-----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, NwpUP3fnw1kBzk+BiHnmO+RIRn9jPh81cOzlBUF+bA+GTTqkCZLU2GZAjjT1+747 bkeVQ8xI5q9qOZmpS0fFwQ== 0000950109-97-001905.txt : 19970305 0000950109-97-001905.hdr.sgml : 19970305 ACCESSION NUMBER: 0000950109-97-001905 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970304 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORWEST CORP 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-20565 FILM NUMBER: 97550132 BUSINESS ADDRESS: STREET 1: NORWEST CTR STREET 2: SIXTH & MARQUETTE CITY: MINNEAPOLIS STATE: MN ZIP: 55479 BUSINESS PHONE: 6126671234 MAIL ADDRESS: STREET 1: NORWEST CENTER STREET 2: SIXTH & MARQUETTE CITY: MINNEAPOLIS STATE: MN ZIP: 55479 FORMER COMPANY: FORMER CONFORMED NAME: NORTHWEST BANCORPORATION DATE OF NAME CHANGE: 19830516 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 OR (_) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-2979 NORWEST CORPORATION A Delaware Corporation - I.R.S. No. 41-0449260 Norwest Center Sixth and Marquette Minneapolis, Minnesota 55479 Telephone (612) 667-1234 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------- ------------------- Common Stock ($1 2/3 par value) New York Stock Exchange Chicago Stock Exchange Preferred Share Purchase Rights New York Stock Exchange Chicago Stock Exchange 6 3/4% Convertible Subordinated New York Stock Exchange Debentures Due 2003 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 not be 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. [_] On January 31, 1997, 373,643,305 shares of common stock were outstanding having an aggregate market value, based upon a closing price of $47.625 per share, of $17,794.8 million. At that date, the aggregate market value of the voting stock held by non-affiliates was in excess of $16,106.6 million. Documents Incorporated by Reference Portions of the corporation's Notice of Annual Meeting and Proxy Statement for the annual meeting of stockholders to be held April 22, 1997, are incorporated by reference into Part III. PART I ITEM 1. BUSINESS GENERAL Norwest Corporation (the corporation) is a diversified financial services company organized under the laws of Delaware in 1929 and registered under the Bank Holding Company Act of 1956, as amended (the BHC Act). As a diversified financial services organization, the corporation owns subsidiaries engaged in banking and in a variety of related businesses. Subsidiaries of the corporation provide retail, commercial, and corporate banking services to customers through banks located in Arizona, Colorado, Illinois, Indiana, Iowa, Minnesota, Montana, Nebraska, Nevada, New Mexico, North Dakota, Ohio, South Dakota, Texas, Wisconsin and Wyoming. Additional financial services are provided to customers by subsidiaries engaged in various businesses, principally 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. At December 31, 1996, the corporation and its subsidiaries employed 53,369 persons, had consolidated total assets of $80.2 billion, total deposits of $50.1 billion, and total stockholders' equity of $6.1 billion. Based on total assets at December 31, 1996, the corporation was the 12th largest bank holding company in the United States. The corporation 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, administrative and audit, employee benefits and payroll management. In addition, the corporation provides funds to its subsidiaries. The corporation derives substantially all its income from investments in and advances to its subsidiaries and service fees received from its subsidiaries. The Financial Review, which begins on page 18 in the Appendix, discusses developments in the corporation's businesses during 1996 and provides financial and statistical data relative to the business and operations of the corporation. A brief description of the primary business lines of the corporation follows. Refer to Note 16 of the corporation's consolidated financial statements for financial information about the corporation's business segments. Banking As of February 1, 1997, the corporation's 42 subsidiary banks, located in 16 states with 829 locations, offer diversified financial services including retail, commercial and corporate banking, equipment leasing, and trust services; and through their affiliates offer insurance, securities brokerage, investment banking and venture capital investment. Investment services are provided to customers by Norwest Investment Services, Inc., a registered broker/dealer and a registered investment adviser, which operates in 15 states with 274 offices, primarily in banking locations. Norwest Insurance, Inc. and its subsidiaries operate insurance agencies in eight states with 46 offices offering complete lines of commercial and personal coverages to customers. A subsidiary of the corporation operates one of the nation's top five crop insurance managing general agencies. There are also three insurance companies that are owned by bank affiliates and three other insurance companies that are owned directly or indirectly by the corporation that reinsure credit-related insurance products for banking affiliates. Norwest Bank Minnesota, N.A. is the largest bank in the group with total assets of $17.6 billion at December 31, 1996. Eleven other banks in the group exceeded $2.0 billion in total assets: Norwest Bank Colorado, N.A. ($7.9 billion), Norwest Bank Iowa, N.A. ($5.7 billion), Norwest Bank South Dakota, N.A. ($4.3 billion), Norwest Bank Arizona, N.A. ($3.8 billion), Norwest Bank Nevada, F.S.B. ($2.8 billion), Norwest Bank Wyoming, N.A. ($2.8 billion), Norwest Bank Texas, N.A. ($2.5 billion); Norwest Bank Nebraska, N.A. ($2.3 billion), Norwest Bank New Mexico, N.A. ($2.2 billion); Norwest Bank Indiana, N.A. ($2.2 billion) and Norwest Bank Texas South Central, N.A. ($2.1 billion). Norwest Venture Capital consists of a group of three affiliated companies engaged in making and managing investments in start-up businesses, emerging growth companies, management buy-outs, acquisitions and 2 corporate recapitalizations. During 1996, Norwest Venture Capital made new investments of $150 million. Norwest Venture Capital's investments typically range from $1,500,000 to $15,000,000; however, larger sums may be invested in a single company, sometimes through syndication with other venture capitalists. Most Norwest Venture Capital emerging growth company clients are engaged in technology-related businesses, such as computer software, telecommunications, medical products, health care delivery and industrial automation. Remaining clients are engaged in non-technology businesses, such as specialty retailing and consumer-related businesses. Financing of management buy-outs is done for a variety of businesses. Mortgage Banking Subsidiaries of the corporation originate and purchase residential first mortgage loans for sale to various investors and provide servicing of mortgage loans for others. Income is primarily earned from origination fees, loan servicing fees, interest on mortgages held for sale, and the sale of mortgages and servicing rights. Norwest Mortgage offers a wide range of FHA, VA and conventional loan programs through a network of 754 offices in all 50 states. Approximately 33.5 percent of the mortgages are FHA and VA mortgages guaranteed by the federal government and sold as GNMA securities. In 1996 the company funded $51.5 billion of mortgages, with the average loan being approximately $112,800. This compares with $33.9 billion of fundings in 1995 and $24.9 billion in 1994. The five states with the highest originations in 1996 were: California $9.7 billion; Minnesota $3.2 billion; Illinois $2.4 billion; Washington $2.3 billion; and Colorado $2.3 billion. The originations in these five states comprise approximately 38.6 percent of total originations in 1996. The five highest states in servicing as of December 31, 1996 were: California $36.4 billion; Minnesota $10.3 billion; New York $8.7 billion; Texas $8.6 billion; and Florida $7.9 billion. These five states comprise approximately 40.0 percent of the total servicing portfolio at year-end 1996. As of December 31, 1996, the mortgage servicing portfolio totaled $179.7 billion with a weighted average coupon of 7.77 percent, as compared with $107.4 billion and 7.76 percent, respectively, at December 31, 1995. The increase in 1996 was due in part to the acquisition of certain assets of The Prudential Home Mortgage Company, Inc. in May 1996, including $47 billion of its mortgage servicing portfolio. Consumer Finance Norwest Financial consists of Norwest Financial Services, Inc. and its subsidiaries and Island Finance, a group of eight companies operating in the Caribbean and Central America. Consumer finance activities include providing direct installment loans to individuals, purchasing sales finance contracts, providing private label and other lease and accounts receivables services and providing other related products and services. Norwest Financial provides consumer finance products and services through 1,244 stores in 48 states, Guam, all ten Canadian provinces, the Caribbean and Central America. At December 31, 1996, consumer finance receivables accounted for 93 percent of Norwest Financial's total receivables. Direct installment loans to individuals constitute the largest portion of the consumer finance business and, in addition, sales finance contracts are purchased from retailers. The five states with the largest consumer finance receivables are: California $464.9 million; Texas $226.8 million; Florida $225.3 million; Illinois $224.0 million; and Ohio $173.1 million. Consumer finance receivables in Puerto Rico and Canada totaled $1.1 billion and $545.7 million, respectively, at December 31, 1996. The consumer finance receivables of Puerto Rico, Canada, and the five largest states listed above comprise approximately 43.5 percent of total consumer finance receivables at year-end 1996. The average installment loan made during 1996 was approximately $2,700, while sales finance contracts purchased during the year averaged approximately $1,100. Comparable amounts in 1995 were $2,400 and $1,100, respectively. Norwest Financial's insurance subsidiaries are primarily engaged in the business of providing, directly or through reinsurance arrangements, credit life and credit disability insurance as a part of Norwest Financial's consumer finance business. Property, involuntary unemployment and non-filing insurance also are sold as part of Norwest Financial's consumer finance business, either directly or through a reinsurance arrangement with one of its insurance subsidiaries or on an agency basis. Norwest Financial Information Services Group, Inc. (NFISG) has developed and installed an on-line, real-time information processing and communications system which connects, over leased telecommunication facilities, equipment located in branch offices to the computer center in Norwest Financial's home office. Branch employees use the computer to process loans and payments, to write checks and to perform bookkeeping functions. In addition, as of December 31, 1996, NFISG had contracts to supply information services to 28 other non-affiliated 3 finance companies. On that date, approximately 3,000 offices were being served and 6.4 million accounts were being maintained on the system. Acquisitions The corporation expands its businesses in part by acquiring banking institutions and other companies engaged in activities closely related to banking. See Note 2 of the corporation's consolidated financial statements beginning on page 39 in the Appendix regarding acquisitions by the corporation since 1994. The acquisition of banking institutions and other companies by the corporation is generally subject to the prior approval of the Board of Governors of the Federal Reserve System (the Federal Reserve Board) and may be subject to the prior approval of other federal and state regulatory authorities. Under the interstate banking provisions of the Reigle-Neal Interstate Banking and Branching Act of 1994 (the Reigle-Neal Act), which became effective September 29, 1995, the corporation is permitted to acquire banks in any state subject to the prior approval of the Federal Reserve Board, certain limited conditions that a state may impose and deposit concentration limits of 10 percent nationwide and 30 percent in any one state, unless it is the initial entry of a banking institution into that state. Effective June 1, 1997, under the interstate branching provisions of the Reigle-Neal Act, banking subsidiaries of the corporation are permitted to acquire directly a banking institution located in a state other than the state in which the acquiring bank is located (interstate bank merger) through merger, consolidation or purchase of assets and assumption of liabilities, unless the state in which either of the banks is located has enacted a law opting out of the interstate branching provisions of the Reigle- Neal Act. The corporation will be unable to consolidate its banking operations in one state with those of another state if either state has opted out of the Reigle-Neal Act. The state of Texas has opted out of the Reigle-Neal Act and the state of Montana has opted out until at least the year 2000. An interstate bank merger may occur before June 1, 1997, if the states in which the merging banks are located have enacted a law authorizing interstate bank mergers. Interstate bank mergers are subject to the prior approval of the applicable federal and state regulatory authorities, and may be subject to certain limited conditions that a state may impose and the concentration limits outlined above. In determining whether to approve a proposed bank acquisition or merger, bank regulatory authorities consider a number of factors including the effect of the proposed acquisition on competition, the public benefits expected to be derived from the consummation of the proposed transaction, 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. COMPETITION Legislative and regulatory changes coupled with technological advances have significantly increased competition in the financial services industry. The corporation's banking and financial services subsidiaries compete with other traditional 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. Competition has also increased from such non-banking institutions as brokerage houses and insurance companies, as well as financial services subsidiaries of commercial and manufacturing companies, that are not necessarily subject to the same regulatory restrictions as banks and bank holding companies. GOVERNMENT POLICIES, SUPERVISION AND REGULATION General As a bank holding company, the corporation is subject to the supervision and examination by the Federal Reserve Board under the BHC Act. The corporation's national banking subsidiaries are regulated primarily by the Office of the Comptroller of the Currency (OCC) while its state-chartered banking subsidiaries are regulated primarily by the Federal Deposit Insurance Corporation (FDIC) and applicable state banking agencies. The corporation's savings and loan association subsidiary is regulated primarily by the Office of Thrift Supervision (OTS). The deposits of the corporation's banking subsidiaries are primarily insured by the Bank Insurance Fund (BIF) and savings and loan association deposits are insured by the Savings Association Insurance Fund (SAIF), subjecting 4 such subsidiaries to FDIC regulation. In addition to the impact of regulation, commercial banks are affected significantly by the actions of the Federal Reserve Board affecting the money supply and credit availability. The corporation has other financial services subsidiaries that are subject to regulation by the Federal Reserve Board and other applicable federal and state agencies. For example, the corporation's brokerage subsidiary is subject to regulation by the Securities and Exchange Commission, the National Association of Securities Dealers, Inc. and state securities regulators. The corporation's insurance subsidiaries are subject to regulation by applicable state insurance regulatory agencies. Other nonbank subsidiaries of the corporation are subject to the laws and regulations of both the federal government and the various states in which they conduct business. Dividend Restrictions Various federal and state statutes and regulations limit the amount of dividends the banking, savings and loan association and other subsidiaries can pay to the corporation without regulatory approval. Refer to Note 19 of the corporation's consolidated financial statements for additional information. Holding Company Structure The corporation is a legal entity separate and distinct from its banking and nonbanking subsidiaries. Accordingly, the right of the corporation, and thus the right of the corporation's creditors, to participate in any distribution of the assets or earnings of any subsidiary, other than in its capacity as a creditor of the subsidiary, is necessarily subject to the prior payment of claims of creditors of such subsidiary. The principal sources of the corporation's revenues are dividends and fees from its subsidiaries. The corporation's banking subsidiaries are subject to restrictions under federal law which limit the transfer of funds by the subsidiary banks to the corporation and its non-bank subsidiaries, whether in the form of loans, extensions of credit, investments or asset purchases. Such transfers by any subsidiary bank to the corporation or any non-bank subsidiary are limited in amount to 10 percent of the bank's capital and surplus and, with respect to the corporation and all non-bank subsidiaries, to an aggregate of 20 percent of the bank's capital and surplus. Further, such loans and extensions of credit are required to be secured in specified amounts. The Federal Reserve Board has a policy to the effect that a bank holding company is expected to act as a source of financial and managerial strength to each of its subsidiary banks and to commit resources to support each subsidiary bank. This support may be required at times when the corporation may not have the resources to provide support. Any capital loans by the corporation to any of the subsidiary banks are subordinate in right of payment to deposits and to certain other indebtedness of the subsidiary bank. In addition, the Crime Control Act of 1990 provides that 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. A depository institution insured by the FDIC can be held liable for any loss incurred, or reasonably expected to be incurred, by the FDIC after August 9, 1989, in connection with (i) the default of a commonly controlled FDIC-insured depository institution or (ii) any assistance provided by the FDIC to a commonly controlled FDIC-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. Federal law (12 U.S.C. Section 55) permits the OCC to order the pro rata assessment of shareholders of a national bank whose capital stock has become impaired, by losses or otherwise, to relieve a deficiency in such national bank's capital stock. This statute also provides for the enforcement of any such pro rata assessment of shareholders of such national bank to cover such impairment of capital stock by sale, to the extent necessary, of the capital stock of any assessed shareholder failing to pay the assessment. Similarly, the laws of certain states provide for such assessment and sale with respect to banks chartered by such states. The corporation, as the sole stockholder of most of its subsidiary banks, is subject to such provisions. 5 Capital Requirements The Federal Reserve Board, the OCC and the FDIC have adopted substantially similar risk-based and leverage capital guidelines for banking organizations. Such guidelines are intended to ensure that banking organizations have adequate capital given the risk levels of their assets and off-balance sheet commitments. Under the Federal Reserve Board's risk-based capital guidelines for bank holding companies, the minimum ratio of total capital to risk-adjusted assets (including certain off-balance sheet items, such as stand-by letters of credit) is eight percent. At least half of the total capital is to be comprised of common stock, minority interests and noncumulative perpetual preferred stock (Tier 1 capital). The remainder (Tier 2 capital) may consist of hybrid capital instruments, perpetual stock, mandatory convertible debt securities, a limited amount of subordinated debt, other preferred stock and a limited amount of the allowance for credit losses. Additionally, the risk-based capital guidelines specify that all intangibles, including core deposit intangibles, as well as mortgage servicing rights (MSRs), and purchased credit card relationships (PCCRs) be deducted from Tier 1 capital. The guidelines, however, grandfather identifiable intangible assets (other than MSRs and PCCRs) acquired on or before February 19, 1992, and permit the inclusion of readily marketable PMSRs and PCCRs in Tier 1 capital to the extent that (i) MSRs and PCCRs do not exceed 50 percent of Tier 1 capital and (ii) PCCRs do not exceed 25 percent of Tier 1 capital. For such purposes, MSRs and PCCRs each are included in Tier 1 capital only up to the lesser of (a) 90 percent of their fair market value (which must be determined quarterly) and (b) 100 percent of the remaining unamortized book value of such assets. In addition, the Federal Reserve Board has specified minimum "leverage ratio" (the ratio of Tier 1 capital to quarterly average total assets) guidelines for bank holding companies and state member banks. These guidelines provide for a minimum leverage ratio of three percent for bank holding companies and state member banks that meet certain specified criteria, including that they have the highest regulatory rating. All other bank holding companies and state member banks are required to maintain a leverage ratio of three percent plus an additional cushion of one to two percent. The guidelines also 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. Furthermore, the guidelines indicate that the Federal Reserve Board will continue to 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, less all intangibles, to total assets, less all intangibles. Each of the corporation's banking subsidiaries is also subject to capital requirements adopted by applicable regulatory agencies which are substantially similar to the foregoing. At December 31, 1996, the corporation's Tier 1 and total capital (the sum of Tier 1 and Tier 2 capital) to risk-adjusted assets ratios were 8.63 percent and 10.42 percent, respectively, and the corporation's leverage ratio was 6.15 percent. Neither the corporation nor any subsidiary bank has been advised by the appropriate federal regulatory agency of any specific leverage ratio applicable to it. As a result of federal law enacted in 1991 that required each federal banking agency to revise its risk-based capital standards to ensure that those standards take adequate account of interest rate risk, concentration of credit risk and the risks of nontraditional activities, each of the federal banking agencies has revised the risk-based capital guidelines described above to take account of concentration of credit risk and risk of nontraditional activities. The Federal Reserve Board, the FDIC and the OCC adopted a rule that amends, effective September 1, 1995, the capital standards to include explicitly a bank's exposure to declines in the economic value of its capital due to changes in interest rates as a factor to be considered in evaluating a bank's interest rate exposure. Such agencies issued for comment a joint policy statement that described the process to be used to measure and assess the exposure of a bank's net economic value to changes in interest rates. In June 1996, these agencies elected not to pursue a standardized supervisory measure and explicit capital charge for interest rate risk. In supervising interest rate risk, the agencies intend to emphasize reliance on internal measures of risk, promotion of sound risk management practices and other means to identify those institutions that appear to be taking excessive risk. The corporation does not believe these revisions to the capital guidelines will materially impact its operations. Effective January 1, 1998, federal bank regulatory agencies will require banking organizations that engage in significant trading activity to calculate a charge for market risk. Organizations may opt to comply effective January 1, 1997. Significant trading activity, for this purpose, is defined to include trading activity of at least ten 6 percent of total assets or $1 billion, whichever is smaller, calculated on a consolidated basis for bank holding companies. Federal bank regulators may apply the market risk measure to other banks and bank holding companies if the agency deems necessary or appropriate for safe and sound banking practices. Each agency may exclude organizations that it supervises that otherwise meet the criteria under certain circumstances. The market risk charge will be included in the calculation of applicable risk-based capital ratios. The corporation has not historically engaged in significant trading activity, as defined. Federal Deposit Insurance Corporation Improvement Act of 1991 In December 1991, Congress enacted the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), which substantially revised the bank regulatory and funding provisions of the Federal Deposit Insurance Act and made revisions to several other federal banking statutes. Among other things, FDICIA requires the federal banking regulators to take "prompt corrective action" in respect of depository institutions insured by the FDIC that do not meet minimum capital requirements. FDICIA establishes five capital tiers: "well capitalized", "adequately capitalized", "undercapitalized", "significantly undercapitalized" and "critically undercapitalized". Under applicable regulations, an FDIC-insured depository institution is defined to be well capitalized if it maintains a leverage ratio of at least five percent, a risk-adjusted Tier 1 capital ratio of at least six percent and a risk-adjusted total capital ratio of at least 10 percent, and is not subject to a directive, order or written agreement to meet and maintain specific capital levels. An insured depository institution is defined to be adequately capitalized if it meets all of its minimum capital requirements as described above. An insured depository institution will be considered undercapitalized if it fails to meet any minimum required measure, significantly undercapitalized if it has a risk-adjusted total capital ratio of less than six percent, risk- adjusted Tier 1 capital ratio of less than three percent or a leverage ratio of less than three percent, and critically undercapitalized if it fails to maintain a level of tangible equity equal to at least two percent of total assets. An insured depository institution may be deemed to be in a capitalization category that is lower than is indicated by its actual capital position if it receives an unsatisfactory examination rating. As of December 31, 1996, all of the corporation's banking subsidiaries were well capitalized. FDICIA generally prohibits a depository institution from making any capital distribution (including payment of a dividend) or paying any management fee to its holding company if the depository institution would thereafter be undercapitalized. Undercapitalized depository institutions are subject to a wide range of limitations on operations and activities, including growth limitations, and are required to submit a capital restoration plan. The federal banking agencies may not accept a capital plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution's capital. In addition, for a capital restoration plan to be acceptable, the depository institution's parent holding company must guarantee that the institution will comply with such capital restoration plan. The aggregate liability of the parent holding company is limited to the lesser of (i) an amount equal to five percent of the depository institution's total assets at the time it became undercapitalized and (ii) the amount which is necessary (or would have been necessary) to bring the institution into compliance with all capital standards applicable with respect to such institution as of the time it fails to comply with the plan. If a depository institution fails to submit an acceptable plan, it is treated as if it were significantly undercapitalized. Significantly undercapitalized depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets and cessation of receipt of deposits from correspondent banks. Critically undercapitalized institutions are subject to the appointment of a receiver or conservator. FDICIA, as amended by the Reigle Community Development and Regulatory Improvement Act of 1994 enacted on August 22, 1994, directs that each federal banking agency prescribe standards, by regulation or guideline, for depository institutions relating to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, asset quality, earnings, stock valuation, and such other operational and managerial standards as the agency deems appropriate. The FDIC, in consultation with the other federal banking agencies, has adopted a final rule and guidelines with respect to internal and external audit procedures and internal controls in order to implement those provisions of FDICIA 7 intended to facilitate the early identification of problems in financial management of depository institutions. On July 10, 1995, the federal banking agencies published the final rules implementing three of the safety and soundness standards required by FDICIA, including operational and managerial standards, asset quality and earnings standards, and compensation standards. The impact of such standards on the corporation has not been material. FDICIA also contains a variety of other provisions that may affect the operations of the corporation, including new reporting requirements, revised regulatory standards for real estate lending, "truth in savings" provisions and the requirement that a depository institution give 90 days' notice to customers and regulatory authorities before closing any branch. Under other regulations promulgated under FDICIA a bank cannot accept brokered deposits (that is, deposits obtained through a person engaged in the business of placing deposits with insured depository institutions or with interest rates significantly higher that prevailing market rates) unless (i) it is well capitalized or (ii) it is adequately capitalized and receives a waiver from the FDIC. A bank that cannot receive brokered deposits also cannot offer "pass- through" insurance on certain employee benefit accounts, unless it provides certain notices to affected depositors. In addition, a bank that is adequately capitalized and that has not received a waiver from the FDIC may not pay an interest rate on any deposits in excess of 75 basis points over certain prevailing market rates. There are no such restrictions on a bank that is well capitalized. At December 31, 1996, all of the corporation's banking subsidiaries were well capitalized and, therefore, were not subject to these restrictions. FDIC Insurance The FDIC insures the deposits of the corporation's depository institution subsidiaries through the BIF or, in the case of deposits held by its savings and loan association subsidiary or deposits held by banking subsidiaries as a result of savings and loan associations acquired by the corporation, through the SAIF. 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 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. Subgroup A institutions are financially sound institutions with few minor weaknesses; Subgroup B institutions are institutions that demonstrate weakness which, if not corrected, could result in significant deterioration; and Subgroup C institutions are institutions for which there is a substantial probability that the FDIC will suffer a loss in connection with the institution unless effective action is taken to correct the areas of weakness. The BIF assessment rate currently ranges from zero to 27 cents per $100 of domestic deposits, with Subgroup A institutions assessed at a rate of zero and Subgroup C institutions assessed at a rate of 27 cents. The FDIC may increase or decrease the assessment rate schedule on a semiannual basis. An increase in the rate assessed one or more of the corporation's banking subsidiaries could have a material effect on the corporation's earnings, depending upon 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 violated any applicable rule, regulation, order or condition enacted or imposed by the institution's regulatory agency. The termination of deposit insurance with respect to one or more of the corporation's subsidiary depository institutions could have a material adverse effect on the corporation depending on the collective size of the particular institutions involved. Deposits insured by SAIF are currently assessed at the BIF rate of zero to 27 cents per $100 of domestic deposits. The SAIF assessment rate may increase or decrease as is necessary to maintain the designated SAIF reserve ratio of 1.25 percent of insured deposits. In September 1996, Congress enacted legislation that imposed a one-time charge on deposits insured by SAIF to recapitalize the SAIF deposit insurance fund. In the third quarter of 1995 when the SAIF recapitalization legislation was first introduced in Congress, the corporation included as a charge in its normal operating results $23.5 million for its share of recapitalization of the SAIF deposit insurance fund. In 8 1996, the corporation has acquired thrift institutions and recorded a $19.0 million pre-tax charge for payments due for these institutions. Under the 1996 legislation, all FDIC-insured depository institutions are required to pay an assessment to provide funds for payment of interest on Financing Corporation (FICO) bonds effective January 1, 1997. Until December 31, 1999 or when the last savings and loan association ceases to exist, whichever occurs first, institutions will pay approximately 6.4 cents per $100 of SAIF-assessable deposits and approximately 1.3 cents per $100 of BIF- assessable deposits. Subject to certain conditions, BIF and SAIF will be merged into one insurance fund effective January 1, 1999. Depositor Preference Under the Federal Deposit Insurance Act, claims of holders of domestic deposits and certain claims of administrative expenses and employee compensation against an FDIC-insured depository institution have priority over other general unsecured claims against the institution in the "liquidation or other resolution" of the institution by a receiver. 9 ITEM 2. PROPERTIES The corporation's bank subsidiaries operate out of 829 banking locations, of which 542 are owned directly and 287 are leased from outside parties. The mortgage banking operations lease its headquarters facilities and servicing center in Des Moines, Iowa and leases servicing centers in Minneapolis, Minnesota; Phoenix, Arizona; Charlotte, North Carolina; Springfield, Illinois; and leases all mortgage production offices nationwide. In addition, the mortgage banking operation owns additional servicing centers located in Springfield, Ohio and Riverside, California. Norwest Financial owns its headquarters in Des Moines, Iowa, and leases all consumer finance branch locations. The corporation and Norwest Bank Minnesota, N.A. lease their offices in Minneapolis, Minnesota. The accompanying notes to consolidated financial statements on pages 44 and 57 in the Appendix contain additional information with respect to premises and equipment and commitments under noncancelable leases for premises and equipment. ITEM 3. LEGAL PROCEEDINGS The corporation and certain subsidiaries are defendants in various matters of litigation generally incidental to their businesses. Although it is difficult to predict the ultimate outcome of these cases, management believes, based on discussions with counsel, that any ultimate liability will not materially affect the consolidated financial position and results of operations of the corporation and its subsidiaries. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None 10 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The principal trading markets for the corporation's common equity are presented on the cover page of this Form 10-K. The high and low sales prices for the corporation's common stock for each quarter during the past two years and information regarding cash dividends is set forth on pages 48 through 50, 75, and 81 in the Appendix. The number of holders of record of the common stock and securities convertible into common stock of the corporation at January 31, 1997 were: Title of Class Number of Holders -------------- ----------------- 6 3/4 % Convertible Subordinated Debentures Due 2003................. 6 Common Stock, par value $1 2/3 per share......... 39,105 ITEM 6. SELECTED FINANCIAL DATA The selected financial data begins on page 75 in the Appendix. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The discussion and analysis is presented beginning on page 18 in the Appendix and should be read in conjunction with the related financial statements and notes thereto included under Item 8. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements of the corporation and its subsidiaries begin on page 31 in the Appendix. The report of independent certified public accountants on the corporation's consolidated financial statements is presented on page 73 in the Appendix. Selected quarterly financial data is presented on pages 81 and 82 in the Appendix. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None 11 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required to be submitted in response to this item is omitted because a definitive proxy statement containing such information will be filed with the Securities and Exchange Commission pursuant to Regulation 14A, and such information is expressly incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information required to be submitted in response to this item is omitted because a definitive proxy statement containing such information will be filed with the Securities and Exchange Commission pursuant to Regulation 14A, and such information is expressly incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required to be submitted in response to this item is omitted because a definitive proxy statement containing such information will be filed with the Securities and Exchange Commission pursuant to Regulation 14A, and such information is expressly incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required to be submitted in response to this item is omitted because a definitive proxy statement containing such information will be filed with the Securities and Exchange Commission pursuant to Regulation 14A, and such information is expressly incorporated herein by reference. 12 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) (1) Financial Statements - See Item 8 above. (2) Financial Statement Schedules All schedules to the consolidated financial statements normally required by Form 10-K are omitted since they are either not applicable or the required information is shown in the financial statements or the notes thereto. (3) Management Contracts or Compensatory Plan Arrangements - See exhibits marked with an asterisk in Item 14(c) below. (b) Reports on Form 8-K The corporation filed a Current Report on Form 8-K, dated October 14, 1996, reporting consolidated operating results of the corporation for the quarter ended September 30, 1996. (c) Exhibits 3(a). Restated Certificate of Incorporation, as amended, incorporated by reference to Exhibit 3(b) to the corporation's Current Report on Form 8-K dated June 28, 1993. Certificate of Amendment of Certificate of Incorporation of the corporation authorizing 4,000,000 shares of Preference Stock, incorporated by reference to Exhibit 3 to the corporation's Current Report on Form 8-K dated July 3, 1995. 3(b). Certificate of Designations of powers, preferences and rights relating to the corporation's ESOP Cumulative Convertible Preferred Stock incorporated by reference to Exhibit 4 to the corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 1994. 3(c). Certificate of Designations of powers, preferences and rights relating to the corporation's Cumulative Tracking Preferred Stock incorporated by reference to Exhibit 3 to the corporation's Current Report on Form 8-K dated January 9, 1995. 3(d). Certificate of Designations of powers, preferences and rights relating to the corporation's 1995 ESOP Cumulative Convertible Preferred Stock incorporated by reference to Exhibit 4 to the corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995. 3(e). Certificate Eliminating the Certificate of Designations with respect to the Cumulative Convertible Preferred Stock, Series B, incorporated by reference to Exhibit 3(a) to the corporation's Current Report on Form 8-K dated November 1, 1995. 3(f). Certificate Eliminating the Certificate of Designations with respect to the 10.24% Cumulative Preferred Stock incorporated by reference to Exhibit 3 to the corporation's Current Report on Form 8-K dated February 20, 1996. 3(g). Certificate of Designations of powers, preferences and rights relating to the corporation's 1996 ESOP Cumulative Convertible Preferred Stock incorporated by reference to Exhibit 3 to the corporation's Current Report on Form 8-K dated February 26, 1996. 13 3(h). By-Laws, as amended, incorporated by reference to Exhibit 4(c) to the corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 1991. 4(a). See 3(a) through 3(h) of Item 14(c) above. 4(b). Rights Agreement, dated as of November 22, 1988, between the corporation and Citibank, N.A. incorporated by reference to Exhibit 1 to the corporation's Form 8-A, dated December 6, 1988, and Certificates of Adjustment pursuant to Section 12 of the Rights Agreement incorporated by reference to Exhibit 3 to the corporation's Form 8, dated July 21, 1989, and to Exhibit 4 to the corporation's Form 8-A/A dated June 29, 1993. 4(c). Copies of instruments with respect to long-term debt will be furnished to the Commission upon request. *10(a). Long-Term Incentive Compensation Plan (as amended effective April 23, 1996) incorporated by reference to Exhibit 10(a) to the corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996. *10(b). Employees' Stock Deferral Plan incorporated by reference to Exhibit 10(c) to the corporation's Annual Report on Form 10-K for the year ended December 31, 1992. *10(c). Employees' Deferred Compensation Plan (as amended effective January 1, 1996) incorporated by reference to Exhibit 10(c) to the corporation's Annual Report on Form 10-K for the year ended December 31, 1995. *10(d). Executive Incentive Compensation Plan incorporated by reference to Exhibit 19(a) to the corporation'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 corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1989. *10(e). Performance-Based Compensation Policy for Covered Executive Officers incorporated by reference to Exhibit 10(a) to the corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994. *10(f). Supplemental Savings Investment Plan (as amended effective January 1, 1997). *10(g). Executive Financial Counseling Plan incorporated by reference to Exhibit 10(f) to the corporation's Annual Report on Form 10-K for the year ended December 31, 1987. *10(h). Supplemental Long Term Disability Plan incorporated by reference to Exhibit 10(f) to the corporation'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 corporation's Annual Report on Form 10-K for the year ended December 31, 1992. *10(i). Deferred Compensation Plan for Non-Employee Directors (as amended effective January 23, 1996) incorporated by reference to Exhibit 10(i) to the corporation's Annual Report on Form 10-K for the year ended December 31, 1995. *10(j). Retirement Plan for Non-Employee Directors (as amended effective January 28, 1997). 14 *10(k). Directors' Formula Stock Award Plan (as amended effective April 23, 1996) incorporated by reference to Exhibit 10(b) to the corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996. *10(l). Directors' Stock Deferral Plan incorporated by reference to Exhibit 19 to the corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1992. *10(m). Agreement between the corporation and Lloyd P. Johnson dated March 11, 1991, incorporated by reference to Exhibit 19(c) to the corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 1991. *10(n). Agreement between the corporation and Richard M. Kovacevich dated March 18, 1991, incorporated by reference to Exhibit 19(e) to the corporation'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 corporation and Richard M. Kovacevich, incorporated by reference to Exhibit 10(c) to the corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995. *10(o). Form of agreement between the corporation and 13 executive officers, including two directors, incorporated by reference to Exhibit 19(f) to the corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 1991. Amendment effective January 1, 1995, to the March 11, 1991 agreement between the corporation and Richard M. Kovacevich incorporated by reference to Exhibit 10(b) to the corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995. *10(p). Consulting Agreement between the corporation and Gerald J. Ford dated January 19, 1994, incorporated by reference to Exhibit 10(q) to the corporation's Annual Report on Form 10-K for the year ended December 31, 1993. 11. Computation of Earnings Per Share. 12(a). Computation of Ratio of Earnings to Fixed Charges. 12(b). Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends. 21. Subsidiaries of the Corporation. 23. Consent of Experts. 24. Powers of Attorney. ___________________ * Management contract or compensatory plan or arrangement. Stockholders may obtain a copy of any Exhibit, Item 14(c), none of which are contained herein, upon payment of a reasonable fee, by writing Norwest Corporation, Office of the Secretary, Norwest Center, Sixth and Marquette, Minneapolis, Minnesota 55479-1026. 15 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 the 24th day of February, 1997. Norwest Corporation (Registrant) By /s/ RICHARD M. KOVACEVICH ------------------------- Richard M. Kovacevich Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on the 24th day of February, 1997, by the following persons on behalf of the registrant and in the capacities indicated. By /s/ JOHN T. THORNTON -------------------- John T. Thornton Executive Vice President and Chief Financial Officer (Principal Financial Officer) By /s/ MICHAEL A. GRAF ------------------- Michael A. Graf Senior Vice President and Controller (Principal Accounting Officer) The Directors of Norwest Corporation listed below have duly executed powers of attorney empowering Richard S. Levitt to sign this document on their behalf. Les S. Biller Reatha Clark King J. A. Blanchard III Richard M. Kovacevich David A. Christensen Richard D. McCormick Pierson M. Grieve Cynthia H. Milligan Charles M. Harper Benjamin F. Montoya William A. Hodder Ian M. Rolland Michael W. Wright By /s/ RICHARD S. LEVITT --------------------- Richard S. Levitt Director and Attorney-in-Fact February 24, 1997 16 Appendix NORWEST CORPORATION AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations, Financial Statements, Report of Independent Auditors and Selected Financial Data Forming a Part of the Annual Report on Form 10-K for the Year Ended December 31, 1996 Contents -------- Page ---- Financial Review........................................ 18 Financial Statements.................................... 31 Independent Auditors' Report............................ 73 Management's Report..................................... 74 Six-Year Consolidated Financial Summary................. 75 Consolidated Average Balance Sheets and Related Yields and Rates............................ 76 Quarterly Condensed Consolidated Financial Information.. 81 17 FINANCIAL REVIEW This financial review should be read with the consolidated financial statements and accompanying notes presented on pages 31 through 72 and other information presented on pages 75 through 82. Earnings Performance Norwest Corporation (the corporation) reported record net income of $1,153.9 million in 1996, an increase of 20.7 percent over earnings of $956.0 million in 1995, which were up 19.4 percent over the $800.4 million earned in 1994. Net income per fully diluted common share was $3.07 in 1996, compared with $2.73 in 1995 and $2.41 in 1994, an increase of 12.5 percent and 13.3 percent, respectively. Return on realized common equity was 21.9 percent and return on assets was 1.51 percent for 1996, compared with 22.3 percent and 1.44 percent, respectively, in 1995, and 21.4 percent and 1.45 percent, respectively, in 1994. In September 1996, legislation was enacted by Congress that imposed a one-time charge on deposits insured by the Savings Association Insurance Fund (SAIF) to recapitalize the SAIF deposit insurance fund for savings and loan associations. In the past, the corporation acquired savings and loan associations which are subject to this charge. In the third quarter of 1995 when the SAIF recapitalization legislation was first introduced in Congress, the corporation included as a charge in its normal operating results $23.5 million for its share of recapitalization of the SAIF deposit insurance fund. In 1996, the corporation has acquired thrift institutions and recorded a charge of $19.0 million for payments due for these institutions. Excluding the $19.0 million pre-tax charge, net operating earnings were $1,165.7 million or $3.10 per fully diluted common share. On an operating basis, return on realized common equity was 22.1 percent and return on assets was 1.52 percent for the year ended December 31, 1996. Norwest Corporation and Subsidiaries Consolidated Income Summary
5 Year Growth In millions 1996 Change 1995 Change 1994 1993 1992 Rate -------- ------ -------- ------ -------- -------- -------- ---- Interest income (tax-equivalent basis)......... $6,350.5 10.4% $5,750.8 30.0% $4,422.7 $3,979.6 $3,844.3 9.3% Interest expense............................... 2,617.0 6.9 2,448.0 54.0 1,590.1 1,442.9 1,610.6 4.0 -------- -------- -------- -------- -------- Net interest income......................... 3,733.5 13.0 3,302.8 16.6 2,832.6 2,536.7 2,233.7 14.2 Provision for credit losses.................... 394.7 26.3 312.4 89.4 164.9 158.2 270.8 (0.6) -------- -------- -------- -------- -------- Net interest income after provision for credit losses......................... 3,338.8 11.7 2,990.4 12.1 2,667.7 2,378.5 1,962.9 17.1 Non-interest income............................ 2,564.6 38.8 1,848.2 12.8 1,638.3 1,585.0 1,273.7 19.2 Non-interest expenses.......................... 4,089.7 20.9 3,382.3 9.2 3,096.4 3,050.4 2,553.1 14.9 -------- -------- -------- -------- -------- Income before income taxes.................. 1,813.7 24.5 1,456.3 20.4 1,209.6 913.1 683.5 27.4 Income tax expense............................. 627.6 34.4 466.8 22.8 380.2 266.7 175.6 53.6 Tax-equivalent adjustment...................... 32.2 (3.9) 33.5 15.5 29.0 33.3 37.9 (7.6) -------- -------- -------- -------- -------- Income before cumulative effect of a change in accounting for postretirement medical benefits............. 1,153.9 20.7 956.0 19.4 800.4 613.1 470.0 22.5 Cumulative effect on years ended prior to December 31, 1992 of a change in accounting for postretirement medical benefits............................ -- -- -- -- -- -- (76.0) -- -------- -------- -------- -------- --------- Net income..................................... $1,153.9 20.7% $ 956.0 19.4% $ 800.4 $ 613.1 $ 394.0 22.5% ======== ======== ======== ======== ========
Organizational Earnings Banking The Banking Group reported record operating earnings of $776.4 million in 1996, 28.9 percent over 1995 earnings of $602.2 million, which increased 18.8 percent over 1994 earnings of $507.1 million. The Banking Group earnings increases in 1996 and 1995 reflect a 7.3 percent and 17.4 percent growth in tax- equivalent net interest income, respectively, primarily due to increases in average earning assets and net interest margin. The Banking Group's provision for credit losses 18 was $146.7 million in 1996, compared with $143.0 million and $50.5 million in 1995 and 1994, respectively. The 1996 and 1995 increases in the provision for loan losses were due to higher net charge-offs. Non-interest income in the Banking Group increased 35.8 percent from 1995 due primarily to increases in venture capital gains and gains on sale of credit card receivables. The Banking Group non-interest income for 1995 increased 24.1 percent from 1994 due largely to investment securities losses in 1994. Non-interest income in 1995 also benefited from growth in service charges and other fees and higher venture capital gains. Excluding the previously discussed SAIF assessment charge, the Banking Group non-interest expenses increased 14.7 percent in 1996 reflecting writedowns of goodwill and intangibles and additional operating expenses related to acquired companies, partially offset by reduced pension expense. Non-interest expenses in the Banking Group increased 14.9 percent in 1995 reflecting additional operating expenses related to acquired companies, partially offset by reductions in FDIC insurance premiums. During 1995, the FDIC assessment rate on Banking Group deposits was reduced from 23 cents per $100 of insured deposits to 4 cents per $100 of insured deposits. This rate was subsequently reduced to zero for 1996. In 1995, the Banking Group received refunds of $20.6 million related to the FDIC premium reduction. These refunds were used to offset the accrual for the SAIF assessment related to savings and loan associations acquired by the corporation prior to 1996. The venture capital subsidiaries reported $256.4 million of net gains in 1996, compared with net gains of $102.1 million in 1995 and net gains of $77.1 million in 1994. Certain appreciated securities which comprised $19.6 million of the 1994 net venture gains were contributed to the Norwest Foundation due to the funding status of the Foundation. The contribution amount of such securities, which included the cost basis, was $21.8 million in 1994. In 1995 and 1996, there were no contributions of appreciated securities to the Foundation. Net unrealized appreciation in the venture capital investment portfolio was $237.7 million at December 31, 1996 and $169.3 million at December 31, 1995. Mortgage Banking Mortgage Banking earned a record $125.0 million in 1996, a 19.2 percent increase over the $104.9 million earned in 1995, which was 48.0 percent over the $70.8 million earned in 1994. The increases were principally due to increases in mortgage loan fundings and the servicing portfolio. Fundings were $51.5 billion in 1996, compared with $33.9 billion in 1995 and $24.9 billion in 1994. Increases in volume were attributable in part to the acquisition of certain assets of Prudential Home Mortgage Company, Inc. in May 1996, including $47 billion of its mortgage servicing portfolio. The percentage of fundings attributed to mortgage loan refinancings was approximately 22.0 percent in 1996, compared with 19.6 percent in 1995 and 16.0 percent in 1994. The servicing portfolio increased to $179.7 billion at December 31, 1996, compared with $107.4 billion at December 31, 1995. The weighted average coupon was 7.77 percent at December 31, 1996, essentially unchanged from a year earlier. In 1995, the corporation adopted Statement of Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing Rights, an amendment of FASB Statement No. 65" (FAS 122). FAS 122 sets standards related to capitalizing values for mortgage servicing and recognition of impairment valuations for amounts previously capitalized. Under FAS 122 the corporation recognizes as separate assets the rights to service mortgage loans for others whether the servicing rights are acquired through purchase transactions or through loan originations. Total capitalized servicing (including excess servicing rights) amounted to $2.6 billion or 147 basis points of the mortgage servicing portfolio at December 31, 1996. Amortization of capitalized mortgage servicing rights was $300.6 million in 1996, compared with $139.6 million in 1995 and $64.1 million in 1994. The additional amortization in 1996 and in 1995 principally reflects increased balances of capitalized servicing associated with a larger servicing portfolio and increased prepayments due to the low interest rate environment. Mortgage servicing impairment valuation provisions, including writedowns of excess servicing rights, totaled $70.5 million in 1995. No mortgage servicing impairment provisions were recorded in 1996. Combined gains on sales of mortgages and servicing rights were $70.5 million in 1996, compared with $57.1 million in 1995 and $204.5 million in 1994. Norwest Financial Norwest Financial (including Norwest Financial Services, Inc. and Island Finance) reported record earnings of $264.3 million in 1996, a 6.2 percent increase over the $248.9 million earned in 1995, which was an increase of 11.8 percent over the $222.5 million earned in 1994. The increases were primarily due to increases in tax-equivalent net interest income of 16.8 percent and 21.4 percent, respectively, for 1996 and 1995. The increase in tax- equivalent net interest income was due to 14.9 percent and 28.4 percent increases in average finance receivables in 1996 and 1995, respectively. The 1996 and 1995 increases in tax-equivalent net interest income and average receivables reflect internal growth as well as the May 1995 acquisition of ITT Financial Corporation's Island Finance business, with $1 billion in receivables in Puerto Rico, the Virgin Islands and elsewhere in the Caribbean. Net interest margin increased 22 basis points in 1996 due to an improvement in funding costs. Net interest margin decreased 66 basis points in 1995, reflecting a narrowing of the yield spread on earning assets. Norwest Financial's non-interest expenses increased 15.5 and 22.9 percent in 1996 and 1995, respectively, primarily due to the acquisition of Island Finance. 19 Norwest Corporation and Subsidiaries Organizational Earnings*
In millions 1996 1995 1994 1993 1992 -------- --------- -------- --------- --------- Years Ended December 31, - ------------------------ Banking............................................................. $ 776.4 602.2 507.1 356.7 257.6 Mortgage Banking.................................................... 125.0 104.9 70.8 56.3 53.4 Norwest Financial................................................... 264.3 248.9 222.5 200.1 159.0 -------- --------- -------- --------- --------- Consolidated operating earnings before cumulative effect of a change in accounting for postretirement medical benefits and SAIF recapitalization........................................... 1,165.7 956.0 800.4 613.1 470.0 Cumulative effect on years ended prior to December 31, 1992 of a change in accounting for postretirement medical benefits... -- -- -- -- (76.0) SAIF recapitalization, net of income taxes.......................... (11.8) -- -- -- -- -------- --------- -------- --------- --------- Net income.......................................................... $1,153.9 956.0 800.4 613.1 394.0 ======== ========= ======== ========= =========
*Earnings of the entities listed are impacted by intercompany revenues and expenses, such as interest on borrowings from the parent company, corporate service fees and allocations of federal income taxes. Consolidated Income Statement Analysis Net Interest Income Net interest income on a tax-equivalent basis is the difference between interest earned on assets and interest paid on liabilities, with adjustments made to present yields on tax-exempt assets as if such income were fully taxable. Changes in the mix and volume of earning assets and interest-bearing liabilities, their related yields and overall interest rates have a major impact on earnings. In 1996, tax-equivalent net interest income provided 59.3 percent of the corporation's tax-equivalent net revenues, compared with 64.1 percent in 1995 and 63.4 percent in 1994. Total tax-equivalent net interest income was $3,733.5 million in 1996, a 13.0 percent increase over the $3,302.8 million reported in 1995. Growth in tax- equivalent net interest income over 1995 was primarily due to a 12.7 percent increase in average earning assets and a five basis point increase in net interest margin. The increase in average earning assets was primarily due to an 8.4 percent increase in average loans and leases and a 9.7 percent increase in investment securities. The 1995 increase in tax-equivalent net interest income of 16.6 percent over the $2,832.6 million reported in 1994 was due to an 18.7 percent increase in average earning assets, partially offset by an eight basis point decrease in net interest margin. Non-accrual and restructured loans reduced net interest income by $17.8 million in 1996, $11.7 million in 1995 and $12.3 million in 1994. Detailed analyses of net interest income appear on pages 76, 77 and 78 and a discussion of the corporation's asset and liability management process begins on page 26. Net interest margin, the ratio of tax-equivalent net interest income divided by average earning assets, was 5.63 percent in 1996, 5.58 percent in 1995 and 5.66 percent in 1994. The increase in 1996 was primarily due to an improvement in funding costs, partially offset by a lower yield on average earning assets. Net interest margin also benefited from a reduction in overall long-term debt rates. The decrease in margin in 1995 from 1994 was due to a narrowing of the yield spread on earning assets and a change in funding mix due to increases in long- term debt. Average loans and leases comprised 57.7 percent of average earning assets in 1996, compared with 60.0 percent in 1995 and 60.6 percent in 1994. Provision for Credit Losses The provision for credit losses reflects management's judgment of the cost associated with credit risk inherent in the loan and lease portfolio. The consolidated provision for credit losses was $394.7 million in 1996, $312.4 million in 1995 and $164.9 million in 1994. The provision for credit losses was 1.02 percent of average loans and leases in 1996, compared with 0.88 percent in 1995 and 0.55 percent in 1994. The provision for credit losses was higher in 1996 compared with 1995 as well as in 1995 compared with 1994 due to higher net charge-offs and loan growth. Net credit losses were $382.4 million in 1996, $304.2 million in 1995 and $193.2 million in 1994. Net credit losses as a percent of average loans and leases were 0.99 percent in 1996, compared with 0.86 percent in 1995 and 0.64 percent in 1994. The increase in net credit losses in 1996 over 1995 was principally due to higher levels of charge-offs in regions where the corporation has had acquisitions and to slightly higher consumer credit charge-offs at Norwest Financial. The increase in net credit losses in 1995 over 1994 was due principally to increases in consumer and credit card net charge-offs of $108.2 million. The net charge-off ratio, the ratio of net credit losses to average loans and leases, for Norwest Financial was 3.24 20 percent in 1996, compared with 2.52 percent in 1995 and 2.00 percent in 1994. Norwest Card Services' net charge-off ratio (excluding credit card portfolios classified held for sale in 1995) was 4.23 percent in 1996 compared with 4.77 percent in 1995 and 3.07 percent in 1994. The higher consumer loan net credit losses reflect, in part, growth in the overall portfolio, including the acquisition of Island Finance in 1995. Norwest Financial's net charge-offs in 1995 increased $60.7 million over 1994, of which $23.6 million related to Island Finance. Further, $49.2 million of 1995 net credit card charge-offs relate to receivables from the corporation's direct mail programs which were suspended in 1995. Non-interest Income Non-interest income is a significant source of the corporation's revenue, representing 40.7 percent of tax-equivalent net revenues in 1996, compared with 35.9 percent in 1995 and 36.6 percent in 1994. Consolidated non-interest income was $2,564.6 million in 1996, an increase of 38.8 percent over $1,848.2 million recorded in 1995. Non-interest income includes net investment securities losses of $46.8 million and $44.5 million in 1996 and 1995, respectively; proceeds from sales provided opportunities for the corporation to reinvest at higher yields. Contributing to the 1996 increase were higher fees and service charges including trust fees, service charges on deposit accounts and insurance revenues, increases in mortgage banking revenues, net venture capital gains and gains on the disposition of credit card receivables held for sale. The increases in trust fees and deposit service charges reflect overall increases in business activity, including acquisitions, and marketing efforts. Mortgage banking revenues increased $286.0 million from 1995 due to increased levels of origination and other closing fees and servicing fees, resulting from growth in the corporation's servicing portfolio and higher mortgage loan funding levels. Servicing fees are expected to increase as the servicing portfolio grows through retention of servicing and through acquisitions. Mortgage banking revenue derived from sales of servicing and future sales of servicing rights are largely dependent upon portfolio characteristics and prevailing market conditions. The increase in insurance fees is attributed to commissions on credit life and crop hail insurance. Net venture capital gains were $256.4 million in 1996, compared with $102.1 million in 1995. Sales of venture capital securities generally relate to the timing of such holdings becoming publicly traded and subsequent market conditions, causing venture capital gains to be unpredictable in nature. Other non-interest income in 1996 includes $33.5 million in gains on the sale of credit card receivables. Consolidated non-interest income increased 12.8 percent in 1995 from $1,638.3 million in 1994, primarily due to higher trust fees, service charges on deposit accounts, credit card and insurance fees, and trading revenues, and lower levels of net investment securities losses, partially offset by lower mortgage banking revenues from reduced sales of servicing rights. The increases in various fee based services related to growth in consumer-related lending activities and other marketing initiatives. Non-interest Expenses Consolidated non-interest expenses increased 20.9 percent in 1996 to $4,089.7 million. In addition to the non-recurring charge related to the recapitalization of SAIF, the change in non-interest expenses reflects increased operating expenses associated with acquisitions and certain one-time acquisition charges related to completed 1996 transactions and writedowns of goodwill and other intangibles of $151.0 million before taxes, partially offset by reduced pension benefits expense of $53.2 million due to changes in pension assumptions. Personnel expenses increased $352.0 million in 1996, primarily attributable to salaries expense. Changes in personnel expenses by business segment for 1996 included an increase of 14.0 percent for the Banking Group, an increase of 37.5 percent for Mortgage Banking, and an increase of 15.9 percent for Norwest Financial. Normalized for acquisitions, personnel expenses increased 8.0 percent for the Banking Group, 23.6 percent for Mortgage Banking and 10.2 percent for Norwest Financial. Of the 1996 increases of $60.2 million in communication expenses, $55.0 million in equipment rentals, depreciation and maintenance, and $61.9 million in net occupancy expenses, the Banking Group contributed $33.3 million, $36.9 million and $40.8 million, respectively, and Mortgage Banking contributed $20.7 million, $15.8 million and $16.1 million, respectively. In addition to the Prudential acquisition, increases in Mortgage Banking reflect higher levels of origination and servicing volume. Consolidated non-interest expenses increased 9.2 percent in 1995 to $3,382.3 million, reflecting higher personnel expenses, additional intangible asset amortization and higher operating expenses associated with acquisitions, and growth in Mortgage Banking. Changes in personnel expenses by business segment for 1995 include an increase of 8.6 percent for the Banking Group, an increase of 21.1 percent for Mortgage Banking, and an increase of 19.2 percent for Norwest Financial. Normalized for 21 acquisitions, personnel expenses increased 1.9 percent for the Banking Group, 2.8 percent for Mortgage Banking and 8.9 percent for Norwest Financial. Of the 1995 increases of $40.2 million in communication expenses, $37.3 million in equipment rentals, depreciation and maintenance, and $27.1 million in net occupancy expenses, the Banking Group contributed $16.9 million, $24.8 million and $12.3 million, respectively, and Mortgage Banking contributed $16.1 million, $10.7 million and $8.3 million, respectively. Other non-interest expense decreased principally due to mortgage origination cost deferrals related to increased fundings. Income Taxes The corporation's income tax planning is based upon the goal of maximizing long-term, after-tax profitability. The effective income tax rate was 35.2 percent in 1996, compared with 32.8 percent in 1995 and 32.2 percent in 1994. For more information on income taxes, see Note 12 to the consolidated financial statements on page 56. Consolidated Balance Sheet Analysis Earning Assets At December 31, 1996, earning assets were $68.2 billion, compared with $62.8 billion at December 31, 1995. This increase was primarily due to a $1.0 billion increase in total investment securities and a $3.2 billion increase in loans and leases. Average earning assets were $66.8 billion in 1996, an increase of 12.7 percent over 1995. This increase is primarily due to an 8.4 percent increase in average loans and leases, a 9.7 percent increase in average total investment securities and a 32.3 percent increase in average mortgages held for sale resulting from increases in residential mortgage funding volume. Leverage, the ratio of average assets to average total stockholders' equity, was 13.5 times during 1996, compared with 14.3 times during 1995. The change from 1995 is due to a 21.8 percent increase in average stockholders' equity, partially offset by a 15.5 percent increase in average assets. In Note 18 to the consolidated financial statements on page 67 the corporation has disclosed the estimated fair values of all on- and off-balance sheet financial instruments and certain non-financial instruments in accordance with Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments." At December 31, 1996, the fair value of net financial instruments totaled $2.6 billion, a decrease of $0.1 billion from December 31, 1995. During the same period, the net fair value of certain non-financial instruments increased $3.3 billion to $16.3 billion at December 31, 1996. The fair value of non-maturity deposits rose $0.8 billion as the benefit of these funding sources increased over 1995. The fair value of the mortgage loan origination/wholesale network increased $0.4 billion due to higher levels of mortgage loan originations and earnings, benefited in part by the acquisition of certain assets of The Prudential Home Mortgage Company. The fair value of the consumer finance network increased $0.3 billion due to a lower interest rate environment and the integration of various acquired consumer finance businesses. The fair value of the asset-based lending businesses increased $0.5 billion due to higher earnings and market penetration. As of December 31, 1995, the fair value of net financial instruments totaled $2.7 billion, a decrease of $0.8 billion from December 31, 1994. The decrease was primarily due to higher borrowing levels, partially offset by growth in loans and leases and investment securities. During the same period, the net fair value of certain non-financial instruments increased $3.3 billion to $13.0 billion as of December 31, 1995. The fair value of the consumer finance network increased $0.5 billion due to a lower interest rate environment and the integration of Island Finance. The fair value of the asset-based lending businesses increased $0.4 billion due to a greater market presence resulting from the acquisition of The Foothill Group, Inc. The fair value of the mortgage loan origination/wholesale network increased $1.3 billion due to higher levels of earnings and mortgage loan originations. The fair value of non-maturity deposits decreased $0.6 billion as lower market interest rates reduced the benefit of these fund sources. Credit Risk Management Credit risk management includes pricing loans to cover anticipated future credit losses, funding and servicing costs and to allow for a profit margin. Loans and leases by type appear in Note 5 to the consolidated financial statements on page 43. The corporation manages exposure to credit risk through loan portfolio diversification by customer, product, industry and geography in order to minimize concentrations in any single sector. The corporation's credit risk management policies and activities as well as the geographical diversification of the corporation's Banking Group (including Norwest Card Services), Mortgage Banking, and Norwest Financial help mitigate the credit risk in their respective portfolios. The corporation's Banking Group operates in 16 states, largely in the Midwest, Southwest, and Rocky Mountain regions of the country. Distribution of average loans by region in 1996 was approximately 57.8 percent in the north central Midwest, 13.9 percent in the south central Midwest and 28.3 percent in the Rocky Mountain/Southwest region. Norwest 22 Mortgage, Norwest Financial and Norwest Card Services operate on a nationwide basis. Mortgage Banking includes the largest retail mortgage origination network and the largest servicing portfolio in the country. The five states with the highest originations in 1996 are: California, $9.7 billion; Minnesota, $3.2 billion; Illinois, $2.4 billion; Washington, $2.3 billion; and Colorado, $2.3 billion. The originations in these five states comprise approximately 38.6 percent of total originations in 1996. The five states representing the highest level of servicing include: California, $36.4 billion; Minnesota, $10.3 billion; New York, $8.7 billion; Texas, $8.6 billion; and Florida, $7.9 billion. These five states comprise approximately 40.0 percent of the total servicing portfolio at December 31, 1996. Norwest Financial engages in consumer finance activities in 48 states, all 10 Canadian provinces, the Caribbean, Central America and Guam. The five states with the largest consumer finance receivables are: California, $464.9 million; Texas, $226.8 million; Florida, $225.3 million; Illinois, $224.0 million; and Ohio, $173.1 million. Consumer finance receivables in Puerto Rico and Canada totaled $1.1 billion and $545.7 million, respectively, at December 31, 1996. The consumer finance receivables of the five largest states above, Puerto Rico and Canada comprise approximately 43.5 percent of total consumer finance receivables at December 31, 1996. With respect to credit card receivables, approximately 63.9 percent of the portfolio is within the corporation's 16-state banking region. Minnesota and Iowa represent approximately 12.6 percent and 9.7 percent of the total outstanding credit card portfolio, respectively. No other state accounts for more than 10 percent of the portfolio. In general, the U.S. economy continues to experience moderate growth, although consumer-related loan delinquencies and charge-offs have increased moderately. See Provision for Credit Losses on page 20 for a further discussion of consumer- related net charge-offs. The average consumer installment loan made during 1996 at Norwest Financial was approximately $2,700 while sales finance contracts purchased averaged approximately $1,100. This compares with $2,400 and $1,100, respectively, in 1995. The average credit card receivable balance at Norwest Card Services was $1,465 in 1996, compared with $1,200 in 1995. The corporation is not aware of any loans classified for regulatory purposes at December 31, 1996, that are expected to have a material impact on the corporation's future operating results, liquidity or capital resources. The corporation is not aware of any material credits about which there is serious doubt as to the ability of borrowers to comply with the loan repayment terms. There are no material commitments to lend additional funds to customers whose loans were classified as non-accrual or restructured at December 31, 1996. Allowance for Credit Losses At December 31, 1996, the allowance for credit losses was $1,040.8 million, or 2.64 percent of loans and leases outstanding, compared with $917.2 million, or 2.54 percent, at December 31, 1995. The ratio of the allowance for credit losses to the total non-performing assets and 90-day past due loans and leases was 335.0 percent at December 31, 1996, compared with 307.9 percent at December 31, 1995. Although it is impossible for any lender to predict future credit losses with complete accuracy, management monitors the allowance for credit losses with the intent to provide for all losses that can reasonably be anticipated based on current conditions. The corporation maintains the allowance for credit losses as a general allowance available to cover future credit losses within the entire loan and lease portfolio and other credit-related risks. However, management has prepared an allocation of the allowance based on its views of risk characteristics of the portfolio. This allocation of the allowance for credit losses does not represent the total amount available for actual future credit losses in any single category, nor does it prohibit future credit losses from being absorbed by portions of the allowance allocated to other categories or by the unallocated portion. The table on page 79 presents the allocation of the allowance for credit losses to major categories of loans. Non-performing Assets and Past Due Loans and Leases The table on page 24 presents data on the corporation's non-performing assets and 90-day past due loans and leases. Generally, the accrual of interest on a loan or lease is suspended when the credit becomes 90 days past due unless fully secured and in the process of collection. A restructured loan is generally a loan that is accruing interest, but on which concessions in terms have been made as a result of deterioration in the borrower's financial condition. Under the corporation's credit policies and practices, all non-accrual and restructured commercial, agricultural, construction, and commercial real estate loans are included in impaired loans. Loan impairment is measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the observable market price of the loan or the fair value of the collateral if the loan is collateral-dependent. 23 Non-performing assets, including non-accrual, restructured and other real estate owned, and 90-day past due loans and leases, totaled $310.7 million, or 0.4 percent of total assets, at December 31, 1996, compared with $297.9 million, or 0.4 percent of total assets, at December 31, 1995. Non-performing loans increased because of acquisitions by $49.2 million from December 31, 1995. Norwest Corporation and Subsidiaries Non-performing Assets and 90-Day Past Due Loans and Leases
In millions, except per share amounts 1996 1995 1994 1993 1992 1991 ------ ----- ----- ----- ----- ----- At December 31, - --------------- Non-accrual loans and leases........................................... $156.5 166.9 128.5 195.7 257.6 355.5 Restructured loans and leases.......................................... 0.2 2.0 1.8 10.3 5.4 18.0 ------ ----- ----- ----- ----- ----- Total non-accrual and restructured loans and leases*................. 156.7 168.9 130.3 206.0 263.0 373.5 Other real estate owned................................................ 43.3 37.1 29.6 63.0 113.7 151.2 ------ ----- ----- ----- ----- ----- Total non-performing assets.......................................... 200.0 206.0 159.9 269.0 376.7 524.7 Loans and leases past due 90-days or more**............................ 110.7 91.9 58.4 50.8 51.9 82.4 ------ ----- ----- ----- ----- ----- Total non-performing assets and 90-day past due loans and leases..... $310.7 297.9 218.3 319.8 428.6 607.1 ====== ===== ===== ===== ===== ===== Interest income as originally contracted on non-accrual and restructured loans and leases........................................ $ 25.1 15.3 15.4 19.4 26.5 41.6 Interest income reorganized on non-accrual and restructured loans and leases..................................................... (7.3) (3.6) (3.1) (5.5) (8.1) (14.2) ------ ----- ----- ----- ----- ----- Reduction of interest income due to non-accrual and restructured loans and leases..................................................... $ 17.8 11.7 12.3 13.9 18.4 27.4 ====== ===== ===== ===== ===== ===== Reduction in primary earnings per share due to non-accrual and restructured loans and leases.................................... $ .03 .02 .03 .03 .04 .06
* Total impaired loans included in total non-accrual and restructured loans and leases amounted to $94.2 million, $102.1 million and $98.6 million at December 31, 1996, 1995 and 1994, respectively. ** Excludes non-accrual and restructured loans and leases. Mortgage Servicing Rights and Other Assets At December 31, 1996, mortgage servicing rights totaled $2.6 billion, an increase of $1.4 billion from year-end 1995. The increase in mortgage servicing rights included $0.8 billion from the Prudential acquisition, with the remaining increase due to higher levels of originations. Other assets increased slightly due to the timing of receivables associated with sales of securities and increases in mortgage-related receivables. Effective January 1, 1996, the corporation adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (FAS 121). FAS 121 requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset is not recoverable. The adoption of FAS 121 has not had a material effect on the corporation's consolidated financial statements. Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities," (FAS 125) was issued in June 1996 and sets forth the criteria for determining whether a transfer of financial assets should be accounted for as a sale or as a pledge of collateral in a secured borrowing. FAS 125 requires that after a transfer of financial assets, a company must recognize the financial and servicing assets controlled and liabilities incurred, and derecognize financial assets and liabilities in which control is surrendered or debt is extinguished. Adoption of FAS 125 is required as of January 1, 1997 except for certain repurchase agreements, dollar-rolls, securities lending and similar transactions for which application of FAS 125 has been deferred until 1998. The adoption of FAS 125 is not expected to have a material effect on the corporation's consolidated financial statements. 24 Funding Sources Interest-Bearing Liabilities At December 31, 1996, interest-bearing liabilities totaled $56.5 billion, an increase of $3.9 billion over December 31, 1995. The increase was principally due to a $5.4 billion increase in interest-bearing deposits, partially offset by a $1.0 billion decrease in short-term borrowings. Average interest-bearing liabilities were $56.0 billion in 1996, compared with $49.5 billion in 1995, primarily due to a 16.9 percent increase in average interest-bearing deposits, a 14.7 percent increase in long-term debt, partially offset by a 2.1 percent decrease in average short-term borrowings. Increases in interest-bearing deposits and long-term debt are principally from acquisitions. Core Deposits In the corporation's banking subsidiaries, demand deposits, regular savings and NOW accounts, money market checking and savings accounts and consumer savings certificates provide a stable source of low-cost funding. These funds accounted for approximately 58 percent of the corporation's total funding sources during 1996 and approximately 57 percent in 1995. This is a high level of core deposits by industry standards. In the corporation's Banking Group, where these funds are utilized, average core deposits accounted for approximately 73 percent of total funding sources during 1996, compared with 70 percent in 1995. Purchased Deposits In addition to core deposits, purchased deposits are another source of funding for the corporation's banking subsidiaries. Purchased deposits include certificates of deposit with denominations of more than $100,000 and foreign time deposits. Purchased deposits represented approximately four percent of the corporation's total funding sources in 1996 and 1995. There were no brokered certificates of deposit at December 31, 1996 and 1995. Short-term Borrowings Short-term borrowings include federal funds purchased, securities sold under agreements to repurchase, master note agreements, privately negotiated financing agreements and commercial paper issued by the corporation and Norwest Financial. Commercial paper is used by the corporation to fund the short-term needs of its subsidiaries, consisting primarily of funding of Norwest Mortgage's inventory of mortgages held for sale which are typically held for 30 to 60 days. Norwest Financial utilized funds generated through its own commercial paper sales program to fund approximately 30 percent of its average earning assets in 1996, compared with 26 percent in 1995. The commercial paper/short-term debt of the corporation and Norwest Financial, Inc. are currently rated TBW-1 by Thomson BankWatch, P-1 by Moody's, A-1+ by Standard & Poor's, Duff 1+ by Duff & Phelps and F-1+ by Fitch Investors Service, L.P. IBCA has also rated the corporation's commercial paper/short-term debt A1+. On average, total short-term borrowings represented approximately 11.6 percent of the corporation's total funding sources during 1996 and approximately 13.6 percent during 1995. Long-term Debt Long-term debt represents an important funding source for the corporation and for Norwest Financial, Inc. Total long-term debt represented approximately 18.5 percent of the corporation's consolidated average funding sources during 1996, compared with approximately 18.6 percent in 1995. The corporation utilizes long-term debt primarily to meet the long-term funding requirements of its subsidiaries, with outstandings of $6,384.0 million as of December 31, 1996, compared with $5,840.9 million as of December 31, 1995. Further, 18 subsidiaries are members of the Federal Home Loan Bank allowing them to receive long-term advances secured by certain loans and investment securities. As of December 31, 1996, these banking subsidiaries had advances outstanding totaling $2,527.2 million, a decrease of $1,140.5 million from December 31, 1995. Long-term debt also plays a significant role at Norwest Financial, Inc. which utilizes this source of financing to fund approximately 52 percent of its average earning assets. At December 31, 1996, Norwest Financial, Inc.'s long-term debt outstanding was $4,132.9 million. Note 9 to the consolidated financial statements on page 46 presents the corporation's outstanding consolidated long-term debt as of December 31, 1996 and 1995. Thomson BankWatch has assigned its highest issuer rating, an A rating, to both the corporation and Norwest Financial, Inc. The corporation's senior debt is currently rated AA+ by Thomson BankWatch, Fitch Investors Service, L.P. and Duff & Phelps, AA by IBCA, AA- by Standard & Poor's and Aa3 by Moody's. Norwest Financial, Inc.'s senior debt is currently rated AA+ by Thomson BankWatch and Fitch Investors Service, L.P., AA by Duff & Phelps, AA- by Standard & Poor's and Aa3 by Moody's. 25 Interest Rate Sensitivity and Liquidity Management Asset and Liability Management The goal of the asset and liability management process is to manage the structure of the balance sheet to provide the maximum level of net interest income while maintaining acceptable levels of interest sensitivity risk (as defined below) and liquidity. The focal point of this process is the corporate Asset and Liability Management Committee (ALCO). This committee forms and monitors policies governing investments, funding sources, off-balance sheet commitments, overall interest sensitivity risk and liquidity. These policies form the framework for management of the asset and liability process at the corporate and affiliate levels. The corporation's interest sensitivity position is managed as a function of balance sheet trends, asset opportunities and interest rate expectations, and the corporation is normally well within policy risk limits at any given time. Definition of Interest Sensitivity Risk Interest sensitivity risk is the risk that future changes in interest rates will reduce net interest income or the net market value of the corporation's balance sheet. Two basic ways of defining interest rate risk in the financial services industry are commonly referred to as the accounting perspective and the economic perspective. The corporation draws upon aspects of each perspective to provide a more complete view of interest rate risk than would be provided by either perspective alone. The accounting perspective focuses on the risk to reported net income over a particular time frame. Differences in the timing of interest rate repricing (repricing or "gap" risk) and changing market rate relationships (basis risk) determine the exposure of net income to changes in interest rates. The economic perspective focuses on the risk to the market value of the corporation's balance sheet, the net of which is referred to as the market value of balance sheet equity. The sensitivity of the market value of balance sheet equity to changes in interest rates is an indicator of the level of interest rate risk inherent in an institution's current position and an indicator of longer horizon earnings trends. Assessing interest rate risk from the economic perspective focuses on the risk to net worth arising from all repricing mismatches (gaps) across the full maturity spectrum. Measurement of Interest Rate Risk Measurement of interest rate risk from the accounting perspective has traditionally taken the form of the gap report, which represents the difference between assets and liabilities that reprice in given time periods. While providing a rough measure of rate risk, the gap report provides only a static (i.e., point-in-time) measurement, and it does not capture basis risk or risks that vary either asymmetrically or non-proportionately with rate movements. The corporation uses a simulation model as its primary method of measuring earnings risk. The simulation model, because of its dynamic nature, can capture the effects of future balance sheet trends, different patterns of rate movements, and changing relationships between rates (basis risk). In addition, it can capture the effects of embedded option risk by taking into account the effects of interest rate caps and floors, and varying the level of prepayment rates on assets as a function of interest rates. The simulation model is used to determine the one and three year gap levels which correspond to the limits within which the corporation has placed earnings at risk to interest rate movements. Measurement of interest rate risk from the economic perspective is accomplished with a market valuation model. The market value of each asset and liability is calculated by computing the present value of all cash flows generated. In each case the cash flows are discounted by a market interest rate chosen to reflect as closely as possible the characteristics of the given asset or liability. Management of Interest Rate Risk In the most current simulation, net income was forecasted using various interest rate scenarios. A most likely scenario, in which short rates remain constant but long rates increase somewhat, was used as the base case for comparison of other scenarios. If short rates increase 200 basis points above the base case over the next twelve months, accompanied by a smaller increase in long rates, the effect will be to decrease net income by approximately $40 million relative to the base case. If short rates decrease 200 basis points below the base case over the next twelve months, accompanied by a lesser decrease in long rates, the effect will be to increase net income by approximately $63 million. This analysis takes into account the effect of derivative products that are used to hedge balance sheet instruments, as well as the effect of interest rates on prepayment speeds of mortgages and mortgage-backed securities. However, under the rate scenarios considered, net income would not be affected by impairment of capitalized mortgage servicing rights. 26 The market valuation model is used to measure the sensitivity of the market value of equity to a wide range of interest rate changes. The process of modeling market valuation risk continues to evolve in the financial services industry, including structuring the modeling process, defining policy limits and interpreting the results. Changes In Interest Sensitivity The table below presents the corporation's interest sensitivity gaps for December 1996. The cumulative gap within one year was $(3,317) million, or (4.2) percent of assets. This compares with a one year gap of $(2,762) million, or (3.8) percent of assets, in December 1995. The cumulative gap within three years was $(990) million, or (1.2) percent of assets, in December 1996, compared to $(1,603) million, or (2.2) percent of assets, in December 1995. The relatively small changes in the gaps in percentage terms are due to a number of offsetting changes in the balance sheet during the year. These included increases in the investment portfolio and demand deposits. The effect of the current interest sensitivity position is to make the corporation's earnings slightly vulnerable to rising rates and neutral to falling rates. Norwest Corporation and Subsidiaries Interest Rate Sensitivity
In millions, except ratios Repricing or Maturing -------------------------------------------------------------------- Within 6 Months 1 Year 3 Years After 6 Months - 1 Year - 3 Years - 5 Years 5 Years -------- ----------- ---------- --------- ------- Average Balances For December 1996 - ---------------------------------- Loans and leases........................................ $ 16,813 3,103 5,966 2,863 10,437 Investment securities................................... 2,218 2,088 2,700 1,935 8,166 Loans held for sale..................................... 2,659 -- -- -- -- Mortgages held for sale................................. 5,881 -- -- -- -- Other earning assets.................................... 4,251 -- -- -- -- Other assets............................................ -- 650 -- -- 10,102 --------- --------- --------- --------- ------- Total assets........................................ $ 31,822 5,841 8,666 4,798 28,705 ========= ========= ========= ========= ======= Noninterest-bearing deposits............................ $ 4,134 63 268 178 8,832 Interest-bearing deposits............................... 16,508 3,733 4,770 981 9,633 Short-term borrowings................................... 8,230 -- -- -- -- Long-term debt.......................................... 3,938 709 2,266 2,321 4,154 Other liabilities and equity............................ 1 -- 188 -- 8,925 --------- --------- --------- --------- ------- Total liabilities and equity........................ $ 32,811 4,505 7,492 3,480 31,544 ========= ========= ========= ========= ======= Swaps and options....................................... $ (3,860) 196 1,153 866 1,645 Gap*.................................................... (4,849) 1,532 2,327 2,184 (1,194) Cumulative gap.......................................... (4,849) (3,317) (990) 1,194 -- Gap as a percent of total assets........................ (6.1)% (4.2) (1.2) 1.5 --
*[assets - (liabilities + equity) + swaps and options] The gap includes the effect of off-balance sheet instruments on the corporation's interest sensitivity. In addition to adjusting the pricing and levels of assets and liabilities, the corporation utilizes off-balance sheet derivative financial instruments to manage interest rate risk. The corporation primarily enters into interest rate swaps, interest rate caps and floors, futures contracts and options as part of its overall risk management activities. Certain of these derivative financial instruments synthetically change the repricing or other characteristics of underlying assets and liabilities hedged. The corporation principally utilizes interest rate swaps to hedge certain fixed-rate debt and certain deposit liabilities and to convert these funding sources to floating rates. Interest rate floors, futures contracts and options on futures contracts are principally used to hedge the corporation's portfolio of mortgage servicing rights. The floors provide for the receipt of payments when interest rates are below predetermined interest rate levels. The unrealized gains (losses) on the floors and futures contracts are included, as appropriate, in determining the fair value of mortgage servicing rights, offsetting lost future servicing revenue related to increased levels of prepayments associated with lower interest rates. In Notes 9 and 15 to the consolidated financial statements beginning on pages 46 and 59, respectively, the corporation has disclosed additional information with respect to its use of derivative financial instruments. The corporation's net cash flows from off-balance sheet derivative financial instruments used to manage interest rate risk added approximately $56.9 million to net interest income in 1996, compared with $7.1 million in 1995 and $12.3 million in 1994. This resulted in an impact on net interest margin of nine basis points in 1996, compared with one basis point in 1995 27 and two basis points in 1994. Based on interest rate levels at December 31, 1996, total estimated future cash flows related to the corporation's derivative financial instruments, including interest rate swaps and floors hedging capitalized mortgage servicing rights, are expected to approximate $74 million in 1997, $55 million in 1998, $52 million in 1999, $32 million in 2000, $23 million in 2001, and $59 million thereafter. Liquidity Management Liquidity management involves planning to meet funding needs and cash flow requirements of customers and the corporation at a reasonable cost, and is governed by policies formulated and monitored by ALCO. Each affiliate is responsible for managing its own liquidity position within overall guidelines, which consider the marketability of assets, the sources and stability of funding, and the level of unfunded commitments. The corporation has a significant liquidity reserve in its investment securities portfolio, as approximately 83 percent of the $17.0 billion portfolio consists of highly marketable U.S. Treasury or federal agency securities. Several other factors provide a favorable liquidity position for the corporation compared with most large bank holding companies, including the large amount of funding that comes from consumer deposits, which are a more stable source of funding than purchased funds. Another source of asset liquidity is the ability to securitize assets such as automobile and mortgage loans. Affiliates of the corporation securitized $1.1 billion in automobile loans and $2.7 billion in mortgage loans through public offerings in 1996. The corporation also filed shelf registration statements in July 1996 which permit the corporation to issue up to $5 billion and $2 billion of debt securities, respectively, in domestic and international money and capital markets. As of December 31, 1996, the corporation has issued $500 million of securities under such shelf registrations. Capital Management The corporation believes that a strong capital position is vital to continued profitability and to promote depositor and investor confidence. The corporation's consolidated capital levels are a result of its capital policy, which establishes guidelines for each subsidiary based on industry standards, regulatory requirements, perceived risk of the various businesses, and future growth opportunities. The corporation requires its bank affiliates to maintain capital levels above regulatory minimums for Tier 1 capital and total capital (Tier 1 plus Tier 2) to risk-weighted assets and leverage ratios. The primary source of equity capital available for the affiliates is earnings, with other forms of capital available from the corporation as needed. Earnings above levels required to meet capital policy requirements are paid to the corporation in the form of dividends and are used to support capital needs of other affiliates, to pay corporate dividends or to reduce the corporation's borrowings. Various federal and state statutes and regulations limit the amount of dividends the subsidiary banks can pay to the corporation without regulatory approval. The approval of the Office of the Comptroller of the Currency is required for any dividend by a national bank if the total of all dividends declared by the bank in any calendar year would exceed the total of its net income for that year combined with its retained net income for the preceding two calendar years, less any required transfers to surplus or a fund for the retirement of preferred stock. The Office of Thrift Supervision imposes substantially similar restrictions on the payment of dividends to the corporation by its savings and loan association subsidiary. The corporation also has several state bank subsidiaries that are subject to state regulations limiting dividends. Under these provisions, the corporation's national bank subsidiaries, savings and loan association and state-chartered bank subsidiaries could have declared as of December 31, 1996 aggregate dividends of at least $279.9 million without obtaining prior regulatory approval and without reducing the capital below minimum regulatory levels. Additionally, the corporation's non-bank subsidiaries could have declared dividends totaling $599.1 million at December 31, 1996. Under the Federal Reserve Board's risk-based capital guidelines for bank holding companies, the minimum ratio of total capital to risk-adjusted assets (including certain off-balance sheet items, such as standby letters of credit) is currently eight percent. The minimum Tier 1 capital to risk-adjusted assets is four percent. Through implementation of its capital policies, the corporation has achieved a strong capital position. The corporation's total capital and Tier 1 capital to risk-adjusted assets ratios were 10.42 percent and 8.63 percent, respectively, at December 31, 1996 compared with 10.18 percent and 8.11 percent, respectively, at December 31, 1995. The Federal Reserve Board also requires bank holding companies to comply with minimum leverage ratio guidelines. The leverage ratio is the ratio of a bank holding company's Tier 1 capital to its total consolidated quarterly average assets, less goodwill and certain other intangible assets. The guidelines require a minimum leverage ratio of three percent for bank holding companies that meet certain specified criteria. The corporation's leverage ratio was 6.15 percent at December 31, 1996, compared with 5.65 percent at December 31, 1995. 28 The Federal Deposit Insurance 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. Federal bank regulatory agencies have adopted regulations that classify insured depository institutions into one of five capital-based categories. The regulations use the total capital ratio, the Tier 1 capital ratio and the leverage ratio as the relevant measures of capital. A depository institution is (a) "well capitalized" if it has a risk-adjusted total capital ratio of at least ten percent, a Tier 1 capital ratio of at least six percent and a leverage ratio of at least five percent and is not subject to any order or written directive to maintain a specific capital level; (b) "adequately capitalized" if it has a risk-adjusted total capital ratio of at least eight percent, a Tier 1 capital ratio of at least four percent and a leverage ratio of at least four percent (three percent in some cases) and is not well capitalized; (c) "undercapitalized" if it has a risk-adjusted total capital ratio of less than eight percent, a Tier 1 capital ratio of less than four percent or a leverage ratio of less than four percent (three percent in some cases); (d) "significantly undercapitalized" if it has a risk-adjusted total capital ratio of less than six percent, a Tier 1 capital ratio of less than three percent or a leverage ratio of less than three percent; and (e) "critically undercapitalized" if its tangible equity is less than two percent of total assets. As of December 31, 1996, all of the corporation's insured depository institutions met the criteria for well capitalized institutions as set forth above. Common stockholders' equity was $5,875.4 million at December 31, 1996, compared with $5,009.8 million at December 31, 1995. The corporation's internal capital growth rate (ICGR) in 1996 was 13.74 percent. The ICGR represents the rate at which the corporation's average common equity grew as a result of earnings retained (net income less dividends paid). Since 1986, the corporation has repurchased common stock in the open market in a systematic pattern to meet the common stock issuance requirements of the corporation's Savings Investment Plans, the Long-Term Incentive Compensation Plan, and other stock issuance requirements other than acquisitions accounted for as pooling of interests. In September, 1996, the corporation's board of directors authorized additional purchases, upon such terms and conditions as management approves, of 4,500,000 shares of the corporation's common stock, and the total common stock purchase authority was 3,082,000 shares as of December 31, 1996. During 1996, the corporation repurchased 3,731,000 shares of its common stock for issuance in conjunction with specific purchase acquisitions that were consummated during the year. In addition, approximately 5,237,000 shares were repurchased during 1996 for benefit plans and other ongoing needs. During 1995, 1,295,000 shares were repurchased for acquisition purposes and 6,804,000 shares were repurchased for benefit plans, preferred stock conversions and other ongoing needs. All shares of the corporation's 10.24% Cumulative Preferred Stock, in the form of depositary shares, were redeemed on January 2, 1996. The redemption price for each depositary share, representing one-quarter of a share of preferred stock, was the $25 stated value. No shares of the 10.24% Cumulative Preferred Stock were repurchased in 1995. All shares of the corporation's Cumulative Convertible Preferred Stock, Series B, in the form of depositary shares, were called for redemption on September 1, 1995. Each depositary share, which represented one-quarter of a share of the preferred stock, was convertible at the option of the stockholder into approximately 2.74 shares of the corporation's common stock or redeemable at a price of $52.10 per depositary share plus accrued dividends. During 1995, 1,141,891 preferred shares were converted into 12,531,003 shares of common stock and 1,784 shares were redeemed. In January, 1997, the board of directors approved an increase in the corporation's quarterly common stock dividend to 30 cents per share from 27 cents, representing an 11.1 percent increase in the quarterly dividend rate. The dividend increase reflects the corporation's continuing record of strong earnings performance and the corporation's policy of maintaining the dividend payout ratio in a range of 30 to 35 percent. In the second quarter of 1996, the corporation increased its quarterly dividend rate 12.5 percent to 27 cents per common share. In the third quarter of 1995, the corporation increased the quarterly cash dividend paid to common stockholders from 21 cents per share to 24 cents per share, representing a 14.3 percent increase in the quarterly dividend rate. 29 Acquisitions The corporation regularly explores opportunities for acquisitions of financial institutions and related businesses. Generally, management of the corporation does not make a public announcement about an acquisition opportunity until a definitive agreement has been signed. In Note 2 to the consolidated financial statements on pages 39 and 40, the corporation has disclosed completed acquisitions for the three years ended December 31, 1996. At December 31, 1996, the corporation had six pending acquisitions with total assets of approximately $2.0 billion and it is anticipated that cash of $91.4 million and approximately 7.2 million common shares will be issued upon completion of these acquisitions. Pending acquisitions include Central Bancorporation, Inc., a $1.1 billion bank holding company based in Fort Worth, Texas. The pending acquisitions, subject to approval by regulatory agencies, are expected to be completed during 1997 and are not, either individually or in the aggregate, significant to the financial statements of the corporation. 30 Norwest Corporation and Subsidiaries Consolidated Balance Sheets
In millions, except shares 1996 1995 ------------ ----------- At December 31, - --------------- Assets Cash and due from banks...................................................................... $ 4,856.6 4,320.3 Interest-bearing deposits with banks......................................................... 1,237.9 29.4 Federal funds sold and resale agreements..................................................... 1,276.8 596.8 ----------- ---------- Total cash and cash equivalents...................................................... 7,371.3 4,946.5 Trading account securities................................................................... 186.5 150.6 Investment securities (fair value $745.2 in 1996 and $795.8 in 1995)......................... 712.2 760.5 Investment and mortgage-backed securities available for sale................................. 16,247.1 15,243.0 ----------- ---------- Total investment securities.......................................................... 16,959.3 16,003.5 Loans held for sale.......................................................................... 2,827.6 3,343.9 Mortgages held for sale...................................................................... 6,339.0 6,514.5 Loans and leases, net of unearned discount................................................... 39,381.0 36,153.1 Allowance for credit losses.................................................................. (1,040.8) (917.2) ----------- ---------- Net loans and leases................................................................. 38,340.2 35,235.9 Premises and equipment, net.................................................................. 1,200.9 1,034.1 Mortgage servicing rights, net............................................................... 2,648.5 1,226.7 Interest receivable and other assets......................................................... 4,302.1 3,678.7 ----------- ---------- Total assets........................................................................... $ 80,175.4 72,134.4 =========== ========== Liabilities and Stockholders' Equity Deposits Noninterest-bearing...................................................................... $ 14,296.3 11,623.9 Interest-bearing......................................................................... 35,833.9 30,404.9 ----------- ---------- Total deposits......................................................................... 50,130.2 42,028.8 Short-term borrowings........................................................................ 7,572.6 8,527.2 Accrued expenses and other liabilities....................................................... 3,326.2 2,589.5 Long-term debt............................................................................... 13,082.2 13,676.8 ----------- ---------- Total liabilities...................................................................... 74,111.2 66,822.3 Preferred stock.............................................................................. 249.8 341.2 Unearned ESOP shares......................................................................... (61.0) (38.9) ----------- ---------- Total preferred stock.................................................................. 188.8 302.3 Common stock, $1 2/3 par value-authorized 500,000,000 shares: Issued 375,533,625 and 358,332,153 shares in 1996 and 1995, respectively................. 625.9 597.2 Surplus ..................................................................................... 948.6 734.2 Retained earnings............................................................................ 4,248.2 3,496.3 Net unrealized gains on securities available for sale........................................ 303.5 327.1 Notes receivable from ESOP................................................................... (11.1) (13.3) Treasury stock- 6,830,919 and 5,571,696 common shares in 1996 and 1995, respectively......... (233.3) (125.9) Foreign currency translation................................................................. (6.4) (5.8) ----------- ---------- Total common stockholders' equity...................................................... 5,875.4 5,009.8 ----------- ---------- Total stockholders' equity............................................................. 6,064.2 5,312.1 ----------- ---------- Total liabilities and stockholders' equity............................................. $ 80,175.4 72,134.4 =========== ==========
See notes to consolidated financial statements. 31 Norwest Corporation and Subsidiaries Consolidated Statements of Income
In millions, except per common share amounts 1996 1995 1994 ---------- -------- -------- Years Ended December 31, - ------------------------ Interest Income on Loans and leases................................................................ $ 4,301.5 3,955.8 3,071.2 Investment securities........................................................... 36.2 83.8 71.5 Investment and mortgage-backed securities available for sale.................... 1,170.1 1,065.3 835.9 Loans held for sale............................................................. 254.3 195.7 111.4 Mortgages held for sale......................................................... 468.5 366.2 257.2 Money market investments........................................................ 63.0 35.7 21.9 Trading account securities...................................................... 24.7 14.8 24.6 --------- --------- --------- Total interest income..................................................... 6,318.3 5,717.3 4,393.7 --------- ------- ------- Interest Expense on Deposits........................................................................ 1,324.9 1,156.3 863.4 Short-term borrowings........................................................... 454.1 515.8 290.3 Long-term debt.................................................................. 838.0 775.9 436.4 --------- -------- -------- Total interest expense.................................................... 2,617.0 2,448.0 1,590.1 --------- ------- ------- Net interest income............................................................. 3,701.3 3,269.3 2,803.6 Provision for credit losses..................................................... 394.7 312.4 164.9 --------- -------- -------- Net interest income after provision for credit losses........................... 3,306.6 2,956.9 2,638.7 --------- ------- ------- Non-interest Income Trust .......................................................................... 296.3 240.7 210.3 Service charges on deposit accounts............................................. 329.5 268.8 234.4 Mortgage banking................................................................ 821.5 535.5 581.0 Data processing................................................................. 72.5 72.4 61.6 Credit card..................................................................... 122.2 132.8 116.5 Insurance....................................................................... 279.6 224.7 207.4 Other fees and service charges.................................................. 294.4 230.3 182.3 Net investment securities gains (losses)........................................ -- 0.6 (0.2) Net investment and mortgage-backed securities available for sale losses......... (46.8) (45.1) (79.0) Net venture capital gains....................................................... 256.4 102.1 77.1 Trading......................................................................... 35.3 39.9 (18.1) Other .......................................................................... 103.7 45.5 65.0 --------- ------- ------- Total non-interest income................................................. 2,564.6 1,848.2 1,638.3 --------- ------- ------- Non-interest Expenses Salaries and benefits.......................................................... 2,097.1 1,745.1 1,573.7 Net occupancy.................................................................. 316.3 254.4 227.3 Equipment rentals, depreciation and maintenance................................ 327.7 272.7 235.4 Business development........................................................... 227.9 172.2 190.5 Communication.................................................................. 285.2 225.0 184.8 Data processing................................................................ 163.0 136.2 113.4 Intangible asset amortization.................................................. 161.5 124.7 77.0 Other ......................................................................... 511.0 452.0 494.3 --------- ------- ------- Total non-interest expenses.............................................. 4,089.7 3,382.3 3,096.4 --------- ------- ------- Income Before Income Taxes..................................................... 1,781.5 1,422.8 1,180.6 Income tax expense............................................................. 627.6 466.8 380.2 --------- -------- -------- Net Income..................................................................... $ 1,153.9 956.0 800.4 ========= ======== ======== Average Common and Common Equivalent Shares.................................... 369.7 331.7 315.1 Per Common Share Net Income Primary.................................................................. $ 3.07 2.76 2.45 Fully Diluted............................................................ 3.07 2.73 2.41 Dividends...................................................................... $ 1.050 0.900 0.765
See notes to consolidated financial statements. 32 Norwest Corporation and Subsidiaries Consolidated Statements of Cash Flows
In millions 1996 1995 1994 ----------- ---------- ---------- Years Ended December 31, - ------------------------ Cash Flows From Operating Activities Net income...................................................................... $ 1,153.9 956.0 800.4 Adjustments to reconcile net income to net cash flows from operating activities: Provision for credit losses................................................. 394.7 312.4 164.9 Depreciation and amortization............................................... 681.6 311.8 232.2 Gains on sales of loans, securities and other assets, net................... (230.3) (96.8) (73.0) Release of preferred shares to ESOP......................................... 37.8 40.0 26.6 Purchases of trading account securities..................................... (58,280.4) (90,793.2) (109,556.3) Proceeds from sales of trading account securities........................... 58,279.6 90,718.4 109,561.2 Originations of mortgages held for sale..................................... (52,691.9) (35,045.1) (24,905.1) Proceeds from sales of mortgages held for sale.............................. 55,244.7 31,771.4 27,962.8 Originations of loans held for sale......................................... (1,305.5) (901.0) (1,351.7) Proceeds from sales of loans held for sale.................................. 1,867.6 606.8 745.1 Deferred income taxes....................................................... 205.8 (70.4) 312.7 Interest receivable......................................................... (25.7) (94.1) (66.9) Interest payable............................................................ 38.0 148.0 20.5 Other assets, net........................................................... (1,336.1) (1,853.4) (540.6) Other accrued expenses and liabilities, net................................. 245.1 447.2 (425.0) ----------- ---------- ----------- Net cash flows from (used for) operating activities....................... 4,278.9 (3,542.0) 2,907.8 ----------- ---------- ----------- Cash Flows From Investing Activities Proceeds from maturities and paydowns of: Investment securities....................................................... 106.2 345.6 949.5 Investment and mortgage-backed securities available for sale................ 2,806.6 1,924.3 2,781.4 Proceeds from sales and calls of: Investment securities....................................................... 138.7 154.4 98.8 Investment and mortgage-backed securities available for sale................ 5,185.9 5,742.6 3,741.6 Purchases of: Investment securities....................................................... (169.1) (524.8) (509.0) Investment and mortgage-backed securities available for sale................ (7,341.4) (6,159.9) (8,635.6) Net change in banking subsidiaries' loans and leases............................ 1,751.9 (177.3) (1,786.2) Principal collected on non-bank subsidiaries' loans and leases.................. 5,503.1 5,725.2 4,081.8 Non-bank subsidiaries' loans and leases originated.............................. (6,950.4) (6,241.7) (5,342.5) Purchases of premises and equipment............................................. (288.7) (208.0) (266.0) Proceeds from sales of premises and equipment and other real estate owned....... 105.7 50.4 131.8 Cash paid for acquisitions, net of cash and cash equivalents acquired........... (2,469.0) (94.9) 124.8 Divestiture of branches, net of cash and cash equivalents paid.................. (14.6) (4.1) (55.1) ----------- ---------- ----------- Net cash flows from (used for) investing activities......................... (1,635.1) 531.8 (4,684.7) ----------- ---------- ----------- Cash Flows From Financing Activities Deposits, net................................................................... 2,410.7 1,488.7 (1,247.2) Short-term borrowings, net...................................................... (1,078.3) (1,124.0) 1,736.8 Long-term debt borrowings....................................................... 4,343.6 7,329.1 3,508.7 Repayments of long-term debt.................................................... (5,109.9) (3,274.8) (1,270.1) Issuances of preferred stock.................................................... -- 20.0 170.7 Repurchases of preferred stock.................................................. (112.7) (0.4) (8.4) Issuances of common stock....................................................... 82.4 65.4 49.8 Repurchases of common stock..................................................... (355.1) (233.8) (482.1) Net decrease in notes receivable from ESOP...................................... 3.7 -- 3.0 Dividends paid.................................................................. (403.4) (337.8) (268.0) ----------- ---------- ----------- Net cash flows from (used for) financing activities......................... (219.0) 3,932.4 2,193.2 ----------- ---------- ----------- Net increase in cash and cash equivalents................................... 2,424.8 922.2 416.3 Cash and cash equivalents Beginning of year........................................................... 4,946.5 4,024.3 3,608.0 ----------- ---------- ----------- End of year................................................................. $ 7,371.3 4,946.5 4,024.3 =========== ========== ===========
See notes to consolidated financial statements. 33 Norwest Corporation and Subsidiaries Consolidated Statements of Stockholders' Equity
Net Unrealized Gains (Losses) In millions, except for shares on Notes Unearned Securities Receivable Foreign Preferred ESOP Common Retained Available from Treasury Currency Stock Shares Stock Surplus Earnings for Sale ESOP Stock Translation Total --------- -------- ------ ------- -------- ---------- ---------- -------- ----------- -------- Balance, December 31, 1993 as originally reported............... $341.9 -- 490.2 413.0 2,394.4 -- (16.3) (51.5) (3.3) 3,568.4 Adjustments for pooling of interests.............. 38.1 -- 25.2 90.3 38.9 -- -- -- -- 192.5 --------- -------- ------ ------- -------- ---------- ---------- -------- ----------- -------- Balance, December 31, 1993................... 380.0 -- 515.4 503.3 2,433.3 -- (16.3) (51.5) (3.3) 3,760.9 Net unrealized gains on securities available for sale, January 1, 1994........ -- -- -- -- -- 313.4 -- -- -- 313.4 Net income.............. -- -- -- -- 800.4 -- -- -- -- 800.4 Dividends on Common stock........... -- -- -- -- (240.2) -- -- -- -- (240.2) Preferred stock........ -- -- -- -- (27.8) -- -- -- -- (27.8) Issuance of 3,022,168 common shares.......... -- -- -- 53.9 (74.1) -- -- 80.5 -- 60.3 Issuance of 13,985,159 common shares for acquisitions....... -- -- 18.6 (2.3) 58.4 -- -- 73.7 -- 148.4 Repurchase of 18,918,200 common shares................. -- -- -- -- -- -- -- (482.1) -- (482.1) Issuance of 980,000 preferred shares, net of 125,000 shares held by subsidiary............. 171.0 -- -- (0.3) -- -- -- -- -- 170.7 Issuance of 40,900 preferred shares to ESOP................... 40.9 (42.1) -- 1.2 -- -- -- -- -- -- Release of preferred shares to ESOP......... -- 27.4 -- (0.8) -- -- -- -- -- 26.6 Conversion of 1,230,280 preferred shares to 3,756,975 common shares.......... (56.8) -- 4.5 23.8 -- -- -- 28.5 -- -- Repurchase of 192,220 preferred shares....... (8.4) -- -- -- -- -- -- -- -- (8.4) Change in net unrealized gains (losses) on securities available for sale............... -- -- -- -- -- (673.8) -- -- -- (673.8) Cash payments received on notes receivable from ESOP................... -- -- -- -- -- -- 3.0 -- -- 3.0 Foreign currency translation............. -- -- -- -- -- -- -- -- (5.0) (5.0) --------- -------- ------ ------- -------- ---------- ---------- -------- ----------- -------- Balance, December 31, 1994................... 526.7 (14.7) 538.5 578.8 2,950.0 (360.4) (13.3) (350.9) (8.3) 3,846.4 Net income.............. -- -- -- -- 956.0 -- -- -- -- 956.0 Dividends on Common stock........... -- -- -- -- (296.6) -- -- -- -- (296.6) Preferred stock........ -- -- -- -- (41.2) -- -- -- -- (41.2) Issuance of 3,289,250 common shares.......... -- -- -- 120.5 (135.6) -- -- 90.9 -- 75.8 Issuance of 34,533,245 common shares for acquisitions....... -- -- 51.6 40.6 68.3 16.7 -- 95.4 -- 272.6 Repurchase of 8,098,650 common shares.......... -- -- -- -- -- -- -- (233.8) -- (233.8) Issuance of 63,300 preferred shares to ESOP................ 63.3 (65.8) -- 2.5 -- -- -- -- -- -- Release of preferred shares to ESOP......... -- 41.6 -- (1.6) -- -- -- -- -- 40.0 Conversion of 1,181,900 preferred shares to 13,891,755 common shares.......... (268.4) -- 7.1 (6.6) (4.6) -- -- 272.5 -- -- Repurchase of 1,784 preferred shares....... (0.4) -- -- -- -- -- -- -- -- (0.4) Sale of 100,000 preferred shares held by subsidiary..... 20.0 -- -- -- -- -- -- -- -- 20.0 Change in net unrealized gains (losses) on securities available for sale................... -- -- -- -- -- 670.8 -- -- -- 670.8 Foreign currency translation............ -- -- -- -- -- -- -- -- 2.5 2.5 --------- -------- ------ ------- -------- ---------- ---------- -------- ----------- -------- Balance, December 31, 1995............... 341.2 (38.9) 597.2 734.2 3,496.3 327.1 (13.3) (125.9) (5.8) 5,312.1 Net income.............. -- -- -- -- 1,153.9 -- -- -- -- 1,153.9 Dividends on Common stock........... -- -- -- -- (385.6) -- -- -- -- (385.6) Preferred stock........ -- -- -- -- (17.8) -- -- -- -- (17.8) Issuance of 3,745,134 common shares.......... -- -- -- 59.0 (71.2) -- -- 115.9 -- 103.7 Issuance of 20,180,381 common shares for acquisitions....... -- -- 28.7 149.8 72.6 (1.6) (1.5) 98.8 -- 346.8 Repurchase of 8,968,421 common shares.......... -- -- -- -- -- -- -- (355.1) -- (355.1) Issuance of 59,000 preferred shares to ESOP................... 59.0 (61.3) -- 2.3 -- -- -- -- -- -- Release of preferred shares to ESOP......... -- 39.2 -- (1.4) -- -- -- -- -- 37.8 Conversion of 37,777 preferred shares to 985,155 common shares.......... (37.7) -- -- 4.7 -- -- -- 33.0 -- -- Repurchase of 1,127,125 preferred shares....... (112.7) -- -- -- -- -- -- -- -- (112.7) Change in net unrealized gains (losses) on securities available for sale................... -- -- -- -- -- (22.0) -- -- -- (22.0) Cash payments received on notes receivable from ESOP................... -- -- -- -- -- -- 3.7 -- -- 3.7 Foreign currency translation............ -- -- -- -- -- -- -- -- (0.6) (0.6) --------- -------- ------ ------- -------- ---------- ---------- -------- ----------- -------- Balance, December 31, 1996................... $249.8 (61.0) 625.9 948.6 4,248.2 303.5 (11.1) (233.3) (6.4) 6,064.2 ========= ======== ====== ======= ======== ========== ========== ======== =========== ========
See notes to consolidated financial statements. Norwest Corporation and Subsidiaries Notes to Consolidated Financial Statements 1. Summary of Significant Accounting Policies Norwest Corporation (the corporation) is a diversified financial services company which was organized in 1929 and is registered under the Bank Holding Company Act of 1956, as amended. The corporation owns subsidiaries engaged in banking and a variety of related businesses. The corporation provides retail, commercial, and corporate banking services to its customers through banks located in Arizona, Colorado, Illinois, Indiana, Iowa, Minnesota, Montana, Nebraska, Nevada, New Mexico, North Dakota, Ohio, South Dakota, Texas, Wisconsin and Wyoming. The corporation provides additional financial services to its customers through subsidiaries engaged in various businesses, principally 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. The accounting and reporting policies of the corporation and its subsidiaries conform to generally accepted accounting principles and general practices within the financial services industry. The more significant accounting policies are summarized below. Consolidation The consolidated financial statements include the accounts of the corporation and all subsidiaries. Significant inter-company accounts and transactions have been eliminated. Consolidated Statements of Cash Flows For purposes of the consolidated statements of cash flows, the corporation considers cash and due from banks, interest-bearing deposits with banks and federal funds sold and resale agreements to be cash equivalents. Supplemental disclosures of cash flow information for the years ended December 31 include:
In millions 1996 1995 1994 -------- ------- ------- Interest........................................ $2,579.0 2,299.9 1,569.6 Income taxes.................................... 43.0 533.1 22.3 Transfer of loans to other real estate owned.... 51.3 28.6 69.8
See Notes 2 and 10 for certain non-cash common and preferred stock transactions. In 1995, credit card receivables totaling $1,007.4 million were transferred to the loans held for sale category pending their sale. Mortgage-backed securities of $151.0 million, held for investment by First United Bank Group, Inc. (First United), were transferred to available for sale in 1994 to comply with the corporation's investment and interest rate risk policies. Also during 1994, venture capital securities of $122.0 million, originally classified as available for sale, were transferred to the held to maturity category to comply with Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," (FAS 115). See Note 4 regarding the transfer of investment securities to available for sale in 1995. Investment Securities Investment and mortgage-backed securities which the corporation intends to hold until maturity are stated at cost, adjusted for amortization of premiums and accretion of discounts using a method that approximates level yield. Investment and mortgage-backed securities which the corporation intends to hold for indefinite periods of time, including securities that management intends to use as part of its asset/liability management strategy, or that may be sold in response to changes in interest rates, changes in prepayment risk, securities on which call options have been written, the need to increase regulatory capital or similar factors, are classified as available for sale. Investment and mortgage-backed securities available for sale are measured at fair value. Net unrealized gains and losses, net of deferred income taxes, on investments and mortgage-backed securities available for sale are excluded from earnings and reported as a separate component of stockholders' equity until realized. The classification of investment securities is determined at the date of purchase and subsequent transfers, if any, between security classifications are recorded at fair value. 35 The corporation's venture capital subsidiaries classify equity securities that are publicly traded as available for sale and non-publicly traded equity securities as held for investment. Realized gains and losses on sales of investment securities are computed by the specific identification method at the time of disposition and are recorded in non-interest income. Trading account securities are purchased with the intent to earn a profit by trading or selling the security. These securities are stated at fair value. Adjustments to the fair value are reported in non-interest income. Loans and Leases Loans are stated at their principal amount and interest income is recognized on an accrual basis. With the exception of certain consumer and residential real estate loans, loans and leases on which payments are past due for 90 days are placed on nonaccrual status, unless such loan is in the process of collection and, in management's opinion, is fully secured. Residential real estate loans over 120 days are included in nonaccrual while other consumer loans are generally written 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 non-accrual status, uncollected interest accrued in prior years is charged against the allowance for credit losses. A loan is returned to accrual status when principal and interest are no longer past due and collectibility is no longer doubtful. Restructured loans are those on which concessions in terms have been made as a result of deterioration in a borrower's financial condition. Interest on these loans is accrued at the new terms. Effective January 1, 1995, the corporation adopted Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan" and Statement of Financial Accounting Standards No. 118, "Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosures" (FAS 114 and 118). Under the corporation's credit policies and practices, all non-accrual and restructured commercial, agricultural, construction, and commercial real estate loans meet the definition of impaired loans under FAS 114 and 118. Impaired loans as defined by FAS 114 and 118 exclude certain consumer loans, residential real estate loans and lease financing classified as non-accrual. Loan impairment is measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the observable market price of the loan or the fair value of the collateral if the loan is collateral dependent. The adoption of FAS 114 and 118 did not have a material effect on the corporation's financial position or results of operation. Lease financing assets include aggregate lease rentals, net of related unearned income, which includes deferred investment tax credits, and related nonrecourse debt. Leasing income is recognized as a constant percentage of outstanding lease financing balances over the lease terms. Unearned discount on consumer loans is recognized by the interest method or other methods for which results are not materially different from the interest method. Loan origination fees and costs incurred to extend credit are deferred and amortized over the term of the loan and the loan commitment period as a yield adjustment. Loan fees representing adjustments of interest rate yield are generally deferred and amortized into interest income over the term of the loan using the interest method. Loan commitment fees are generally deferred and amortized into non-interest income on a straight-line basis over the commitment period. Allowance for Credit Losses The allowance for credit losses is based upon management's evaluation of a number of factors, including credit loss experience, risk analyses of loan portfolios, as well as current and expected economic conditions. Charge-offs are loans or portions thereof evaluated as uncollectible. Loans made by the domestic consumer finance subsidiaries, unless fully secured by real estate, are generally charged off when the loan is 90 days or more contractually delinquent and no payment has been received for 90 days. Credit card receivables are generally charged off when they become 180 days past due or sooner upon receipt of a bankruptcy notice. Other consumer loans are charged off when certain delinquency criteria are met unless fully secured. Loans Held for Sale Student loans and certain credit card receivables at December 31, 1995 are classified as held for sale because the corporation 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 by type of loan. Gains and losses are recorded in non-interest income, based on the difference between sales proceeds and carrying value. 36 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, and related fees paid. 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 non-interest income. Mortgage Servicing Rights Effective January 1, 1995, the corporation adopted Statement of Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing Rights, an amendment of FASB Statement No. 65" (FAS 122). Accordingly, the corporation recognizes as separate assets the rights to service mortgage loans for others, whether the servicing rights are acquired through purchases or loan originations. The fair value of capitalized mortgage servicing rights is based upon the present value of estimated future cash flows. Based upon current fair values and considering outstanding positions of derivative financial instruments utilized as hedges, capitalized mortgage servicing rights are periodically assessed for impairment, which is recognized in the statement of income during the period in which impairment occurs as an adjustment to the corresponding valuation allowance. For purposes of performing its impairment evaluation, the corporation stratifies its portfolio on the basis of certain risk characteristics including loan type and note rate. Capitalized mortgage servicing rights are amortized over the period of estimated net servicing income and take into account appropriate prepayment assumptions. Prior to adoption of FAS 122, the corporation only capitalized the costs related to purchased mortgage servicing rights. Premises and Equipment Premises and equipment are stated at cost, less accumulated depreciation and amortization. Owned properties are depreciated on a straight-line basis over their estimated useful lives. Capital lease assets and leasehold improvements are amortized over lease terms on a straight-line basis. The costs of improvements are capitalized. Maintenance and repairs, as well as gains and losses on dispositions of premises and equipment, are included in non-interest expenses. Other Real Estate Owned Other real estate owned is stated at the lower of cost or 70 percent of current appraised value (which is not materially different from fair value minus estimated costs to sell). When a property is acquired, the excess of the recorded investment in the property over fair value, if any, is charged to the allowance for credit losses. Subsequent declines in the estimated fair value, net operating results and gains or losses on disposition of the property are included in other non-interest expenses. Goodwill and Other Intangibles Goodwill represents the unamortized cost of acquiring subsidiaries and other net assets in excess of the appraised value of such net assets at the date of acquisition. Goodwill is amortized over a maximum 15-year period using the straight-line method. Other identifiable intangibles are amortized either on an accelerated basis or straight-line, over various periods which do not exceed 15 years. Derivative Financial Instruments The corporation and its subsidiaries utilize a variety of derivative financial instruments as part of an overall interest rate risk management strategy and in conjunction with their customer service and trading activities. Derivative financial instruments utilized include interest rate swaps, interest rate futures, caps, floors, options and forward contracts. Interest rate swaps are used principally as a tool to manage the interest sensitivity of the corporation's balance sheet. These contracts represent an exchange of interest payment streams based on an agreed-upon notional principal amount with at least one stream based on a specified floating-rate index. The underlying principal balances of the assets or liabilities are not affected. Net settlement amounts are reported as adjustments to interest income or interest expense, as appropriate. Options are contracts which 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. Premiums paid on purchased put options which qualify as hedges are deferred and amortized over the terms of the contracts. Purchased put options are marked to market daily with losses limited to the amount of the option fee. Losses are recognized currently on put options sold when the market value of the underlying security falls below the put price plus the premium received. A premium received on a covered call option sold is deferred until the option matures. If the market value of the related asset is greater than the option strike price, the option will be exercised and the premium recorded as an adjustment of the gain or loss recognized. If the option expires, the premium is recorded in other non-interest income. Uncovered call options sold are marked to market daily with the gain limited to the amount of the option fee. 37 Interest rate futures and forward contracts are commitments to either purchase or sell a financial instrument at a specified price on an agreed-upon future date. These contracts may be settled either in cash or by delivery of the underlying financial instruments. Interest rate caps and floors require the seller to pay the purchaser, at specified dates, the amount, if any, by which the market interest rate exceeds the agreed-upon cap or falls below the agreed-upon floor, applied to a notional principal amount. Positions which are designated and effectively hedge specific mortgage servicing risk tranches correlate on the basis of certain duration and convexity parameters. Realized gains and losses on positions used in the management of specific asset and liability positions in banking operations are deferred and amortized over the terms of the items hedged as adjustments to interest income or interest expense. Within mortgage banking operations, realized and unrealized gains and losses on positions used as hedges of mortgages held for sale are considered in the computation of the market value of such loans. Realized gains and losses on positions used as hedges of capitalized mortgage servicing rights are deferred and amortized while unrealized gains and losses are considered in the calculation of the fair value of such mortgage servicing rights. Derivative financial instruments which are not hedges of specific assets, liabilities or commitments are included in the trading account. For a discussion of the risks associated with derivatives and the corporation's policies used to monitor such risks refer to Note 15, Derivative Activities. Income Taxes The corporation and its United States subsidiaries file a consolidated federal income tax return. The effects of current or deferred taxes are recognized as a current and deferred tax liability or asset based on current tax laws. Accordingly, income tax expense in the consolidated statements of income includes charges or credits to properly reflect the current and deferred tax asset or liability. Foreign taxes paid are applied as credits to reduce federal income taxes payable. Foreign Currency Translation The accounts of the corporation'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 separate component of stockholders' equity. Stock-Based Compensation The corporation accounts for its stock incentive plans in accordance with Accounting Principles Board Opinion No. 25 (APB Opinion No. 25) and related Interpretations. The corporation adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," (FAS 123) in 1996. The corporation has included in Note 11, Employee Benefit and Stock Incentive Plans the impact of the fair value of employee stock-based compensation plans on net income and earnings per share on a pro forma basis for awards granted since January 1, 1995, pursuant to FAS 123. Earnings Per Share Income for primary and fully diluted earnings per share is adjusted for preferred stock dividends. Primary earnings per share data is computed based on the weighted average number of common shares outstanding and common stock equivalents arising from the assumed exercise of outstanding stock options. Fully diluted earnings per share data is computed by using such average common shares and equivalents increased by the assumed conversion into common stock of the 6 3/4 percent convertible subordinated debentures, the Cumulative Convertible Preferred Stock, Series B, the First United Cumulative Convertible Exchangeable Preferred Stock, Series A and the First United Cumulative Convertible Exchangeable Preferred Stock, Series C. Income for fully diluted earnings per share is also adjusted for interest expense on these debentures and notes, net of the related income tax effect, and preferred stock dividends related to the convertible preferred stock. Weighted average numbers of common and common equivalent shares applied in calculating earnings per share are as follows:
1996 1995 1994 ----------- ----------- ----------- Primary....................... 369,709,666 331,679,492 315,091,891 Fully diluted................. 370,670,926 341,118,009 327,798,536
38 2. Business Combinations The corporation regularly explores opportunities for acquisitions of financial institutions and related businesses. Generally, management of the corporation does not make a public announcement about an acquisition opportunity until a definitive agreement has been signed. Transactions completed in the years ended December 31, 1996, 1995 and 1994 include:
In millions, except share amounts Common Cash Shares Method of Date Assets Paid Issued Accounting ----------- --------- -------- ---------- ---------------------- 1996 The Bank of Robstown, Robstown, Texas (B)................ January 12 $ 71.4 $ 9.5 -- Purchase AMFED Financial, Inc., Reno, Nevada (B).................. January 18 1,518.8 -- 6,046,636 Pooling of interests* Irene Bancorporation, Inc., Viborg, South Dakota (B)..... January 31 39.7 7.1 -- Purchase Canton Bancshares, Inc., Canton, Illinois (B)............ February 15 49.7 -- 279,270 Purchase Henrietta Bancshares, Inc., Henrietta, Texas (B)......... March 12 164.0 24.4 -- Purchase Victoria Bankshares, Inc., Victoria, Texas (B)........... April 11 1,918.7 -- 8,510,801 Pooling of interests* The Prudential Home Mortgage Company, Inc. (M)........... May 7 3,335.6 3,335.6 -- Purchase of assets Cardinal Credit Corporation, Lexington, Kentucky (F)..... May 13 34.2 33.6 -- Purchase of assets Benson Financial Corporation, San Antonio, Texas (B)..... May 31 463.8 -- 2,044,035 Pooling of interests* Regional Bank of Colorado, N.A., Rifle, Colorado (B)..... June 1 56.0 -- 354,967 Purchase AmeriGroup, Incorporated, Minneapolis, Minnesota (B)..... June 4 155.1 -- 916,200 Purchase Union Texas Bancorporation, Inc., Laredo, Texas (B)...... June 27 245.0 -- 394,979 Purchase B & G Investment Company, San Antonio, Texas (B)......... July 3 71.2 -- 270,998 Purchase PriMerit Bank, F.S.B., Las Vegas, Nevada (B)............. July 19 1,577.6 190.7 -- Purchase of assets DUMAE Insurance Agency, Inc., Baltic, South Dakota (B)... July 25 0.2 0.2 -- Purchase of assets Aman Collection Service, Inc., Aberdeen, South Dakota (F) August 2 4.1 -- 600,000 Pooling of interests* Rapid Finance, Inc., Jacksonville, Mississippi (F)....... August 16 28.6 28.6 -- Purchase of assets National Business Finance, Inc., Denver, Colorado (B).... September 30 8.4 7.5 -- Purchase American Bank Moorhead, Moorhead, Minnesota (B).......... October 1 154.7 23.9 -- Purchase Texas Bancorporation, Inc., Odessa, Texas (B)............ November 1 173.6 -- 762,495 Purchase West Columbia National Bank, West Columbia, Texas (B).... December 27 34.4 5.0 -- Purchase --------- -------- ---------- $10,104.8 $3,666.1 20,180,381 ========= ======== ========== 1995 Ken-Caryl Investment Company, Littleton, Colorado (B).... January 5 $ 29.0 $ -- 149,774 Purchase American Republic Bancshares, Inc., Belen, New Mexico (B)................................. January 6 222.0 -- 1,206,546 Purchase Independent Bancorp of Arizona, Inc., Phoenix, Arizona (B).................................. February 12 1,600.0 159.7 -- Purchase Parker Bankshares, Incorporated, Parker, Colorado (B).... February 28 59.0 -- 394,995 Pooling of interests* Directors Mortgage Loan Corporation, Riverside, California (M)............................. March 13 270.8 -- 10,545,778 Pooling of interests* Babbscha Company, Fridley, Minnesota (B)................. April 1 53.0 -- 275,921 Purchase The First National Bank of Bay City, Bay City, Texas (B). April 10 146.0 -- 932,642 Purchase Goldenbanks of Colorado, Inc., Golden, Colorado (B)...... May 1 361.3 -- 2,716,629 Pooling of interests* ITT Financial Corporation - Island Finance business (F).. May 4 1,016.1 574.3 -- Purchase New Braunfels Bancshares, Inc., New Braunfels, Texas (B). May 10 43.1 7.0 -- Purchase United Texas Financial Corporation, Wichita Falls, Texas (B).............................. June 1 296.3 -- 1,515,851 Purchase First American National Bank, Chandler, Arizona (B)...... June 1 39.0 -- 192,831 Pooling of interests* First Tule Bancorp, Inc., Tulia, Texas (B)............... June 1 61.4 8.3 -- Purchase The Ryland Group, Inc. - Mortgage-related institutional financial services business (B)......... June 30 -- 47.1 -- Purchase Comfort Bancshares, Inc., Comfort, Texas (B)............. July 10 41.1 6.2 -- Purchase Valley-Hi Investment Company, San Antonio, Texas (B)..... August 1 121.6 -- 427,998 Purchase
39
In millions, except share amounts Common Cash Shares Method of Date Assets Paid Issued Accounting ----------- ---------- -------- ---------- --------------------- 1995, continued Dickinson Bancorporation, Inc., Dickinson, North Dakota (B)........................... August 8 $ 123.3 $ -- 541,591 Purchase Alice Bancshares, Inc., Alice, Texas (B)................. September 15 187.6 40.2 -- Purchase State National Bank, El Paso, Texas (B).................. October 2 1,052.3 157.0 -- Purchase Liberty National Bank, Austin, Texas (B)................. October 16 167.1 27.3 -- Purchase The Foothill Group, Inc., Los Angeles, California (B).... October 19 905.1 -- 15,632,689 Pooling of interests* The First National Bank in Big Spring, Big Spring, Texas (B)................................. November 1 216.9 38.0 -- Purchase Beacon Business Credit Corp., Boston, Massachusetts (B)............................. December 1 30.6 12.5 -- Purchase ---------- -------- ---------- $ 7,042.6 $1,077.6 34,533,245 ========== ======== ========== 1994 St. Cloud National Bank & Trust Co., St. Cloud, Minnesota (B)............................... January 1 $ 119.0 $ -- 1,105,820 Pooling of interests* St. Cloud Metropolitan Agency, Inc., St. Cloud, Minnesota (B)............................... January 6 -- -- 32,969 Purchase First United Bank Group, Inc., Albuquerque, New Mexico (B)............................ January 14 3,924.6 -- 17,784,916 Pooling of interests Lindeberg Financial Corporation, Forest Lake, Minnesota (B)............................. February 2 55.0 -- 413,599 Pooling of interests* First National Bank of Arapahoe County, Aurora, Colorado (B)................................... February 2 36.0 -- 260,896 Pooling of interests* First National Bank of Lakewood, Lakewood, Colorado (B).. February 2 61.0 -- 337,582 Pooling of interests* First National Bank of Southeast Denver, Denver, Colorado (B).................................. February 2 134.0 -- 803,439 Pooling of interests* Community Credit Co., Minneapolis, Minnesota (F)......... March 15 173.0 -- 3,726,871 Pooling of interests* Bank of Montana System, Great Falls, Montana (B)......... April 15 807.0 -- 4,174,105 Pooling of interests* D.L. Bancshares, Inc., Detroit Lakes, Minnesota (B)...... April 28 78.5 11.9 -- Purchase Double Eagle Financial Corporation, Phoenix, Arizona (M). May 1 5.4 -- 307,700 Purchase American Land Title Company of Kansas City, Inc., Kansas City, Missouri (M)............................. July 1 0.5 -- 166,666 Purchase La Porte Bancorp., Hammond, Indiana (B).................. September 15 137.7 -- 564,553 Purchase Copper Bancshares, Inc., Silver City, New Mexico (B)..... October 2 98.4 -- 524,920 Purchase Bank of Scottsdale, Scottsdale, Arizona (B).............. October 21 92.8 13.6 -- Purchase Texas National Bankshares, Inc., Midland, Texas (B)...... December 2 187.8 24.5 -- Purchase First National Bank of Kerrville, Kerrville, Texas (B)... December 9 205.7 -- 1,225,000 Purchase Alexandria Securities and Investment Company, Alexandria, Minnesota (B).............................. December 9 59.3 -- 341,039 Purchase -------- -------- ---------- $6,175.7 $ 50.0 31,770,075 ======== ======== ==========
*Pooling of interests transaction was not material to the corporation's consolidated financial statements; accordingly, previously reported results were not restated. B - Banking Group; M - Mortgage Banking; F - Norwest Financial At December 31, 1996, the corporation had six other pending acquisitions with total assets of approximately $2.0 billion, and it is anticipated that cash of $91.4 million and approximately 7.2 million common shares will be issued upon completion of these acquisitions. Pending acquisitions include Central Bancorporation, Inc., a $1.1 billion bank holding company based in Fort Worth, Texas. These pending acquisitions, subject to approval by regulatory agencies, are expected to be completed during 1997 and are not significant to the financial statements of the corporation, either individually or in the aggregate. 40 3. Restrictions on Cash and Due from Banks The corporation's banking subsidiaries are required to maintain reserve balances in cash with Federal Reserve Banks. The average amount of those reserve balances was approximately $580 million and $575 million for the years ended December 31, 1996 and 1995, respectively. 4. Investment Securities Information related to the amortized cost and fair value of investment securities at December 31 is provided in the table below. Amortized Cost and Fair Values of Investment Securities
1996 1995 1994 ---------------------------------- --------------------------------- ---------------------------------- Gross Gross Gross Gross Gross Gross Amor- Unreal- Unreal- Amor- Uneal- Unreal- Amor- Unreal- Unreal- tized ized ized Fair tized ized ized Fair tized ized ized Fair In millions Cost Gains Losses Value Cost Gains Losses Value Cost Gains Losses Value ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Investment securities available for sale: U.S. Treasury and federal agencies................ $ 1,173.6 13.4 (6.9) 1,180.1 969.3 21.9 (5.0) 986.2 932.4 6.3 (15.4) 923.3 State, municipal and housing-tax exempt................. 917.5 37.6 (3.2) 951.9 793.9 40.7 (8.6) 826.0 107.1 0.3 (3.9) 103.5 Other................... 868.8 356.9 (67.5) 1,158.2 658.1 289.1 (5.4) 941.8 321.2 97.0 (17.4) 400.8 -------- ----- ------ -------- -------- ----- ------ -------- -------- ----- ------ -------- Total investment securities available for sale................... 2,959.9 407.9 (77.6) 3,290.2 2,421.3 351.7 (19.0) 2,754.0 1,360.7 103.6 (36.7) 1,427.6 -------- ----- ------ -------- -------- ----- ------ -------- -------- ----- ------ -------- Mortgage-backed securities available for sale: Federal agencies............. 12,651.0 194.4 (61.2) 12,784.2 12,163.2 254.9 (80.0) 12,338.1 12,635.2 19.1 (642.4) 12,011.9 Collateralized mortgage obligations........... 165.5 7.8 (0.6) 172.7 147.9 3.2 (0.2) 150.9 165.8 0.5 (4.0) 162.3 -------- ----- ------ -------- -------- ----- ------ -------- -------- ----- ------ -------- Total mortgage- backed securities available for sale............... 12,816.5 202.2 (61.8) 12,956.9 12,311.1 258.1 (80.2) 12,489.0 12,801.0 19.6 (646.4) 12,174.2 -------- ----- ------ -------- -------- ----- ------ -------- -------- ----- ------ -------- Total investment and mortgage- backed securities available for sale............... 15,776.4 610.1 (139.4) 16,247.1 14,732.4 609.8 (99.2) 15,243.0 14,161.7 123.2 (683.1) 13,601.8 Other securities held for investment............. 712.2 35.8 (2.8) 745.2 760.5 44.2 (8.9) 795.8 1,235.1 56.7 (23.1) 1,268.7 --------- ----- ------ -------- -------- ----- ------ -------- -------- ----- ------ -------- Total investment securities.... $16,488.6 645.9 (142.2) 16,992.3 15,492.9 654.0 (108.1) 16,038.8 15,396.8 179.9 (706.2) 14,870.5 ========= ===== ====== ======== ======== ===== ====== ======== ======== ===== ====== ========
The carrying and fair of investment securities by maturity at December 31 were:
1996 1995 ------------------------------ ---------------------------- In millions Carrying Fair Carrying Fair Value Value Value Value ----------- -------- -------- -------- Available for sale: Investment securities: In one year or less............................. $ 649.8 649.8 746.2 746.2 After one year through five years............... 1,295.4 1,295.4 966.3 966.3 After five years through ten years.............. 372.3 372.3 334.7 334.7 After ten years................................. 972.7 972.7 706.8 706.8 ----------- -------- -------- -------- Total investment securities available for sale 3,290.2 3,290.2 2,754.0 2,754.0 ----------- -------- -------- -------- Mortgage-backed securities: In one year or less............................. 132.8 132.8 53.5 53.5 After one year through five years............... 409.9 409.9 271.1 271.1 After five years through ten years.............. 152.0 152.0 320.6 320.6 After ten years................................. 12,262.2 12,262.2 11,843.8 11,843.8 ----------- -------- -------- -------- Total mortgage-backed securities available for sale......................... 12,956.9 12,956.9 12,489.0 12,489.0 ----------- -------- -------- -------- Total investment and mortgage-backed securities available for sale................... 16,247.1 16,247.1 15,243.0 15,243.0 ----------- -------- -------- -------- Held for investment: In one year or less............................. -- -- -- -- After one year through five years............... 294.8 327.8 262.9 298.2 After five years through ten years.............. -- -- -- -- After ten years................................. 417.4 417.4 497.6 497.6 ----------- -------- -------- -------- Total investment securities held for investment..... 712.2 745.2 760.5 795.8 ----------- -------- -------- -------- Total investment securities......................... $ 16,959.3 16,992.3 16,003.5 16,038.8 =========== ======== ======== ========
41 In November 1995, the Financial Accounting Standards Board announced it would permit companies to make a one-time reclassification of their investment securities in conjunction with the issuance of a Special Report entitled "A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities." The corporation transferred the remaining federal agency and state, municipal and housing tax exempt securities with amortized costs of $27.4 million and $665.2 million, respectively, from held for investment to available for sale as of December 31, 1995. Unrealized gains related to such securities transferred amounted to $25.3 million. Investment securities (including securities available for sale) carried at $6,515.9 million and $5,610.7 million were pledged to secure public or trust deposits or for other purposes at December 31, 1996 and 1995, respectively. Interest income on investment securities for each of the three years ended December 31 was:
In millions 1996 1995 1994 ------ ------ ------ Investment securities available for sale: U.S. Treasury and federal agencies............................... $ 79.8 73.5 93.9 State, municipal and housing-tax exempt.......................... 53.5 6.5 5.4 Other............................................................ 48.5 39.5 20.9 --------- -------- ------ Total investment securities available for sale................. 181.8 119.5 120.2 --------- -------- ------ Mortgage-backed securities available for sale: Federal agencies................................................. 974.7 934.1 707.3 Collateralized mortgage obligations.............................. 13.6 11.7 8.4 --------- -------- ------ Total mortgage-backed securities available for sale............ 988.3 945.8 715.7 --------- -------- ------ Total investment and mortgage-backed securities available for sale.. 1,170.1 1,065.3 835.9 Other securities held for investment................................ 36.2 83.8 71.5 --------- -------- ------ Total investment securities......................................... $ 1,206.3 1,149.1 907.4 ========= ======== ======
Total gross realized gains and gross realized losses from the sale of investment securities for each of the three years ended December 31 were:
In millions 1996 1995 1994 ------ ------ ------ Available for sale: Investment securities: Gross realized gains...................................................... $ 16.1 14.8 28.3 Gross realized losses..................................................... (71.1) (21.3) (75.9) ------- ------ ------ Net realized losses....................................................... (55.0) (6.5) (47.6) Mortgage-backed securities: Gross realized gains...................................................... 97.5 50.5 17.1 Gross realized losses..................................................... (89.3) (89.1) (48.5) ------- ------ ------ Net realized gains (losses)............................................... 8.2 (38.6) (31.4) ------- ------ ------ Net realized losses on investment and mortgage-backed securities available for sale........................... $ (46.8) (45.1) (79.0) ======= ====== ====== Held for investment: Investment securities: Gross realized gains...................................................... $ -- 0.7 0.9 Gross realized losses..................................................... -- (0.1) (1.1) ------- ------ ------ Net realized gains (losses) on investment securities held for investment................................... $ -- 0.6 (0.2) ======= ====== ====== Venture capital securities: Gross realized gains...................................................... $ 364.1 129.3 85.4 Gross realized losses..................................................... (107.7) (27.2) (8.3) ------- ------ ------ Net venture capital realized gains............................................. $ 256.4 102.1 77.1 ======= ====== ======
42 Certain investment securities with a total amortized cost of $138.7 million, $97.0 million and $102.6 million were sold during 1996, 1995 and 1994, respectively, by the corporation principally because such securities were called by the issuers prior to maturity, or in certain cases due to significant deterioration in the creditworthiness of the related issuers. 5. Loans and Leases The carrying values of loans and leases at December 31 were:
In millions 1996 1995 ----------- ---------- Commercial, financial and industrial................................................... $ 10,204.9 9,327.3 Agricultural........................................................................... 1,107.7 1,090.8 Real estate Secured by 1-4 family residential properties........................................ 10,376.3 8,592.9 Secured by development properties................................................... 2,104.5 2,024.0 Secured by construction and land development........................................ 943.8 742.0 Secured by owner-occupied properties................................................ 2,644.6 2,149.9 Consumer............................................................................... 10,431.2 10,520.7 Credit card............................................................................ 1,566.2 1,666.1 Lease financing........................................................................ 812.4 815.7 Foreign Consumer............................................................................ 774.9 705.2 Commercial.......................................................................... 187.7 196.1 ----------- ---------- Total loans and leases........................................................... 41,154.2 37,830.7 Unearned discount...................................................................... (1,773.2) (1,677.6) ----------- ---------- Total loans and leases, net of unearned discount.............................................................. $ 39,381.0 36,153.1 =========== ==========
Changes in the allowance for credit losses were:
In millions 1996 1995 1994 -------- -------- -------- Balance at beginning of year.......................................... $ 917.2 789.9 789.2 Allowances related to assets acquired, net................................................... 111.3 119.1 29.0 Provision for credit losses....................................... 394.7 312.4 164.9 Credit losses..................................................... (511.8) (421.2) (314.8) Recoveries........................................................ 129.4 117.0 121.6 --------- ------- ------ Net credit losses............................................... (382.4) (304.2) (193.2) --------- ------- ------ Balance at end of year................................................ $ 1,040.8 917.2 789.9 ========= ======= ======
Total non-performing assets and 90-day past due loans and leases at December 31 were:
In millions 1996 1995 -------- -------- Impaired loans: Non-accrual..................................... $ 94.0 100.1 Restructured.................................... 0.2 2.0 -------- -------- Total impaired loans.......................... 94.2 102.1 Other non-accrual loans and leases.................. 62.5 66.8 -------- -------- Total non-accrual and restructured loans and leases.............................. 156.7 168.9 Other real estate owned............................. 43.3 37.1 -------- -------- Total non-performing assets..................... 200.0 206.0 Loans and leases past due 90 days or more*.......... 110.7 91.9 -------- -------- Total non-performing assets and 90-day past due loans and leases.............. $ 310.7 297.9 ======== ========
*Excludes non-accrual and restructured loans and leases. 43 The average balances of impaired loans for the years ended December 31, 1996 and 1995 were $113.1 million and $88.1 million, respectively. The allowance for credit losses related to impaired loans at December 31, 1996 and 1995 was $31.4 million and $43.3 million, respectively. Impaired loans of $0.9 million and $2.7 million were not subject to a related allowance for credit losses at December 31, 1996 and 1995, respectively, because of the net realizable value of loan collateral, guarantees and other factors. The effect of non-accrual and restructured loans on interest income for each of the three years ended December 31 was:
In millions 1996 1995 1994 ----- ----- ----- Interest income As originally contracted................ $25.1 15.3 15.4 As recognized........................... (7.3) (3.6) (3.1) ----- ---- ---- Reduction of interest income......... $17.8 11.7 12.3 ===== ==== ====
There were no material commitments to lend additional funds to customers whose loans were classified as non-accrual or restructured at December 31, 1996. Leveraged lease financing amounted to $151.1 million and $140.9 million at December 31, 1996 and 1995, respectively. Deferred income taxes related to leveraged leases amounted to $115.5 million and $111.2 million at the same dates, respectively. Loans and leases totaling $4,614.6 million and $4,325.2 million were pledged to secure Federal Home Loan Bank (FHLB) advances at December 31, 1996 and 1995, respectively. Loans to executive officers and directors (and their associates) of the corporation and its significant subsidiaries, made in the ordinary course of business, were not material at December 31, 1996 and 1995. Loans held for sale at December 31, 1996 consisted of $2,827.6 million in student loans. Loans held for sale at December 31, 1995 included $2,336.5 million in student loans and $1,007.4 million in credit card receivables. 6. Premises and Equipment The carrying value of premises and equipment at December 31 was:
In millions 1996 1995 ---------- -------- Owned Land................................................ $ 151.1 124.3 Premises and improvements........................... 988.7 798.8 Furniture, fixtures and equipment................... 1,298.3 1,137.3 --------- -------- Total............................................ 2,438.1 2,060.4 --------- -------- Capitalized leases Premises............................................ 19.1 20.1 Equipment........................................... 2.1 4.5 --------- -------- Total............................................ 21.2 24.6 --------- -------- Total premises and equipment........................ 2,459.3 2,085.0 Less accumulated depreciation and amortization...... (1,258.4) (1,050.9) --------- -------- Premises and equipment, net......................... $ 1,200.9 1,034.1 ========= ========
7. Certificates of Deposit Over $100,000 The corporation had certificates of deposit over $100,000 of $3,457.1 million and $2,504.6 million at December 31, 1996 and 1995, respectively. Interest expense on certificates of deposit over $100,000 was $177.1 million, $139.9 million and $69.4 million for the years ended December 31, 1996, 1995 and 1994, respectively. There were no brokered certificates of deposit at December 31, 1996 and 1995. 44 8. Short-term Borrowings Information related to short-term borrowings for the three years ended December 31 is provided in the table below. At December 31, 1996, the corporation had available lines of credit totaling $2,357.7 million, including $2,057.7 million at a subsidiary, Norwest Financial. A portion of these financing arrangements require the maintenance of compensating balances or payment of fees, which are not material. At December 31, 1996, the corporation had commercial paper placement agreements totaling $300.0 million (included in the $2,357.7 million reported in the preceding paragraph). Short-Term Borrowings
1996 1995 1994 ----------------- -------------------- ---------------- In millions, except rates Amount Rate Amount Rate Amount Rate -------- ----- --------- ----- ------- ------ At December 31, Commercial paper............................................ $3,466.0 5.26% $ 3,129.2 5.77% $2,544.9 5.87% Federal funds purchased and securities sold under agreements to repurchase................................. 2,665.0 5.47 3,563.6 5.10 4,252.5 5.79 Other....................................................... 1,441.6 5.75 1,834.4 5.88 1,052.8 5.68 -------- --------- -------- Total.................................................. $7,572.6 5.43 $ 8,527.2 5.52 $7,850.2 5.81 ======== ========= ======== For the year ended December 31, Average daily balance Commercial paper............................................ $4,277.5 5.37% $ 3,364.3 6.01% $2,672.1 4.42% Federal funds purchased and securities sold under agreements to repurchase................................. 2,925.0 5.03 3,854.9 5.78 2,966.7 4.34 Other....................................................... 1,351.1 5.71 1,518.4 5.97 989.7 4.38 -------- --------- -------- Total.................................................. $8,553.6 5.31 $ 8,737.6 5.90 $6,628.5 4.38 ======== ========= ======== Maximum month-end balance Commercial paper............................................ $5,357.7 NA $ 4,981.0 NA $2,949.3 NA Federal funds purchased and securities sold under agreements to repurchase................................. 3,366.9 NA 5,670.6 NA 4,252.5 NA Other....................................................... 1,760.9 NA 2,321.1 NA 1,341.6 NA
NA--Not applicable. 45 9. Long-term Debt Long-term debt at December 31 consisted of:
In millions 1996 1995 -------- ------- Norwest Corporation (parent company only) Medium-Term Notes, Series A, 5.58% to 5.74%, due 1998........................... $ 6.6 57.5 Medium-Term Notes, Series C, 4.93% to 5.14%, due 1998........................... 1.5 23.4 Floating Rate Medium-Term Notes, Series C, due 1998............................. 105.0 180.4 Medium-Term Notes, Series D, 7.125% to 8.15%, due 1999 to 2001.................. 375.0 375.0 Floating Rate Medium-Term Notes, Series D, due 1999............................. 200.0 600.0 Medium-Term Notes, Series E, 7.70% to 8.67%, due 1997 to 2002................... 550.0 750.0 Floating Rate Medium-Term Notes, Series E, due 1997 to 1998..................... 250.0 250.0 Medium-Term Notes, Series F, 6.50% to 7.68%, due 2000 to 2005................... 1,000.0 1,000.0 Medium-Term Notes, Series G, 5.75% to 6.875%, due 1998 to 2006.................. 1,950.0 1,050.0 Floating Rate Medium-Term Notes, Series G, due 1998............................. 25.0 25.0 Medium-Term Notes, Series H, 5.625% to 6.75%, due 2001 to 2006.................. 400.0 -- Medium-Term Notes, Series J, 6.55% due 2006..................................... 200.0 -- Floating Rate Euro Medium-Term Notes, due 2001.................................. 300.0 -- 5.75% Senior Notes, due 1998.................................................... 100.0 100.0 6% Senior Notes, due 2000....................................................... 200.0 200.0 Senior Debt, 7.816% due 1996.................................................... -- 150.0 6.003% Senior Note, due 1997.................................................... 200.0 200.0 Floating Rate Senior Note, due 1996............................................. -- 330.0 ESOP Series A Notes, 8.42% due 1996............................................. -- 31.0 ESOP Series B Notes, 8.52% due 1999............................................. 13.3 13.3 9 1/4% Subordinated Capital Notes, due 1997..................................... 100.0 100.0 6 5/8 % Subordinated Notes, due 2003............................................ 200.0 200.0 6 3/4% Convertible Subordinated Debentures, due 2003............................ 0.1 0.1 6.65% Subordinated Debentures, due 2023......................................... 200.0 200.0 Other notes..................................................................... 7.5 5.2 --------- -------- Total .................................................................... 6,384.0 5,840.9 --------- -------- Norwest Financial, Inc. and its subsidiaries Senior Notes, 5.125% to 8.65%, due 1997 to 2007................................. 4,080.9 3,864.5 Senior Subordinated Notes, 5.20% to 7.875%, due 1997 to 1998.................... 52.0 217.0 --------- -------- Total..................................................................... 4,132.9 4,081.5 --------- -------- Other consolidated subsidiaries FHLB Notes and Advances, 3.15% to 8.38%, due 1997 through 2026.................. 477.2 465.0 Floating Rate FHLB Advances, due 1997 through 2011.............................. 2,050.0 3,202.7 12.25% Senior Notes, due 1998 to 2000........................................... 2.5 3.3 Floating Rate Senior Note, due 1997............................................. -- 20.0 Other notes and debentures, due 1997 through 2005............................... 18.7 44.9 Mortgages payable............................................................... 0.4 0.5 Capital lease obligations....................................................... 16.5 18.0 --------- -------- Total..................................................................... 2,565.3 3,754.4 --------- -------- Consolidated long-term debt............................................... $13,082.2 13,676.8 ========= ========
Notes and debentures of the corporation and Norwest Financial, Inc. and its subsidiaries are unsecured. During 1996, the corporation issued $1.5 billion of Medium-Term Notes in the domestic market. Such issuances included $900 million of Medium-Term Notes, Series G, $400 million of Medium-Term Notes, Series H and $200 million of Medium-Term Notes, Series J. The corporation also issued $300 million in Euro Medium-Term Notes. During 1995, the corporation issued $2.875 billion of Medium-Term Notes, including $800 million of Medium-Term Notes, Series E, $1 billion of Medium-Term Notes, Series F and $1.075 billion of Medium-Term Notes, Series G. Medium-Term Notes represent senior, unsubordinated debt and rank equally with all other unsecured and unsubordinated debt of the corporation. The corporation has entered into various interest rate swap agreements to exchange the fixed interest rate on certain debt issuances for a variable rate. Through the use of such instruments, the corporation has synthetically altered the rate on certain notional amounts of outstanding Medium-Term notes with resulting effective rates of interest as follows: Series D, $375 million ranging from one-month LIBOR (London Inter-Bank Offered Rate) less 95 basis points to three-month LIBOR plus seven basis points; Series E, $225 million ranging from three-month LIBOR less seven basis points to three-month LIBOR 46 plus five basis points; Series F, $500 million ranging from three-month LIBOR less 92 basis points to three-month LIBOR plus seven basis points; Series G, $1,950 million ranging from three-month LIBOR less 19 basis points to three-month LIBOR plus 16 basis points; Series H, $400 million at three-month LIBOR less nine basis points to three-month LIBOR plus five basis points; and Series J, $200 million at three-month LIBOR less one basis point. The corporation has also entered into interest rate swap agreements to exchange the fixed rate on other outstanding debt issuances for a variable rate of interest as follows: 5 3/4% Senior Notes, $100 million at a rate of three-month LIBOR less 46 basis points; 6 5/8% Subordinated Notes due 2003, $200 million at a rate of one-month LIBOR less 37 basis points; and 9 1/4% Subordinated Capital Notes, $50 million at a rate of six-month LIBOR plus 13 basis points. The corporation has closed two interest rate swap agreements related to the Medium-Term Notes, Series F. The corporation has also entered into and subsequently closed an interest rate swap agreement on $50 million of the 6% Senior Notes due 2000. Rates on outstanding floating rate debt issuances are as follows: Floating Rate Medium-Term Notes, Series C, three-month LIBOR plus 10 basis points; Floating Rate Medium-Term Notes, Series D, three-month LIBOR plus five basis points; Floating Rate Medium-Term Notes, Series E, three-month LIBOR plus five basis points to three-month LIBOR plus 10 basis points; Floating Rate Medium-Term Notes, Series G, three-month LIBOR plus eight basis points; and Euro Medium-Term Notes, three-month LIBOR plus five basis points. The corporation has the option to call $100 million of Medium-Term Notes, Series F beginning May 10, 1998 upon 30 days notice. The corporation may call $50 million of Medium-Term Notes, Series C, on March 20, 1997 and on any interest payment date thereafter. The corporation has called $25 million of the fixed rate Medium-Term Notes, Series E as of January 21, 1997. The 9 1/4% Subordinated Capital Notes due 1997 are redeemable at the option of the corporation at the principal amount in exchange for an equivalent market value of common stock, perpetual preferred or other eligible primary capital securities of the corporation or cash at the bondholder's election if the corporation determines that the debt no longer constitutes primary capital or ceases to be treated as primary capital by the regulatory authorities. The corporation is required to sell or issue common stock, preferred stock or any other capital securities, as determined by the regulatory authorities, and dedicate the proceeds to the retirement or redemption of the principal amount of these subordinated capital notes. Proceeds of equity offerings have been designated to redeem the full amount of the subordinated debentures. The 6 5/8% Subordinated Notes due 2003 are unsecured and subordinated to all present and future senior debt of the corporation. Payment of principal may be accelerated only in the case of bankruptcy of the corporation. There is no right of acceleration in the case of a default in the payment of principal or interest or in the lack of performance of any covenant or agreement of the corporation. The 6 3/4% Convertible Subordinated Debentures due 2003 can be converted into common stock of the corporation at $5 per share subject to adjustment for certain events. Repayment is subordinated, but only to the extent described in the indenture relating to the debentures, to the prior payment in full of all of the corporation's obligations for borrowed money. The subordinated debentures are redeemable at the principal amount plus a premium of 34 basis points in 1997 and thereafter without a premium. The 6.65% Subordinated Debentures due 2023 are unsecured and subordinated to all present and future senior debt of the corporation. There is no right of acceleration in the case of a default in the payment of principal or interest or in the lack of performance of any covenant of the corporation. Payment of principal may be accelerated only in the case of bankruptcy of the corporation. During 1996, Norwest Financial, Inc. issued a total of $525 million of senior notes bearing interest at rates ranging from 6.375 percent to 6.68 percent and due dates ranging from September 1999 to November 2003. The floating rate FHLB advances bear interest at LIBOR less 17 basis points and interest at rates ranging from one-month LIBOR less 15 basis points to the one-month LIBOR less four basis points, and the three-month LIBOR less 15 basis points to the three-month LIBOR less seven basis points. 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. Based upon these factors and the LIBOR rate in effect at December 31, 1996, the maturity dates range from 1997 to 2011. 47 Mortgages payable consist of notes secured by deeds of trust on premises and certain other real estate owned with a net book value of $0.4 million at December 31, 1996. Interest rates on the mortgages payable range up to 12.0 percent with maturities through the year 1998. Maturities of long-term debt at December 31, 1996 were:
Parent In millions Consolidated Company Only ------------ ------------ 1997......................................................... $ 2,742.4 905.4 1998......................................................... 1,467.7 543.3 1999......................................................... 1,681.0 980.8 2000......................................................... 1,543.4 826.5 2001......................................................... 1,083.0 801.4 Thereafter................................................... 4,564.7 2,326.6 --------- ------- Total.................................................... $13,082.2 6,384.0 ========= =======
10. Stockholders' Equity Preferred and Preference Stock The corporation is authorized to issue 5,000,000 shares of preferred stock without par value and 4,000,000 shares of preference stock, without par value. Shares of preferred stock and preference stock have such powers, preferences and rights as may be determined by the corporation's board of directors, provided that each share of preference stock will not be entitled to more than one vote per share. No shares of preference stock are currently outstanding. A summary of the corporation's preferred stock at December 31 is presented below.
Annual Dividend Amount In millions, except share and per share amounts Shares Outstanding Rate Outstanding ------------------------- -------- --------------------- 1996 1995 1996 1996 1995 ---------- ---------- -------- ------ ----- Cumulative Tracking, $200 stated value...................... 980,000 980,000 9.30% $196.0 196.0 1996 ESOP Cumulative Convertible, $1,000 stated value....... 24,469 -- 8.50% 24.5 -- 1995 ESOP Cumulative Convertible, $1,000 stated value....... 22,716 24,572 10.00% 22.7 24.5 ESOP Cumulative Convertible, $1,000 stated value............ 11,594 12,984 9.00% 11.6 13.0 10.24% Cumulative, $100 stated value........................ -- 1,127,125 -- -- 112.7 Less: Cumulative Tracking shares held by a subsidiary....... (25,000) (25,000) (5.0) (5.0) --------- --------- ------ ----- 1,013,779 2,119,681 249.8 341.2 ========= ========= Unearned ESOP shares........................................ (61.0) (38.9) ------ ------ Total preferred stock................................... $188.8 302.3 ====== ======
On February 26, 1996, the corporation issued 59,000 shares of 1996 ESOP Cumulative Convertible Preferred Stock, $1,000 stated value per share (1996 ESOP Preferred Stock). The corporation issued 63,000 shares of 1995 ESOP Cumulative Convertible Preferred Stock, $1,000 stated value per share (1995 ESOP Preferred Stock) on March 28, 1995 and 40,900 shares of ESOP Cumulative Convertible Preferred Stock, $1,000 stated value per share, on March 31, 1994. All shares of the 1996 ESOP Preferred Stock, 1995 ESOP Preferred Stock and the 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 are cumulative from the date of initial issuance and are payable quarterly at an annual rate of 8.50 percent for the 1996 ESOP Preferred Stock, 10.00 percent for the 1995 ESOP Preferred Stock and 9.00 percent for the ESOP Cumulative Convertible Preferred Stock. Each share of ESOP Preferred Stock released from the unallocated reserve of the Plan is convertible into shares of common stock of the corporation based on the stated value of the ESOP Preferred Stock and the then current market price of the corporation's common stock. In 1996, 37,777 shares of ESOP Preferred Stock were converted into 985,155 shares of the corporation's common stock. During 1995 and 1994, 40,009 shares and 26,635 shares of ESOP Preferred Stock were converted into 1,360,749 shares and 1,094,593 shares of common stock of the corporation, respectively. 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 corporation 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. 48 In accordance with the American Institute of Certified Public Accountants (AICPA) Statement of Position 93-6, "Employers' Accounting for Employee Stock Ownership Plans," the corporation 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. On December 30, 1994, the corporation issued 980,000 shares of Cumulative Tracking Preferred Stock, $200 stated value per share, of which 25,000 shares were held by a subsidiary at December 31, 1996 and 1995. 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-, 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 corporation'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 corporation. 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 corporation. The shares of Cumulative Tracking Preferred Stock rank on a parity, both as to payment of dividends and the distribution of assets upon liquidation, with the corporation'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 corporation's junior participating preferred stock. At December 31, 1996, there were two holders of record of the Cumulative Tracking Preferred Stock. All shares of the corporation's 10.24% Cumulative Preferred Stock, $100 stated value, in the form of 4,508,500 depositary shares, were called for redemption on January 2, 1996. Each depositary share represented one-quarter of a share of such preferred stock. Dividends were cumulative from the date of issue and were payable quarterly at 10.24 percent per annum. The shares were redeemed in accordance with their terms at the stated value. During 1994, the corporation repurchased 4,125 shares of 10.24% Cumulative Preferred Stock. All shares of the corporation's Cumulative Convertible Preferred Stock, Series B, $200 stated value per share, in the form of depositary shares, were called for redemption on September 1, 1995. Each depositary share, which represented one-quarter of a share of such preferred stock, was convertible at the option of the stockholder into approximately 2.74 shares of the corporation's common stock or redeemable at a price of $52.10 per depositary share plus accrued dividends. Dividends were cumulative from the date of issue and had been payable quarterly at a rate of 7.00 percent per annum. During 1995, 1,141,891 shares of Cumulative Convertible Preferred Stock, Series B, were converted into 12,531,003 shares of common stock of the corporation and 1,784 of such preferred shares were redeemed. During 1994, 75 shares of Cumulative Convertible Preferred Stock, Series B, were converted into 823 shares of common stock of the corporation. In conjunction with the acquisition of First United in 1994, $30.2 million of preferred stock of First United was converted into common stock of the corporation. Common Stock During 1996, 1995 and 1994, holders of $5,000, $135,000 and $25,000, respectively, of convertible subordinated debentures exchanged such debt for 1,000 shares, 27,000 shares and 5,000 shares, respectively, of the corporation's common stock. At December 31, 1996, there were six holders of record of the convertible subordinated debentures. Under the corporation's dividend reinvestment and common stock purchase plan, participants may purchase shares of common stock at market prices with reinvested dividends and optional cash investments up to $30,000 per quarter. 49 The corporation had reserved shares of authorized but unissued common stock at December 31, as follows:
1996 1995 ------------ ------------ Stock incentive plans........................................................... 45,401,976 22,284,062 Convertible subordinated debentures and warrants*............................... 17,981,674 13,518,588 Dividend reinvestment........................................................... 1,672,130 155,872 Invest Norwest Program.......................................................... 1,120,993 1,471,126 Savings Investment Plans and Executive Incentive Compensation Plan.............. 4,399,384 6,581,393 Directors' Formula Stock Award and Stock Deferral Plans......................... 326,791 347,101 Employees' deferral plans....................................................... 942,340 1,038,214 ---------- ---------- Total........................................................................... 71,845,288 45,396,356 ========== ==========
*Includes warrants issued by the corporation to subsidiaries to purchase shares of the corporation's common stock as follows: 4,464,086 shares at $80.00 per share in 1996, 5,500,088 shares at $75.00 per share in 1995 and 8,000,000 shares at $70.00 per share in 1994. Each share of the corporation'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 25 percent or more of the corporation's common stock. This triggering percentage may be reduced to no less than 15 percent by the Board prior to the time the rights become exercisable. When exercisable, each right will entitle the holder to buy one four-hundredth of a share of a new series of junior participating preferred stock at a price of $175 for each one one-hundredth of a preferred share. In addition, upon the occurrence of certain events, holders of the rights will be entitled to purchase either the corporation's common stock or shares in an "acquiring entity" at one-half of the then current market value. The corporation will generally be entitled to redeem the rights at one-quarter cent per right at any time before they become exercisable. The rights will expire on November 23, 1998, unless extended, previously redeemed or exercised. The corporation has reserved 1.25 million shares of preferred stock for issuance upon exercise of the rights. 11. Employee Benefit and Stock Incentive Plans Savings Investment Plans Under the Savings Investment Plan (SIP), each eligible employee may contribute on a before-tax basis up to 12 percent of his or her certified earnings, and the contributions will be matched 100 percent by the corporation up to six percent of the employee's certified earnings. However, SIP participants who are also eligible to participate in the Employees' Deferred Compensation Plan may only contribute up to six percent of certified earnings. The corporation's matching contributions vest 25 percent per year of eligibility. All of the corporation's matching contributions are invested in the corporation's common stock. The employee's contributions are invested in a diversified bond, growth equity, S&P 500 Index, stable return or Norwest common stock fund, or a combination thereof, at the employee's direction. The corporation also maintains a Supplemental Savings Investment Plan under which amounts otherwise available for contribution to the SIP, in excess of the contribution limitations imposed by the Internal Revenue Code, are credited to an account for the participant. Contribution expense for the plans amounted to $33.0 million, $37.5 million and $30.4 million in 1996, 1995 and 1994, respectively. The corporation's SIP contains Employee Stock Ownership Plan (ESOP) provisions under which the SIP may borrow money to purchase the corporation's common or preferred stock. Beginning in 1994, the corporation has loaned money to the SIP which has been used to purchase shares of the corporation'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. Each quarter, the corporation makes contributions to the SIP which, along with dividends paid on the ESOP Preferred Stock, are used to make loan principal and interest payments. 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 participating employees. In 1989, the corporation loaned money to the SIP which was used to purchase shares of the corporation's common stock (the 1989 ESOP shares). The corporation accounts for the 1989 ESOP shares in accordance with AICPA Statement of 50 Position 76-3. Accordingly, the corporation's ESOP loans to the 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 corporation to the SIP are repayable in monthly installments through April 26, 1999, with interest at 8.45 percent. Interest income on these loans was $1.2 million, $1.1 million and $1.2 million in 1996, 1995 and 1994, respectively, and is included as a reduction in salaries and benefits expense. Total interest expense on the Series A and B ESOP Notes was $3.7 million per year in 1996, 1995 and 1994. Total dividends paid to the SIP on ESOP shares were as follows:
In millions 1996 1995 1994 ----- ----- ----- ESOP Preferred Stock: Common dividends........................................... $ 2.9 1.5 0.3 Preferred dividends........................................ 3.2 3.5 1.7 1989 ESOP shares: Common dividends........................................... 9.1 7.7 6.8 ----- ----- ----- Total......................................................... $15.2 12.7 8.8 ===== ===== =====
The ESOP shares as of December 31 were as follows:
In millions, except shares 1996 1995 ---------- --------- ESOP Preferred Stock: Allocated shares (common)...................................................... 3,290,423 2,305,807 Unreleased shares (preferred).................................................. 58,779 37,556 1989 ESOP shares: Allocated shares............................................................... 7,691,061 7,108,304 Unreleased shares.............................................................. 996,989 1,249,799 Fair value of unearned ESOP shares............................................... $58.8 37.6
Norwest Financial Services, Inc. has a thrift and profit sharing plan for its employees in which eligible employees may make basic contributions of up to 6% of their compensation and supplemental contributions up to an additional 4% of their compensation. Norwest Financial Services, Inc. makes a matching contribution of 25 percent of the basic employee contributions. Norwest Financial Services, Inc. may also make a profit sharing contribution with the amount determined by the percentage return on equity of Norwest Financial Services, Inc. and its subsidiaries. Contribution expense for the plan was $15.3 million, $12.1 million and $12.3 million in 1996, 1995 and 1994, respectively. 51 Retirement Plans The corporation's noncontributory defined benefit retirement plans cover substantially all full-time employees. Pension benefits provided are based on the employee's highest compensation in three consecutive years during the last ten years of employment. The corporation's funding policy is to maximize the federal income tax benefits of the contributions while maintaining adequate assets to provide for both benefits earned to date and those expected to be earned in the future. The combined plans' funded status at December 31 is presented below.
In millions 1996 1995 -------- -------- Plan assets at fair value*...................................................... $1,111.3 891.5 Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefits of $693.1 and $613.3 in 1996 and 1995, respectively....................... 755.8 666.8 Projected benefit obligation for service rendered to date.................... 927.6 868.1 -------- ----- Plan assets greater than projected benefit obligation........................... (183.7) (23.4) Unrecognized net gain from past experience different from that assumed and effects of changes in assumptions............................................ 155.6 45.1 Unrecognized net asset being amortized over approximately 17 years....................................................... 10.1 11.5 Unrecognized prior service cost................................................. 0.6 1.7 -------- ----- (Prepaid pension assets) accrued pension liabilities included in other (assets) liabilities....................................... $ (17.4) 34.9 ======== =====
*Consists primarily of listed stocks and bonds and obligations of the U.S. government and its agencies. The components of net pension expense for the years ended December 31 are presented below.
In millions 1996 1995 1994 ------ ------- ------ Service cost-benefits earned during the year................. $ 42.8 45.4 43.5 Interest cost on projected benefit obligation................ 57.2 55.4 48.9 Actual return on plan assets................................. (156.4) (156.5) (6.0) Net amortization and deferral*............................... 79.5 105.6 (17.8) ------ ------ ------ Net pension expense.......................................... $ 23.1 49.9 68.6 ====== ====== ======
*Consists primarily of the net effects of the difference between the expected investment return and the actual investment return and the amortization of the unrecognized net gains and losses over five years. The corporation also has established grantor trusts to be used to satisfy in part its non-qualified pension benefit liabilities. The market value of these trusts was $70.5 million and $52.0 million as of December 31, 1996 and 1995, respectively, and is not included in plan assets as presented above. The weighted average discount rate used in determining the actuarial present value of the projected benefit obligation was seven percent for both 1996 and 1995. The rate of increase in future compensation levels used in actuarial computations was five percent in 1996 and six percent in 1995. The expected long-term rate of return on assets was eight percent in 1996 and six percent in 1995. 52 Other Postretirement Benefits The corporation sponsors medical plans for retired employees. Substantially all employees become eligible for these benefits if they retire under the corporation's retirement plans. The corporation's funding policy is to maximize the federal income tax benefits of the contributions while maintaining adequate assets to provide for both benefits earned to date and those expected to be earned in the future. The combined plans' funded status at December 31 is presented below.
In millions 1996 1995 ------- ------- Plan assets at fair value*..................................................... $ 124.4 91.7 Accumulated postretirement benefit obligation: Retirees................................................................... 77.2 86.5 Fully eligible active plan participants.................................... 0.8 0.5 Other active plan participants............................................. 124.8 112.3 ------- ------- 202.8 199.3 Plan assets less than accumulated postretirement benefit obligation......................................... 78.4 107.6 Unrecognized net gain (loss)................................................... 15.9 (5.0) Unrecognized prior service cost................................................ (1.9) (0.8) ------- ------- Accrued postretirement benefit liabilities included in other liabilities......................................................... $ 92.4 101.8 ======= =======
*Consists primarily of life insurance policies, listed stocks and bonds and obligations of the U.S. government and its agencies. The components of net periodic postretirement benefit expense for the years ended December 31 are presented below.
In millions 1996 1995 1994 ------- ------ ------ Service cost-benefits earned during the year.................. $ 11.6 10.7 9.0 Interest cost on accumulated postretirement benefit obligation.......................................... 13.0 12.7 11.4 Actual return on plan assets.................................. (13.7) (15.2) 2.7 Net amortization and deferral*................................ 4.9 13.6 (1.7) ------ ------ ------ Net periodic postretirement benefit expense................... $ 15.8 21.8 21.4 ====== ====== ======
*Consists primarily of the net effects of the difference between the expected investment return and the actual investment return and amortization of gains and losses over five years. For measurement purposes, a 10.0 percent annual increase in the cost of covered health care benefits is assumed in the first year. This rate is assumed to decrease to eight percent after five years and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. For example, a one percent increase in the health care trend rate would increase the accumulated postretirement benefit obligation by approximately $29.7 million at December 31, 1996, and the service and interest components of the net periodic cost by $4.4 million for the year. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was seven percent in 1996 and 1995. The expected long-term rate of return on plan assets after taxes was 4.8 percent for 1996 and 3.6 percent for 1995. Stock Incentive Plans The corporation grants stock incentives to key employees under the Long-Term Incentive Compensation Plan (LTICP) approved by the stockholders in 1985. In 1988, 1991, 1993 and 1996, the stockholders approved amendments which increased the number of shares that may be distributed under the LTICP. Shares which are not used because the terms of an award are not met, and shares which are used by a participant to pay all or part of the purchase price of an option, may again be used for awards under the LTICP. At the discretion of a committee comprised of non-management directors, participants may be granted stock options, stock appreciation rights, restricted stock, performance awards, and stock awards without restrictions. At December 31, 1996, 209,615 shares of restricted stock and options to acquire 13,635,898 shares of common stock were outstanding under the LTICP. 53 Stock options may be granted as incentive stock options or non-qualified options, but may not be granted at prices less than market value at the dates of grant. Options may be exercised during a period fixed by the committee of not more than ten years. At the discretion of the committee, a stock option grant may include the right to acquire an Accelerated Ownership Non-Qualified Stock Option ("AO"). If an option grant contains the AO feature and if a participant pays all or part of the purchase price of the option with shares of the corporation's stock held by the participant for at least six months, then upon exercise of the option the participant is granted an AO to purchase, at the fair market value as of the date of the AO grant, the number of shares of common stock of the corporation equal to the sum of the number of shares used in payment of the purchase price and a number of shares with respect to taxes. On July 23, 1996, the corporation's board of directors approved the Norwest Corporation Best Practices PartnerShares Plan, a broad-based employee stock option plan. In conjunction with the plan's approval, options for 4,875,950 shares, with an exercise price of $33.125 per share, were granted to full and part-time employees who are not participants in the LTICP. Options are generally exercisable upon the earlier of July 24, 2001, or the first date the closing market value of the corporation's common stock equals or exceeds $60 per share. The corporation applies APB Opinion No. 25 and related Interpretations in accounting for its stock incentive plans. Accordingly, no compensation cost has been recognized for the fixed option plans. Proceeds from stock options exercised are credited to common stock and surplus. There are no charges or credits to expense with respect to the granting or exercise of options since the options were issued at fair market value on their respective dates of grant. Had compensation cost for the corporation's stock-based compensation plans been determined consistent with FAS 123, the corporation's net income and earnings per share would have been reduced to the pro forma amounts indicated below.
In millions, except per common share amounts 1996 1995 --------- --------- Net income As reported................................................................. $1,153.9 956.0 Pro forma................................................................... 1,143.8 953.2 Earnings per common share: Primary As reported............................................................. 3.07 2.76 Pro forma............................................................... 3.04 2.75 Fully diluted As reported............................................................. 3.07 2.73 Pro forma............................................................... 3.04 2.72
The fair value for each option grant for the LTICP and the Best Practices PartnerShares Plan utilized in the foregoing pro forma amounts is estimated on the date of grant using an option pricing model. The model incorporates the following weighted-average assumptions used for grants in 1996 and 1995: 15.45 percent dividend growth; 20 percent expected volatility; risk-free interest rates ranging from 5.11 percent to 7.84 percent; and expected lives ranging from 1 to 5 years. Stock Option Transactions In connection with the acquisition of Benson Financial Corporation (Benson) in 1996, the corporation assumed Benson's obligations under a stock option plan. As a result of the merger, all options under the plan were converted into options to acquire 55,382 shares of the corporation's common stock. At December 31, 1996, 26,900 of such options remain outstanding. In connection with the 1994 acquisition of First National Bank of Kerrville (Kerrville), the corporation assumed Kerrville's obligations under a stock option plan. As a result of the acquisition, all options under the plan were converted into options to acquire 181,300 shares of the corporation's common stock, of which 69,200 options remain outstanding as of December 31, 1996. In connection with the 1993 acquisition of Financial Concepts Bancorp, Inc. (Financial Concepts), the corporation assumed Financial Concepts' obligations under a stock option plan. As a result of the merger, all options under the plan were converted into options to acquire 99,712 shares of the corporation's common stock. At December 31, 1996, 39,264 of such options remain outstanding. In connection with the 1993 acquisition of Lincoln Financial Corporation (Lincoln), the corporation assumed Lincoln's obligations under two stock option plans and a Director's Stock Compensation Plan. Under terms of the option plans, stock 54 options were granted as either incentive stock options or non-qualified options, at prices not less than market value at the dates of grant, and became exercisable not less than one year from the date of grant. As of the effective time of the acquisition, Lincoln's stock option plans were terminated and all outstanding options were vested and converted into options to purchase shares of the corporation's common stock. In addition, all restrictions on outstanding restricted stock were terminated. At December 31, 1996, options to acquire 15,204 shares of common stock were outstanding under one of Lincoln's stock option plans. In connection with the United Banks of Colorado, Inc. (United) merger in 1992, the corporation assumed United's obligations under two stock option plans and the Outside Directors' Supplemental Compensation Plan. Exercise prices were based upon the fair market value of United's common stock on the date of grant. As a result of the merger, all options under these plans were vested and converted into options to acquire the corporation's common stock. In addition, immediately prior to the merger, all outstanding awards under the United Restricted Stock Rights Award Plan were accelerated and converted into United's common stock and this plan was terminated. At December 31, 1996, options to acquire 15,250 shares were outstanding under one of United's stock option plans. A summary of stock option activity under the LTICP and acquired plans is presented below.
Options Weighted Available Options Average for Grant Outstanding Exercise Price ----------- ----------- -------------- December 31, 1993........................................... 16,230,153 9,361,601 $ 15.8135 Granted*.................................................. (8,301,975) 8,301,975 25.4183 Shares Swapped............................................ 802,038 -- Exercised................................................. -- (2,025,118) 13.4356 Cancelled................................................. 103,650 (103,650) 22.3140 Restricted Stock Awards................................... (68,500) -- Acquisition of Kerrville.................................. -- 181,300 5.7324 Termination of First United Plans......................... (842,827) -- ---------- ---------- -------- December 31, 1994 (8,484,333 options exercisable)........... 7,922,539 15,716,108 21.0760 Granted* (Weighted average fair value $3.9425 per option)................................ (1,860,221) 1,860,221 29.5770 Shares Swapped............................................ 615,809 -- Exercised................................................. -- (1,926,576) 16.0832 Cancelled................................................. 329,518 (329,636) 25.3011 Restricted Stock Awards................................... (43,700) -- ---------- ---------- -------- December 31, 1995 (9,613,594 options exercisable)........... 6,963,945 15,320,117 22.6449 Shareholder amendment 17,500,000 -- Granted* (Weighted average fair value $5.8286 per option)............................... (2,121,225) 2,121,225 36.0802 Shares Swapped............................................ 2,020,961 -- Exercised................................................. -- (3,433,829) 21.5336 Cancelled................................................. 261,179 (261,179) 27.3757 Restricted Stock Awards................................... (24,000) -- Acquisition of Benson..................................... -- 55,382 9.4820 ---------- ---------- -------- December 31, 1996 (10,408,956 options exercisable).......... 24,600,860 13,801,716 $24.9636 ========== ========== ========
*Includes 1,340,400, 589,138 and 1,040,750 AO grants at December 31, 1996, 1995 and 1994, respectively. 55 The following table summarizes information about stock options outstanding at December 31, 1996 with respect to the LTICP and acquired plans.
Options Outstanding Options Exercisable -------------------------------------------------------------- --------------------------------------- Weighted Average Number Remaining Range of Outstanding at Contractual Life Weighted Average Number Exercisable Weighted Average Exercise Prices December 31, 1996 in Years Exercise Price at December 31, 1996 Exercise Price --------------------- ----------------- --------------------- ------------------- -------------------- ----------------- $4.4816 -4.99 47,200 5.2 $ 4.4816 47,200 $ 4.4816 5.00 -9.99 412,386 2.6 7.8970 412,386 7.8970 10.00 -14.99 1,800,860 3.1 13.3723 1,800,860 13.3723 15.00 -19.99 840,008 2.7 18.4182 840,008 18.4182 20.00 -24.99 827,263 3.9 22.2984 822,596 22.2990 25.00 -29.99 7,074,073 6.9 25.9741 4,673,915 26.0838 30.00 -34.99 1,627,713 8.4 32.9050 784,078 32.8277 35.00 -39.99 923,276 7.5 36.7117 848,476 36.7304 40.00 -44.99 141,058 6.3 42.3197 141,058 42.3197 45.00 -46.4375 107,879 9.0 46.2236 38,379 45.8364 ---------- ---------- 13,801,716 10,408,956 ========== ==========
The weighted average fair value of options granted under the corporation's Best Practices PartnerShares Plan during 1996 was $5.673 per option. With respect to options granted under the Best Practices PartnerShares Plan during 1996, 4,412,900 options were outstanding at December 31, 1996, of which 4,300 are currently exercisable. During 1996, 300 options were exercised and 462,750 options were cancelled. 12. Income Taxes Components of income tax expense were:
In millions 1996 1995 1994 ------ ------ ------ Current Federal..................................................... $374.2 468.2 49.7 State....................................................... 10.5 41.7 6.2 Foreign..................................................... 37.1 27.3 11.6 ------ ------ ------ Total current............................................ 421.8 537.2 67.5 ------ ------ ------ Deferred Federal..................................................... 173.5 (56.5) 278.5 State....................................................... 36.7 (11.4) 31.1 Foreign..................................................... (4.4) (2.5) 3.1 ------ ------ ------ Total deferred........................................... 205.8 (70.4) 312.7 ------ ------ ------ Total.................................................... $627.6 466.8 380.2 ====== ====== ======
Income tax benefit applicable to net losses on investment securities for the years ended December 31, 1996, 1995 and 1994 was $16.5 million, $14.6 million and $29.3 million, respectively. Income before income taxes from operations outside the United States was $85.5 million, $56.6 million, and $33.4 million for the years ended December 31, 1996, 1995 and 1994, respectively. 56 The net deferred tax liability (asset) included the following major temporary differences at December 31:
In millions 1996 1995 --------- -------- Deferred tax liabilities Depreciation............................................................. $ 38.9 35.5 Lease financing.......................................................... 252.0 181.2 Mark to market........................................................... 160.1 79.5 Mortgage servicing....................................................... 483.2 234.6 FAS 115 adjustment....................................................... 167.2 187.5 Other.................................................................... 121.3 57.4 --------- -------- Total deferred tax liabilities......................................... 1,222.7 775.7 --------- -------- Deferred tax assets Provision for credit losses.............................................. (271.3) (259.0) Expenses deducted when paid.............................................. (233.8) (178.2) Postretirement benefits other than pensions.............................. (50.3) (34.3) Other.................................................................... (213.1) (117.3) --------- -------- Total deferred tax assets.............................................. (768.5) (588.8) Valuation allowance............................................................ -- -- -------- -------- Deferred tax assets, net................................................. (768.5) (588.8) --------- -------- Total net deferred tax liability............................................... $ 454.2 186.9 ========= ========
The corporation 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 corporation's conclusion that it is "more likely than not" that the deferred tax assets will be realized is based on federal taxable income of over $2.0 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 FAS 115 had no impact on 1996 or 1995 income tax expense as the effect of unrealized gains and losses, net of taxes, was recorded in stockholders' equity. A reconciliation of the federal income tax rate to effective income tax rates follows:
1996 1995 1994 ------ ------ ------- Federal income tax rate....................................... 35.0% 35.0 35.0 Adjusted for State income taxes........................................ 1.7 1.4 2.0 Tax-exempt income......................................... (1.5) (1.9) (2.4) Other, net................................................ -- (1.7) (2.4) ------ ------ ------- Effective income tax rate..................................... 35.2% 32.8 32.2 ====== ====== =======
13. Commitments and Contingent Liabilities At December 31, 1996, the corporation and its subsidiaries were obligated under noncancelable leases for premises and equipment with terms, including renewal options, ranging from one to approximately 100 years, which provide for increased rentals based upon increases in real estate taxes, operating costs or selected price indices. Rental expense (including taxes, insurance and maintenance when included in rent, and contingent rentals), net of sublease rentals, amounted to $227.6 million, $187.4 million and $174.1 million in 1996, 1995 and 1994, respectively. 57 Future minimum rental payments under capital leases and noncancelable operating leases, net of sublease rentals, with terms of one year or more, at December 31, 1996 were:
Capital Operating In millions Leases Leases ------- --------- 1997.............................................. $ 2.0 $ 164.1 1998.............................................. 2.0 116.3 1999.............................................. 2.0 101.5 2000.............................................. 2.0 88.8 2001.............................................. 2.0 85.5 Thereafter........................................ 29.3 610.1 ------- ---------- Total minimum rental payments..................... 39.3 $ 1,166.3 ========== Less interest..................................... (22.8) ------- Present value of net minimum rental payments...... $ 16.5 =======
To meet the financing needs of its customers and as part of its overall risk management strategy, the corporation is a party to financial instruments with off-balance sheet risk. These financial instruments include commitments to extend credit, recourse obligations, options, standby letters of credit, interest rate futures, caps and floors and interest rate swaps and forward contracts. These instruments involve elements of credit and interest rate risk in addition to amounts recognized in the financial statements. The corporation's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit, recourse obligations, and financial guarantees written is represented by the contractual amount of those instruments. The corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. The corporation also uses the same credit and collateral policies in making loans which are subsequently sold with recourse obligations as it does for loans not sold. Refer to Note 15, Derivative Activities, for contractual or notional amounts of derivatives held by the corporation and a discussion of risks associated with such instruments. A summary of the contractual amounts of these financial instruments at December 31 is as follows:
In millions 1996 1995 ----------- --------- Commitments to extend credit...................... $ 10,191.7 8,114.9 Standby letters of credit*........................ 1,117.3 1,051.9 Other letters of credit........................... 284.0 349.7
* Total standby letters of credit are net of participations sold to other institutions of $386.4 million in 1996 and $336.6 million in 1995. Commitments to extend credit generally have fixed expiration dates or other termination clauses and usually require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained is based on management's credit evaluation of the counterparty. Collateral held varies, but may include cash, marketable securities, accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties. Standby letters of credit and financial guarantees written are conditional commitments issued by subsidiaries of the corporation to guarantee the performance of a customer to a third party. Outstanding standby letters of credit at December 31, 1996 supported $625.0 million of industrial revenue bonds, $346.9 million of supplier payment guarantees, $168.8 million of insurance premium financing, $170.2 million of performance bonds and $192.8 million of other obligations of unaffiliated parties with maturities up to 21 years, six years, six years, nine years and five years, respectively. Risks associated with such standby letters of credit are considered in the evaluation of overall credit risk in determining the allowance for credit losses. The collateral requirements are essentially the same as those involved in extending loan facilities 58 to customers. As part of its overall risk management strategy, the corporation does not believe it has any significant concentrations of credit risk. Other commitments include sales of mortgage loans prior to 1985 in non-standard, negotiated transactions, primarily with the Federal Home Loan Mortgage Corporation, which provide for recourse to Norwest Mortgage, Inc. The outstanding loan balances which relate to these sales transactions amounted to $79.1 million and $194.7 million at December 31, 1996 and 1995, respectively. The corporation has also provided a financial guarantee related to the sale of certain mortgage participation certificates in the event LIBOR exceeds specified levels. The liability under the foregoing arrangements is not material. The corporation and certain subsidiaries are defendants in various matters of litigation generally incidental to their business. Although it is difficult to predict the ultimate outcome of these cases, management believes, based on discussions with counsel, that any ultimate liability will not materially affect the consolidated financial position or results of operations of the corporation and its subsidiaries. 14. Trading Revenues The corporation conducts trading of debt and equity securities, money market instruments, derivative products and foreign exchange contracts to satisfy the investment and risk management needs of its customers and those of the corporation. Trading activities are conducted within risk limits established and monitored by the Asset and Liability Management Committee as further discussed in the Interest Rate Sensitivity and Liquidity Management section of the Financial Review. The table below provides a summary of the corporation's trading revenues in the principal markets in which the corporation participates.
In millions 1996 1995 1994 ---- ---- ---- Interest income: Securities................................................ $ 24.7 11.2 13.9 Swaps and other interest rate contracts................... -- 3.6 10.7 ------ ----- ------ Total interest income................................... 24.7 14.8 24.6 ------ ----- ------ Non-interest income: Gains on securities sold.................................. 26.7 15.6 8.4 Foreign exchange trading.................................. 9.2 7.8 6.5 Swaps and other interest rate contracts................... (0.9) 6.0 (39.9) Options................................................... (3.0) 11.6 5.9 Futures................................................... 3.3 (1.1) 1.0 ------ ----- ------ Total non-interest income............................... 35.3 39.9 (18.1) ------ ----- ------ Total trading revenues........................................ $ 60.0 54.7 6.5 ====== ===== ======
15. Derivative Activities Derivatives are financial instruments that are used by banks, corporations, governments, and individuals to manage the financial risks associated with their business activities. For example, a futures contract can be used to guard against price fluctuations and a swap can be used to change fixed interest rate payments into floating interest rate payments. In general terms, derivative instruments are contracts or agreements whose value can be linked to interest rates, exchange rates, security prices, or financial indices. A derivative financial instrument is a futures, forward, swap, or option contract or other financial instrument with similar characteristics. The corporation uses derivatives in both its trading and its asset and liability management activities. The corporation's trading activities include acting as a dealer to satisfy the investment and risk management needs of its customers and, in addition, the corporation assumes trading positions based on market expectations and to benefit from price differentials between financial instruments and markets. As an end-user, the corporation uses various types of derivative products (principally interest rate swaps, interest rate caps and floors, futures contracts and options) as part of its overall interest rate risk management strategy. 59 As with on-balance sheet financial instruments such as loans and investment securities, derivatives are subject to credit and market risk. Accordingly, the corporation evaluates the risks associated with derivatives in much the same way as the risks associated with on-balance sheet financial instruments. However, unlike on-balance sheet financial instruments, where the risk of credit loss is generally represented by the notional or principal value, the derivatives' risk of credit loss is generally a small fraction of the notional value of the instrument and is represented by the fair value of the derivative instrument. For example, the notional amount for interest rate swaps does not represent the amount at risk because the notional amount will not be exchanged. The notional amount does, however, provide the basis for determining the contractual cash flows, which are discounted to determine fair values of the related derivatives. For foreign exchange forward contracts, the fair value is based on the gap between the current forward market rate of the underlying currency and the contractual rate. The corporation attempts to limit its credit risk by dealing with creditworthy counterparties, obtaining collateral where appropriate, and utilizing master netting agreements in accordance with Financial Accounting Standards Board Interpretation No. 39, "Offsetting of Amounts Related to Certain Contracts" as amended by Financial Accounting Standards Board Interpretation No. 41, "Offsetting of Amounts Related to Certain Repurchase and Reverse Repurchase Agreements." The market risk of derivatives arises from the potential for changes in value due to fluctuations in interest and foreign exchange rates and in prices of debt and equity securities. Derivative Financial Instruments Held or Issued for Trading Purposes The following table provides the notional and fair value of the corporation's derivatives included in its trading portfolio at December 31, 1996 and 1995, and the average fair value of derivatives held or issued for trading purposes during the years ended December 31, 1996 and 1995:
1996 1995 ------------------------------------ ------------------------------------- Average Average Notional Fair Daily Fair Notional Fair Daily Fair In millions Value Value Value Value Value Value ----------- -------- ----------- --------- --------- ----------- Swaps: In a favorable position...................... $ 226.0 2.8 4.0 602.0 4.6 8.0 In an unfavorable position................... 383.0 (1.5) (4.0) 504.0 (3.3) (6.0) Caps and Floors: In a favorable position...................... 450.0 2.1 1.0 231.0 1.4 2.0 In an unfavorable position................... 505.0 (2.0) (1.0) 261.0 (1.4) (1.0) Options: Purchased.................................... -- -- -- -- -- -- Written...................................... -- -- (3.0) -- -- (2.0) Futures contracts: In a favorable position...................... 434.0 -- -- 29.0 -- -- In an unfavorable position................... 449.0 -- -- 35.0 -- -- Foreign exchange contracts: In a favorable position...................... 4.0 0.4 -- 475.0 5.9 10.0 In an unfavorable position................... 4.0 (0.4) -- 449.0 (5.2) (10.0) Foreign exchange options: Purchased.................................... 246.0 10.3 6.0 15.0 0.2 -- Written...................................... 290.0 (10.0) (5.0) 13.0 (0.3) --
Derivative Financial Instruments Held or Issued for Purposes Other Than Trading The corporation and its subsidiaries, as end-users, utilize various types of derivative products (principally interest rate swaps and interest rate caps and floors) as part of an overall interest rate risk management strategy. The use of interest rate contracts enables the corporation to synthetically alter the repricing characteristics of designated assets and interest-bearing liabilities. In the following information for cash flows and maturities, variable rates are assumed to remain constant at December 31, 1996 levels. To the extent that rates change, both the average notional and variable interest rate information may change. Interest rate swaps generally involve the exchange of fixed and floating rate interest payments based on an underlying notional amount. Generic swaps' notional amounts do not change for the life of the 60 contract. The current outstanding amortizing swaps' average notional amounts change based on a remaining principal amount of a pool of mortgage-backed securities. Generally, as rates fall, the notional amounts decline more rapidly and as rates increase notional amounts decline more slowly. Basis swaps are contracts where the corporation receives an amount and pays an amount based on different floating indices. Currently, interest rate floors, futures contracts and options on futures contracts are principally being used by the corporation in hedging its portfolio of mortgage servicing rights. The floors provide for the receipt of payments when interest rates are below predetermined interest rate levels. The unrealized gains (losses) on interest rate floors and futures contracts are included, as appropriate, in determining the fair value of the capitalized mortgage servicing rights. Option contracts allow the holder of the option to purchase or sell a financial instrument at a specified price and within a specified period of time from or to the seller or "writer" of the option. The writer of the option receives a premium at the outset and then bears the risk of an unfavorable change in the price of the underlying financial instrument. The table below presents the maturity and weighted average rates for end-user derivatives by type at December 31, 1996. For the year ended December 31, 1996, end-user derivative activities increased interest income by $9.8 million and reduced interest expense by $47.1 million, for a total benefit to net interest income of $56.9 million. For 1995 and 1994, end-user derivative activities decreased interest income by $2.7 million and increased interest income by $7.7 million, respectively, and reduced interest expense by $9.8 million and $4.6 million, respectively, for a total benefit to net interest income of $7.1 million and $12.3 million, respectively.
Maturity ------------------------------------------------------------------------------------- Dollars in millions 1997 1998 1999 2000 2001 Thereafter Total -------- -------- ------- -------- --------- ---------- ----- Swaps: Generic receive fixed-- Notional value........................ $ 650 650 766 225 500 1,811 4,602 Weighted average receive rate......... 6.77% 6.34 7.28 6.33 6.35 6.57 6.65 Weighted average pay rate............. 5.54% 5.56 5.60 5.57 5.51 5.52 5.53 Amortizing receive fixed-- Notional value........................ $ -- 63 20 -- -- -- 83 Weighted average receive rate......... --% 2.89 2.89 -- -- -- 2.89 Weighted average pay rate............. --% 5.89 5.92 -- -- -- 5.90 Generic pay fixed-- Notional value........................ $ 4 -- 100 50 -- 200 354 Weighted average receive rate......... 5.53% -- 5.61 5.28 -- 5.55 5.53 Weighted average pay rate............. 6.37% -- 6.04 5.85 -- 5.84 5.90 Basis-- Notional value........................ $ -- 29 -- -- -- -- 29 Weighted average receive rate......... --% 4.32 -- -- -- -- 4.32 Weighted average pay rate............. --% 3.66 -- -- -- -- 3.66 Interest rate caps and floors:* Notional value........................ $ -- 577 2,400 5,750 6,250 1,000 15,977 Futures contracts:* Notional value........................ $ 3,617 -- -- -- -- -- 3,617 Options on futures contracts:* Notional value........................ $ 5,559 -- -- -- -- -- 5,559 Security options:* Notional value........................ $ 825 -- -- -- -- -- 825 -------- ------- ------ ------ ------- ------ ------ Total notional value................ $ 10,655 1,319 3,286 6,025 6,750 3,011 31,046 ======== ======= ====== ====== ======= ====== ======= Total weighted average rates on swaps: Receive rate........................ 6.76% 5.97 6.99 6.14 6.35 6.47 6.49 ======== ======= ====== ====== ======= ====== ======= Pay rate............................ 5.55% 5.52 5.66 5.62 5.51 5.55 5.56 ======== ======= ====== ====== ======= ====== =======
*Average rates are not meaningful for interest rate caps and floors, futures, contracts or options. Note: Weighted average variable rates are the actual rates as of December 31, 1996. 61 Activity in the notional amounts of end-user derivatives for each of the three years ended December 31, 1996, 1995, and 1994, is summarized as follows:
Swaps -------------------------------------------- Interest Options Generic Amortizing Generic Rate on Receive Receive Pay Total Caps/ Futures Security Total in millions Fixed Fixed Fixed Basis Swaps Floors Futures Contracts Options Derivatives ------- ---------- ------- ----- ----- -------- ------- --------- -------- ----------- Balance, December 31, 1993..... $ 375 500 300 -- 1,175 649 2,000 -- -- 3,824 Additions................... 900 1,900 30 229 3,059 400 -- -- -- 3,459 Amortizations and maturities -- 298 100 -- 398 298 -- -- -- 696 Terminations................ 250 2,102 100 -- 2,452 -- 2,000 -- -- 4,452 ------ ------ ----- --- ------ -------- -------- ------- ----- -------- Balance, December 31, 1994..... 1,025 -- 130 229 1,384 751 -- -- -- 2,135 Additions................... 1,891 1,575 200 -- 3,666 7,100 -- -- 5,951 16,717 Amortizations and maturities -- -- -- -- -- 8 -- -- 3,670 3,678 Terminations................ 100 -- -- -- 100 -- -- -- 2,281 2,381 ------ ------ ----- --- ------ -------- -------- ------- ----- -------- Balance, December 31, 1995..... 2,816 1,575 330 229 4,950 7,843 -- -- -- 12,793 Additions................... 2,911 522 154 -- 3,587 11,000 18,196 26,753 6,675 66,211 Amortizations and maturities 675 168 30 200 1,073 16 2,651 13,576 5,650 22,966 Terminations................ 450 1,846 100 -- 2,396 2,850 11,928 7,618 200 24,992 ------ ------ ----- --- ------ ------- ------ ------- ----- -------- Balance, December 31, 1996..... $4,602 83 354 29 5,068 15,977 3,617 5,559 825 31,046 ====== ====== ===== === ====== ======= ======== ======= ===== ========
62 The following table provides the gross gains and gross losses not yet recognized in the consolidated financial statements for open end-user derivatives applicable to certain hedged assets and liabilities as of December 31, 1996 and 1995:
Balance Sheet Category ----------------------------------------------------------------------------- Loans Mortgage Interest- Short- Long- Investment and Servicing bearing term term In millions Securities Leases Rights Deposits Borrowings Debt Total ---------- ------ --------- -------- ---------- ------ ----- 1996: Swaps Pay variable unrealized gains...... $ -- -- -- -- -- 59.7 59.7 Pay variable unrealized losses..... -- (0.1) (2.9) -- -- (17.8) (20.8) -------- ------- ------- ------- ------- ------- ------- Pay variable net.............. -- (0.1) (2.9) -- -- 41.9 38.9 -------- ------- ------- ------- ------- ------- ------- Pay fixed unrealized gains......... -- 1.4 -- 3.9 -- -- 5.3 Pay fixed unrealized losses........ -- (0.2) -- -- -- -- (0.2) -------- ------- ------- ------- ------- ------- ------- Pay fixed net................. -- 1.2 -- 3.9 -- -- 5.1 -------- ------- ------- ------- ------- ------- ------- Basis unrealized gains............. 0.3 -- -- -- -- -- 0.3 -------- ------- ------- ------- ------- ------- ------- Total unrealized gains............. 0.3 1.4 -- 3.9 -- 59.7 65.3 Total unrealized losses............ -- (0.3) (2.9) -- -- (17.8) (21.0) -------- ------- ------- ------- ------- ------- ------- Total net..................... $ 0.3 1.1 (2.9) 3.9 -- 41.9 44.3 ======== ======= ======= ======= ======= ======= ======= Interest rate caps/floors Unrealized gains................... $ -- -- 22.6 -- -- -- 22.6 Unrealized losses.................. -- -- (34.5) (0.2) -- (0.2) (34.9) -------- ------- ------- ------- ------- ------- ------- Total net........................ $ -- -- (11.9) (0.2) -- (0.2) (12.3) ======== ======= ======= ======= ======= ======= ======= Futures contracts Unrealized gains................... $ -- 1.4 0.5 -- -- -- 1.9 ======== ======= ======= ======= ======= ======= ======= Options on futures contracts Unrealized gains................... $ -- 4.3 1.4 -- -- -- 5.7 Unrealized losses.................. -- (5.0) (9.3) -- -- -- (14.3) -------- ------- ------- ------- ------- ------- ------- Total............................ $ -- (0.7) (7.9) -- -- -- (8.6) ======== ======= ======= ======= ======= ======= ======== Security options Unrealized gains................... $ -- 0.6 -- -- -- -- 0.6 Unrealized losses.................. -- (2.5) -- -- -- -- (2.5) -------- ------- ------- ------- ------- ------- ------- Total net........................ $ -- (1.9) -- -- -- -- (1.9) ======== ======= ======= ======= ======= ======= ======= Grand total unrealized gains........... $ 0.3 7.7 24.5 3.9 -- 59.7 96.1 Grand total unrealized losses.......... -- (7.8) (46.7) (0.2) -- (18.0) (72.7) -------- ------- ------- ------- ------- ------- ------- Grand total net........................ $ 0.3 (0.1) (22.2) 3.7 -- 41.7 23.4 ======== ======= ======= ======= ======= ======= =======
63
Balance Sheet Category -------------------------------------------------------------------------- Loans Mortgage Interest- Short- Long- Investment and Servicing bearing term term In millions Securities Leases Rights Deposits Borrowings Debt Total ---------- ------- --------- -------- ---------- ------ ----- 1995: Swaps Pay variable unrealized gains........... $ -- -- 1.5 9.6 -- 107.9 119.0 Pay variable unrealized losses.......... -- -- -- (0.6) -- (0.4) (1.0) -------- ------- ------- ------- ------- ------- ------- Pay variable net................... -- -- 1.5 9.0 -- 107.5 118.0 -------- ------- ------- ------- ------- ------- ------- Pay fixed unrealized gains.............. -- -- -- 1.3 -- -- 1.3 Pay fixed unrealized losses............. -- (0.9) -- (0.9) -- -- (1.8) -------- ------- ------- ------- ------- ------- ------- Pay fixed net...................... -- (0.9) -- 0.4 -- -- (0.5) -------- ------- ------- ------- ------- ------- ------- Basis unrealized gains.................. 0.5 -- -- -- -- -- 0.5 -------- ------- ------- ------- ------- ------- ------- Total unrealized gains.................. 0.5 -- 1.5 10.9 -- 107.9 120.8 Total unrealized losses................. -- (0.9) -- (1.5) -- (0.4) (2.8) -------- ------- ------- ------- ------- ------- ------- Total net.......................... $ 0.5 (0.9) 1.5 9.4 -- 107.5 118.0 ======== ======= ======= ======= ======= ======= ======= Interest rate caps/floors Unrealized gains........................ $ -- -- 86.8 -- -- -- 86.8 Unrealized losses....................... -- -- -- (0.3) (0.1) (0.3) (0.7) -------- ------- ------- ------- ------- ------- ------- Total net......................... $ -- -- 86.8 (0.3) (0.1) (0.3) 86.1 ======== ======= ======= ======= ======= ======= ======= Grand total unrealized gains................ $ 0.5 -- 88.3 10.9 -- 107.9 207.6 Grand total unrealized losses............... -- (0.9) -- (1.8) (0.1) (0.7) (3.5) -------- ------- ------- ------- ------- ------- ------- Grand total net............................. $ 0.5 (0.9) 88.3 9.1 (0.1) 107.2 204.1 ======== ======= ======= ======= ======= ======= =======
As a result of interest rate fluctuations, off-balance sheet derivatives have resulting unrealized appreciation or depreciation in market values as compared with their cost. As these derivatives hedge certain assets and liabilities of the corporation, as noted in the table above, there has been offsetting unrealized appreciation and depreciation in the assets and liabilities hedged. Deferred gains and losses on terminated end-user derivatives were not material at December 31, 1996 and 1995. The corporation has entered into mandatory and standby forward contracts to reduce interest risk on certain mortgage loans held for sale and other commitments. The contracts provide for the delivery of securities at a specified future date, at a specified future price or yield. At December 31, 1996 and 1995, the corporation had forward contracts totaling $19.8 billion and $11.2 billion, respectively. The contracts mature within 180 days. Gains and losses on forward contracts are included in the determination of market value of mortgages held for sale. The net unrealized gain (loss) on these contracts at December 31, 1996 and 1995, was $20.1 million and $(98.1) million, respectively. 16. Business Segments The corporation's operations include three primary business segments: banking, mortgage banking and consumer finance. The corporation, through its subsidiary banks, offers diversified banking services including retail, commercial and corporate banking, equipment leasing, and trust services; and through their affiliates offers insurance, securities brokerage, investment banking and venture capital investment. Mortgage banking 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 (including Norwest Financial Services, Inc. and Island Finance) provides consumer finance services, including direct installment loans to individuals, purchase of sales finance contracts, private label and lease accounts receivable financing, and other related products and services. 64 Selected financial information by business segment for each of the three years ended December 31 is included in the following summary:
Organizational Total In millions Revenues* Earnings* Assets --------- --------- ------ 1996: Banking................................................... $ 5,672.7 764.6 59,282.8 Mortgage Banking.......................................... 1,423.2 125.0 11,939.8 Norwest Financial......................................... 1,787.0 264.3 8,952.8 --------- -------- -------- Total................................................... $ 8,882.9 1,153.9 80,175.4 ========= ======== ======== 1995: Banking................................................... $ 5,008.9 602.2 53,479.4 Mortgage Banking.......................................... 999.0 104.9 10,089.3 Norwest Financial......................................... 1,557.6 248.9 8,565.7 --------- -------- -------- Total................................................... $ 7,565.5 956.0 72,134.4 ========= ======== ======== 1994: Banking................................................... $ 3,892.4 507.1 48,564.3 Mortgage Banking.......................................... 921.3 70.8 4,608.1 Norwest Financial......................................... 1,218.3 222.5 6,143.5 --------- -------- -------- Total................................................... $ 6,032.0 800.4 59,315.9 ========= ======== ========
*Revenues (interest income plus non-interest income), where applicable, and organizational earnings by business segment are impacted by intercompany revenues and expenses, such as interest on borrowings from the parent company, corporate service fees and allocations of federal income taxes. 17. Mortgage Banking Activities The components of mortgage banking non-interest income for each of the three years ended December 31 is presented below:
In millions 1996 1995 1994 ----- ----- ----- Origination and other closing fees............................ $305.3 198.4 153.6 Servicing fees................................................ 296.2 211.7 190.6 Net gains on sales of servicing rights........................ 57.4 81.3 130.0 Net gains (losses) on sales of mortgages...................... 13.1 (24.2) 74.5 Other......................................................... 149.5 68.3 32.3 ------ ------ ------ Total mortgage banking non-interest income................ $821.5 535.5 581.0 ====== ====== ======
Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets. The outstanding balances of serviced loans were $179.7 billion, $107.4 billion and $71.5 billion at December 31, 1996, 1995 and 1994, respectively. 65 Changes in capitalized mortgage loan servicing rights for each of the three years ended December 31 were:
In millions 1996 1995 1994 --------- --------- ------- Mortgage servicing rights: Balance at beginning of year.................................. $ 1,061.5 550.3 185.2 Originations............................................... 360.8 233.1 -- Purchases.................................................. 1,101.1 552.2 478.3 Sales...................................................... (65.6) (158.6) (65.2) Amortization............................................... (247.0) (115.0) (47.4) Other...................................................... (25.1) (0.5) (0.6) --------- --------- ------- 2,185.7 1,061.5 550.3 Less valuation allowance................................... (64.2) (64.2) -- --------- --------- ------- Balance at end of year........................................ $ 2,121.5 997.3 550.3 --------- --------- ------- Excess servicing rights receivable: Balance at beginning of year.................................. $ 229.4 98.9 54.4 Additions.................................................. 357.6 204.9 83.1 Sales...................................................... (6.4) (43.5) (21.8) Amortization............................................... (53.6) (24.6) (16.3) Valuation adjustments...................................... -- (6.3) (0.5) --------- --------- ------- Balance at end of year........................................ 527.0 229.4 98.9 --------- --------- ------- Mortgage servicing rights, net................................ $ 2,648.5 1,226.7 649.2 ========= ========= =======
The fair value of capitalized mortgage servicing rights at December 31, 1996 was approximately $3.2 billion, calculated using discount rates ranging from 500 to 700 basis points over the ten-year U.S. Treasury rate. Changes in the valuation allowance for capitalized mortgage servicing rights for the years ended December 31, 1996 and 1995 were:
In millions 1996 1995 ---- ---- Balance at beginning of year................................................................. $64.2 -- Provision for capitalized mortgage servicing rights in excess of fair value.................. -- 64.2 ----- ----- Balance at end of year....................................................................... $64.2 64.2 ===== =====
66 18. Fair Value of Financial Instruments and Certain Non-financial Instruments Statement of Financial Accounting Standards No. 107 "Disclosures about Fair Value of Financial Instruments" (FAS 107) requires the disclosure of estimated fair values of all asset, liability and off-balance sheet financial instruments. FAS 107 also allows the disclosure of estimated fair values of non-financial instruments. Fair value estimates under FAS 107 are determined as of a specific point in time utilizing various assumptions and estimates. The use of assumptions and various valuation techniques, as well as the absence of secondary markets for certain financial instruments, will likely reduce the comparability of fair value disclosures between financial institutions.
Fair Values of Financial Instruments 1996 1995 1994 ------------------------ ------------------------ ------------------------ Carrying Fair Carrying Fair Carrying Fair In millions Amount Value Amount Value Amount Value ----------- ----------- ----------- ----------- ----------- ----------- Financial assets: Cash and cash equivalents........................ $ 7,371.3 7,371.3 4,946.5 4,946.5 4,024.3 4,024.3 Trading account securities....................... 186.5 186.5 150.6 150.6 172.3 172.3 Investment securities............................ 712.2 745.2 760.5 795.8 1,235.1 1,268.7 Investment securities available for sale......... 3,290.2 3,290.2 2,754.0 2,754.0 1,427.6 1,427.6 Mortgage-backed securities available for sale.... 12,956.9 12,956.9 12,489.0 12,489.0 12,174.2 12,174.2 Loans held for sale.............................. 2,827.6 2,827.6 3,343.9 3,343.9 2,031.4 2,031.4 Mortgages held for sale.......................... 6,339.0 6,339.0 6,514.5 6,514.5 3,115.3 3,115.3 Loans and leases, net............................ 38,340.2 38,708.4 35,235.9 35,571.8 31,786.1 31,872.8 Interest receivable.............................. 487.5 487.5 461.8 461.8 367.7 367.7 Excess servicing rights receivable............... 527.0 609.8 229.4 279.7 98.9 139.4 ----------- ----------- ----------- ----------- ----------- ----------- Total financial assets......................... 73,038.4 73,522.4 66,886.1 67,307.6 56,432.9 56,593.7 ----------- ----------- ----------- ----------- ----------- ----------- Financial liabilities: Non-maturity deposits............................ 33,813.2 33,813.2 28,270.3 28,270.3 24,475.6 24,475.6 Deposits with stated maturities.................. 16,317.0 16,290.3 13,758.5 13,840.4 11,948.4 11,696.9 Short-term borrowings............................ 7,572.6 7,572.6 8,527.2 8,527.2 7,850.2 7,850.2 Long-term debt................................... 13,082.2 13,022.2 13,676.8 13,799.4 9,186.3 8,825.5 Interest payable................................. 445.0 445.0 407.0 407.0 259.0 259.0 ----------- ----------- ----------- ----------- ----------- ----------- Total financial liabilities.................... 71,230.0 71,143.3 64,639.8 64,844.3 53,719.5 53,107.2 ----------- ----------- ----------- ----------- ----------- ----------- Off-balance sheet financial instruments: Forward delivery commitments..................... 20.1 20.1 (98.1) (98.1) (2.3) (2.3) Interest rate swaps.............................. 1.3 45.6 1.3 119.3 (1.5) (25.0) Futures contracts and options on futures contracts........................... 10.9 (17.6) -- -- -- -- Interest rate caps/floors........................ 150.4 138.1 96.6 182.7 5.8 12.5 Option contracts to sell......................... 3.7 1.8 -- -- (4.6) (4.6) Foreign exchange contracts and options........... 0.3 0.3 0.6 0.6 0.6 0.6 ----------- ----------- ----------- ----------- ----------- ----------- Total off-balance sheet financial instruments.. 186.7 188.3 0.4 204.5 (2.0) (18.8) ----------- ----------- ----------- ----------- ----------- ----------- Net financial instruments...................... $ 1,995.1 2,567.4 2,246.7 2,667.8 2,711.4 3,467.7 =========== =========== =========== =========== =========== ===========
Financial Instruments The fair value estimates disclosed in the table above are based on existing on and off-balance sheet financial instruments and do not consider the value of future business. 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. The following methods and assumptions are used by the corporation in estimating its fair value disclosures for financial instruments. Cash and Cash Equivalents The carrying value of cash and cash equivalents approximates fair value due to the relatively short period of time between the origination of the instruments and their expected realization. 67 Trading Account Securities, Investment Securities, Investment and Mortgage-Backed Securities Available for Sale Fair values of these financial instruments were estimated using quoted market prices, when available. If quoted market prices were not available, fair value was estimated using quoted market prices for similar assets. Mortgages Held for Sale Fair values of mortgages held for sale are stated at market. Loans and Leases and Loans Held for Sale Fair values for loans and leases are estimated based on contractual cash flows, adjusted for prepayment assumptions and credit risk factors, discounted using the current market rate for loans and leases. Variable rate loans, including loans held for sale, are valued at carrying value since the loans reprice to market rates over short periods of time. Credit card receivables are valued at carrying value since the receivables are priced near market rates for such receivables and are short-term in life. The fair value of the corporation's consumer finance subsidiaries' loans have been reported at carrying value since the estimated life, assuming prepayments, is short-term in nature. Interest Receivable and Payable The carrying value of interest receivable and payable approximates fair value due to the relatively short period of time between accrual and expected realization. Excess Servicing Rights Receivable Excess servicing rights receivable represents the present value using applicable investor yields of estimated future servicing revenues in excess of normal servicing revenues over the assumed life of the servicing portfolio. Deposits The fair value of fixed-maturity deposits is the present value of the contractual cash flows, including principal and interest, and servicing costs, discounted using an appropriate investor yield. In accordance with FAS 107, the fair value of deposits with no stated maturity, such as demand deposit, savings, NOW and money market accounts, are disclosed as the amount payable on demand. Short-Term Borrowings The carrying value of short-term borrowings approximates fair value due to the relatively short period of time between the origination of the instruments and their expected payment. Long-Term Debt The fair value of long-term debt is the present value of the contractual cash flows, discounted by the investor yield which considers the corporation's credit rating. Commitments to Extend Credit, Standby Letters of Credit and Recourse Obligations The majority of the corporation's commitment agreements and letters of credit contain variable interest rates and counterparty credit deterioration clauses and therefore, the carrying value of the corporation's commitments to extend credit and letters of credit approximates fair value. The fair value of the corporation's recourse obligations are valued based on estimated cash flows associated with such obligations. As any potential liabilities under such recourse obligations are recognized on the corporation's balance sheet, the carrying value of such recourse obligations approximates fair value. Forward Delivery Commitments, Interest Rate Swaps, Futures Contracts, Option Contracts To Sell, Interest Rate Caps and Floors and Foreign Exchange Contracts and Options The fair value of forward delivery commitments, interest rate caps and floors, swaps, option contracts to sell, futures contracts and foreign exchange contracts and options is estimated, using dealer quotes, as the amount that the corporation would receive or pay to execute a new agreement with terms identical to those remaining on the current agreement, considering current interest rates. 68 Certain Non-Financial Instruments Supplemental fair value information for certain non-financial instruments as of December 31 is set forth in the following table and explained below. The supplemental fair value information, combined with the total fair value of net financial instruments from the table on page 67, is presented below for information purposes. This combination is not necessarily indicative of the "franchise value" or the fair value of the corporation taken as a whole.
In millions, except per share amounts 1996 1995 1994 --------- -------- --------- Non-financial instrument assets and liabilities: Premises and equipment, net.................................. $ 1,200.9 1,034.1 955.2 Other assets................................................. 5,409.1 4,214.2 1,927.8 Accrued expenses and other liabilities....................... (2,881.2) (2,182.5) (1,750.0) Other values: Non-maturity deposits........................................ 2,806.7 2,035.2 2,684.1 Consumer finance network..................................... 4,026.4 3,702.1 3,207.1 Asset-based lending businesses............................... 1,012.2 473.7 64.5 Credit card.................................................. 281.9 273.5 259.9 Banking subsidiaries' consumer loans......................... 187.5 193.7 166.3 Mortgage servicing........................................... 848.3 549.0 867.0 Mortgage loan origination/wholesale network.................. 2,338.8 1,900.3 621.4 Trust department............................................. 1,111.1 812.4 709.8 --------- -------- --------- Net fair value of certain non-financial instruments.............. 16,341.7 13,005.7 9,713.1 Fair value of net financial instruments.......................... 2,567.4 2,667.8 3,467.7 --------- -------- --------- Stockholders' equity at the net fair value of financial instruments and certain non-financial instruments* Amount.................................................... $18,909.1 15,673.5 13,180.8 ========= ======== ======== Per common share at December 31........................... $ 51.29 44.43 42.64 ========= ======== ========
*Amounts do not include applicable deferred income taxes, if any. The following methods and assumptions were used by the corporation in estimating the fair value of certain non-financial instruments. Non-Financial Instrument Assets and Liabilities The non-financial instrument assets and liabilities are stated at carrying value, which approximates fair value. Non-Maturity Deposits The fair value table of financial instruments does not consider the benefit resulting from the low-cost funding provided by deposit liabilities as compared with wholesale funding rates. The fair value of non-maturity deposits, considering these relational benefits, would be $31,006.5 million, $26,235.1 million, and $21,791.5 million at December 31, 1996, 1995 and 1994, respectively. Such amounts are based on a discounted cash flow analysis, assuming a constant balance over ten years and taking into account the interest sensitivity of each deposit category. Consumer Finance Network The supplemental fair value table includes the estimated fair value associated with the consumer finance network which is based on current industry price/earnings ratios for similar networks. These current price/earnings ratios are industry averages and do not consider the higher earnings levels and the value of the data processing business associated with the corporation's consumer finance network. Asset-Based Lending Businesses The supplemental fair value table includes the estimated fair value associated with the corporation's asset-based lending businesses which is based on current industry price/earnings ratios for similar businesses. 69 Credit Card The fair value of financial instruments excludes the fair value attributed to the expected credit card balances in future years with the holders of such cards. The fair value of such future balances in excess of book value is presented in the supplemental fair value table. The fair value related to future credit card receivable balances is based on a discounted cash flow analysis, utilizing an investor yield on similar portfolio acquisitions. Banking Subsidiaries' Consumer Loans For purposes of the table of fair values of financial instruments on page 67, the fair value of the banking subsidiaries' consumer loans is based on the contractual balances and maturities of existing loans. The fair value of such financial instruments does not consider future loans with customers. The fair value related to such future balances is estimated by cash flow analysis, discounted utilizing an investor yield. The expected balances for such purposes are estimated to extend ten years at a constant rate of replacement. Mortgage Servicing The fair value of mortgage servicing represents the estimated current value of the servicing portfolio including off-balance sheet servicing (other than excess servicing rights receivable included in the table of fair values of financial instruments on page 67) in excess of book value. Mortgage Loan Origination/Wholesale Network The supplemental fair value table includes the fair value associated with the corporation's origination network for mortgage loans. Such estimates are based on current industry price/earnings ratios for similar networks. Trust Department The fair value associated with the corporation's management of trust assets is estimated based on current trust revenues using an industry multiple. 19. Parent Company Financial Information Condensed financial information for Norwest Corporation (parent company only) follows: Balance Sheets
In millions 1996 1995 --------- -------- At December 31, - --------------- Assets Interest-bearing deposits with subsidiary banks................................. $ 12.7 174.7 Interest-bearing deposits with non-affiliates................................... 2.4 -- --------- -------- Total cash and cash equivalents......................................... 15.1 174.7 Advances to non-bank subsidiaries............................................... 5,450.4 4,548.9 Capital notes and term loans of subsidiaries Banks..................................................................... 24.5 474.6 Non-banks................................................................. 1,466.8 1,680.7 --------- -------- Total capital notes and term loans of subsidiaries...................... 1,491.3 2,155.3 --------- -------- Investments in subsidiaries Banks..................................................................... 4,108.5 3,849.9 Non-banks................................................................. 2,304.6 1,793.2 --------- -------- Total investments in subsidiaries....................................... 6,413.1 5,643.1 Investment securities available for sale........................................ 1,233.9 992.9 Other assets.................................................................... 495.2 424.1 --------- -------- Total assets............................................................ $15,099.0 13,939.0 ========= ======== Liabilities and Stockholders' Equity Short-term borrowings........................................................... $ 2,232.5 2,238.1 Accrued expenses and other liabilities.......................................... 408.8 493.3 Long-term debt with non-affiliates.............................................. 6,384.0 5,840.9 Stockholders' equity............................................................ 6,073.7 5,366.7 --------- -------- Total liabilities and stockholders' equity.............................. $15,099.0 13,939.0 ========= ========
70 Statements of Income
In millions 1996 1995 1994 -------- -------- -------- Years Ended December 31, - ------------------------ Income Dividends from subsidiaries Banks......................................................... $ 796.1 981.7 680.6 Non-banks..................................................... 713.3 268.0 170.1 -------- -------- -------- Total dividends from subsidiaries............................ 1,509.4 1,249.7 850.7 Interest from subsidiaries....................................... 430.7 332.6 142.2 Service fees from subsidiaries................................... 112.7 89.2 66.2 Other income..................................................... 157.5 66.6 45.3 -------- -------- -------- Total income................................................. 2,210.3 1,738.1 1,104.4 -------- -------- -------- Expenses Interest to subsidiaries......................................... 10.6 10.6 0.7 Other interest................................................... 530.7 409.2 202.6 Other expenses................................................... 95.8 150.2 128.3 -------- -------- -------- Total expenses............................................... 637.1 570.0 331.6 -------- -------- -------- Income before income taxes and equity in undistributed earnings of subsidiaries...................... 1,573.2 1,168.1 772.8 Income tax (provision) benefit................................... (32.3) 27.2 34.2 -------- -------- -------- Income before equity in undistributed earnings of subsidiaries......................... 1,540.9 1,195.3 807.0 Equity in undistributed earnings of subsidiaries................. (387.0) (239.3) (6.6) -------- -------- -------- Net income....................................................... $1,153.9 956.0 800.4 ======== ======== ========
Federal law prevents the corporation and its non-bank subsidiaries from borrowing from its subsidiary banks unless the loans are secured by specified assets. Such secured loans by any subsidiary bank are generally limited to 10 percent of the subsidiary bank's capital and surplus and aggregate loans to the corporation and its non-bank subsidiaries are limited to 20 percent of the subsidiary bank's capital and surplus. The payment of dividends to the corporation by subsidiary banks is subject to various federal and state regulatory limitations. A national bank must obtain the approval of the Comptroller of the Currency if the total of all dividends declared in any calendar year exceeds that bank's net income for that year combined with its retained net income for the preceding two calendar years, less any required transfers to surplus or a fund for the retirement of preferred stock. The Office of Thrift Supervision imposes substantially similar restrictions on the payment of dividends to the corporation by its savings and loan association subsidiary. The corporation also has several state bank subsidiaries that are subject to state regulations limiting dividends. Under these provisions, the corporation's national bank subsidiaries, savings and loan association and state-chartered bank subsidiaries could have declared as of December 31, 1996 aggregate dividends of at least $279.9 million without obtaining prior regulatory approval and without reducing the capital below minimum regulatory levels. In addition, the corporation's non-bank subsidiaries could have declared dividends totaling $599.1 million at December 31, 1996. 71 Statements of Cash Flows
In millions 1996 1995 1994 -------- -------- -------- Years Ended December 31, - ------------------------ Cash Flows From Operating Activities Net income....................................................... $1,153.9 956.0 800.4 Adjustments to reconcile net income to net cash flows from operating activities: Equity in undistributed earnings of subsidiaries................. 387.0 239.3 6.6 Depreciation and amortization.................................... 20.6 20.0 17.0 Release of preferred shares to ESOP.............................. 37.8 40.0 26.6 Other assets, net................................................ (102.4) (146.8) (169.3) Accrued expenses and other liabilities, net...................... (64.7) 205.4 97.0 -------- -------- -------- Net cash flows from operating activities......................... 1,432.2 1,313.9 778.3 -------- -------- -------- Cash Flows From Investing Activities Advances to non-bank subsidiaries, net........................... (901.5) (2,096.5) (138.6) Investment securities, net....................................... -- -- (63.2) Investment securities available for sale, net.................... (222.3) (551.2) 6.7 Principal collected on capital notes and term loans of subsidiaries..................................... 841.4 296.8 140.4 Capital notes and term loans made to subsidiaries................ (165.3) (1,318.5) (517.4) Investments in subsidiaries, net................................. (851.7) (865.9) (455.6) -------- -------- -------- Net cash flows used for investing activities..................... (1,299.4) (4,535.3) (1,027.7) -------- -------- -------- Cash Flows From Financing Activities Short-term borrowings, net....................................... (5.6) 689.9 (545.9) Proceeds from issuance of long-term debt with non-affiliates..... 1,803.0 3,405.0 1,325.0 Repayment of long-term debt with non-affiliates.................. (1,259.6) (309.4) (107.6) Issuances of common stock........................................ 82.4 65.4 49.8 Repurchases of common stock...................................... (402.0) (186.8) (482.1) Issuance of stock warrants to subsidiaries....................... 1.8 1.1 1.6 Issuance of preferred stock...................................... -- -- 195.7 Repurchases of preferred stock................................... (112.7) (0.4) (8.4) Net decrease in ESOP loans....................................... 3.7 -- 3.0 Dividends paid................................................... (403.4) (337.8) (268.0) -------- -------- -------- Net cash flows (used for) from financing activities.............. (292.4) 3,327.0 163.1 -------- -------- -------- Net increase (decrease) in cash and cash equivalents............. (159.6) 105.6 (86.3) Cash and cash equivalents Beginning of year.............................................. 174.7 69.1 155.4 -------- -------- -------- End of year.................................................... $ 15.1 174.7 69.1 ======== ======== ========
72 Independent Auditors' Report The Board of Directors and Stockholders of Norwest Corporation We have audited the consolidated balance sheets of Norwest Corporation and subsidiaries as of December 31, 1996 and 1995 and the related consolidated statements of income, cash flows and stockholders' equity for each of the years in the three-year period ended December 31, 1996. 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 Norwest Corporation and subsidiaries at December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP KPMG Peat Marwick LLP Minneapolis, Minnesota January 16, 1997 73 Management's Report The management of Norwest Corporation has prepared and is responsible for the content of the financial statements included in this annual report and the information contained in other sections of this annual report, which information is consistent with the content of the financial statements. Management believes that the financial statements have been prepared in conformity with generally accepted accounting principles appropriate in the circumstances to reflect, in all material respects, the substance of events and transactions that should be included. In preparing the financial statements, management makes judgments and estimates of the expected effects of events and transactions that are accounted for or disclosed. Management has long recognized the importance of the corporation maintaining and reinforcing the highest possible standards of conduct in all of its actions, including the preparation and dissemination of statements fairly presenting the financial condition of the corporation. In this regard, it has developed a system of internal accounting control which plays an important role in assisting management in fulfilling its responsibilities in preparing the corporation's financial statements. The corporation's system of internal accounting control is designed to provide reasonable assurance that assets are safeguarded and that transactions are executed in accordance with management's authorizations. This system is augmented by written policies, operating procedures and accounting manuals, plus a strong program of internal audit carried out by qualified personnel. Management recognizes that estimates and judgments are required to assess and balance the relative costs and expected benefits of the controls and errors or irregularities may nevertheless occur. However, management believes that the corporation's internal accounting control system provides reasonable assurance that errors or irregularities that could be material to the financial statements are prevented or would be detected on a timely basis and corrected in the normal course of business. The board of directors oversees these financial statements through an audit and examination committee comprised of outside directors. The committee meets periodically with management and internal audit to monitor the discharge by each of its responsibilities. The independent auditors, who are engaged to express an opinion on the financial statements, meet periodically with and have free access to the committee or the board, without management present, to discuss internal accounting control, auditing and financial reporting matters. /s/ RICHARD M. KOVACEVICH Richard M. Kovacevich Chairman and Chief Executive Officer /s/ JOHN T. THORNTON John T. Thornton Executive Vice President and Chief Financial Officer /s/ MICHAEL A. GRAF Michael A. Graf Senior Vice President and Controller January 16, 1997 74 Norwest Corporation and Subsidiaries Six-Year Consolidated Financial Summary
In millions, except per common share amounts and ratios 1996 1995 1994 1993 1992 1991 ------- ------- ------- ------ ------- ------- Years Ended December 31, - ------------------------ Statements of Income Interest income.................................... $6,318.3 5,717.3 4,393.7 3,946.3 3,806.4 4,025.9 Interest expense................................... 2,617.0 2,448.0 1,590.1 1,442.9 1,610.6 2,150.3 ------- ------- ------- ------- ------- ------- Net interest income............................. 3,701.3 3,269.3 2,803.6 2,503.4 2,195.8 1,875.6 Provision for credit losses........................ 394.7 312.4 164.9 158.2 270.8 406.4 ------- ------- ------- ------- ------- ------- Net interest income after provision for credit losses.......................................... 3,306.6 2,956.9 2,638.7 2,345.2 1,925.0 1,469.2 Non-interest income................................ 2,564.6 1,848.2 1,638.3 1,585.0 1,273.7 1,064.0 Non-interest expenses.............................. 4,089.7 3,382.3 3,096.4 3,050.4 2,553.1 2,041.5 ------- ------- ------- ------- ------- ------- Income before income taxes and cumulative effect of a change in accounting for postretirement medical benefits........................................ 1,781.5 1,422.8 1,180.6 879.8 645.6 491.7 Income tax expense................................. 627.6 466.8 380.2 266.7 175.6 73.4 Cumulative effect on years ended prior to December 31, 1992 of a change in accounting for postretirement medical benefits, net of tax..... -- -- -- -- (76.0) -- ------- ------- ------- ------- ------- ------- Net income......................................... $1,153.9 956.0 800.4 613.1 394.0 418.3 ======== ======== ======= ======= ======= ======= Per Common Share Net income (a) Primary......................................... $ 3.07 2.76 2.45 1.89 1.19 1.33 Fully diluted................................... 3.07 2.73 2.41 1.86 1.19 1.32 Dividends declared................................. 1.050 0.900 0.765 0.640 0.540 0.470 Stockholders' equity............................... 15.94 14.20 10.79 11.00 9.88 9.29 Stock price range.................................. 46 7/8-30 1/2 34 3/4-22 5/8 28 1/4-21 29-20 5/8 22 1/8-16 5/8 18 7/16-9 3/8 Selected Consolidated Balance Sheet Data At December 31, Assets............................................. $80,175 72,134 59,316 54,665 50,037 45,974 Investment securities.............................. 712 761 1,235 1,694 2,031 13,958 Investment and mortgage-backed securities available for sale........................................ 16,247 15,243 13,602 11,023 10,932 -- Loans, leases, and loans and mortgages held for sale(b)......................................... 48,548 46,012 37,723 36,201 31,667 26,328 Deposits........................................... 50,130 42,029 36,424 35,977 31,609 31,331 Long-term debt..................................... 13,082 13,677 9,186 6,851 4,553 3,686 Stockholders' equity............................... 6,064 5,312 3,846 3,761 3,372 3,193 Ratios(c) Per $100 of average assets Net interest income (tax-equivalent basis)...... $ 4.88 4.98 5.14 4.98 4.81 4.43 Provision for credit losses..................... 0.52 0.47 0.30 0.31 0.58 0.94 ------- ------ ------ ------ ------ ------ Net interest income after provision for credit losses.......................................... 4.36 4.51 4.84 4.67 4.23 3.49 Non-interest income............................. 3.35 2.82 2.97 3.11 2.74 2.45 Non-interest expenses........................... 5.34 5.13 5.62 5.99 5.50 4.70 ------- ------ ------ ------ ------ ------ Income before income taxes and cumulative effect of a change in accounting for postretirement medical benefits................................ 2.37 2.20 2.19 1.79 1.47 1.24 Income tax expense.............................. 0.82 0.71 0.69 0.52 0.38 0.17 Less tax equivalent adjustment.................. 0.04 0.05 0.05 0.07 0.08 0.11 Cumulative effect on years ended prior to December 31, 1992 of a change in accounting for postretirement medical benefits, net of tax .. -- -- -- -- (0.16) -- ------- ------ ------ ------ ------ ------ Net income(a)...................................... $ 1.51 1.44 1.45 1.20 0.85 0.96 ======= ====== ====== ====== ====== ====== Leverage(d)........................................ 13.5x 14.3 14.3 14.2 13.2 15.3 Return on realized common equity(a)(e)............. 21.9% 22.3 21.4 18.2 11.7 15.3 Return on realized total equity(a)(e).............. 21.5% 20.9 20.3 17.1 11.2 14.7 Stockholders' equity to average assets............. 7.4% 7.0 7.0 7.1 7.6 6.5 Dividend payout ratio.............................. 34.2% 32.6 31.2 33.9 45.4 35.3 Tier 1 capital ratio at December 31................ 8.63% 8.11 9.89 9.71 9.74 10.00 Tier 1 and Tier 2 capital ratio at December 31..... 10.42% 10.18 12.23 12.39 12.42 13.78 Leverage ratio..................................... 6.15% 5.65 6.94 6.46 6.62 6.63
(a) Excluding the cumulative effect of a change in accounting for postretirement medical benefits, 1992 primary net income per common share would have been $1.44, fully diluted net income per common share would have been $1.42, return on realized common equity would have been 14.2%, return on realized total equity would have been 13.4%, and net income per $100 of average assets would have been $1.01. (b) Net of unearned discount. (c) Based on average balances and net income for the periods. (d) The ratio of average assets to average stockholders' equity. (e) Realized equity excludes unrealized gains (losses) on securities available for sale. Including net unrealized gains (losses) on securities available for sale, return on common equity was 20.8% and return on total equity was 20.4% in 1996. In 1995 and 1994, return on common equity was 21.9% and 22.1%, respectively, and return on total equity was 20.6% and 20.8%, respectively. 75 Norwest Corporation and Subsidiaries Consolidated Average Balance Sheets and Related Yields and Rates*
1996 1995 1994 -------------------------- --------------------------- ------------------ Interest Average Interest Average Interest Average Income/ Yields/ Average Income/ Yields/ Average Income/ In millions, except ratios Balance Expense Rates Balance Expense Rates Balance Expense ------- ------- ------- -------- -------- ------- -------- -------- Assets Money market investments................... $1,156 $ 63.0 5.47% $ 604 $ 35.7 5.92% $ 472 $ 21.9 Trading account securities................. 378 25.2 6.62 180 15.2 8.48 250 25.2 Investment securities U.S. Treasury and federal agencies...... -- -- -- 28 1.3 4.96 26 1.3 State, municipal and housing-tax exempt. -- -- -- 695 71.1 10.22 680 71.6 Other investment securities............. 806 36.2 4.49 672 34.1 5.08 412 19.5 Mortgage-backed securities Federal agencies........................ -- -- -- -- -- -- -- -- Collateralized mortgage obligations..... -- -- -- -- -- -- -- -- Investment securities available for sale... 3,291 206.8 7.13 1,899 122.5 7.12 2,137 122.6 Mortgage-backed securities available for sale.................................... 13,376 988.2 7.41 12,628 945.8 7.46 10,407 715.7 ------ ------- ------- ------- ------ ------- Total investment securities............. 17,473 1,231.2 7.23 15,922 1,174.8 7.44 13,662 930.7 Loans held for sale........................ 2,897 254.3 8.78 2,232 195.7 8.77 1,563 111.4 Mortgages held for sale.................... 6,358 468.5 7.37 4,804 366.2 7.62 3,757 257.2 Loans and leases (net of unearned discount) Commercial.............................. 12,728 1,165.2 9.15 10,754 1,003.1 9.33 9,301 749.9 Real estate............................. 13,850 1,345.0 9.71 13,113 1,232.3 9.40 11,445 997.2 Consumer................................ 11,966 1,798.1 15.03 11,694 1,727.8 14.78 9,498 1,329.2 ------ ------- ------- ------- ------ ------- Total loans and leases................ 38,544 4,308.3 11.18 35,561 3,963.2 11.14 30,244 3,076.3 Allowance for credit losses............. (1,005) (861) (801) ------ ------- ------ Net loans and leases.................. 37,539 34,700 29,443 ------ ------- ------- ------- ------ ------- Total earning assets (before the allowance for credit losses)........................... 66,806 6,350.5 9.57 59,303 5,750.8 9.72 49,948 4,422.7 ------- ------- ------- Cash and due from banks.................... 3,594 3,214 2,974 Other assets............................... 7,107 4,597 2,952 ------ ------- ------ Total assets.......................... $76,502 $66,253 $55,073 ======= ======= ======= Liabilities and Stockholders' Equity Noninterest-bearing deposits............... $12,212 $ 9,985 $8,704 Interest-bearing deposits Savings and NOW accounts................ 7,017 120.9 1.72 4,992 98.9 1.98 4,617 85.0 Money market accounts................... 11,062 348.1 3.15 10,595 332.9 3.14 10,487 247.4 Savings certificates.................... 12,420 677.3 5.45 10,809 583.1 5.39 9,794 446.9 Certificates of deposit and other time.. 2,862 161.8 5.65 1,860 106.7 5.73 1,544 69.9 Foreign time............................ 381 16.8 4.41 609 34.7 5.70 328 14.2 ------ ------- ------- ------- ------ ------- Total interest-bearing deposits....... 33,742 1,324.9 3.93 28,865 1,156.3 4.01 26,770 863.4 Short-term borrowings...................... 8,554 454.1 5.31 8,738 515.8 5.90 6,628 290.3 Long-term debt............................. 13,667 838.0 6.13 11,918 776.0 6.51 7,508 436.4 ------ ------- ------- ------- ------ ------- Total interest-bearing liabilities.... 55,963 2,617.0 4.68 49,521 2,448.1 4.94 40,906 1,590.1 Capitalized interest expense............... -- (0.1) -- ------- ------- ------- Net interest expense.................. 2,617.0 2,448.0 1,590.1 Other liabilities.......................... 2,677 2,109 1,620 Stockholders' equity....................... 5,650 4,638 3,843 ------ ------- ------ Total liabilities and stockholders' equity................................ $76,502 $66,253 $55,073 ======= -------- ======= ------- ======= -------- Net Interest income (tax-equivalent basis). $3,733.5 $3,302.8 $2,832.6 ======== ======= ======== Yield spread............................... 4.89 4.78 Net interest income to earning assets...... 5.63 5.58 Interest-bearing liabilities to earning assets..................................... 83.77 83.50
* Interest income/expense and yields/rates are calculated on a tax-equivalent basis utilizing a federal incremental tax rate of 35% in 1996, 1995, 1994 and 1993 and 34% in 1992 and 1991. Non-accrual loans and the related negative income effect have been included in the calculation of average rates. NM -- Not meaningful 76
1993 1992 1991 Average Balance --------- --------------------------- --------------------------- --------------------------- ------------------- Average Interest Average Interest Average Interest Average 5 Year % Change Yields/ Average Income/ Yields/ Average Income/ Yields/ Average Income/ Yields/ Growth 1996 Over Rates Balance Expense Rates Balance Expense Rates Balance Expense Rates Rate % 1995 --------- -------- ------- ------- -------- -------- -------- ------- -------- ------- ------ --------- 4.66% $ 624 $ 19.8 3.18% $ 779 $ 28.9 3.71% $ 1,143 $ 76.7 6.72% 0.2% 91.4 % 10.11 254 30.3 11.90 344 23.9 6.95 157 11.6 7.39 19.2 110.0 4.84 881 44.0 5.00 2,132 132.1 6.20 2,199 178.6 8.13 (100.0) (100.0) 10.53 739 79.7 10.79 917 98.1 10.70 1,028 116.0 11.29 (100.0) (100.0) 4.74 226 17.3 7.65 434 29.6 6.81 451 36.3 8.01 12.3 19.9 -- 159 8.2 5.16 7,183 562.7 7.83 7,993 715.3 8.95 (100.0) -- -- 22 1.1 4.90 228 21.5 9.39 431 35.9 8.32 (100.0) -- 5.98 1,662 120.4 7.25 228 17.1 7.53 -- -- -- NM 73.3 6.73 8,827 592.4 6.71 2,093 164.9 7.88 -- -- -- NM 5.9 ------- ------- ------- ------- ------ ------- 6.74 12,516 863.1 6.90 13,215 1,026.0 7.76 12,102 1,082.1 8.94 7.6 9.7 7.13 1,266 85.3 6.74 345 24.2 6.99 -- -- -- NM 29.8 6.85 4,932 326.8 6.63 3,639 279.4 7.68 2,100 192.1 9.15 24.8 32.3 8.06 8,433 648.3 7.69 8,105 670.8 8.28 8,922 877.4 9.83 7.4 18.4 8.71 10,720 934.7 8.72 8,478 834.3 9.84 7,762 856.3 11.03 12.3 5.6 13.99 7,415 1,071.3 14.45 6,749 956.8 14.18 6,855 977.5 14.26 11.8 2.3 ------ ------- ------- ------- ------ ------- 10.17 26,568 2,654.3 9.99 23,332 2,461.9 10.55 23,539 2,711.2 11.52 10.4 8.4 (791) (721) (660) 8.8 16.7 ------ ------- ------ 25,777 22,611 22,879 10.4 8.2 ------ ------- ------- ------- ------- -------- 8.83 46,160 3,979.6 8.62 41,654 3,844.3 9.23 39,041 4,073.7 10.43 11.3 12.7 ------- ------- -------- 2,871 2,566 2,437 8.1 11.8 2,647 2,904 2,619 22.1 54.6 ------ ------- ------- $50,887 $46,403 $43,437 12.0 15.5 ======= ======= ======= $7,726 $ 6,225 $ 5,377 17.8 22.3 1.84 4,244 85.3 2.01 3,872 107.5 2.78 3,508 150.6 4.30 14.9 40.6 2.36 9,106 201.1 2.21 8,159 205.9 2.52 7,565 370.0 4.89 7.9 4.4 4.56 9,582 473.1 4.94 10,352 603.9 5.83 10,641 764.5 7.18 3.1 14.9 4.53 1,650 77.7 4.71 1,754 94.7 5.40 2,713 186.2 6.86 1.1 53.9 4.34 489 15.1 3.09 112 3.6 3.23 200 11.2 5.60 13.8 (37.4) ------ --------- ------- ------- ------- -------- 3.23 25,071 852.3 3.40 24,249 1,015.6 4.19 24,627 1,482.5 6.02 6.5 16.9 4.38 7,316 238.1 3.25 7,058 277.9 3.94 5,890 352.4 5.98 7.7 (2.1) 5.82 5,871 352.6 6.01 4,086 317.3 7.77 3,492 315.4 9.03 31.4 14.7 ------ --------- ------- ------- ------- -------- 3.89 38,258 1,443.0 3.77 35,393 1,610.8 4.55 34,009 2,150.3 6.32 10.5 13.0 (0.1) (0.2) -- --------- -------- -------- 1,442.9 1,610.6 2,150.3 1,315 1,276 1,206 17.3 26.9 3,588 3,509 2,845 14.7 21.8 ------ ------- ------- $50,887 $46,403 $43,437 12.0 15.5 ======= --------- ======= -------- ======= -------- $ 2,536.7 $2,233.7 $1,923.4 ========= ======== ======== 4.94 4.85 4.68 4.11 5.66 5.50 5.36 4.93 81.90 82.88 84.97 87.11
77 Norwest Corporation and Subsidiaries Income Statement Data
1996 Over 1995 1995 Over 1994 --------------------------------- -------------------------------- In millions Volume Yield/Rate Total Volume Yield/Rate Total ---------- ------------- ------- ---------- ------------ ------- Changes in Tax-Equivalent Net Interest Income* Interest income Loans and leases................................... $ 332.5 12.6 345.1 540.8 346.1 886.9 Investment securities.............................. (45.0) (25.3) (70.3) 22.8 (8.7) 14.1 Investment and mortgage-backed securities available for sale.............................. 132.5 (5.8) 126.7 118.5 111.5 230.0 -------- -------- -------- -------- -------- -------- Total investment securities................... 87.5 (31.1) 56.4 141.3 102.8 244.1 Money market and trading account securities........ 48.6 (11.3) 37.3 4.2 (0.4) 3.8 Loans held for sale................................ 58.3 0.3 58.6 47.6 36.7 84.3 Mortgages held for sale............................ 118.5 (16.2) 102.3 71.7 37.3 109.0 -------- -------- -------- -------- -------- -------- Total......................................... 645.4 (45.7) 599.7 805.6 522.5 1,328.1 -------- -------- -------- -------- -------- -------- Interest expense Interest-bearing deposits.......................... 195.4 (26.8) 168.6 67.6 225.3 292.9 Short-term borrowings.............................. (10.9) (50.8) (61.7) 92.3 133.2 225.5 Long-term debt..................................... 113.9 (51.8) 62.1 256.5 83.0 339.5 -------- -------- -------- -------- -------- -------- Total......................................... 298.4 (129.4) 169.0 416.4 441.5 857.9 -------- -------- -------- -------- -------- -------- Net interest income................................ $ 347.0 83.7 430.7 389.2 81.0 470.2 ======== ======== ======== ======== ======== ======== *Changes in the average balance/rate are allocated entirely to the yield/rate changes. Analysis of Selected Non-interest Expenses 1996 % Change 1995 % Change 1994 1993 1992 -------- -------- -------- -------- -------- --------- ------- Salaries and benefits Salaries............................... $1,780.1 24.5% $1,430.2 13.4% $1,260.9 1,210.8 991.0 Benefits............................... 317.0 0.7 314.9 0.7 312.8 263.5 184.4 -------- -------- --------- ------- ------- Total............................. $2,097.1 20.2% $1,745.1 10.9% $1,573.7 1,474.3 1,175.4 ======== ======== ========= ======= ======= Business development Advertising............................ $ 96.3 31.9% $ 73.0 (26.0)% $ 98.6 73.0 52.6 Other business development............. 131.6 32.7 99.2 7.9 91.9 78.3 64.9 -------- -------- -------- ------- ------- Total............................. $ 227.9 32.3% $ 172.2 (9.6)% $ 190.5 151.3 117.5 ======== ======== ======== ======= ======= Other non-interest expenses Professional fees...................... $ 115.7 28.0% $ 90.4 50.2% $ 60.2 60.2 53.8 Insurance claims....................... 81.9 49.2 54.9 28.6 42.7 42.2 25.7 Other employment....................... 65.0 37.1 47.4 3.9 45.6 38.7 32.4 Other real estate owned, net........... 19.6 39.0 14.1 219.5 (11.8) 3.3 7.1 FDIC assessment and regulatory examination fees.................... 40.1 (49.0) 78.6 (10.3) 87.6 79.7 75.2 Other.................................. 188.7 13.3 166.6 (38.3) 270.0 458.0 385.9 -------- -------- -------- ------- ------- Total............................. $ 511.0 13.1% $ 452.0 (8.6)% $ 494.3 682.1 580.1 ======== ======== ======== ======= =======
78 Norwest Corporation and Subsidiaries Loan Information
In millions, except ratios 1996 1995 1994 1993 1992 1991 --------- ------- ------- ------ -------- -------- Loans and Leases at December 31, Commercial, financial and industrial............... $ 10,205 9,327 7,434 6,686 6,577 6,440 Agricultural....................................... 1,108 1,091 956 938 830 814 Construction and land development.................. 944 742 568 566 454 518 Real Estate Secured by 1-4 family residential properties.... 10,376 8,593 8,959 8,321 7,582 5,067 Secured by other properties..................... 4,749 4,174 3,590 3,418 3,186 3,277 Consumer........................................... 10,431 10,521 8,305 6,879 6,046 6,714 Credit card........................................ 1,566 1,666 2,511 1,727 994 813 Lease financing.................................... 812 816 765 699 627 600 Foreign Consumer installment............................ 703 652 444 425 425 -- Real estate secured by 1-4 family residential properties..................................... 72 53 42 30 15 -- Other........................................... 188 196 130 93 62 61 --------- ------ ------- ------- ------- -------- Total loans and leases........................ 41,154 37,831 33,704 29,782 26,798 24,304 Unearned discount............................. (1,773) (1,678) (1,128) (1,021) (1,015) (984) --------- ------ ------- ------- ------- -------- Total loans and leases net of unearned discount.................................... $ 39,381 36,153 32,576 28,761 25,783 23,320 ========= ====== ======= ======= ======= ======== Allowance for Credit Losses Balance at beginning of year....................... $ 917.2 789.9 789.2 773.1 704.3 577.0 Allowances related to assets acquired, net......... 111.3 119.1 29.0 36.2 23.4 42.5 Provision for credit losses........................ 394.7 312.4 164.9 158.2 270.8 406.4 Credit losses Commercial, financial and industrial............ 53.9 41.3 31.0 58.9 90.9 146.4 Agricultural.................................... 6.1 2.7 4.5 2.6 4.2 3.9 Construction and land development............... 0.6 0.6 2.8 11.9 15.8 21.4 Real estate..................................... 26.5 20.8 44.2 53.2 68.4 99.6 Consumer........................................ 301.8 201.7 130.5 116.4 118.9 131.9 Credit card..................................... 83.5 121.8 73.2 46.1 36.9 35.7 Lease financing................................. 4.5 2.6 2.3 2.2 2.6 3.8 Foreign......................................... Consumer installment.......................... 33.7 27.5 17.4 18.5 2.9 -- Other......................................... 1.2 2.2 8.9 0.5 0.5 1.8 --------- ------ ------- ------- ------- -------- Total credit losses........................... 511.8 421.2 314.8 310.3 341.1 444.5 --------- ------ ------- ------- ------- -------- Recoveries Commercial, financial and industrial............ 33.1 26.9 34.0 39.4 41.4 47.3 Agricultural.................................... 1.9 2.6 2.5 4.0 4.9 4.0 Construction and land development............... 1.3 4.5 7.2 7.2 2.4 6.9 Real estate..................................... 15.5 17.5 26.9 36.6 24.9 23.6 Consumer........................................ 54.4 44.6 35.4 32.1 30.1 27.5 Credit card..................................... 13.8 13.0 10.6 7.8 6.7 5.5 Lease financing................................. 1.0 2.1 0.7 0.3 0.6 0.3 Foreign Consumer installment.......................... 5.6 4.3 3.5 3.5 -- -- Other......................................... 2.8 1.5 0.8 1.1 4.7 7.8 --------- ------ ------- ------- ------- -------- Total recoveries.............................. 129.4 117.0 121.6 132.0 115.7 122.9 --------- ------ ------- ------- ------- -------- Net credit losses.................................. 382.4 304.2 193.2 178.3 225.4 321.6 --------- ------ ------- ------- ------- -------- Balance at end of year............................. $ 1,040.8 917.2 789.9 789.2 773.1 704.3 ========= ====== ======= ======= ======= ======== Allocation of Allowance for Credit Losses Commercial......................................... $ 208.6 186.4 151.9 137.4 154.5 185.9 Consumer........................................... 285.7 276.5 209.0 195.2 155.4 140.6 Real estate........................................ 150.3 171.8 163.5 203.4 220.6 152.8 Foreign............................................ 32.3 27.0 20.0 21.2 22.0 5.0 Unallocated........................................ 363.9 255.5 245.5 232.0 220.6 220.0 --------- ------ ------- ------- ------- -------- Total......................................... $ 1,040.8 917.2 789.9 789.2 773.1 704.3 ========= ====== ======= ======= ======= ======== Credit Quality Ratios Net credit losses as a percent of average loans and leases.......................................... 0.99% 0.86 0.64 0.67 0.97 1.37 Allowance for credit losses to Total loans and leases at year-end............ 2.64% 2.54 2.42 2.74 3.00 3.02 Net credit losses............................. 2.72x 3.02 4.09 4.43 3.43 2.19 Provision for credit losses to average loans and leases.......................................... 1.02% 0.88 0.55 0.60 1.16 1.73 Earnings coverage of net credit losses............. 5.69x 5.70 6.96 5.82 3.53 2.79
79 Norwest Corporation and Subsidiaries Other Balance Sheet Data In millions, except ratios Maturity of Total Investment Securities (a)
Carrying Value ------------------------------------------------------------------------------------ Total Within 1 Year 1-5 Years 5-10 Years After 10 Years Total Market Amount/Yield Amount/Yield Amount/Yield Amount/Yield Amount/Yield Value ------------- ------------- -------------- ---------------- -------------- --------- At December 31, 1996 - -------------------- Investment securities available for sale: U.S. Treasury and federal agencies............. $ 405.6 5.97% $ 613.5 6.25% $ 97.3 5.35% $ 63.7 7.32% $ 1,180.1 6.13% $1,180.1 State, municipal and housing-tax exempt (b) 56.8 6.33 257.3 6.18 144.6 6.64 493.2 7.38 951.9 6.87 951.9 Other................... 187.4 7.25 424.6 4.55 130.4 7.30 415.8 7.84 1,158.2 6.82 1,158.2 ------- ------- ------ ------- --------- ------- Total investment securities available for sale 649.8 6.28 1,295.4 5.88 372.3 6.52 972.7 7.57 3,290.2 6.56 3,290.2 ------- ------- ------ --------- ------- Mortgage-backed securities: Federal agencies........ 129.7 6.88 390.9 6.76 142.0 7.40 12,121.6 7.47 12,784.2 7.44 12,784.2 Collateralized mortgage obligations.......... 3.1 5.60 19.0 5.60 10.0 8.12 140.6 7.51 172.7 7.34 172.7 ------- ------- ------ ------- --------- ------- Total mortgage-backed securities available for sale.......... 132.8 6.84 409.9 6.72 152.0 7.45 12,262.2 7.47 12,956.9 7.44 12,956.9 ------- ------- ------ -------- ------- ------- Total securities available for sale... 782.6 6.36 1,705.3 6.11 524.3 6.79 13,234.9 7.48 16,247.1 7.28 16,247.1 ------- ------- ------ -------- ------- ------- Other investment securities held for investment........... -- -- 294.8 0.34 -- -- 417.4 8.56 712.2 5.16 745.2 ------- ------- ------ -------- ------- ------- Total investment securities........... $ 782.6 6.36 $2,000.1 5.16 $524.3 6.79 $13,652.3 7.51 $16,959.3 7.19 $16,992.3 ======= ======= ====== ========= ========= ======== Maturity of Loans (c) Within 1 Year 1-5 Years After 5 Years Total ------------- --------- ------------- -------- Commercial .................................................. $6,409 3,936 968 11,313 Construction and land development ........................... 646 219 79 944 Real estate ................................................. 905 2,145 1,699 4,749 Foreign ..................................................... 76 85 27 188 ------ ----- ----- ------ Total ....................................................... $8,036 6,385 2,773 17,194 ====== ===== ===== ====== Predetermined interest rates ................................ $3,872 3,197 1,455 8,524 Floating interest rates...................................... 4,164 3,188 1,318 8,670 ------ ----- ----- ------ Total........................................................ $8,036 6,385 2,773 17,194 ====== ===== ===== ====== Maturity of Time Deposits of $100,000 or more Within 3 Months 3-6 Months 6-12 Months Over 12 Months Total --------------- ---------- ----------- -------------- -------- Certificates of deposit and other time............... $ 1,265 604 658 655 3,182 Foreign time......................................... 233 19 16 7 275 ------- ----- ----- ----- ------- Total................................................ $ 1,498 623 674 662 3,457 ======= ===== ===== ===== ======= Deposits at December 31, 1996 1995 1994 1993 1992 ------- ----- ----- ----- ------- Noninterest-bearing deposits......................... $14,296 11,624 9,283 9,054 7,382 Interest-bearing deposits Savings and NOW accounts.......................... 8,069 5,378 4,790 4,421 4,310 Money market accounts............................. 11,418 11,268 10,403 10,592 8,422 Savings certificates.............................. 12,814 11,244 9,773 10,043 9,683 Certificates of deposit and other time (d)........ 3,187 2,316 1,528 1,678 1,655 Foreign time (e).................................. 346 199 647 189 157 ------- ------ ------ ------ ------- Total deposits....................................... $50,130 42,029 36,424 35,977 31,609 ======= ====== ====== ====== =======
(a) Based on contractual maturities. (b) The yield on state, municipal and housing securities is increased by the benefit of tax exemption, assuming a 35% federal income tax rate. For the year ended December 31, 1996, the amount of the increases in the yields for these securities and for total securities available for sale is 2.88% and 0.15%, respectively. (c) Excludes leases of $812 million and consumer and residential mortgage loans of $23,148 million. (d) Includes $5 million of time deposits less than $100,000 in 1996. (e) Includes $71 million of foreign time deposits less than $100,000 in 1996. 80 Norwest Corporation and Subsidiaries Quarterly Condensed Consolidated Financial Information
1996 Quarters 1995 Quarters ------------------------------------------------- ---------------------------------------------------------- In millions, except per common share amounts and ratios Fourth Third Second First Fourth Third Second First ------------- ------- --------- ------------ ------------- ------------- ------------- ------------- Interest income...... $1,608.2 1,611.1 1,575.0 1,524.0 1,564.0 1,476.2 1,389.1 1,288.0 Interest expense..... 661.9 663.4 658.5 633.2 676.4 636.4 590.9 544.3 -------- ------- ------- ------- ------- ------- ------- ------- Net interest income.. 946.3 947.7 916.5 890.8 887.6 839.8 798.2 743.7 Provision for credit losses....... 113.6 105.9 87.4 87.8 95.9 86.5 74.7 55.3 Non-interest income.. 738.1 631.8 641.9 552.8 522.3 483.7 447.4 394.8 Non-interest expenses............ 1,103.0 1,032.4 1,011.1 943.2 934.9 866.2 822.0 759.2 -------- ------- ------- ------- ------- ------- ------- ------- Income before income taxes........ 467.8 441.2 459.9 412.6 379.1 370.8 348.9 324.0 Income tax expense... 159.7 152.2 174.5 141.2 119.4 125.6 114.6 107.2 -------- ------- ------- ------- ------- ------- ------- ------- Net income........... $ 308.1 289.0 285.4 271.4 259.7 245.2 234.3 216.8 ======== ======= ======= ======= ======= ======= ======= ======= Per Common Share Net income Primary............ $ 0.81 0.76 0.76 0.74 0.72 0.70 0.68 0.66 Fully diluted...... 0.81 0.76 0.76 0.74 0.72 0.69 0.67 0.65 Dividends declared... 0.27 0.27 0.27 0.24 0.24 0.24 0.21 0.21 Stockholders' equity.............. 15.94 15.53 14.71 14.64 14.20 13.73 12.91 11.96 Stock price range.... 46 7/8-40 3/4 41-32 37 1/2-33 37 1/8-30 1/2 34 3/4-29 1/4 32 3/4-26 7/8 29 3/8-25 1/8 26 1/4-22 5/8 Period end stock price............... 43 1/2 40 3/4 34 7/8 36 3/4 33 32 1/2 28 3/4 25 3/8 Tax-equivalent Yields and Rates Money market investments......... 5.41% 5.97 5.14 5.63 6.17 5.52 6.15 5.78 Trading account securities.......... 6.83 6.95 6.66 6.14 6.13 7.72 11.27 9.75 Investment securities.......... 4.74 4.05 4.73 4.50 7.59 7.52 7.75 7.72 Investment and mortgage-backed securities available for sale............ 7.38 7.38 7.29 7.42 7.60 7.40 7.33 7.32 Total investment securities........ 7.27 7.22 7.16 7.27 7.60 7.41 7.37 7.36 Mortgages held for sale................ 7.33 7.84 7.45 6.83 7.47 7.29 8.19 8.11 Loans held for sale.. 7.75 7.77 8.94 10.19 9.30 8.46 8.65 8.57 Loans and leases..... 11.15 11.15 11.13 11.28 11.33 11.32 11.13 10.78 Total earning assets............ 9.48 9.59 9.50 9.71 9.80 9.76 9.81 9.49 Interest-bearing deposits............ 3.94 3.91 3.91 3.95 4.05 4.05 4.02 3.90 Short-term borrowings.......... 5.32 5.31 5.22 5.39 5.82 5.75 6.12 6.00 Long-term debt....... 6.14 6.14 6.04 6.21 6.40 6.55 6.62 6.52 Total interest- bearing liabilities....... 4.65 4.66 4.65 4.75 4.97 4.97 4.99 4.84 Yield spread......... 4.83 4.93 4.85 4.96 4.83 4.79 4.82 4.65 Net interest income to earning assets... 5.60 5.66 5.54 5.69 5.60 5.59 5.66 5.49 Ratios* Return on assets..... 1.55% 1.48 1.50 1.51 1.42 1.43 1.48 1.46 Leverage............. 13.19x 13.54 13.76 13.71 14.16 14.30 13.92 14.84 Return on realized common equity....... 22.0% 21.0 22.1 22.7 22.0 22.3 22.6 22.2
(Continued on page 82) *Based on average balances and net income for the periods. 81 Norwest Corporation and Subsidiaries Quarterly Condensed Consolidated Financial Information (Continued from page 81)
In millions 1996 Quarters 1995 Quarters ------------------------------------- ------------------------------------- Fourth Third Second First Fourth Third Second First ------ ----- ------ ----- ------ ----- ------ ----- Average Assets Money market investments.................. $2,633 629 790 559 677 364 408 973 Trading account securities................ 253 365 498 398 201 212 165 141 Investment securities..................... 723 864 839 796 1,460 1,437 1,384 1,296 Investment and mortgage-backed securities available for sale..................... 17,053 17,540 16,827 15,237 15,572 14,622 13,909 13,989 ------- ------ ------ ------ ------ ------ ------ ------ Total investment securities.......... 17,776 18,404 17,666 16,033 17,032 16,059 15,293 15,285 Mortgages held for sale................... 5,553 6,385 7,160 6,344 6,757 5,923 3,657 2,824 Loans held for sale....................... 2,691 2,493 2,970 3,440 2,482 2,089 2,202 2,153 Loans and leases, net of unearned discount 39,654 39,431 38,049 37,020 37,262 36,265 35,444 33,219 ------- ------ ------ ------ ------ ------ ------ ------ Total average earning assets......... 68,560 67,707 67,133 63,794 64,411 60,912 57,169 54,595 Allowance for credit losses............... (1,041) (1,034) (991) (952) (913) (869) (851) (809) Cash and due from banks................... 3,691 3,503 3,632 3,551 3,549 3,074 3,155 3,074 Other assets.............................. 7,902 7,663 6,938 5,909 5,533 5,044 4,232 3,553 ------- ------ ------ ------ ------ ------ ------ ------ Total average assets................. $79,112 77,839 76,712 72,302 72,580 68,161 63,705 60,413 ======= ====== ====== ====== ====== ====== ====== ====== Average Liabilities and Stockholders' Equity Noninterest-bearing deposits.............. $13,243 12,499 11,926 11,167 11,050 10,415 9,526 8,921 Interest-bearing deposits................. 35,272 34,545 33,553 31,573 30,371 29,021 28,272 27,767 Short-term borrowings..................... 8,135 8,825 8,986 8,269 10,020 9,693 7,582 7,616 Long-term debt............................ 13,299 13,409 14,279 13,689 13,744 12,203 11,603 10,081 Other liabilities......................... 3,165 2,814 2,393 2,330 2,271 2,062 2,145 1,957 Stockholders' equity...................... 5,998 5,747 5,575 5,274 5,124 4,767 4,577 4,071 ------ ------- ------- ------ ------ ------- ------- ------- Total average liabilities and stockholders' equity.............. $79,112 77,839 76,712 72,302 72,580 68,161 63,705 60,413 ======= ====== ====== ====== ====== ====== ====== ======
The financial information on pages 81 and 82 is unaudited. In the opinion of management, all adjustments necessary (which are of a normal recurring nature) have been included for a fair presentation of the results of operations. 82 EX-10.F 2 SUPPLEMENTAL SAVINGS INVESTMENT PLAN Exhibit 10(f). NORWEST CORPORATION SUPPLEMENTAL SAVINGS INVESTMENT PLAN (As amended effective January 1, 1997) Sec. 1 Name and Purpose. This Plan is the "Norwest Corporation Supplemental ---------------- Savings Investment Plan", hereinafter referred to as "Supplemental SIP" or the "Plan," and amends and restates the Norwest Corporation Supplemental Savings Investment Plan which was last amended effective September 30, 1991. This Plan, as amended and restated, shall be effective as of the date set forth in Section 25. This Plan is maintained by Norwest Corporation (the "Company") for the purposes of providing benefits for participants in the Norwest Corporation Savings Investment Plan (the "SIP") whose contributions are limited by certain sections of the Internal Revenue Code (the "Code"), benefits for eligible employees who have chosen to defer compensation otherwise available for SIP contributions, and benefits for certain participants prior to their Entry Date into the SIP. Sec. 2 Definitions. Subject to Section 24, all references herein to the ----------- "SIP" are references to the Norwest Corporation Savings Investment Plan as it may be amended from time to time. In addition, except where specifically defined in this Plan, all capitalized terms herein shall have the same meaning as given to those terms in the SIP. Sec. 3 Company and Participating Employers. The Company is Norwest ----------------------------------- Corporation, a Delaware corporation, and any successor to said corporation. Each Participating Employer in the SIP shall also be a participating employer in this Plan if any of its employees are eligible to become participants in this Plan. Sec. 4 Participation. Employees of the Company or of any other ------------- Participating Employer selected by the Personnel and Compensation Committee of the Company's Board of Directors and who satisfy one or more of the following criteria are eligible to participate in this Plan: a) Employees who, prior to becoming eligible for participation in the SIP, are designated as participants in this Plan. b) Employees who enter into a written agreement with their respective Participating Employer under 1 which payment of compensation earned by the participant will be deferred to a stated year subsequent to the year in which it would otherwise have been recognized as Certified Earnings. The compensation of a participant that is so deferred is referred to in this Plan as "Deferred Compensation". c) Employees who are subject to one or more of the following limits: (1) Employees whose Pay Conversion Contributions for any Plan Year commencing on or after January 1, 1987 are limited by Code Section 402(g). (2) Employees whose Pay Conversion Contributions and/or Employer Matching Contributions for any Plan Year commencing on or after January 1, 1988 are limited by the dollar limitation in Code Section 415(c)(1)(A). (3) Employees whose Pay Conversion Contributions and/or Employer Matching Contributions for any Plan Year commencing on or after January 1, 1989 are limited by Code Section 401(a)(17); or (4) Employees whose Pay Conversion Contributions and/or Employer Matching Contributions for any Plan Year commencing on or after January 1, 1992 are otherwise limited by law. (d) Notwithstanding subsection (c), an employee described in subsection (c) is not an eligible participant in this Plan for a Plan Year unless the employee would have reached one or more of the limits under subsection (c)(1), (2), (3), and/or (4) for that Plan Year based on his or her Certified Earnings, except that for officers of the Company who are subject to Section 16 of the Securities Exchange Act of 1934, Certified Earnings under this Plan shall include only incentive compensation awarded under the Executive Incentive Compensation Plan and under such other incentive compensation plans as may be designated by the Personnel and Compensation Committee of the Company's Board of Directors. (e) For purposes of this section, and for purposes of credits to Plan Accounts under Sections 6, 7 and 8, Certified Earnings shall be determined by assuming 2 that the provisions of Sec. 2.6(a) of the SIP as in effect on December 31, 1996 continue to apply in Plan Years commencing on or after January 1, 1997. Sec. 5 Establishment of Plan Account. An account (a "Plan Account") shall ----------------------------- be established under this Plan for each participant. Sec. 6 Credits for Designated Employees. The Plan Account of each -------------------------------- participant described in Section 4(a) shall receive credits equal to the Employer Matching Contributions that would have been made for the participant if he or she had been an Active Participant in the SIP from his or her Employment Commencement Date to the Entry Date on which he or she first became a participant in the SIP; provided, however, that no credit shall be made pursuant to this Section 6 for a participant described in Section 4(a) with respect to Certified Earnings subsequent to the Entry Date. For purposes of this section: (a) It will be assumed that a participant in this Plan made Pay Conversion Contributions during the period referred to above equal to the maximum amount permitted by the SIP for which an Employer Matching Contribution would have been made. (b) Each such participant's Plan Account shall receive the credits as of the end of the Plan Year in which an Employer Matching Contribution would otherwise have been reflected in the participant's SIP Account if the participant in this Plan had been an Active Participant in SIP. Sec. 7 Credits Based on Deferred Compensation. For each Plan Year in which -------------------------------------- a participant described in Section 4(b) has Deferred Compensation, the participant's Plan Account shall receive credits equal to the Employer Matching Contributions that would have been made to the SIP and pursuant to Section 6 for the participant if the participant's Deferred Compensation for the Plan Year had been included in Certified Earnings for such year, minus (i) the total Employer Matching Contribution made to the SIP on behalf of the participant for that Plan Year, and (ii) any credits the participant received for that Plan Year under Section 6. For purposes of this section: (a) It will be assumed that the participant made Pay Conversion Contributions with respect to his or her Deferred Compensation at the rate selected by the participant with regard to Certified Earnings for the quarter in which the Deferred Compensation would otherwise have been paid or, for the period between 3 the participant's Employment Commencement Date and the Entry Date on which he or she first became eligible to participate in the SIP, at the maximum rate permitted under the SIP. (b) Each such participant's Plan Account shall receive credits under this section as of the end of the Plan Year in which an Employer Matching Contribution would otherwise have been reflected in the participant's SIP Account. Sec. 8 Credits Based on Limits on Contributions. The Plan Account of each ---------------------------------------- participant described in Section 4(c) shall receive credits equal to the Employer Matching Contributions that would have been made to the SIP for the participant for the Plan Year and pursuant to Section 6 and Section 7 if the limits specified in Section 4(c) did not apply for that Plan Year. For purposes of this section: (a) It will be assumed that the participant continued to make Pay Conversion Contributions during the remainder of the Plan Year equal to the rate of contribution selected by the participant for the quarter in which the participant first reached one of the limits specified in Section 4(c) or, for the period between the participant's Employment Commencement Date and the Entry Date on which he or she first became eligible to participate in the SIP, at the maximum rate permitted under the SIP. It will be further assumed that the Certified Earnings for the Plan Year of a participant described in Section 4(b) included his or her Deferred Compensation for the Plan Year. (b) The maximum credit to the participant's Plan Account for any Plan Year under this Section 8 shall be equal to the Employer Matching Contribution for the entire Plan Year based on the rate of contribution selected by the participant (not to exceed the maximum percentage of Certified Earnings eligible for an Employer Matching Contribution under the SIP) for the quarter in which the participant first reached one of the limits specified in Section 4(c) and computed as if such limits did not apply, minus (i) the total Employer Matching Contribution made to the SIP on behalf of that participant for that year, and (ii) any credits the participant received for that Plan Year under Section 6 and Section 7. 4 (c) Credits under this section shall be reflected in the participant's Plan Account as of the end of the Plan Year in which an Employer Matching Contribution would have been reflected in the participant's SIP Account if the limits specified in Section 4(c) did not apply for that Plan Year. Sec. 9 Investment of Credits. Prior to September 30, 1991, credits to a --------------------- participant's Plan Account were invested in one or more of the "Investment Accounts" defined in Section 10 of this Plan. On and after September 30, 1991, no changes in Investment Accounts existing as of that date shall be allowed and all credits to a participant's Plan Account shall be made solely to the Norwest Stock Investment Account described in Section 10(c) below; provided, however, that the Personnel and Compensation Committee of the Company's Board of Directors may allow the participants to make a one-time election on a form provided by the Company to transfer, as of a date designated by the Personnel and Compensation Committee, all credits from other Investment Accounts to the Norwest Stock Investment Account. Sec. 10 Adjustment and Funding of Accounts. Credits to a participant's Plan ---------------------------------- Account shall be subject to the following: (a) Prior to September 30, 1991, the Investment Accounts available to participants under the Plan for each calendar quarter were the same as the Investment Funds (other than the Norwest ESOP Fund) which were available as investment options under the SIP for that quarter. (b) Except as provided in subsection (c), each Investment Account will reflect the investment performance of the corresponding SIP Investment Fund on a pro rata basis. If one or more SIP Investment Funds are merged, divided, discontinued or otherwise adjusted, corresponding adjustments shall be made in the credits held in Investment Accounts under this Plan. (c) On and after September 30, 1991, all credits to the participant's Plan Account shall be made to the "Norwest Stock Investment Account." Such credits shall be stated in the form of shares of Company common stock, the number of which shall be determined by dividing the amount of the credits made pursuant to Sections 6, 7, or 8 of this Plan by the average of the high and low prices per share of Company common stock on the consolidated tape of the New York Stock 5 Exchange on the date on which an Employer Matching Contribution would otherwise have been reflected in the participant's SIP account, or if the New York Stock Exchange is closed on that date, on the next preceding day on which it was open. Adjustments to the number of shares of Company common stock credited to the participant's Norwest Stock Investment Account in his or her Plan Account shall be made to reflect dividends paid on Company common stock pursuant to subsection (e) below. If the Company chooses to fund the credits to the Norwest Stock Investment Account, the Company shall make contributions in cash or in Company common stock to the trust described in Section 21. Any cash contributions shall be used by the trustee named in Section 21 to purchase shares of Company common stock within 10 business days after such deposit. Purchase of such shares may be made by the trustee in brokerage transactions or by private purchase, including purchase from the Company. All shares held by the trust shall be held in the name of the trustee. (d) All Plan Account credits shall consist solely of bookkeeping entries. (e) Each time a dividend is paid on the Company common stock, the participant shall receive a credit to the Norwest Stock Investment Account in his or her Plan Account. The amount of the dividend credit shall be the number of shares of Company common stock determined by multiplying the dividend amount per share by the number of shares credited to a participant's Norwest Stock Investment Account as of the record date for the dividend and dividing the product by the average of the high and low prices per share of the Company's common stock reported on the consolidated tape of the New York Stock Exchange on the dividend payment date or, if the New York Stock Exchange is closed on such date, the next preceding date on which it was open. Sec. 11 Plan Account Statements. The Company may from time to time issue ----------------------- statements to participants advising them of the status of their Plan Accounts, as of the last day of the month immediately preceding the statement date, but shall not be required to do so. The issuance of such statements shall not in any way affect the rights of participants hereunder. 6 Sec. 12 Number of Shares Issuable under the Plan/Adjustments for Certain ---------------------------------------------------------------- Changes in Capitalization. No more than 250,000 shares of Company common stock - ------------------------- may be credited to Plan Accounts except that any share credits to a Plan Account which are forfeited pursuant to Section 15 may again be credited under the Plan. If the Company shall at any time increase or decrease the number of its outstanding shares of Company 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 Company common stock, or through a stock split, subdivision, consolidation, combination, reclassification, or recapitalization involving the Company common stock, then the numbers, rights, and privileges of the shares that are and may be credited to the Norwest Stock Investment Accounts 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. Sec. 13. Voting Company Common Stock. If any credits issued pursuant to --------------------------- this Plan are, in the discretion of the Company, funded in a trust as described in Section 21, the Company common stock held in trust shall be voted by the trustee in its discretion; provided, however, the participant may instruct the Trustee with respect to the voting of a number of shares of Company common stock determined by multiplying a fraction, the numerator of which is the number of shares of Company common stock credited to the participant's Plan Account and the denominator of which is the total number of shares of Company common stock credited to all participants' Plan Accounts, by the total number of shares of Company common stock held by the Trustee for the Plan. For purposes of this section, all numbers of shares shall be determined as of the applicable record date. Sec. 14 Loans and Withdrawals. A participant may not request or receive any --------------------- loans or withdrawals from his or her Plan Account. The credits in a participant's Plan Account will be paid out only as described in Sections 16, 17 and 18. Sec. 15 Benefit on Termination of Employment. Upon Termination of ------------------------------------ Employment, each participant shall be entitled to a benefit equal to the amount of all credits to the participants' Investment Accounts in his or her Plan Account, other than the Norwest Stock Investment Account, plus the number of shares of Company common stock credited to the participant's Norwest Stock Investment Account, in both cases calculated as of the end of the calendar month immediately prior to the date benefits are distributed pursuant to Sections 16 or 17, multiplied by the vested percentage under the SIP that would be applicable to the participant. Any portion of the participant's Plan Account that is not vested shall be forfeited. 7 Sec. 16 Payment of Benefits. All vested credits to a participant's Plan ------------------- Account (determined as provided in Section 15), except credits in shares of Company common stock, shall be paid to the participant by his or her employer in a lump sum cash payment, net of any required withholding taxes, not later than 45 days after the end of the calendar year in which the Termination of Employment occurs. All vested shares of Company common stock credited to a participant's Plan Account (determined as provided in Section 15) will be paid to the participant in the form of whole shares of common stock (any fractional share will be paid in cash), net of any required withholding taxes, not later than 45 days after the end of the calendar year in which the Termination of Employment occurs. Sec. 17 Death Benefits. If a participant dies while employed, or dies after -------------- Termination of Employment but before receiving his or her benefit under this Plan, all vested credits to a participant's Plan Account (determined as provided in Section 15), except credits in shares of Company common stock, shall be paid in a lump sum cash payment, net of any required withholding taxes, and any vested shares of Company common stock credited to such Plan Account (determined as provided in Section 15) shall be paid in the form of whole shares of Company common stock, net of any required withholding taxes, not later than 45 days after the end of the calendar year in which the participant dies. Such payments shall be made to the participant's Beneficiary determined as provided in the SIP, if the participant was an Active Participant in the SIP. If the participant was not an Active Participant in the SIP, the foregoing payments shall be paid as provided in this Section 17 to the participant's estate. Any fractional shares of Company common stock payable pursuant to this Section 17 shall be paid in cash to the participant's Beneficiary or to his or her estate, as provided in this Section. Sec. 18 Benefits Upon the Occurrence of Certain Business Transactions. If ------------------------------------------------------------- the Company shall merge or consolidate with another corporation and the Company is not the surviving corporation (a "Transaction"), and the consideration received by the holders of common stock of the Company in the Transaction consists only of common stock of another publicly owned corporation whose outstanding stock is listed on the New York Stock Exchange or quoted in the NASDAQ National Market System ("Publicly-Traded Stock"), each share of Company common stock credited to a participant's Plan Account shall be converted to a credit for the number of shares of Publicly-Traded Stock which the holder of a share of Company common stock is entitled to receive in such Transaction and, beginning on and after the effective date of the Transaction, any future credits to Plan Accounts or payment of vested benefits payable in the form of shares of common stock shall be made in the form of shares of such Publicly-Traded Stock. 8 If the consideration received by the holders of common stock of the Company in a Transaction consists of any consideration other than Publicly-Traded Stock, each share of Company common stock credited to a participant's Plan Account shall be restated as credits for cash in an amount equal to the number of shares of Company common stock credited to a participant's Plan Account immediately prior to the effective date of the Transaction multiplied by the average of the high and low prices of a share of Company common stock on the New York Stock Exchange for each of the five trading days preceding the effective date of the Transaction. Such cash shall automatically be deemed to be invested in one or more investment accounts that conform to the investment fund options then provided by the SIP, upon such terms and conditions as may be established by the Personnel and Compensation Committee of the Board of Directors. Sec. 19 Nonassignability. No right to receive payments under the Plan nor ---------------- any shares of Company common stock credited to a participant's Plan Account shall be assignable or transferable by a participant other than by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Code, Title I of the Employee Retirement Income Security Act ("ERISA"), or rules thereunder. The designation of a Beneficiary under the SIP by a participant does not constitute a transfer. Sec. 20 Unsecured Obligation. Amounts due under this Plan shall be an -------------------- unsecured obligation of the Company. Sec. 21 Trust Fund. If the Company chooses to fund credits to participants' ---------- Plan Accounts, all cash contributed for such funding shall be held and administered in trust in accordance with the terms and provisions of a trust agreement between the Company and Marquette Bank Minneapolis, N.A. as Trustee, or any duly appointed successor trustee. All Company common stock or other funds in the trust shall be held on a commingled basis and shall be subject to the claims of general creditors of the Company. Plan Accounts shall be for bookkeeping purposes only, and the establishment of Plan Accounts shall not require segregation of trust assets. Sec. 22 No Guarantee of Employment. Participation in this Plan does not -------------------------- constitute a guarantee or contract of employment with any Participating Employer. Such participation shall in no way interfere with any rights of a Participating Employer to determine the duration of a participant's employment or the terms and conditions of such employment. Sec. 23 Withholding of Taxes. The benefits payable under this Plan shall be -------------------- subject to the deduction of the amount of any 9 federal, state or local income taxes, Social Security tax, Medicare tax or other taxes required to be withheld from such payments by applicable laws and regulations. Sec. 24 Administration, Amendment and Termination. The Company, acting ----------------------------------------- through the Chairman, the President, any Executive Vice President or any Senior Vice President, or any employee to whom any of those officers shall delegate such responsibility, shall administer the Plan and shall have discretionary authority to interpret the Plan and shall adopt procedures for implementing this Plan. The Human Resources Committee of the Company's Board of Directors may at any time terminate, suspend or amend this Plan in any manner. No such action shall deprive any participant of any benefits to which he or she would have been entitled under the Plan if the participant's Termination of Employment had occurred on the day prior to the date such action was taken, unless agreed to by the participant. Sec. 25 Effective Date of the Plan. The effective date of the Plan shall be -------------------------- determined by the Personnel and Compensation Committee of the Board of Directors after approval of the Plan by the common stockholders of the Company. 04/28/92 11/28/95 01/01/97 10 EX-10.J 3 RETIREMENT PLAN FOR NON-EMPLOYEE DIRECTORS Exhibit 10(j). NORWEST CORPORATION RETIREMENT PLAN FOR NON-EMPLOYEE DIRECTORS (As amended effective January 28, 1997) 1. Purpose: -------- The purpose of the Norwest Corporation Retirement Plan for Non- Employee Directors (the "Plan") is to provide unfunded retirement benefits for certain non-employee members of the Board of Directors of Norwest Corporation (the "Corporation") in consideration for personal services rendered in their capacity as directors of the Corporation. The Plan is intended to aid in attracting and retaining individuals of outstanding abilities and skills for services on the Corporation's Board of Directors (the "Board"). 2. Effective Date: --------------- The effective date of the Plan shall be January 1, 1988. 3. Administration: --------------- The Plan shall be administered by the Corporation'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 member of the Board who is 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 5 full years of service as a Non-Employee Director of the Board or January 1, 1988. 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 years of service for purposes of determining whether a Non-Employee Director qualifies as a Plan participant, only each full year of service will be included, partial years of service will not be included. 1 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 and (ii) the number of full years, up to a maximum of 10 years, that the participant served as a Non-Employee Director. 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 full years that the participant served as a Non-Employee Director 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 a Plan participant, provided that in no event may a participant's Benefit Duration exceed 10 years. The amount of each annual installment paid to a participant will equal the participant's total retirement benefit payable under this paragraph divided by the participant's Benefit Duration. Payment of a participant's retirement benefit will 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) and 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 and 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 2 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 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) (the "Release") which shall be ----------------------------------- credited to the amount of benefit due a participant as of the last day of each month. At the time payment of the benefits begins pursuant to paragraph 5 or 6, the total amount of interest then accumulated will be apportioned equally to the monthly payments. 8. Benefits Not Funded: -------------------- All benefits under this Plan shall be unsecured obligations of the Corporation, and each claim 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 Corporation or (ii) individuals who constitute the Board of Directors of the Corporation 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 Corporation'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. 3 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 "depository organization" shall have the meanings set forth in the Depository Institution Management Interlocks Act (the "Act") and 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. 11/17/87 7/24/90 2/26/96 1/28/97 4 EX-11 4 COMPUTATION OF EARNINGS PER SHARE Exhibit 11. NORWEST CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE
In thousands, except per share amounts Year Ended December 31 ------------------------------------------- 1996 1995 1994 1993 1992 -------- ------- ------- ------- ----- PRIMARY: - -------- Weighted average number of common shares outstanding 365,918 329,182 312,971 304,871 300,902 Net effect of assumed exercise of stock options based on treasury stock method using average market price 3,792 2,497 2,121 2,855 2,525 ------- ------- ------- ------- ------- 369,710 331,679 315,092 307,726 303,427 ======= ======= ======= ======= ======= Income before cumulative effect of a change in accounting for postretirement medical benefits 1,153,929 955,973 800,415 613,096 469,914 Less dividends accrued on preferred stock (17,763) (39,908) (27,915) (31,170) (32,219) --------- ------- ------- ------- ------- Income before cummulative effect of a change in accounting for postretirement medical benefits, as adjusted 1,136,166 916,065 772,500 581,926 437,695 Cumulative effect of a change in accounting for postretirement medical benefits - - - - (75,974) --------- ------- ------- ------- ------- Net income, as adjusted $1,136,166 916,065 772,500 581,926 361,721 ========= ======= ======= ======= ======= Income per share before cumulative effect of a change in accounting for postretirement medical benefits $ 3.07 2.76 2.45 1.89 1.44 Net income per share $ 3.07 2.76 2.45 1.89 1.19 FULLY DILUTED: - -------------- Weighted average number of common shares outstanding 365,918 329,182 312,971 304,871 300,902 Net effect of assumed exercise of stock options based on treasury stock method using average market price or period-end market price, whichever is higher 4,735 3,532 2,154 2,843 3,389 Assumed conversion of 6-3/4% convertible subordinated debentures due 2003 and 12% convertible notes due 1993 as of the beginning of the period 18 24 47 73 1,206 Assumed conversion of preferred stock - 8,380 12,626 16,036 16,926 ------- ------- ------- ------- ------- 370,671 341,118 327,798 323,823 322,423 ======= ======= ======= ======= ======= Income before cumulative effect of a change in accounting for postretirement medical benefits 1,153,929 955,973 800,415 613,096 469,914 Less dividends accrued on preferred stock (17,763) (29,297) (11,903) (12,182) (12,472) Add interest and amortization of debt expense, net of income tax effect, for 6-3/4% convertible subordinated debentures due 2003 and 12% convertible notes due 1993 4 5 10 16 699 ------- ------- ------ ------- ------- Income before cumulative effect of a change in accounting for postretirement medical benefits, as adjusted 1,136,170 926,681 788,522 600,930 458,141 Cumulative effect of a change in accounting for postretirement medical benefits - - - - (75,974) ------- -------- ------- -------- --------- Net income, as adjusted $1,136,170 926,681 788,522 600,930 382,167 ========= ======== ======= ======= ======= Income per share before cumulative effect of a change in accounting for postretirement medical benefits $ 3.07 2.73 2.41 1.86 1.42 Net income per share $ 3.07 2.73 2.41 1.86 1.19
EX-12.A 5 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES Exhibit 12(a). Norwest Corporation and Subsidiaries COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Unaudited)
Year Ended December 31, ----------------------------------------------------- In thousands 1996 1995 1994 1993 1992 --------- --------- -------- -------- -------- Computation of Income: Income before income taxes $1,781,509 1,422,814 1,180,601 879,755 645,568 Capitalized interest (14) (112) (69) (65) (24) ---------- --------- --------- --------- --------- Income before income taxes and capitalized interest 1,781,495 1,422,702 1,180,532 879,690 645,544 Fixed charges 2,685,447 2,503,603 1,640,049 1,485,936 1,651,664 --------- --------- --------- --------- --------- Total income for computation $4,466,942 3,926,305 2,820,581 2,365,626 2,297,208 ========= ========= ========= ========= ========= Total income for computation excluding interest on deposits from fixed charges $3,142,024 2,770,005 1,957,224 1,513,317 1,281,619 ========= ========= ========= ========= ========= Computation of Fixed Charges: Net rental expense (a) $ 205,409 166,591 149,462 128,573 123,342 ========= ========= ========= ========= ========= Portion of rentals deemed representative of interest $ 68,470 55,530 49,821 42,858 41,114 --------- --------- --------- --------- --------- Interest: Interest on deposits 1,324,918 1,156,300 863,357 852,309 1,015,589 Interest on federal funds and other short-term borrowings 454,013 515,646 290,211 238,046 277,835 Interest on long-term debt 838,032 776,015 436,591 352,658 317,102 Capitalized interest 14 112 69 65 24 --------- --------- --------- --------- --------- Total interest 2,616,977 2,448,073 1,590,228 1,443,078 1,610,550 --------- --------- --------- --------- --------- Total fixed charges $2,685,447 2,503,603 1,640,049 1,485,936 1,651,664 ========= ========= ========= ========= ========= Total fixed charges excluding interest on deposits $1,360,529 1,347,303 776,692 633,627 636,075 ========= ========= ========= ========= ========= Ratio of Income to Fixed Charges: Excluding interest on deposits 2.31x 2.06 2.52 2.39 2.01 Including interest on deposits 1.66x 1.57 1.72 1.59 1.39 (a) Includes equipment rentals.
EX-12.B 6 COMPUTATION OF EARNINGS TO PREFERRED STOCK DIVIDEND Exhibit 12(b). Norwest Corporation and Subsidiaries COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (Unaudited)
Year Ended December 31, ----------------------------------------------------------- In thousands 1996 1995 1994 1993 1992 --------- -------- --------- -------- -------- Computation of Income: Income before income taxes $1,781,509 1,422,814 1,180,601 879,755 645,568 Capitalized interest (14) (112) (69) (65) (24) --------- --------- --------- --------- --------- Income before income taxes and capitalized interest 1,781,495 1,422,702 1,180,532 879,690 645,544 Fixed charges 2,685,447 2,503,603 1,640,049 1,485,936 1,651,664 --------- --------- --------- --------- --------- Total income for computation $4,466,942 3,926,305 2,820,581 2,365,626 2,297,208 ========= ========= ========= ========= ========= Total income for computation excluding interest on deposits from fixed charges $3,142,024 2,770,005 1,957,224 1,513,317 1,281,619 ========= ========= ========= ========= ========= Computation of Fixed Charges: Net rental expense (a) $ 205,409 166,591 149,462 128,573 123,342 ========= ========= ========= ========= ========= Portion of rentals deemed representative of interest $ 68,470 55,530 49,821 42,858 41,114 ========= ========= ========= ========= ========= Interest: Interest on deposits 1,324,918 1,156,300 863,357 852,309 1,015,589 Interest on federal funds and other short-term borrowings 454,013 515,646 290,211 238,046 277,835 Interest on long-term debt 838,032 776,015 436,591 352,658 317,102 Capitalized interest 14 112 69 65 24 --------- --------- --------- --------- --------- Total interest 2,616,977 2,448,073 1,590,228 1,443,078 1,610,550 --------- --------- --------- --------- --------- Total fixed charges $2,685,447 2,503,603 1,640,049 1,485,936 1,651,664 ========= ========= ========= ========= ========= Total fixed charges excluding interest on deposits $1,360,529 1,347,303 776,692 633,627 636,075 ========= ========= ========= ========= ========= Preferred stock dividends 17,763 41,220 27,827 31,170 32,219 Pre-tax earnings needed to meet preferred stock dividend requirements 27,424 61,349 41,044 44,728 44,367 Total combined fixed charges and preferred stock dividends $2,712,871 2,564,952 1,681,093 1,530,664 1,696,031 ========= ========= ========= ========= ========= Total combined fixed charges and preferred stock dividends excluding interest on deposits $1,387,953 1,408,652 817,736 678,355 680,442 ========= ========= ========= ========= =========
(a) Includes equipment rentals. Exhibit 12(b). (continued) Norwest Corporation and Subsidiaries COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (Unaudited)
Year Ended December 31, -------------------------------------------------------- In thousands 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- Ratio of Income to Combined Fixed Charges and Preferred Stock Dividends: Excluding interest on deposits 2.26x 1.97 2.39 2.23 1.88 Including interest on deposits 1.65x 1.53 1.68 1.55 1.35
EX-21 7 SUBSIDIARIES OF THE CORPORATION Exhibit 21. SUBSIDIARIES OF THE CORPORATION The following is a list of subsidiaries of the corporation as of February 1, 1997. The corporation's bank subsidiaries which have the words "National Association" (N.A.), "National" or Federal Savings Bank (F.S.B.) 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. COLORADO Norwest Bank Colorado, N.A. Norwest Bank Grand Junction, N.A. Norwest Bank Grand Junction-Downtown, N.A. Norwest National Bank ILLINOIS Norwest Bank Illinois, N.A. INDIANA Norwest Bank Indiana, N.A. IOWA Dial National Bank Norwest Bank Iowa, N.A. MINNESOTA 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. MONTANA Norwest Bank Montana, N.A. NEBRASKA Norwest Bank Nebraska, N.A. 1 NEVADA Norwest Bank Nevada, F.S.B. NEW MEXICO 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 Central Bank & Trust Norwest Bank Texas, Alice Norwest Bank Texas, Bandera Norwest Bank Texas, Bay City, N.A. Norwest Bank El Paso, N.A. Norwest Bank Texas, N.A. Norwest Bank Texas, Comfort Norwest Bank Texas, Kelly Field, N.A. Norwest Bank Texas, Kerrville, N.A. Norwest Bank Texas, Premont Norwest Bank Texas, Robstown, N.A. Norwest Bank Texas, San Antonio, N.A. Norwest Bank Texas, South Central Norwest Bank Texas, South, N.A. Norwest Bank Texas, Waco, N.A. Texas Bank West Columbia National Bank WISCONSIN 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 - --------------- ------------ Alexandria Securities and Investment Company Minnesota Alice Bancshares, Inc. Texas AMAN Collection Service, Inc. South Dakota Am-Can Investments, Inc. Minnesota American Land Title Company of Kansas City, Inc. Missouri American Republic Bancshares, Inc. New Mexico AMFED Financial, Inc. Nevada AmeriGroup, Incorporated Delaware Babbscha Company Minnesota Bank of Montana System Montana B & G Investment Company Texas Benson Financial Corporation Texas Blackhawk Bancorporation Iowa Canton Bancshares, Inc. Illinois Central Bancorporation, Inc. Texas Comfort Bancshares, Inc. Texas Copper Bancshares, Inc. New Mexico Courtesy Funding Corporation (inactive) California Credisol, S.A. Costa Rica D. L. Bancshares, Inc. Minnesota Dickinson Bancorporation, Inc. (inactive) North Dakota Directors Acceptance Corporation (inactive) California Directors Equity (inactive) California Financiera El Sol, S.A. Panama First Tule Bancorp, Inc. Texas GST Co. Delaware Goldenbanks of Colorado, Inc. Delaware Henrietta Bancshares, Inc. Texas Independent Bancorp of Arizona, Inc. Delaware Irene Bancorporation, Inc. South Dakota Island Finance (Aruba) N.V. Aruba Island Finance (Bonaire) N.V. Netherlands Antilles Island Finance (Curacao) N.V. Netherlands Antilles Island Finance (St. Maarten) N.V. Netherlands Antilles Island Finance Puerto Rico, Inc. Delaware Island Finance Virgin Islands, Inc. Delaware Ken-Caryl Investment Company Colorado La Porte Bancorp. Indiana Lindeberg Financial Corporation Minnesota Lomas Properties, Inc. (inactive) New Mexico Lowry Hill Investment Advisors, Inc. Minnesota
3
Jurisdiction of Incorporation or Directly Owned: Organization - --------------- ------------ Midwest Credit Life Insurance Company Arizona Minnetonka Overseas Investment Limited (inactive) Cayman Islands, BWI New Braunfels Bancshares, Inc. Texas Northern Prairie Indemnity Limited Cayman Islands, BWI Norwest Agricultural Credit, Inc. Minnesota Norwest Alliance System, Inc. (inactive) Minnesota Norwest Asia Limited Hong Kong Norwest Audit Services, Inc. Minnesota Norwest Auto Receivables Corporation Delaware Norwest Capital Markets, Inc. (inactive) Minnesota Norwest Colorado, Inc. Colorado Norwest Credit, Inc. Minnesota Norwest Financial Services, Inc. Delaware Norwest Foundation Minnesota Norwest Holding Company Delaware Norwest Indiana, Inc. Indiana Norwest Insurance, Inc. Minnesota Norwest Investment Services, Inc. Minnesota Norwest Investors, Inc. Minnesota Norwest Limited, Inc. Minnesota Norwest Nova, Inc. Minnesota Norwest Properties, Inc. Minnesota Norwest Services, Inc. Minnesota Parker Bankshares, Incorporated Colorado Peoples Mortgage and Investment Company Iowa Stan-Shaw Corporation California Texas Bancorporation, Inc. Texas Texas National Bankshares, Inc. Texas The Foothill Group, Inc. Delaware Union Texas Bancorporation, Inc. Texas United Banks Insurance Services, Inc. Colorado United Texas Financial Corporation Texas United New Mexico Credit Life Insurance Company (inactive) Arizona Valley-Hi Investment Company Texas Victoria Bankshares, Inc. Texas Wyoming National Bancorporation Wyoming
4
Jurisdiction of Incorporation or Indirectly Owned: Organization - ----------------- ------------ Allied Business Systems, Inc. Iowa American Community Bank Services Corporation Minnesota American Land Title Co., Inc. Nebraska Americorp Financial, Inc. Nevada ATI Holding Company Minnesota ATI Title Company of California California ATI Title Company of Nevada Nevada ATI Title Agency of Arizona, Inc. (inactive) Arizona ATI Title Agency of Ohio, Inc. Ohio Bancshares Holding Company Delaware Bancshares Life Insurance Company Arizona Blackhawk Leasing Corporation (inactive) Minnesota Bluebird Asset Management, Inc. Delaware Blue Jay Asset Management, Inc. Delaware Blue Spirit Insurance Company Vermont BSF Trustee, Inc. (inactive) Nevada Caliber Services, Inc. (inactive) Arizona Cardinal Asset Management, Inc. Delaware Central Bancorporation of Delaware, Inc. Delaware Centurion Agency Nevada, Inc. Nevada Centurion Agency Ohio, Inc. (inactive) Ohio Centurion Agencies, Co. Iowa Centurion Casualty Company Iowa Centurion Life Insurance Company Missouri CGT Insurance Company Barbados CHM Insurance Company South Dakota Clinton Street Garage Company, Inc. Indiana Commonwealth Leasing Corporation Minnesota Community Casualty Co. Vermont Community Pacific Broadcasting Corporation Nevada Copper Asset Management, Inc. Delaware Crestone Capital Management, Inc. Colorado Dial Finance Company, Inc. (inactive) Nevada Dial Finance Company, Incorporated (inactive) Delaware Dial Finance Company of Hawaii, Inc. (inactive) Hawaii Dial Finance Company of Michigan No. 1 (inactive) Michigan Dial Finance Company of Ohio No. 1, Inc. Merger Company, Inc. (inactive) New Hampshire Dial Finance Company of Oklahoma (inactive) Oklahoma Dial Finance Company of Oregon (inactive) Oregon
5
Jurisdiction of Incorporation or Indirectly Owned: Organization - ----------------- ------------ Dial National Community Benefits, Inc. Nevada Directors Insurance Service California Douglas Financial, Inc. (inactive) Nevada Ellis Advertising, Inc. Iowa Falcon Asset Management, Inc. Delaware Faxual Credit Reporting Service, Inc. California FCC Holdings California Fidelity National Life Insurance Company Arizona First DialWest Escrow Company, Inc. California First Interstate Equipment Finance, Inc. (inactive) Wisconsin First Interstate Insurance Agency of Wisconsin, Inc. (inactive) Wisconsin First Nevada Company (inactive) Nevada First of Lubbock Agricultural Credit Corporation Texas First Tule Bancorp of Delaware, Inc. Delaware First Western Service Corporation (inactive) Nevada Flore Properties, Inc. Minnesota Foothill Capital Corporation California Ford Bank Group, Inc. Texas Ford Bank Group Holdings, Inc. Delaware Fremont Properties, Inc. Colorado Galliard Capital Management, Inc. Minnesota Great Plains Insurance Company Vermont Green Bay Asset Management, Inc. Delaware Henrietta Delaware Financial Corporation Delaware Home Escrow Corporation (inactive) Nevada Home Trustee, Inc. (inactive) Nevada Information Services, Inc. Iowa 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 LaSalle, Inc. (inactive) Indiana Lincoln Building Corporation Colorado Mail Systems Co Iowa Minnetonka Representacoes Comerciais Ltda (inactive) Brazil Mission Savings and Loan Association U.S. Nabankco, Inc. (inactive) Indiana
6
Jurisdiction of Incorporation or Indirectly Owned: Organization - ----------------- ------------ National Business Finance, Inc. Colorado Nat-Lea, Inc. (inactive) Indiana NISI Wyoming Insurance Wyoming Norwest Colorado Community Development Corporation Colorado Norwest Agencies Montana, Inc. (inactive) Montana Norwest Asset Securities Corporation Delaware Norwest Auto Lease, Inc. Minnesota Norwest Business Credit, Inc. Minnesota Norwest Center, Inc. Minnesota Norwest Colorado Community Development Corporation Colorado Norwest do Brasil Servicos Ltda Brazil Norwest Electronic Tax Service, Inc. Minnesota Norwest Energy Capital, Inc. Texas Norwest Equipment Finance, Inc. Minnesota Norwest Equity Capital, L.L.C. Minnesota Norwest Financial, Inc./1/ Iowa Norwest Financial Alabama, Inc. Alabama Norwest Financial Business Credit, Inc. Iowa Norwest Financial Canada, Inc. Ontario Norwest Financial Capital, Inc. Delaware Norwest Financial Capital Canada, Inc. Ontario Norwest Financial Coast, Inc. California Norwest Financial Communication Services Group, Inc. (inactive) Iowa Norwest Financial Credit Services, Inc. Florida Norwest Financial DE Asset Management, Inc. Delaware Norwest Financial Information Services Group, Inc. Iowa Norwest Financial Leasing, Inc. Iowa Norwest Financial Nevada 3, Inc. Nevada Norwest Financial Resources, Inc. Iowa Norwest Funding, Inc. Minnesota Norwest Funding II, Inc. Minnesota
- ---------------------- /1/Norwest Financial Inc. is the parent and directly or indirectly beneficially owns all the voting securities of subsidiaries operating as consumer finance companies in the United States and Canada (96 subsidiaries at February 1, 1997). Such subsidiaries were incorporated or otherwise organized in: Alaska, Arizona, California, Colorado, Connecticut, Delaware, Florida, 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 and Canada. 7
Jurisdiction of Incorporation or Indirectly Owned: Organization - ----------------- ------------ Norwest Growth Fund, Inc. Minnesota Norwest Insurance Arizona, Inc. Arizona Norwest Insurance New Mexico, Inc. (inactive) New Mexico Norwest Insurance Wyoming, Inc. Wyoming Norwest International Commercial Services Limited Hong Kong Norwest Investment Management, Inc. Minnesota Norwest Mortgage, Inc. California Norwest Mortgage Asset Management Corporation Minnesota Norwest Mortgage Closing Services, Inc. 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 York, Inc. New York Norwest Orlandi Valuta (inactive) California Norwest Properties Holding Company Minnesota Norwest Rural Insurance Services, Inc. Minnesota Norwest Structured Assets, Inc. Delaware Norwest Trust Company, New York (a Limited Purpose Trust Company) New York Norwest Venture Capital Management, Inc. Minnesota Norwest Ventures, Inc. Minnesota Osprey Asset Management, Inc. Delaware Peregrine Capital Management, Inc. Minnesota PGD, Inc. Texas Premium Service/Norwest Financial Coast, Inc. South Carolina PriMerit Investor Services (inactive) Nevada Raven Asset Management, Inc. Delaware R D Leasing, Inc. Minnesota Regency Insurance Agency, Inc. Minnesota Residential Home Mortgage, L. L. C. Delaware Residential Home Mortgage Investment, L. L. C. Delaware Robin Asset Management, Inc. Delaware Rural Community Insurance Company Minnesota Rural Community Insurance Agency, Inc. Minnesota Scott Life Insurance Company Arizona Servcorp of Yankton, Inc. (inactive) South Dakota South Dakota Asset Management, Inc. Delaware Superior Asset Management, Inc. Delaware
8
Jurisdiction of Incorporation or Indirectly Owned: Organization - ----------------- ------------ Superior Guaranty Insurance Company Vermont Superior North Asset Management, Inc. Delaware 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 TBS Operations Corporation Texas TDM Corporation Texas Tower Data Processing Corporation Iowa Transact Financial Corporation (inactive) Texas United New Mexico Credit Services, Inc. (inactive) New Mexico United New Mexico Financial Corporation New Mexico United New Mexico Real Estate Services, Inc. New Mexico United Title Agency of Arizona, Inc. Arizona Valley Asset Management, Inc. Delaware Valley-Hi Securities, Inc. (inactive) Texas Valuation Information Technology, Inc. Iowa Victoria Capital Corporation (inactive) Texas Victoria Financial Services, Inc. Delaware VIE, Inc. Minnesota Warranty Title, Inc. Minnesota
Note: Not included in the above list of subsidiaries of the corporation are certain subsidiaries formed solely for the purpose of reserving a name, joint ventures or limited partnerships. 9 EX-23 8 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS Exhibit 23 ---------- CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS The Board of Directors Norwest Corporation: We consent to incorporation by reference of our report dated January 16, 1997 relating to the consolidated balance sheets of Norwest Corporation and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, cash flows and stockholders' equity for each of the years in the three-year period ended December 31, 1996, which report appears in the December 31, 1996, Form 10-K of Norwest Corporation, in the following Registration Statements of Norwest Corporation: Nos. 033-10820, 033-11438, 033- 21484, 033-21485, 033-35162, 033-38767, 033-42198, 033-50305, 033-50307, 033- 50309, 033-50311, 033-65007, 033-65009, 333-02485, 333-09413 and 333-12423 on Form S-8, Nos. 033-50435, 033-59629, 033-61045, 033-63911, 333-01737, 333-02309, 333-03573, 333-09489 and 333-12925 on Form S-3 and Nos. 333-20263 and 333-20995 on Form S-4. /s/ KPMG Peat Marwick LLP Minneapolis, Minnesota March 4, 1997 EX-24 9 POWERS OF ATTORNEY OF DIRECTORS Exhibit 24. NORWEST CORPORATION Power of Attorney of Director KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of NORWEST CORPORATION, a Delaware corporation, does hereby make, constitute, and appoint RICHARD S. LEVITT, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and DAVID A. CHRISTENSEN, 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 Corporation to an Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and all amendments thereto, to be filed by said Corporation 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 24th day of February, 1997. /s/ Les S. Biller ------------------------------- Les S. Biller 1 NORWEST CORPORATION Power of Attorney of Director KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of NORWEST CORPORATION, a Delaware corporation, does hereby make, constitute, and appoint RICHARD S. LEVITT, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and DAVID A. CHRISTENSEN, 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 Corporation to an Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and all amendments thereto, to be filed by said Corporation 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 24th day of February, 1997. /s/ J. A. Blanchard III --------------------------------- J. A. Blanchard III 2 NORWEST CORPORATION Power of Attorney of Director KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of NORWEST CORPORATION, a Delaware corporation, does hereby make, constitute, and appoint RICHARD S. LEVITT, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and DAVID A. CHRISTENSEN, 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 Corporation to an Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and all amendments thereto, to be filed by said Corporation 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 24th day of February, 1997. /s/ David A. Christensen --------------------------------- David A. Christensen 3 NORWEST CORPORATION Power of Attorney of Director KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of NORWEST CORPORATION, a Delaware corporation, does hereby make, constitute, and appoint RICHARD S. LEVITT, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and DAVID A. CHRISTENSEN, 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 Corporation to an Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and all amendments thereto, to be filed by said Corporation 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 24th day of February, 1997. /s/ Pierson M. Grieve ------------------------------ Pierson M. Grieve 4 NORWEST CORPORATION Power of Attorney of Director KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of NORWEST CORPORATION, a Delaware corporation, does hereby make, constitute, and appoint RICHARD S. LEVITT, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and DAVID A. CHRISTENSEN, 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 Corporation to an Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and all amendments thereto, to be filed by said Corporation 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 24th day of February, 1997. /s/ Charles M. Harper -------------------------------- Charles M. Harper 5 NORWEST CORPORATION Power of Attorney of Director KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of NORWEST CORPORATION, a Delaware corporation, does hereby make, constitute, and appoint RICHARD S. LEVITT, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and DAVID A. CHRISTENSEN, 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 Corporation to an Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and all amendments thereto, to be filed by said Corporation 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 24th day of February, 1997. /s/ William A. Hodder -------------------------------- William A. Hodder 6 NORWEST CORPORATION Power of Attorney of Director KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of NORWEST CORPORATION, a Delaware corporation, does hereby make, constitute, and appoint RICHARD S. LEVITT, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and DAVID A. CHRISTENSEN, 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 Corporation to an Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and all amendments thereto, to be filed by said Corporation 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 24th day of February, 1997. /s/ Reatha Clark King -------------------------------- Reatha Clark King 7 NORWEST CORPORATION Power of Attorney of Director KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of NORWEST CORPORATION, a Delaware corporation, does hereby make, constitute, and appoint RICHARD S. LEVITT, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and DAVID A. CHRISTENSEN, 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 Corporation to an Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and all amendments thereto, to be filed by said Corporation 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 24th day of February, 1997. /s/ Richard M. Kovacevich ------------------------------- Richard M. Kovacevich 8 NORWEST CORPORATION Power of Attorney of Director KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of NORWEST CORPORATION, a Delaware corporation, does hereby make, constitute, and appoint RICHARD S. LEVITT, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and DAVID A. CHRISTENSEN, 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 Corporation to an Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and all amendments thereto, to be filed by said Corporation 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 24th day of February, 1997. /s/ Richard S. Levitt ------------------------------- Richard S. Levitt 9 NORWEST CORPORATION Power of Attorney of Director KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of NORWEST CORPORATION, a Delaware corporation, does hereby make, constitute, and appoint RICHARD S. LEVITT, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and DAVID A. CHRISTENSEN, 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 Corporation to an Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and all amendments thereto, to be filed by said Corporation 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 24th day of February, 1997. /s/ Richard D. McCormick ------------------------------- Richard D. McCormick 10 NORWEST CORPORATION Power of Attorney of Director KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of NORWEST CORPORATION, a Delaware corporation, does hereby make, constitute, and appoint RICHARD S. LEVITT, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and DAVID A. CHRISTENSEN, 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 Corporation to an Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and all amendments thereto, to be filed by said Corporation 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 24th day of February, 1997. /s/ Cynthia H. Milligan ---------------------------------- Cynthia H. Milligan 11 NORWEST CORPORATION Power of Attorney of Director KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of NORWEST CORPORATION, a Delaware corporation, does hereby make, constitute, and appoint RICHARD S. LEVITT, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and DAVID A. CHRISTENSEN, 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 Corporation to an Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and all amendments thereto, to be filed by said Corporation 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 24th day of February, 1997. /s/ Benjamin F. Montoya -------------------------------- Benjamin F. Montoya 12 NORWEST CORPORATION Power of Attorney of Director KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of NORWEST CORPORATION, a Delaware corporation, does hereby make, constitute, and appoint RICHARD S. LEVITT, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and DAVID A. CHRISTENSEN, 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 Corporation to an Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and all amendments thereto, to be filed by said Corporation 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 24th day of February, 1997. /s/ Ian M. Rolland ------------------------------- Ian M. Rolland 13 NORWEST CORPORATION Power of Attorney of Director KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of NORWEST CORPORATION, a Delaware corporation, does hereby make, constitute, and appoint RICHARD S. LEVITT, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and DAVID A. CHRISTENSEN, 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 Corporation to an Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and all amendments thereto, to be filed by said Corporation 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 24th day of February, 1997. /s/ Michael W. Wright --------------------------- Michael W. Wright 14 EX-27 10 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER 31, 1996 ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 12-MOS DEC-31-1996 DEC-31-1996 4,857 1,238 1,277 187 16,247 712 745 39,381 1,041 80,175 50,130 7,573 3,326 13,082 0 189 626 5,249 80,175 4,302 1,206 810 6,318 1,325 2,617 3,701 395 (47) 4,090 1,782 1,782 0 0 1,154 3.07 3.07 5.63 157 111 0 0 917 512 129 1,041 645 32 364
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