Inc. Delaware Star Bancshares of Nevada, Inc. Nevada Superior Guaranty Insurance Company Vermont Superior Health Care Management, Inc. Delaware Superior North Asset Management, Inc. Delaware 9 JURISDICTION OF INCORPORATION OR INDIRECTLY OWNED: ORGANIZATION - ----------------- ------------ Superior Red Wing Asset Management, Inc. Delaware Superior South Asset Management, Inc. Delaware Superior Southwest Asset Management, Inc. Delaware Superior West Asset Management, Inc. Delaware The United Group, Inc. North Carolina Tower Data Processing Corporation Iowa United California Bank Realty Corporation California United New Mexico Financial Corporation New Mexico United New Mexico Real Estate Services, Inc. New Mexico USF Life Reinsurance Company Arizona Valley Asset Management, Inc. Delaware Valuation Information Technology, LLC Iowa Victoria Financial Services, Inc. Delaware Wells Capital Management Incorporated California Wells Fargo Capital A California Wells Fargo Capital B California Wells Fargo Capital C California Wells Fargo Capital I California Wells Fargo Capital II California Wells Fargo Cash Centers, Inc. Nevada Wells Fargo Corporate Services, Inc. California Wells Fargo Corporation Oregon Wells Fargo Equipment Finance, Inc. Minnesota Wells Fargo Equity Capital, Inc. California Wells Fargo Financing Corporation California Wells Fargo Housing Advisors, Inc. California Wells Fargo Insurance Services California Wells Fargo International, Ltd. Cayman Islands Wells Fargo Leasing Corporation California Wells Fargo Mondex, Inc. Arizona Wells Fargo Realty Corporation I Maryland Wells Fargo Realty Corporation II Maryland Wells Fargo Realty Corporation III Maryland Wells Fargo Realty Corporation IV Maryland Wells Fargo Realty Holding Corporation III Delaware Wells Fargo Realty Holding Corporation IV Delaware Wells Fargo Securities, Inc. California Wells Fargo Small Business Investment Company, Inc. California Wells Fargo Ventures, Inc. Delaware 10 JURISDICTION OF INCORPORATION OR INDIRECTLY OWNED: ORGANIZATION - ----------------- ------------ Wells Fargo, Ltd. Hawaii WFS Insurance Agency, Inc. Montana WFS Insurance Agency, Inc. Nevada WFS Insurance Agency, Inc. Oregon WFS Insurance Agency, Inc. Washington WFS Insurance Agency, Inc. Wyoming Yucca Asset Management, Inc. Delaware
NOTE: Not included in the above list of subsidiaries of the corporation are inactive subsidiaries, certain subsidiaries formed solely for the purpose of reserving a name, joint ventures or limited partnerships. 11 EX-23 18 EXHIBIT 23 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS The Board of Directors of Wells Fargo & Company: We consent to the incorporation by reference in the Registration Statements noted below on Forms S-3, S-4 and S-8 of Wells Fargo & Company of our report dated January 19, 1999, relating to the consolidated balance sheet of Wells Fargo & Company and Subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, changes in stockholders' equity and comprehensive income and cash flows for each of the years in the three-year period ended December 31, 1998, which report is incorporated by reference in the December 31, 1998 Annual Report on Form 10-K of Wells Fargo & Company.
Registration Statement Number Form Description - ---------------- ---- ----------- 033-50435 S-3 Universal Registration Statement 1993-2 033-61045 S-3 Universal Registration Statement 1995-1 333-01737 S-3 Universal Registration Statement 1996 333-09489 S-3 Dividend Reinvestment and Common Stock Purchase Plan 333-40989 S-4 Acquisition Registration Statement 333-53219 S-4 Acquisition Registration Statement 333-71125 S-4 Riverton State Bank Holding Company 033-10820 S-8 Norwest Financial Employee $20,000,000 Senior Indebtedness Plan 033-42198 S-8 1985 Long-Term Incentive Compensation Plan 033-50307 S-8 Norwest Corporation Employees' Deferred Compensation Plan 033-50309 S-8 1985 Long Term Incentive Compensation Plan 033-65007 S-8 Invest Norwest Program 033-65009 S-8 Norwest Corporation Master Savings Trust 033-57904 S-8 Financial Concepts Bancorp, Inc. Stock Option Plan 033-38013 S-8 United Banks of Colorado, Inc. Non-qualified Stock Option Plan 033-54322 S-8 Lincoln Financial Corporation 1988 Stock Option Plan 033-55533 S-8 First National Bank of Kerrville 1991 Stock Option Plan 333-12423 S-8 Long-Term Incentive Compensation Plan 333-02485 S-8 Benson Financial Corporation Stock Option Plan 333-09413 S-8 PartnerShares Plan 333-50789 S-8 PartnerShares Plan 333-62877 S-8 Long-Term Incentive Compensation Plan 333-63247 S-8 Wells Fargo & Company: 1982 Equity Incentive Plan, 1987 Director Option Plan, 1990 Equity Incentive Plan, 1990 Director Option Plan, Long-Term Incentive Plan, 1996 Employee Stock Purchase Plan, First Interstate Bancorp: 1983 Performance Stock Plan, 1988 Performance Stock Plan, 1991 Director Option Plan, 1991 Performance Stock Plan. 333-68093 S-8 Tax Advantage and Retirement Plan
KPMG LLP San Francisco, California March 17, 1999 EX-24 19 EXHIBIT 24 EXHIBIT 24 WELLS FARGO & COMPANY Power of Attorney of Director KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of WELLS FARGO & COMPANY, a Delaware corporation, does hereby make, constitute, and appoint PHILIP J. QUIGLEY, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and CYNTHIA H. MILLIGAN, a director and member of the Audit and Examination Committee of the Board of Directors, and each or either of them, the undersigned's true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigned's name, place, and stead, to sign and affix the undersigned's name as such director of said Company to an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and all amendments thereto, to be filed by said Company with the Securities and Exchange Commission, Washington, D.C. under the Securities Exchange Act of 1934, and the rules and regulations of said Commission, and to file the same, with all exhibits thereto and other supporting documents, with said Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted. IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 23rd day of February, 1999. /s/ Leslie S. Biller ----------------------------------- WELLS FARGO & COMPANY Power of Attorney of Director KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of WELLS FARGO & COMPANY, a Delaware corporation, does hereby make, constitute, and appoint PHILIP J. QUIGLEY, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and CYNTHIA H. MILLIGAN, a director and member of the Audit and Examination Committee of the Board of Directors, and each or either of them, the undersigned's true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigned's name, place, and stead, to sign and affix the undersigned's name as such director of said Company to an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and all amendments thereto, to be filed by said Company with the Securities and Exchange Commission, Washington, D.C. under the Securities Exchange Act of 1934, and the rules and regulations of said Commission, and to file the same, with all exhibits thereto and other supporting documents, with said Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted. IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 23rd day of February, 1999. /s/ J.A. Blanchard III ----------------------------------- WELLS FARGO & COMPANY Power of Attorney of Director KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of WELLS FARGO & COMPANY, a Delaware corporation, does hereby make, constitute, and appoint PHILIP J. QUIGLEY, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and CYNTHIA H. MILLIGAN, a director and member of the Audit and Examination Committee of the Board of Directors, and each or either of them, the undersigned's true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigned's name, place, and stead, to sign and affix the undersigned's name as such director of said Company to an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and all amendments thereto, to be filed by said Company with the Securities and Exchange Commission, Washington, D.C. under the Securities Exchange Act of 1934, and the rules and regulations of said Commission, and to file the same, with all exhibits thereto and other supporting documents, with said Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted. IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 23rd day of February, 1999. /s/ Michael R. Bowlin ----------------------------------- WELLS FARGO & COMPANY Power of Attorney of Director KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of WELLS FARGO & COMPANY, a Delaware corporation, does hereby make, constitute, and appoint PHILIP J. QUIGLEY, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and CYNTHIA H. MILLIGAN, a director and member of the Audit and Examination Committee of the Board of Directors, and each or either of them, the undersigned's true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigned's name, place, and stead, to sign and affix the undersigned's name as such director of said Company to an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and all amendments thereto, to be filed by said Company with the Securities and Exchange Commission, Washington, D.C. under the Securities Exchange Act of 1934, and the rules and regulations of said Commission, and to file the same, with all exhibits thereto and other supporting documents, with said Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted. IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 23rd day of February, 1999. /s/ Edward M. Carson ----------------------------------- WELLS FARGO & COMPANY Power of Attorney of Director KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of WELLS FARGO & COMPANY, a Delaware corporation, does hereby make, constitute, and appoint PHILIP J. QUIGLEY, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and CYNTHIA H. MILLIGAN, a director and member of the Audit and Examination Committee of the Board of Directors, and each or either of them, the undersigned's true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigned's name, place, and stead, to sign and affix the undersigned's name as such director of said Company to an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and all amendments thereto, to be filed by said Company with the Securities and Exchange Commission, Washington, D.C. under the Securities Exchange Act of 1934, and the rules and regulations of said Commission, and to file the same, with all exhibits thereto and other supporting documents, with said Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted. IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 23rd day of February, 1999. /s/ David A. Christensen ----------------------------------- WELLS FARGO & COMPANY Power of Attorney of Director KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of WELLS FARGO & COMPANY, a Delaware corporation, does hereby make, constitute, and appoint PHILIP J. QUIGLEY, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and CYNTHIA H. MILLIGAN, a director and member of the Audit and Examination Committee of the Board of Directors, and each or either of them, the undersigned's true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigned's name, place, and stead, to sign and affix the undersigned's name as such director of said Company to an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and all amendments thereto, to be filed by said Company with the Securities and Exchange Commission, Washington, D.C. under the Securities Exchange Act of 1934, and the rules and regulations of said Commission, and to file the same, with all exhibits thereto and other supporting documents, with said Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted. IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 23rd day of February, 1999. /s/ William S. Davila ----------------------------------- WELLS FARGO & COMPANY Power of Attorney of Director KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of WELLS FARGO & COMPANY, a Delaware corporation, does hereby make, constitute, and appoint PHILIP J. QUIGLEY, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and CYNTHIA H. MILLIGAN, a director and member of the Audit and Examination Committee of the Board of Directors, and each or either of them, the undersigned's true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigned's name, place, and stead, to sign and affix the undersigned's name as such director of said Company to an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and all amendments thereto, to be filed by said Company with the Securities and Exchange Commission, Washington, D.C. under the Securities Exchange Act of 1934, and the rules and regulations of said Commission, and to file the same, with all exhibits thereto and other supporting documents, with said Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted. IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 23rd day of February, 1999. /s/ Susan E. Engel ----------------------------------- WELLS FARGO & COMPANY Power of Attorney of Director KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of WELLS FARGO & COMPANY, a Delaware corporation, does hereby make, constitute, and appoint PHILIP J. QUIGLEY, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and CYNTHIA H. MILLIGAN, a director and member of the Audit and Examination Committee of the Board of Directors, and each or either of them, the undersigned's true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigned's name, place, and stead, to sign and affix the undersigned's name as such director of said Company to an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and all amendments thereto, to be filed by said Company with the Securities and Exchange Commission, Washington, D.C. under the Securities Exchange Act of 1934, and the rules and regulations of said Commission, and to file the same, with all exhibits thereto and other supporting documents, with said Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted. IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 23rd day of February, 1999. /s/ Paul Hazen ----------------------------------- WELLS FARGO & COMPANY Power of Attorney of Director KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of WELLS FARGO & COMPANY, a Delaware corporation, does hereby make, constitute, and appoint PHILIP J. QUIGLEY, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and CYNTHIA H. MILLIGAN, a director and member of the Audit and Examination Committee of the Board of Directors, and each or either of them, the undersigned's true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigned's name, place, and stead, to sign and affix the undersigned's name as such director of said Company to an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and all amendments thereto, to be filed by said Company with the Securities and Exchange Commission, Washington, D.C. under the Securities Exchange Act of 1934, and the rules and regulations of said Commission, and to file the same, with all exhibits thereto and other supporting documents, with said Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted. IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 23rd day of February, 1999. /s/ Rodney L. Jacobs ----------------------------------- WELLS FARGO & COMPANY Power of Attorney of Director KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of WELLS FARGO & COMPANY, a Delaware corporation, does hereby make, constitute, and appoint PHILIP J. QUIGLEY, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and CYNTHIA H. MILLIGAN, a director and member of the Audit and Examination Committee of the Board of Directors, and each or either of them, the undersigned's true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigned's name, place, and stead, to sign and affix the undersigned's name as such director of said Company to an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and all amendments thereto, to be filed by said Company with the Securities and Exchange Commission, Washington, D.C. under the Securities Exchange Act of 1934, and the rules and regulations of said Commission, and to file the same, with all exhibits thereto and other supporting documents, with said Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted. IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 23rd day of February, 1999. /s/ Reatha Clark King ----------------------------------- WELLS FARGO & COMPANY Power of Attorney of Director KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of WELLS FARGO & COMPANY, a Delaware corporation, does hereby make, constitute, and appoint PHILIP J. QUIGLEY, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and CYNTHIA H. MILLIGAN, a director and member of the Audit and Examination Committee of the Board of Directors, and each or either of them, the undersigned's true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigned's name, place, and stead, to sign and affix the undersigned's name as such director of said Company to an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and all amendments thereto, to be filed by said Company with the Securities and Exchange Commission, Washington, D.C. under the Securities Exchange Act of 1934, and the rules and regulations of said Commission, and to file the same, with all exhibits thereto and other supporting documents, with said Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted. IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 23rd day of February, 1999. /s/ Richard M. Kovacevich ----------------------------------- WELLS FARGO & COMPANY Power of Attorney of Director KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of WELLS FARGO & COMPANY, a Delaware corporation, does hereby make, constitute, and appoint PHILIP J. QUIGLEY, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and CYNTHIA H. MILLIGAN, a director and member of the Audit and Examination Committee of the Board of Directors, and each or either of them, the undersigned's true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigned's name, place, and stead, to sign and affix the undersigned's name as such director of said Company to an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and all amendments thereto, to be filed by said Company with the Securities and Exchange Commission, Washington, D.C. under the Securities Exchange Act of 1934, and the rules and regulations of said Commission, and to file the same, with all exhibits thereto and other supporting documents, with said Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted. IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 23rd day of February, 1999. /s/ Richard D. McCormick ----------------------------------- WELLS FARGO & COMPANY Power of Attorney of Director KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of WELLS FARGO & COMPANY, a Delaware corporation, does hereby make, constitute, and appoint PHILIP J. QUIGLEY, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and CYNTHIA H. MILLIGAN, a director and member of the Audit and Examination Committee of the Board of Directors, and each or either of them, the undersigned's true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigned's name, place, and stead, to sign and affix the undersigned's name as such director of said Company to an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and all amendments thereto, to be filed by said Company with the Securities and Exchange Commission, Washington, D.C. under the Securities Exchange Act of 1934, and the rules and regulations of said Commission, and to file the same, with all exhibits thereto and other supporting documents, with said Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted. IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 23rd day of February, 1999. /s/ Cynthia H. Milligan ----------------------------------- WELLS FARGO & COMPANY Power of Attorney of Director KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of WELLS FARGO & COMPANY, a Delaware corporation, does hereby make, constitute, and appoint PHILIP J. QUIGLEY, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and CYNTHIA H. MILLIGAN, a director and member of the Audit and Examination Committee of the Board of Directors, and each or either of them, the undersigned's true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigned's name, place, and stead, to sign and affix the undersigned's name as such director of said Company to an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and all amendments thereto, to be filed by said Company with the Securities and Exchange Commission, Washington, D.C. under the Securities Exchange Act of 1934, and the rules and regulations of said Commission, and to file the same, with all exhibits thereto and other supporting documents, with said Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted. IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 23rd day of February, 1999. /s/ Benjamin F. Montoya ----------------------------------- WELLS FARGO & COMPANY Power of Attorney of Director KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of WELLS FARGO & COMPANY, a Delaware corporation, does hereby make, constitute, and appoint PHILIP J. QUIGLEY, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and CYNTHIA H. MILLIGAN, a director and member of the Audit and Examination Committee of the Board of Directors, and each or either of them, the undersigned's true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigned's name, place, and stead, to sign and affix the undersigned's name as such director of said Company to an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and all amendments thereto, to be filed by said Company with the Securities and Exchange Commission, Washington, D.C. under the Securities Exchange Act of 1934, and the rules and regulations of said Commission, and to file the same, with all exhibits thereto and other supporting documents, with said Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted. IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 23rd day of February, 1999. /s/ Philip J. Quigley ----------------------------------- WELLS FARGO & COMPANY Power of Attorney of Director KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of WELLS FARGO & COMPANY, a Delaware corporation, does hereby make, constitute, and appoint PHILIP J. QUIGLEY, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and CYNTHIA H. MILLIGAN, a director and member of the Audit and Examination Committee of the Board of Directors, and each or either of them, the undersigned's true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigned's name, place, and stead, to sign and affix the undersigned's name as such director of said Company to an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and all amendments thereto, to be filed by said Company with the Securities and Exchange Commission, Washington, D.C. under the Securities Exchange Act of 1934, and the rules and regulations of said Commission, and to file the same, with all exhibits thereto and other supporting documents, with said Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted. IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 23rd day of February, 1999. /s/ Donald B. Rice ----------------------------------- WELLS FARGO & COMPANY Power of Attorney of Director KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of WELLS FARGO & COMPANY, a Delaware corporation, does hereby make, constitute, and appoint PHILIP J. QUIGLEY, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and CYNTHIA H. MILLIGAN, a director and member of the Audit and Examination Committee of the Board of Directors, and each or either of them, the undersigned's true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigned's name, place, and stead, to sign and affix the undersigned's name as such director of said Company to an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and all amendments thereto, to be filed by said Company with the Securities and Exchange Commission, Washington, D.C. under the Securities Exchange Act of 1934, and the rules and regulations of said Commission, and to file the same, with all exhibits thereto and other supporting documents, with said Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted. IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 23rd day of February, 1999. /s/ Ian M. Rolland ----------------------------------- WELLS FARGO & COMPANY Power of Attorney of Director KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of WELLS FARGO & COMPANY, a Delaware corporation, does hereby make, constitute, and appoint PHILIP J. QUIGLEY, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and CYNTHIA H. MILLIGAN, a director and member of the Audit and Examination Committee of the Board of Directors, and each or either of them, the undersigned's true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigned's name, place, and stead, to sign and affix the undersigned's name as such director of said Company to an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and all amendments thereto, to be filed by said Company with the Securities and Exchange Commission, Washington, D.C. under the Securities Exchange Act of 1934, and the rules and regulations of said Commission, and to file the same, with all exhibits thereto and other supporting documents, with said Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted. IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 23rd day of February, 1999. /s/ Judith M. Runstad ----------------------------------- WELLS FARGO & COMPANY Power of Attorney of Director KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of WELLS FARGO & COMPANY, a Delaware corporation, does hereby make, constitute, and appoint PHILIP J. QUIGLEY, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and CYNTHIA H. MILLIGAN, a director and member of the Audit and Examination Committee of the Board of Directors, and each or either of them, the undersigned's true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigned's name, place, and stead, to sign and affix the undersigned's name as such director of said Company to an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and all amendments thereto, to be filed by said Company with the Securities and Exchange Commission, Washington, D.C. under the Securities Exchange Act of 1934, and the rules and regulations of said Commission, and to file the same, with all exhibits thereto and other supporting documents, with said Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted. IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 23rd day of February, 1999. /s/ Susan G. Swenson ----------------------------------- WELLS FARGO & COMPANY Power of Attorney of Director KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of WELLS FARGO & COMPANY, a Delaware corporation, does hereby make, constitute, and appoint PHILIP J. QUIGLEY, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and CYNTHIA H. MILLIGAN, a director and member of the Audit and Examination Committee of the Board of Directors, and each or either of them, the undersigned's true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigned's name, place, and stead, to sign and affix the undersigned's name as such director of said Company to an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and all amendments thereto, to be filed by said Company with the Securities and Exchange Commission, Washington, D.C. under the Securities Exchange Act of 1934, and the rules and regulations of said Commission, and to file the same, with all exhibits thereto and other supporting documents, with said Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted. IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 23rd day of February, 1999. /s/ Daniel M. Tellep ----------------------------------- WELLS FARGO & COMPANY Power of Attorney of Director KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of WELLS FARGO & COMPANY, a Delaware corporation, does hereby make, constitute, and appoint PHILIP J. QUIGLEY, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and CYNTHIA H. MILLIGAN, a director and member of the Audit and Examination Committee of the Board of Directors, and each or either of them, the undersigned's true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigned's name, place, and stead, to sign and affix the undersigned's name as such director of said Company to an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and all amendments thereto, to be filed by said Company with the Securities and Exchange Commission, Washington, D.C. under the Securities Exchange Act of 1934, and the rules and regulations of said Commission, and to file the same, with all exhibits thereto and other supporting documents, with said Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted. IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 23rd day of February, 1999. /s/ Chang-Lin Tien ----------------------------------- WELLS FARGO & COMPANY Power of Attorney of Director KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of WELLS FARGO & COMPANY, a Delaware corporation, does hereby make, constitute, and appoint PHILIP J. QUIGLEY, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and CYNTHIA H. MILLIGAN, a director and member of the Audit and Examination Committee of the Board of Directors, and each or either of them, the undersigned's true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigned's name, place, and stead, to sign and affix the undersigned's name as such director of said Company to an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and all amendments thereto, to be filed by said Company with the Securities and Exchange Commission, Washington, D.C. under the Securities Exchange Act of 1934, and the rules and regulations of said Commission, and to file the same, with all exhibits thereto and other supporting documents, with said Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted. IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 23rd day of February, 1999. /s/ Michael W. Wright ----------------------------------- WELLS FARGO & COMPANY Power of Attorney of Director KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of WELLS FARGO & COMPANY, a Delaware corporation, does hereby make, constitute, and appoint PHILIP J. QUIGLEY, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and CYNTHIA H. MILLIGAN, a director and member of the Audit and Examination Committee of the Board of Directors, and each or either of them, the undersigned's true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigned's name, place, and stead, to sign and affix the undersigned's name as such director of said Company to an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and all amendments thereto, to be filed by said Company with the Securities and Exchange Commission, Washington, D.C. under the Securities Exchange Act of 1934, and the rules and regulations of said Commission, and to file the same, with all exhibits thereto and other supporting documents, with said Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted. IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 23rd day of February, 1999. /s/ John A. Young ----------------------------------- EX-27 20 EXHIBIT 27
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 10-K FOR THE PERIOD ENDED DECEMBER 31,1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL INFORMATION. 1,000,000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 12,731 0 1,517 760 31,997 0 0 107,994 3,134 202,475 136,788 15,897 8,537 20,494 0 463 2,769 18,181 202,475 10,685 1,844 1,526 14,055 3,111 5,065 8,990 1,545 169 10,579 3,293 1,950 0 0 1,950 1.18 1.17 5.79 0 342 0 0 3,062 2,044 427 3,134 0 0 1,166 AMOUNT REPRESENTS BASIC EARNINGS PER COMMON SHARE PURSUANT TO FAS 128
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