-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, nu50K7hUVzrjmWPZZBUzpLYYrfY8q8Top6egLvMbAPFHofKGZwVO3A+m1ix02Xms 8/WkWlrE0lnO/1ZFoYWJwQ== 0000072971-94-000003.txt : 19940309 0000072971-94-000003.hdr.sgml : 19940309 ACCESSION NUMBER: 0000072971-94-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940308 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORWEST CORP CENTRAL INDEX KEY: 0000072971 STANDARD INDUSTRIAL CLASSIFICATION: 6021 IRS NUMBER: 410449260 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-02979 FILM NUMBER: 94515031 BUSINESS ADDRESS: STREET 1: NORWEST CTR STREET 2: SIXTH & MARQUETTE CITY: MINNEAPOLIS STATE: MN ZIP: 55479 BUSINESS PHONE: 6126671234 MAIL ADDRESS: STREET 1: NORWEST TOWER 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 10-K MAIN TEXT 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, 1993 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 on Title of each class 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 Depositary Shares Representing New York Stock Exchange 10.24% Cumulative Preferred Stock Depositary Shares Representing New York Stock Exchange Cumulative Convertible Preferred Stock, Series B 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. [ X ] On January 31, 1994, 311,212,676 shares of common stock were outstanding, of which 281,972,855 shares were held by non-affiliates. At that date, the aggregate market values of these shares, based upon a closing price of $26.375 per share, were $8,208.2 million and $7,437.0 million, respectively. 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 26, 1994, are incorporated by reference into Part III. PART I ITEM 1. BUSINESS Norwest Corporation (the corporation) is a regional bank holding 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 operates through subsidiaries engaged in banking and in 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, 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, computer and data processing services, trust services, and venture capital investments. At December 31, 1993, the corporation and its subsidiaries employed approximately 35,000 persons, had consolidated total assets of $50.8 billion, total deposits of $32.6 billion, and total stockholders' equity of $3.6 billion. Based on total assets at December 31, 1993, the corporation was the 14th largest bank holding company in the United States. As a holding company, the corporation's role is to coordinate the establishment of goals, objectives, policies and strategies, to monitor adherence to policies and to provide capital funds to its subsidiaries. In addition, the corporation provides its subsidiaries with strategic planning support, asset and liability management services, investment administration and portfolio planning, tax planning, new product and business development support, advertising, administrative services and human resources management. 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 17 in the Appendix, discusses developments in the corporation's business during 1993 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 Footnote 14 of the corporation's financial statements for additional information about the corporation's business segments. Banking The corporation's subsidiary banks, serving 15 states with 578 locations, offer diversified financial services including corporate and community banking, trust, capital management, data processing and credit card services. Investment services are provided to customers through Norwest Investment Services, Inc., which operates in 15 states with 111 offices, primarily in banking locations. In addition, Norwest Insurance, Inc. and its subsidiaries operate insurance agencies in 19 states with 102 offices offering complete lines of commercial and personal coverages to customers. Norwest Bank Minnesota, N.A. is the largest bank in the group with total assets of $15.3 billion at December 31, 1993. Eight other banks in the group equaled or exceeded $1.0 billion in total assets: Norwest Bank Iowa, N.A. ($6.3 billion), Norwest Bank South Dakota, N.A. ($2.9 billion), Norwest Bank Nebraska, N.A ($2.9 billion), Norwest Bank Arizona, N.A. ($2.2 billion), Norwest Bank Denver, N.A. ($2.0 billion), Norwest Bank 2 Wisconsin, N.A. ($1.5 billion), Norwest Bank North Dakota, N.A ($1.1 billion) and Norwest Bank Fort Wayne, N.A. ($1.0 billion). Norwest Venture Capital consists of a group of four affiliated companies engaged in making and managing investments in start-up businesses, emerging growth companies, management buy-outs, acquisitions and corporate recapitalizations. Norwest Venture Capital has supported the formation of nearly 300 new businesses with investments of nearly $400 million. Norwest Venture Capital's investments typically range from $750,000 to $5,000,000; 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 information processing, microelectronics, biotechnology, computer software, medical products, health care delivery, telecommunications, industrial automation, environmental related businesses and non-technology businesses, such as specialty retailing and consumer related business. Financing of management buy-outs is done for a variety of businesses. Mortgage Banking The corporation, through its mortgage banking operations, originates and purchases residential first mortgage loans for sale to various investors and provides servicing of mortgage loans for others where servicing rights have been retained. 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 633 offices in 577 communities in all 50 states. Approximately 49 percent of the mortgages are FHA and VA mortgages guaranteed by the federal government and sold as GNMA securities. In 1993 the company funded $33.7 billion of mortgages, with the average loan being approximately $97,500. This compares with $21.0 billion of fundings in 1992 and $13.2 billion in 1991. As of December 31, 1993 the mortgage banking servicing portfolio totaled $45.7 billion with a weighted average coupon of 7.22 percent. In 1993 mortgage banking retained $24.1 billion in servicing, or 71.5 percent of fundings, as compared with $13.0 billion or 61.9 percent of fundings and $4.2 billion or 31.8 percent of fundings in 1992 and 1991, respectively. Consumer Finance Consumer finance activities, provided through the corporation's subsidiary, Norwest Financial, Inc. and its subidiaries ("Norwest Financial"), include providing direct installment loans to individuals, purchasing of sales finance contracts, private label and lease accounts receivable and other related products and services. Norwest Financial provides consumer finance products and services through 954 stores in 794 communities in 46 states and in all 10 Canadian provinces. At December 31, 1993, consumer finance receivables accounted for 89 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 average installment loan made during 1993 was approximately $2,799 while sales finance contracts purchased during the year averaged approximately $976. Comparable amounts in 1992 and 1991 were $2,700 and $900, and $2,500 and $900, respectively. Norwest Financial also has insurance subsidiaries which 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 and the consumer finance business of subsidiaries of the corporation. Property, involuntary unemployment and non-filing insurance is sold as part of Norwest Financial's consumer finance business directly or through a reinsurance 3 arrangement by one of its insurance subsidiaries or on an agency basis. Competition Legislative and regulatory changes coupled with technological advances have significantly increased competition in the financial services industry. The corporation's banks and financial services subsidiaries compete with other commercial banks and financial institutions including savings and loan associations, credit unions, finance companies, mortgage banking companies, brokerage houses and insurance agencies. Government policies, supervision and regulation General As a bank holding company, the corporation is subject to the supervision of the Federal Reserve Board. The corporation's banking subsidiaries are subject to supervision and examination by applicable federal and state banking agencies. All of the corporation's banking subsidiaries are insured, and therefore are subject to regulation, by the FDIC. 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 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 is necessarily subject to the prior claims of creditors of such subsidiary, except to the extent that the corporation may be a creditor. Dividend Restrictions 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 OCC 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 profits, as defined by regulation, for that year combined with its retained net profits for the preceding two years less any required transfers to surplus or a fund for the retirement of any preferred stock. In addition, a national bank may not pay a dividend in an amount greater than its net profits then on hand after deducting its losses and bad debts. For this purpose, bad debts are defined to include, generally, loans which have matured and are in arrears with respect to interest by six months or more, other than such loans which are well secured and in the process of collection. Under these provisions the corporation's national bank subsidiaries could have declared, as of December 31, 1993, without obtaining prior regulatory approval, aggregate dividends of $483.2 million. The payment of dividends by any subsidiary bank may also be affected by other factors, such as the maintenance of adequate capital for such subsidiary bank. If, in the opinion of the applicable regulatory authority, a bank under its jurisdiction is engaged in an unsafe or unsound practice (which, depending on the financial condition of the bank, could include the payment of dividends), such authority may require, after notice and hearing, that such bank cease and desist from such practice. The Federal Reserve Board, the OCC, and the FDIC have issued policy statements which provide that insured banks and bank holding companies should generally pay dividends only out of current operating earnings. 4 Holding Company Structure 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% of the bank's capital and surplus and, with respect to the corporation and all non-bank subsidiaries, to an aggregate of 20% 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 it. 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 by, 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 shareholder of certain of its subsidiary banks, is subject to such provisions. Capital Requirements In January 1989, the Federal Reserve Board issued final risk-based capital guidelines for bank holding companies, such as the corporation. The new guidelines, which became effective December 31, 1990, were phased in over two years. The minimum ratio of total capital to risk-adjusted assets (including certain off-balance sheet items, such as stand-by letters of credit) is 8%. At least half of the total capital is to be composed of common equity, retained earnings, and a limited amount of noncumulative perpetual preferred stock ("Tier 1 capital"). The remainder ("Tier 2 capital") may consist of hybrid capital instruments, perpetual debt, mandatory convertible debt securities, a limited amount of subordinated debt, other preferred stock, and a limited amount of allowance for credit losses. The Federal Reserve Board has adopted changes to its risk-based and leverage ratio requirements applicable to bank holding companies and state chartered member banks that require that all intangibles, including core deposit intangibles, purchased mortgage 5 servicing rights ("PMSRs"), and purchased credit card relationships ("PCCRs") be deducted from Tier 1 capital. The changes, however, grandfather identifiable assets (other than PMSRs 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) PMSRs and PCCRs do not exceed 50% of Tier 1 capital and (ii) PCCRs do not exceed 25% of Tier 1 capital. For such purposes, PMSRs and PCCRs each would be included in Tier 1 capital only up to the lesser of (a) 90% of their fair market value (which must be determined quarterly) and (b) 100% of the remaining unamortized book value of such assets. The OCC has adopted substantially similar regulations. In addition, the Federal Reserve Board approved in August 1990 final 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 3% 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 will be required to maintain a leverage ratio of 3% plus an additional cushion of 1% to 2%. 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, 1993, the corporation's Tier 1 and total capital (the sum of Tier 1 and Tier 2 capital) to risk-adjusted assets ratios were 9.84% and 12.60%, respectively, and the corporation's leverage ratio was 6.60%. Neither the corporation nor any subsidiary bank has been advised by the appropriate federal regulatory agency of any specific leverage ratio applicable to it. 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 revises the bank regulatory and funding provisions of the Federal Deposit Insurance Act and makes revisions to several other federal banking statutes. Among other things, FDICIA requires the federal banking agencies to take "prompt corrective action" in respect of depository institutions that do not meet minimum capital requirements. FDICIA establishes five capital tiers: "well capitalized", "adequately capitalized", "undercapitalized", "significantly undercapitalized", and "critically undercapitalized". A depository institution's capital tier will depend upon where its capital levels are in relation to various relevant capital measures, which will include a risk-based capital measure and a leverage ratio capital measure, and certain other factors. A depository institution is well capitalized if it significantly exceeds the minimum level required by regulation for each relevant capital measure, adequately capitalized if it meets each such measure, undercapitalized if it fails to meet any such measure, significantly undercapitalized if it is significantly below any such measure, and critically undercapitalized if it fails to meet any critical capital level set forth in regulations. The critical capital level must be a level of tangible equity equal to not less than 2% of total assets and not more than 65% of the minimum leverage ratio to be prescribed by regulation (except to the extent that 2% would be higher than such 65% level). An institution may be deemed to be in a capitalization category that is lower than is indicated by its actual capital position if, among other things, it receives an unsatisfactory examination rating. Under regulations adopted pursuant to the foregoing provisions, for an institution to be well capitalized it must have a Tier 1 risk-based capital ratio of at least 6%, a total risk-based capital ratio of at 6 least 10%, and a leverage ratio of at least 5%, and not be subject to any specific capital order or directive. For an institution to be adequately capitalized it must have a Tier 1 risk-based capital ratio of at least 4%, a total risk-based capital ratio of at least 8%, and a leverage ratio of at least 4% (and in some cases 3%). As of December 31, 1993, 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 5% 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 directs that each federal banking agency prescribe standards for depository institutions and depository institution holding companies relating to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, a maximum ratio of classified assets to capital, minimum earnings sufficient to absorb losses, a minimum ratio of market value to book value for publicly traded shares, and such other standards as the agency deems appropriate. Although the corporation believes it is in compliance with the above FDICIA standards, the ultimate impact, if any, of such standards on the corporation cannot be ascertained. 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 is defined to be well capitalized if it maintains a leverage ratio of at least 5%, a ratio of Tier 1 capital to risk-adjusted assets of at least 6%, and a ratio of total capital to risk-adjusted assets of at least 10%, and is not otherwise in a "troubled condition" as specified by the appropriate 7 federal regulatory agency. A bank is defined to be "adequately capitalized" if it meets all of its minimum capital requirements. 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, 1993, all of the corporation's banking subsidiaries were well capitalized and, therefore, were not subject to these restrictions. FDIC Insurance Effective January 1, 1993, the deposit insurance assessment rate for the Bank Insurance Fund ("BIF") and the Savings Association Insurance Fund ("SAIF") increased as part of the adoption by the FDIC of a transitional risk-based assessment system. In June 1993, the FDIC published final regulations making the transitional system permanent effective January 1, 1994, but left open the possibility that it may consider expanding the range between the highest and lowest assessment rates at a later date. An institution's risk category is based upon whether the institution is well capitalized, adequately capitalized, or less than adequately capitalized. Each insured depository institution is also to be assigned to one of the following "supervisory subgroups": Subgroup A, B, or C. Subgroup A institutions are financially sound institutions with few minor weaknesses; Subgroup B institutions are institutions that demonstrate weaknesses 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. Based on its capital and supervisory subgroups, each BIF or SAIF member institution will be assigned an annual FDIC assessment rate ranging from 0.23% per annum (for well capitalized Subgroup A institutions) to 0.31% (for undercapitalized Subgroup C institutions). Adequately capitalized institutions will be assigned assessment rates ranging from 0.26% to 0.30%. The corporation incurred $66.2 million of FDIC assessment expense in 1993 as compared with $62.5 million in 1992 and $57.4 million in 1991. Because of decreases in the reserves of the BIF and SAIF due to the increased number of bank failures in recent years, it is possible the BIF and SAIF premiums will be further increased and it is possible that there may be a special assessment. Any such further increase or special assessment would also decrease net income, and a special assessment could have a material adverse effect on the results of operations of the corporation. ITEM 2. PROPERTIES The corporation operates 578 commercial banking locations, of which 382 are owned directly by subsidiary banks and 196 are leased from outside parties. The mortgage banking operation leases its headquarters facilities and servicing center in Des Moines, Iowa, leases a servicing center in Minneapolis, Minnesota, owns an additional servicing center located in Springfield, Ohio, and leases all mortgage production offices nationwide. 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. 8 The accompanying notes to consolidated financial statements on pages 57 and 70 in the Appendix contain additional information with respect to premises and equipment and commitments under noncancellable leases for premises and equipment. ITEM 3. LEGAL PROCEEDINGS None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None 9 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 the 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 62, 82, and 92 in the Appendix. The number of holders of record of the common equity securities of the corporation at January 31, 1994 were: Title of Class Number of Holders 6 3/4 % convertible subordinated debentures due 2003 10 Depositary Shares Representing Cumulative Convertible Preferred Stock, Series B 91 Common stock, par value $1 2/3 per share 25,999 ITEM 6. SELECTED FINANCIAL DATA The selected financial data begins on page 86 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 17 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 36 in the Appendix. The report of independent certified public accountants on the corporation's consolidated financial statements is presented on page 84 in the Appendix. Selected quarterly financial data is presented on pages 92 and 93 in the Appendix. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None 10 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. 11 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. (b) Reports on Form 8-K (1) The corporation filed Current Reports on Form 8-K dated October 25, 1993, filing certain documents in connection with the offering of 6.65% Subordinated Debentures Due 2023, and dated December 29, 1993, filing certain documents in connection with the offering of Medium-Term Notes, Series D. (c) Exhibits Page 2. Pro forma combined financial information for the corporation and pending acquisitions at December 31, 1993 and for the years ended December 31, 1993, 1992 and 1991.................................... 94 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. 3(b). Certificate of Designations of powers, preferences and rights relating to the corporation's 10.24% Cumulative Preferred Stock incorporated by reference to Exhibit 4(a) to the corporation's Registration Statement No. 33-38806. 3(c). Certificate of Designations of powers, preferences and rights relating to the corporation's Cumulative Convertible Preferred Stock, Series B incorporated by reference to Exhibit 2 to the corporation's Form 8-A, dated August 8, 1991. 3(d). 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), 3(b), 3(c), and 3(d) 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). 1983 Stock Option and Restricted Stock Plan incorporated by reference to Exhibit 28(b) to the corporation's Registration Statement No. 2-95331. 12 *10(b). 1985 Long-Term Incentive Compensation Plan, as amended, incorporated by reference to Exhibit 99(a) to the corporation's Registration Statement No. 033-50309. *10(c). 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(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). Supplemental Savings-Investment Plan, as amended, incorporated by reference to Exhibit 10(e) to the corporation's Annual Report on Form 10-K for the year ended December 31, 1992. *10(f). 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(g). 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(h). Deferred Compensation Plan for Non-Employee Directors incorporated by reference to Exhibit 10(g) to the corporation's Annual Report on Form 10-K for the year ended December 31, 1987. *10(i). Retirement Plan for Non-Employee Directors incorporated by reference to Exhibit 10(h) to the corporation's Annual Report on Form 10-K for the year ended December 31, 1987. Amendment to Retirement Plan for Non-Employee Directors incorporated by reference to Exhibit 19 to the corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 1990. *10(j). Directors' Formula Stock Award Plan, as amended, incorporated by reference to Exhibit 19 to the corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993. *10(k). 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(l). 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(m). 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. 13 *10(n). Form of agreement executed in March 1991, 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. Amendments dated March 16, 1992 to the agreements between the corporation and Lloyd P. Johnson and Richard M. Kovacevich incorporated by reference to Exhibit 19(a) to the corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 1992. *10(o). Lincoln Financial Corporation Directors' Stock Compensation Plan incorporated by reference to Exhibit 10 to the corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993. *10(p). Employees' Deferred Compensation Plan incorporated by reference to Exhibit 99 to the corporation's Registration Statement No. 033-50307. *10(q). Consulting Agreement between the corporation and Gerald J. Ford dated January 19, 1994.................. 102 *10(r). First United Bank Group, Inc. Incentive Stock Option Plan incorporated by reference to the corporation's Registration Statement No. 033-50495. 11. Computation of Earnings Per Share...................... 106 12(a). Computation of Ratio of Earnings to Fixed Charges...... 107 12(b). Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends.......................... 108 21. Subsidiaries of the Corporation........................ 109 23. Consent of Experts..................................... 115 24. Powers of Attorney..................................... 116 ______________________ * 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. 14 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 22nd day of February 1994. Norwest Corporation (Registrant) By /s/RICHARD M. KOVACEVICH Richard M. Kovacevich President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on the 22nd day of February, 1994, 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 William A. Hodder to sign this document on their behalf. David A. Christensen Richard S. Levitt Pierson M. Grieve Richard D. McCormick Charles M. Harper Cynthia H. Milligan N. Berne Hart John E. Pearson George C. Howe Ian M. Rolland Lloyd P. Johnson Stephen E. Watson Reatha Clark King Michael W. Wright Richard M. Kovacevich By /s/WILLIAM A. HODDER William A. Hodder Director and Attorney-in-Fact February 22, 1994 15 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, 1993 Contents Page Financial Review ......................................... 17 Financial Statements ..................................... 36 Independent Auditors' Report ............................. 84 Management's Report ...................................... 85 Six-Year Consolidated Financial Summary .................. 86 Consolidated Average Balance Sheets and Related Yields and Rates ............................. 87 Quarterly Condensed Consolidated Financial Information.... 92 16 FINANCIAL REVIEW This financial review should be read with the consolidated financial statements and accompanying notes presented on pages 36 through 83 and other information presented on pages 86 through 93. EARNINGS PERFORMANCE Norwest Corporation (the "corporation") reported record net income of $653.6 million in 1993, an increase of 79.5 percent over earnings of $364.1 million in 1992 and 63.0 percent over the $400.9 million earned in 1991. Net income per common share was $2.13 in 1993, compared with $1.16 in 1992 and $1.34 in 1991, an increase of 84.4 percent and 59.3 percent, respectively. Return on common equity was 20.9 percent and return on assets was 1.38 percent for 1993, compared with 12.4 percent and 0.85 percent in 1992, respectively, and 15.5 percent and 0.99 percent in 1991, respectively. The 1992 results include a one-time special charge of $76.0 million after tax, or 26 cents per common share, related to the corporation's early adoption of Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" (FAS 106). Excluding the cumulative effect of the change in accounting for postretirement medical benefits, 1992 net income was $440.1 million, or $1.42 per common share, return on common equity was 15.2 percent and return on assets was 1.03 percent. Net income per common share amounts for periods prior to 1993 have been restated to reflect the two-for-one split of the outstanding shares of common stock of the corporation effected in the form of a 100 percent stock dividend distributed on June 28, 1993. The corporation's results for periods prior to 1993 have been restated to include the results of Lincoln Financial Corporation (Lincoln) which was acquired by the corporation effective February 9, 1993 and has been accounted for using the pooling of interest method of accounting. Included in 1992 earnings are Lincoln's $60.0 million of additional provision for credit losses for the purpose of conforming Lincoln's credit loss practices and policies to those of the corporation and $33.5 million of merger and transition related expenses and restructuring costs, together totaling $93.5 million before income taxes. 17 Norwest Corporation and Subsidiaries CONSOLIDATED INCOME SUMMARY
5 Year Growth In Millions 1993 Change 1992 Change 1991 1990 1989 Rate Interest income (tax-equivalent basis) $3,766.7 3.9% $3,623.8 (5.8)% $3,847.5 $3,748.0 $3,501.4 4.5% Interest expense 1,358.0 (10.0) 1,509.2 (25.5) 2,024.2 2,201.2 2,100.9 (4.4) Net interest income 2,408.7 13.9 2,114.6 16.0 1,823.3 1,546.8 1,400.5 12.8 Provision for credit losses 140.1 (47.5) 266.7 (33.6) 401.9 428.3 225.5 (5.3) Net interest income after provision for credit losses 2,268.6 22.8 1,847.9 30.0 1,421.4 1,118.5 1,175.0 14.8 Non-interest income 1,542.5 25.5 1,228.8 19.2 1,031.2 872.1 711.3 20.6 Non-interest expenses 2,840.8 16.6 2,436.6 25.6 1,939.5 1,666.9 1,454.7 15.9 Income before income taxes 970.3 51.6 640.1 24.8 513.1 323.7 431.6 20.5 Income tax expense 284.1 74.1 163.2 144.3 66.8 110.1 96.0 58.5 Tax-equivalent adjustment 32.6 (11.6) 36.8 (18.9) 45.4 57.3 60.7 (14.2) Income before cumulative effect of a change in accounting for postretirement medical benefits 653.6 48.5 440.1 9.8 400.9 156.3 274.9 18.2 Cumulative effect on years ended prior to December 31, 1992 of a change in accounting for postretirement medical benefits - NM (76.0) NM - - - - Net income $ 653.6 79.5% $ 364.1 (9.2)% $ 400.9 $ 156.3 $ 274.9 18.2%
NM - Not meaningful 18 ORGANIZATIONAL EARNINGS BANKING The Banking Group reported record earnings of $397.2 million in 1993, 74.5 percent over 1992 earnings of $227.7 million and 61.5 percent over 1991 earnings of $246.0 million. Included in the 1992 Banking Group results are Lincoln's additional provision for credit losses, merger and transition related expenses and restructuring costs totaling $93.5 million before income taxes. The Banking Group earnings increases over 1992 and 1991 reflect 7.0 percent and 16.3 percent growth in tax- equivalent net interest income, respectively, primarily due to increases in average earning assets and net interest margin, and 80.5 percent and 87.5 percent decreases in the provision for credit losses, respectively, reflecting continued decreases in net credit losses and non-performing assets. Non-interest income in the Banking Group incresed 11.4 percent over 1992 and 24.5 percent over 1991 primarily due to continued increases in trust fee income, service charges on deposits and insurance revenues. The Banking Group non-interest expense increases of 5.8 percent and 25.7 percent over 1992 and 1991, respectively, are primarily a result of acquisition related charges, writedowns of excess facilities and other assets, and increased charitable contributions. The venture capital subsidiaries realized $59.5 million of net gains in 1993, compared with net gains of $29.7 million in 1992 and net losses of $4.6 million in 1991. Virtually all appreciated securities included in the $59.5 million venture capital gains were contributed to the Norwest Foundation. Contribution amounts of these appreciated securities, which included cost basis, were $69.8 million in 1993. Net unrealized appreciation in the venture capital investment portfolio was $118.3 million at December 31, 1993, an increase of 26.1 percent over December 31, 1992. MORTGAGE BANKING Mortgage banking operations earned $56.3 million in 1993, a 5.5 percent increase over 1992 earnings of $53.4 million, and 79.4 percent over 1991 earnings of $31.4 million. The increase in earnings reflects a 60.2 percent and 155.7 percent increase in residential mortgage fundings over 1992 and 1991, respectively. Fundings were $33.7 billion in 1993, compared with $21.0 billion in 1992 and $13.2 billion in 1991. Approximately 55 percent of the 1993 fundings were due to new loan originations with refinancings accounting for approximately 45 percent. Net gains on the sale of mortgages was $140.5 million in 1993, compared with $19.8 million in 1992 and $13.0 million in 1991. Net servicing retained during 1993 was $24.1 billion, compared with $13.0 billion in 1992 and $4.2 billion in 1991. The servicing portfolio increased to $45.7 billion at December 31, 1993, compared with $21.6 billion at December 31, 1992. In 1993, sales of servicing rights were $2,948 million, under an obligation in a long-term contract, with gains on sales of $61.7 million compared with $7,213 million and $62.4 million, respectively, during 1992 and $9,047 million and $76.5 million, respectively, in 1991. NORWEST FINANCIAL SERVICES Norwest Financial Services, Inc. (Norwest Financial) reported record earnings of $200.1 million in 1993, a 25.9 percent increase over the $159.0 million earned in 1992, and a 62.0 percent increase over the $123.5 million earned in 1991. The increases are primarily due to increases in tax-equivalent net interest income of 27.1 percent and 52.9 percent, respectively, over 1992 and 1991. The increase in tax- equivalent net interest income was due to 17.8 percent and 26.0 percent increases in average finance receivables over 1992 and 1991, respectively, and an increase in net interest margin of 107 basis points over 1992 and 232 basis points over 1991. The increase in net interest 19 margin reflects lower short-term borrowing rates and benefits from refinancing long-term debt at lower interest rates. Norwest Financial's non-interest expenses increased 21.5 percent and 45.6 percent over 1992 and 1991, respectively, primarily due to the acquisition of the consumer finance business of Trans Canada Credit Corporation Limited during the fourth quarter of 1992. Norwest Corporation and Subsidiaries ORGANIZATIONAL EARNINGS* In millions Year ended December 31 1993 1992 1991 1990 1989 Banking $397.2 227.7 246.0 33.0 189.6 Mortgage banking 56.3 53.4 31.4 17.0 5.8 Norwest Financial Services Inc., and subsidiaries 200.1 159.0 123.5 106.3 79.5 Consolidated income before cumulative effect of a change in accounting for postretirement medical benefits 653.6 440.1 400.9 156.3 274.9 Cumulative effect on years prior to December 31, 1992 of a change in accounting for postretirement medical benefits - (76.0) - - - Net income $653.6 364.1 400.9 156.3 274.9 * 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 allocation 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 was 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 1993, tax-equivalent net interest income provided 61.0 percent of the corporation's net revenues, compared with 63.2 percent in 1992 and 63.9 percent in 1991. Total tax-equivalent net interest income was $2,408.7 million in 1993, a 13.9 percent increase over the $2,114.7 million reported in 1992. Growth in tax-equivalent net interest income over 1992 was primarily due to an 11.3 percent increase in average earning assets and a 13 basis point increase in net interest margin. The increase in average earning assets is primarily due to an increase in average mortgages held for sale resulting from growth in residential mortgage fundings and an increase in average loans and leases, partially offset by a slight decrease in average total investment securities. The 1992 increase of 16.0 percent over the $1,823.2 million reported in 1991 was due to a 5.9 percent increase in average earning assets and a 47 basis point increase in net 20 interest margin. The increase in earning assets reflects increases in mortgages held for sale and increases in total investment securities. Non-accrual and restructured loans reduced net interest income by $12.3 million in 1993, compared with $17.2 million in 1992 and $24.8 million in 1991. Detailed analysis of net interest income appear on pages 87, 88 and 89. Net interest margin, the ratio of tax-equivalent net interest income divided by average earning assets, was 5.59 percent in 1993, compared with 5.46 percent in 1992 and 4.99 percent in 1991. The increase over 1992 reflects the downward repricing of core deposits, refinancing of long-term debt at lower interest rates and the repurchase of securitized credit card receivables, partially offset by lower yields on earning assets. The 1992 increase over 1991 reflects the downward repricing of core deposits, the refinancing of long-term debt at lower interest rates and the issuance of approximately $412 million of preferred and common stock during 1991, partially offset by an increase in average mortgages held for sale and an increase in average total investment securities on which narrower spreads are earned. 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 $140.1 million in 1993, a decrease of $126.6 million from 1992 and a decrease of $261.8 million from 1991. The provision for credit losses was 0.56 percent of average loans and leases in 1993, compared with 1.22 percent in 1992 and 1.87 percent in 1991. The decrease from 1992 reflects the continued reduction in the corporation's net credit losses and non-performing assets which are down $89.6 million from December 31, 1992. Also, as previously discussed, the 1992 provision for credit losses includes $60.0 million in additional provisions for credit losses taken by Lincoln. The 1992 decrease from 1991 reflects the reduction in the corporation's net charge-offs and non-performing assets. Net credit losses for 1993 were $173.6 million, a decrease of $44.0 million from 1992, and a decrease of $139.0 million from 1991. Net credit losses as a percentage of average loans and leases were 0.70 percent in 1993, compared with 1.00 percent in 1992 and 1.45 percent in 1991. The decrease in net credit losses in 1993 from 1992 reflects significantly lower commercial, consumer, construction and land development and real estate loan charge-offs resulting from lower levels of non-performing loans. These decreases were partially offset by higher foreign loan charge-offs as a result of Norwest Financial's fourth quarter 1992 acquisition of the consumer finance business of Trans Canada Credit Corporation Limited and higher credit card charge-offs. The decrease in 1992 from 1991 is primarily due to lower commercial and real estate loan charge-offs. NON-INTEREST INCOME Non-interest income is a significant source of the corporation's revenue, representing 39.0 percent of tax-equivalent net revenues in 1993, compared with 36.8 percent in 1992 and 36.1 percent in 1991. Consolidated non-interest income increased 25.5 percent in 1993 to $1,542.5 million, primarily due to increased mortgage banking revenues, venture capital gains and growth in various fee-based services, partially offset by a decrease in credit card fees, trading account gains and net gains on investment/mortgage-backed securities available for sale. During 1993 securities held for investment with a total amortized cost of $29.5 million were sold since they had been called by the issuers, resulting in gains on sales of $0.1 million. Excluding investment/mortgage-backed securities gains, venture capital gains and gains on investment/mortgage-backed securities available for sale, 21 non-interest income was up 26.1 percent from 1992 and 41.4 percent from 1991. The growth in mortgage banking revenues reflects the continued growth in mortgage loan fundings and the servicing portfolio. Credit card revenues decreased $19.9 million from 1992 primarily due to the repurchase of $525 million of credit card receivables from the securitized credit card receivable trusts during 1993 and a reduction in the number of credit card accounts by 19,000 to 1,896,000 as of December 31, 1993. The corporation expects to have repurchased the remaining $333 million of credit card receivables from the securitized credit card receivable trusts by the end of the second quarter of 1994. Revenues on securitized credit card receivables are recorded in non-interest income rather than net interest income. Other non-interest income increased $43.0 million from 1992 primarily due to increases of $36.1 million in trading account securities gains and $9.9 million in gains on sales of student loans available for sale. Consolidated non-interest income increased 19.2 percent in 1992 from 1991, primarily due to growth in mortgage banking revenues, gains on sales of investment/mortgage backed securities available for sale, venture capital gains and growth in various fee-based services, partially offset by a decrease in credit card fees. The 48.1 percent growth in mortgage banking revenues is due to the increase in mortgage fundings over 1991, partially offset by an 18.4 percent decrease in gains on sales of servicing rights. The decrease in credit card fees is primarily due to the repurchase of $254 million of credit card receivables from the securitized credit card receivable trusts during 1992 and a reduction in the number of credit card accounts of 174,000 to 1,915,000 as of December 31, 1992. NON-INTEREST EXPENSES Consolidated non-interest expenses increased 16.6 percent to $2,840.8 million in 1993. The increase is primarily due to increased salaries and benefits at both the mortgage banking operations, to support the large origination and servicing increases in that business, and at Norwest Financial due to its fourth quarter 1992 acquisition of the consumer finance business of Trans Canada Credit Corporation Limited, as well as increased salaries and benefits due to numerous acquisitions completed by the corporation during 1993. Excluding the growth in mortgage banking operations, Norwest Financial, businesses acquired during the year and the impact of the 1993 change in retirement plan assumptions, salaries and benefits expense increased 4.0 percent from 1992. The increase in non-interest expenses also reflects the impact of shortening of depreciable lives on mainframe computers, capping the amortizable life of goodwill at 15 years, increased and accelerated amortization of other intangibles, writedowns of excess facilities and other assets, a $47.1 million increase in charitable contributions and acquisition related charges. Non-interest expenses increased $497.1 million in 1992 over 1991. This increase is primarily attributable to increased salaries and benefits in the mortgage banking operations, reflective of large volume increases in originations and servicing, excess facility and other asset writedowns of approximately $82.0 million, writedowns of intangible assets of approximately $68.0 million, merger and transition related expenses and certain restructuring charges related to the Lincoln acquisition of approximately $33.5 million, a $19.3 million loss on prepayment of Norwest Financial debt and an $18.3 million increase in charitable contributions. POSTEMPLOYMENT BENEFITS In l992, the Financial Accounting Standards Board issued Statement of FInancial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" (FAS 112). Beginning in 1994, FAS 112 requires 22 employers to accrue the cost of postemployment benefits during the employees active service, if the amount of the benefits can be reasonably estimated and payment is probable. Management believes the adoption of FAS 112 will not have a material effect on the consolidated financial statements of the corporation. INCOME TAXES The corporation's income tax planning is based upon the goal of maximizing long-term, after-tax profitability. Income tax expense is significantly impacted by the mix of taxable versus tax-exempt revenues from investment securities and the loan portfolio and the utilization of net operating loss carryforwards. In 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", (FAS 109) effective January 1, 1993. The corporation adopted FAS 109 as of January 1, 1993, with no material impact on the corporation's consolidated financial statements. Prior to adoption of FAS 109, the corporation accounted for income taxes under Statement of Financial Accounting Standards No. 96. The effective income tax rate was 30.3 percent in 1993, compared with 24.5 percent in 1992 and 14.3 percent in 1991. The increase in the effective tax rate in 1993 from 1992 is primarily due to the fact that in 1993 there were no net operating loss tax benefits related to United Banks of Colorado, Inc's. 1990 net operating loss as compared with $31.2 million of benefits in 1992. The increase in the effective tax rate in 1992 from 1991 is primarily due to $31.2 million in net operating loss tax benefits in 1992 as compared with $49.3 million in 1991 related to United. For more information on income taxes see Footnote 12 on page 69. CONSOLIDATED BALANCE SHEET ANALYSIS EARNING ASSETS At December 31, 1993, earning assets were $46.5 billion, compared with $42.4 billion at December 31, 1992. This increase is primarily due to a $4.3 billion increase in loans and leases, and student loans and mortgages held for sale, including $2.6 billion of loans and leases acquired in acquisitions completed during 1993. This increase is partially offset by a $0.4 billion decrease in total investment securities. Average earnings assets were $43.1 billion in 1993, an increase of 11.3 percent over 1992. This increase is primarily due to a 14.4 percent increase in average loans and leases, and a 35.5 percent increase in mortgages held for sale due to increased residential mortgage fundings, partially offset by a 6.6 percent decrease in average total investment securities. Leverage, the ratio of average assets to average stockholders' equity, was 14.2 times during 1993 versus 14.1 times during 1992. This increase is due to a 10.7 percent increase in average assets, partially offset by a 9.6 percent increase in average stockholders' equity. In 1993, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," which will be adopted by the corporation in the first quarter of 1994. The Statement requires that investments classified as available for sale be reported at fair value with unrealized gains and losses reported, net of tax, as a separate component of stockholders' equity. The corporation currently accounts for 23 investments classified as available for sale using the lower of cost or market accounting method. As of December 31, 1993, net unrealized gains related to investments and mortgage-backed securities available for sale were $482.7 million before income taxes. In Footnote 16 to the consolidated financial statements on page 74 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". As of December 31, 1993, the fair value of net financial instruments totaled $3.9 billion, an increase of $1.0 billion from December 31, 1992. This increase was primarily due to growth in mortgages held for sale and loans and leases, which were partially offset by reductions in investment securities, including securities available for sale. During the same period, the net fair value of certain non-financial instruments increased $1.2 billion to $7.1 billion as of December 31, 1993. The fair value of the consumer finance network increased $0.8 billion. The fair value of the mortgage servicing portfolio and the mortgage loan origination/wholesale network increased $0.4 billion in 1993 due to increases in the servicing portfolio, as previously discussed, and growth in the origination and wholesale network. As of December 31, 1992, the fair value of net financial instruments totaled $2.9 billion, an increase of $0.2 billion from December 31, 1991. This increase was primarily due to growth in mortgages held for sale and loans and leases, which were partially offset by reductions in investment securities and mortgage-backed securities, including securities available for sale. During the same period, the net fair value of certain non-financial instruments increased $1.3 billion to $5.9 billion as of December 31, 1992. The fair value of the consumer finance network increased $0.4 billion due to growth in accounts and a widened interest spread on such loans. The fair value of the mortgage servicing portfolio and mortgage loan origination/wholesale network increased $0.6 billion in 1992, due to increases in the servicing portfolio and growth in the origination and wholesale network. CREDIT RISK MANAGEMENT The corporation manages exposure to credit risk through loan portfolio diversification by customer, product, industry and geography. As a result, there is no undue concentration in any single sector. Credit risk management also 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 Footnote 5 on page 56. As of December 31, 1993, the corporation's commercial real estate portfolio of loans to investors, developers and builders, including construction and land development loans (development loans), was $1,632.3 million, of which $40.0 million or 2.5 percent, were non-performing, compared with $1,559.0 million at December 31, 1992, of which $76.4 million, or 4.9 percent, were non-performing. These loans do not include loans on owner-occupied real estate which the corporation views as having the same general credit risk as commerical loans. Development loans represent 5.8 percent of the corporation's total loan portfolio. The total number of development loans is approximately 4,000 with an average loan size of approximately $0.3 million. The largest development loan is $16.4 million. The industry composition of development loans consists of office/warehouse (23 percent), retail (23 percent), residential (32 percent) and other (22 percent). 24 The construction and commercial real estate loan problems of many regional bank holding companies in some other parts of the United States have not been as severe in the Midwest. Geograpically, over 96 percent of the development loan portfolio is within the thirteen state area where the corporation has its principal banking franchise. Approximately 43 percent of the total portfolio is secured by property located in the Minneapolis/St. Paul, Minnesota area and Colorado. Within the 13 state area, the Minneapolis/St. Paul area has the largest concentration of developer activity. As noted above, the corporation has spread its construction and commercial real estate loans among numerous borrowers and has limited the size of loans retained on its books. Accordingly, the corporation believes its exposure to future commercial real estate loan losses is limited. The corporation is not aware of any loans classified for regulatory purposes at December 31, 1993, 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, 1993. ALLOWANCE FOR CREDIT LOSSES At December 31, 1993, the allowance for credit losses was $744.9 million, or 2.76 percent of loans and leases outstanding, compared with $742.7 million or 3.07 percent at December 31, 1992. The ratio of the allowance for credit losses to the total non-performaning assets and 90-day past due loans and leases was 260.9 percent at December 31, 1993, compared with 199.3 percent at December 31, 1992. 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 90 presents the allocation of the allowance for credit losses to major categories of loans. NON-ACCRUAL, RESTRUCTURED AND PAST DUE LOANS AND LEASES AND OTHER REAL ESTATE OWNED The table on page 27 presents data on the corporation's non-accrual, restructured and 90-day past due loans and leases and other real estate owned. Generally, the accrual of interest on a loan or a 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. Non-performing assets, including non-accrual, restructured and other real estate owned, and 90-day past due loans and leases, total $285.5 million, or 0.6 percent of total assets, at December 31, 1993, compared with $372.7 million, or 0.8 percent of total assets at December 31, 1992. This decline is due to decreases in real estate and commercial non- accrual loans of $29.6 million and $23.5 million, respectively, and a 25 $36.2 million decrease in other real estate owned, partially offset by a $5.0 million increase in restructured loans. The reduction in primary earnings per share due to total non-accrual and restructured loans was four cents in 1993, compared with eight cents in 1992 and 12 cents in 1991. In 1993, the Financial Acounting Standards Board issued Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Imparement of a Loan,"(FAS 114) which must be adopted for the corporation's 1995 financial statements. It requires that impared loans, as defined within FAS 114, be measured based on the present value of expected future cash flow discounted at the loan's effective rate, at the loan's market price, or the fair value of the collateral if the loan is collateral dependent. The adoption of FAS 114 is not expected to have a material effect on the corporation's consolidated financial statements. 26 Norwest Corporation and Subsidiaries NON-ACCRUAL, RESTRUCTURED AND PAST DUE LOANS AND OTHER REAL ESTATE OWNED
In millions, except per share amounts At December 31 1993 1992 1991 1990 1989 1988 Non-accrual loans and leases Domestic $172.9 231.3 334.5 375.2 268.0 210.1 Foreign - - - - - 11.6 Total non-accrual loans and leases 172.9 231.3 334.5 375.2 268.0 221.7 Restructured loans and leases 7.9 2.9 15.6 11.8 22.4 31.8 Total non-accrual and restructured loans and leases 180.8 234.2 350.1 387.0 290.4 253.5 Other real estate owned 54.7 90.9 108.2 149.5 117.5 119.8 Total non-performing assets 235.5 325.1 458.3 536.5 407.9 373.3 Loans and leases past due 90 days or more* 50.0 47.6 77.7 86.5 68.1 89.1 Total non-performing assets and 90-day past due loans and leases $285.5 372.7 536.0 623.0 476.0 462.4 Interest income as originally contracted on non-accrual and restructured loans and leases $ 17.3 24.5 38.7 48.5 31.2 29.6 Interest income recognized on non-accrual and restructured loans and leases (5.0) (7.3) (13.9) (19.3) (8.8) (7.5) Reduction of interest income due to non-accrual and restructured loans and leases $ 12.3 17.2 24.8 29.2 22.4 22.1 Reduction in primary earnings per share due to non-accrual and restructured loans and leases $ .04 .08 .12 .14 .11 .11
*Excludes non-accrual and restructured loans and leases. 27 FUNDING SOURCES INTEREST BEARING-LIABILITIES At December 31, 1993, interest-bearing liabilities totaled $36.8 billion, an increase of $1.8 billion over December 31, 1992. The increase is principally due to a $2.3 billion increase in interest bearing deposits primarily as a result of the Citibank (Arizona) and Columbia Savings acquisitions and a $2.3 billion increase in long-term debt, partially offset by a $2.9 billion decrease in short-term borrowings. Average interest-bearing liabilities were $35.7 billion in 1993, compared with $32.9 billion in 1992, primarily due to a 3.5 percent increase in average interest bearing deposits, a 3.7 percent increase in short-term borrowings and a 44.7 percent increase in average long-term debt. 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 61 percent of the corporation's total funding sources during 1993 and approximately 63 percent in 1992. 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 64 percent of total funding sources during 1993 compared with 67 percent in 1992. PURCHASED DEPOSITS In addition to core deposits, purchased deposits are an important 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 4 percent of the corporation's total funding sources in 1993 and 1992. SHORT-TERM BORROWINGS Short-term borrowings include federal funds purchased, securities sold under agreements to repurchase 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 60 to 90 days. Norwest Financial utilizes funds generated through its own commercial paper sales program to fund approximately 23 percent of its average earnings assets in 1993 compared with 22 percent in 1992. On January 6, 1994, Standard & Poor's upgraded the corporation's commercial paper rate from A1 to A1+. In its initial rating of the corporation and Norwest Financial, Fitch Investors Service, Inc. assigned an F-1+ to both the corporation's and Norwest Financial's commercial paper. The corporation's commercial paper/short-term debt is rated A1+, Duff 1+, TBW-1, and P1 by IBCA, Duff & Phelps, Thomson BankWatch, and Moody's, respectively. Norwest Financial's commercial paper/short-term debt is also rated A1+, Duff 1+, TBW-1 and P1 by Standard & Poor's, Duff & Phelps, Thomson BankWatch and Moody's, respectively. On average, total short-term borrowings represented approximately 15 percent of the corporation's total funding sources during 1993 and approximately 17 percent during 1992. At December 31, 1993, the corporation had available lines of credit totaling $1,172.7 million, including lines of credit totaling $972.7 28 million at Norwest Financial. These financing arrangements require the maintenance of compensating balances or payment of fees, which are not material. LONG-TERM DEBT Long-term debt represents an important funding source for the corporation and for Norwest Financial. Total long-term debt represented approximately 13 percent of the corporation's consolidated average funding sources during 1993 compared with approximately 10 percent in 1992. The corporation utilizes long-term debt primarily to meet the long-term funding requirements of its subsidiaries, with outstandings of $4,060.7 million as of December 31, 1993 compared with $2,083.7 million as of December 31, 1992. Five banking 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, 1993, these banking subsidiaries had advances outstanding totaling $2,446.6 million, an increase of $1,027.5 million from December 31, 1992. Long-term debt plays an even more significant role at Norwest Financial, which utilizes this source of financing to fund approximately 55 percent of its average earning assets. At December 31, 1993, Norwest Financial's long-term debt outstanding was $2,741.7 million. The table on page 59 presents the corporation's outstanding consolidated long-term debt as of December 31, 1993 and 1992. On January 6, 1994, Standard & Poor's upgraded the corporation's senior debt rating from A+ to AA-, subordinated debt rating from A to A+ and preferred stock rating from A- to A. In addition, on November 3, 1993, Thomson BankWatch upgraded the corporation's senior debt rating from AA to AA+, subordinated debt rating from AA- to AA and preferred stock rating from A+ to AA-. In its initial rating of Norwest Financial, Thomson BankWatch assigned a senior debt rating of AA+ and a subordinated debt rating of AA and also assigned Norwest Financial Thomson BankWatch's highest issuer rating, which is A. Also in November 1993, Fitch Investors Service, Inc., in its initial rating of the corporation's debt, assigned a shelf registration and senior debt rating of AA, a subordinated debt rating of AA- and a preferred stock rating of A+. Duff & Phelps, IBCA and Moody's have currently rated the corporation's senior debt AA-, AA- and A1, respectively. Norwest Financial's senior debt is currently rated AA+ by Thomson BankWatch and Fitch Investors Service, Inc., AA by Duff & Phelps, AA- by Standard & Poor's and Aa3 by Moody's. In early 1993, Thomson BankWatch assigned their highest issuer rating to the corporation, an A rating, which is shared by only four others among the 35 largest domestic bank holding companies, Banc One Corporation, SunTrust Banks, Inc., J.P.Morgan & Co. Incorporated and Wachovia Corporation. 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 which meets weekly, forms 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, regional and affiliate levels, and compliance with such policies is monitored at regular intervals by ALCO. DEFINITION OF INTEREST SENSITIVITY RISK Interest sensitivity risk is the risk that future changes in interest rates will reduce net interest income or the market value of the corporation's balance sheet. There are two basic ways of defining interest rate risk in the financial services industry; the risk to 29 reported earnings, sometimes referred to as the accounting perspective, and the risk to the market value of the balance sheet, sometimes referred to as the economic perspective. 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), changing market rate relationships (basis risk) and option positions determine the exposure of net income to changes in interest rates. The economic perspective focuses on 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) and other interest rate sensitive positions, such as options, across the full maturity spectrum. Both perspectives have their advantages and disadvantages. The corporation believes that the two perspectives are complementary, and should be used together to provide a more complete picture of interest rate risk than would be provided by either perspective alone. 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 a given time period. While providing a rough measure of rate risk, the gap report has a number of drawbacks, including the fact that it is a static (i.e. point-in-time) measurement, it does not capture basis risk, and it does not capture risk that varies either asymmetrically or non-proportionately with rate movements, such as option risk. Because of the drawbacks of gap reports, 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 relatonships 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. An example of the difference between the two methods of measurement was the interest rate floors that the corporation purchased in prior years to hedge securities with prepayment options against a decline in rates. The effect of these floors was easy to measure with a simulation model, but difficult to show in a gap report. Another example is the tendency of money market deposit rates to lag substantially behind changes in market interest rates. The lag relationship may depend on a number of factors, such as the direction and speed of rate of movements and the absolute level of rates. This relationship is difficult to show in a gap report, but easy to capture in a simulation model. 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 by it. 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. 30 MANAGEMENT OF INTEREST RATE RISK The managment of interest rate risk is governed by an interest sensitivity policy. The policy places a limit on the amount of earnings that may be put at risk to rate movements. While this determines the limits of the corporation's sensitivity position, the position that is maintained at any given time is a function of balance sheet trends, asset opportunities, and interest rate expectations. The sensitivity position at any given time is normally well within the policy limits, which is the case with the current position. The simulation model is used to determine the one year and three year gap levels which correspond to the limit in which the corporation has placed earnings at risk to interest rate movement, and these gap levels constitute the limits within which the corporation will manage its interest sensitivity position. Thus, gap reports are used, in conjunction with the simulation model, to monitor rate risk, but gaps are not used as the primary measure of rate risk. With regard to market valuation risk, the market valuation model is used to measure the sensitivity of the market value of equity to a wide range of interest rate changes. These results are reviewed with ALCO on a quarterly basis. No specific policy limits have yet been set on market valuation risk. The process of modeling market valuation risk is new to the financial services industry, and no standards exist within the industry for structuring the modeling process or using the results to define policy limits. The process of developing an understanding of all the issues raised in the measurement and interpretation of this risk is still evolving. CHANGES IN INTEREST SENSITIVITY The table on page 32 presents the corporation's interest sensitivity gaps for December, 1993. The cumulative gap within one year was positive $2,126 million, or 4.2 percent of assets. This compares with a one year gap of negative $985 million, or 2.2 percent of assets, in December, 1992. The cumulative gap within three years was positive $1,915 million, or 3.7 percent of assets, in December 1993, compared to negative $1,283 million, or 2.8 percent of assets, in December, 1992. The movement of the gap from negative to a positive was due to a shift in the investment portfolio from fixed rate to variable rate securities, as well as increases in retail deposits and demand deposits, part of which have fixed rate sensitivity. The effect of the current interest sensitivity position is to effectively eliminate vulnerability of the corporation's earnings to rising interest rates while allowing it to benefit from stable rates. The current sensitivity position is well within the risk limits set by the corporation's interest sensitivity policy. 31 Norwest Corporation and Subsidiaries INTEREST RATE SENSITIVITY
Repricing or Maturing In millions Within 6 Months 1 Year 3 Years After 6 Months -1 Year -3 Years -5 Years 5 Years Average Balances for December, 1993 Loans and leases $12,296 3,044 4,744 2,630 3,971 Investment securities 61 73 170 111 408 Investment securities available for sale - 51 193 294 988 Mortgage-backed securities available for sale 2,241 2,239 1,550 918 1,311 Student loans available for sale 1,435 - - - - Mortgages held for sale 6,023 - - - - Other earning assets 809 - - 399 210 Other assets - - - - 4,948 Total assets $22,865 5,407 6,657 4,352 11,836 Non-interest bearing deposits $ 2,921 35 133 91 5,473 Interest bearing deposits 11,512 2,453 5,675 1,545 3,528 Short-term borrowings 6,041 - - - - Long-term debt 2,873 295 884 960 1,763 Other liabilities/equity - - 342 - 4,593 Total liabilities /equity $23,347 2,783 7,034 2,596 15,357 Swaps and options $ (516) 500 166 (49) (101) Gap* $ (998) 3,124 (211) 1,707 (3,622) Cumulative gap $ (998) 2,126 1,915 3,622 - Gap as a percent of total assets 2.0% 4.2% 3.7% 7.1% -
* [Assets - (liabilities + equity) + swaps and options] The gap includes the effect of off-balance sheet instruments on the corporation's interest sensitity, with the exception of purchased interest rate floors, whose downside risk is limited. LIQUIDITY MANAGEMENT Liquidity management involves planning to meet anticipated funding needs at a reasonable cost, as well as contingency plans to meet unanticipated funding needs or a loss of funding sources. Liquidity management for the corporation is governed by policies formulated and monitored by ALCO, which take into account the marketability of assets, the sources and stability of funding, and the level of unfunded commitments. While each affiliate is responsible for managing its own liquidity position within overall guidelines, ALCO monitors the overall liquidity position. 32 The corporation has a significant liquidity reserve in its investment/mortgage-backed securities portfolio: approximately 88 percent of the $11.3 billion portfolio consists of Treasury or federal agency securities. These securities are highly marketable and currently have a market value well in excess of book value. 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, as well as the geographic diversity of the customer base. 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, total capital (Tier 1 plus Tier 2) to risk-based 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, the payment of corporate dividends or to reduce the corporation's borrowings. Through the implementation of its capital policies, the corporation has achieved a strong capital position. The corporation's Tier 1 capital ratio at December 31, 1993 was 9.84 percent and its total capital to risk-based assets ratio was 12.60 percent, compared with 10.03 percent and 12.85 percent at December 31, 1992, respectively. The corporation's leverage ratio was 6.60 percent at December 31, 1993, compared with 6.76 percent at December 31, 1992. These ratios compare favorably to the regulatory minimums of 4.0 percent for Tier 1, 8.0 percent for total capital to risk-based assets, and 3.0 percent for leverage ratio. The corporation's common equity capital continued to grow in 1993. Common stockholders' equity increased to $3.2 billion as of December 31, 1993, a 15.3 percent increase over year-end 1992. The corporation's internal capital growth rate (ICGR) in 1993 was 14.7 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 Dividend Reinvestment Plan, the Savings-Investment Plans, the 1985 Long Term Incentive Compensation Plan, and other stock issuance requirements other than acquisitions accounted for as a pooling of interests. In January, 1994, the corporation's board of directors authorized additional purchases, at management's discretion, of 8,000,000 shares of the corporation's common stock, bringing the total common stock purchase authority to 12,200,000 shares. In 1992, the corporation stated its intention to engage in open market or privately negotiated purchases of depository shares representing its 10.24% Cumulative Preferred Stock and its Cumulative Convertible Preferred Stock, Series B. The corporation has not established any specific objectives for the amount of the depository shares that it may repurchase. In 1993, the corporation repurchased 25,800 depository shares 33 (representing 6,450 shares of stock), or 0.6 percent of total outstanding shares of the 10.24% Cumulative Preferred Stock. Total depository shares repurchased since 1992 include 75,000, or 1.6 percent of total outstanding shares, and 25,000, or 0.5 percent of total outstanding shares, of the 10.24% Cumulative Preferred Stock and Cumulative Convertible Preferred Stock, Series B, respectively. In the second quarter of 1993, the corporation increased the quarterly cash dividend paid to common stockholders form 14.5 cents per share to 16.5 cents per share. This represents a 13.8 percent increase in the quarterly dividend rate and 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. Also during the second quarter 1993, the corporation declared a two-for- one stock split in the form of a 100 percent stock dividend payable June 28, 1993 to holders of record as of June 4, 1993. In January 1994, the corporation increased its dividend 12.1 percent to 18.5 cents per common share. 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. On January 14, 1994, the corporation completed its acquisition of First United Bank Group, Inc. (First United), a multibank holding company headquartered in Albuquerque, New Mexico, with total assets of $3.9 billion. The corporation issued 17,784,916 shares of its common stock in connection with the acquisition. The acquisition will be accounted for using the pooling of interests method. On January 1, 1994, the corporation completed its acquisition of St. Cloud National Bank & Trust Co., a $119 million bank, and on January 6, 1994, closed on St. Cloud Metropolitan Agency, Inc., an insurance agency and issued 1,105,820 and 32,969 common shares, respectively. On December 10, 1993, the corporation completed its acquisition of Winner Banshares, Inc., a $99 million bank holding company headquartered in Winner, South Dakota and issued 530,737 common shares. On October 29, 1993, the corporation completed its acquisition of FirstAmerican Bank, N.A., a $47.6 million bank, located in Colorado Springs, Colorado. On October 7, 1993, the corporation completed its acquisition of Ralston Bancshares, Inc., a $101.1 million bank holding company headquartered in Ralston, Nebraska, and issued 548,981 common shares. October 1, 1993, the corporation completed its acquisition of M & D Holding Company, a $57.1 million bank holding company headquartered in Spring Lake Park, Minnesota, and issued 536,084 common shares. On September 10, 1993, Norwest Bank Denver, N.A., a banking subsidiary of the corporation, completed its acquisition of $1.1 billion in assets of the Columbia Savings division of First Nationwide Bank, a Federal Savings Bank. On September 1, 1993, Norwest Bank Arizona, N.A., a subsidiary of the corporation, completed its acquisition of the $2.1 billion banking business of Citibank (Arizona), a subsidiary of Citicorp. On April 1, 1993, the corporation completed its acquisition of Financial Concepts Bancorp, Inc., a $175.5 million bank holding company headquartered in Green Bay Wisconsin, and issued 847,416 common shares. On February 1, 1993, the corporation completed its acquisitions of Merchants & Miners Bancshares, Inc., a $57 million bank holding company headquartered in Hibbing, Minnesota, and BORIS Systems, Inc., a $6 million data processing/transmission service, headquartered in East Lansing, Michigan, which provides services to more than 100 boards of realtors located throughout the United States, and issued 343,050 and 691,210 common 34 shares, respectively. On January 8, 1993, the corporation completed its acquisition of Rocky Mountain Bankshares, Inc., a $105 million bank holding company with a bank in Aspen, Colorado, and issued 557,084 common shares. The acquisitions of St. Cloud National Bank & Trust Co., Winner Banshares, Inc., Ralston Bancshares, Inc. and Financial Concepts Bancorp, Inc. were accounted for using the pooling of interests method of accounting; however, the financial results of the corporation have not been restated because the effect of these acquisitions on the corporation's financial statements was not material. The acquisitions of St. Cloud Metropolitan Agency, Inc., FirstAmerican, N.A., M & D Holding Company, Columbia Savings, Citibank (Arizona), Merchants & Miners Bancshares, Inc., BORIS Systems, Inc. and Rocky Mountain Bankshares, Inc. were accounted for using the purchase method. On February 9, 1993, the corporation completed its acquisition of Lincoln Financial Corporation (Lincoln), a $2.0 billion bank holding company headquartered in Fort Wayne, Indiana. The corporation issued 8,529,242 shares of its common stock in connection with the acquisition. The acquisition was accounted for using the pooling of interests method of accounting and, accordingly, the corporation's financial statements have been restated for all periods prior to the acquisition to include the accounts and operations of Lincoln. As of January 19, 1994, the corporation had eight other pending acquisitions with total assets of approximately $1.3 billion. The corporation expects to issue approximately 10.4 million common shares upon completion of these acquisitions. These acquisitions, subject to approval by the regulatory agencies, are expected to be completed during 1994 and are not significant to the financial statements of the corporation, either individually or in the aggregate. 35 Norwest Corporation and Subsidiaries CONSOLIDATED BALANCE SHEET In millions, except shares
At December 31, 1993 1992 ASSETS Cash and due from banks $ 2,600.7 2,528.6 Interest-bearing deposits with banks 52.9 54.9 Federal funds sold and resale agreements 405.6 409.6 Total cash and cash equivalent 3,059.2 2,993.1 Trading account securities 279.1 132.0 Investment securities (market value $860.5 in 1993 and $950.6 in 1992) 813.4 897.6 Investment securities available for sale (market value $1,958.2 in 1993 and $1,787.7 in 1992) 1,698.0 1,547.6 Mortgage-backed securities available for sale (market value $9,032.6 in 1993 and $9,525.5 in 1992) 8,810.1 9,318.3 Total investment securities 11,321.5 11,763.5 Student loans available for sale 1,351.3 1,158.6 Mortgages held for sale 6,090.7 4,727.8 Loans and leases 27,952.8 25,198.8 Unearned discount (1,007.8) (1,003.1) Allowance for credit losses (744.9) (742.7) Net loans and leases 26,200.1 23,453.0 Premises and equipment, net 756.5 663.4 Interest receivable and other assets 1,723.9 1,765.8 Total assets $50,782.3 46,657.2 LIABILITIES AND STOCKHOLDERS' EQUITY Deposits Noninterest-bearing $ 8,338.9 6,785.0 Interest-bearing 24,234.3 21,919.4 Total deposits 32,573.2 28,704.4 Short-term borrowings 5,805.1 8,669.4 Accrued expenses and other liabilities 2,033.2 1,661.7 Long-term debt 6,802.4 4,481.0 Preferred stock-authorized 5,000,000 shares without par value: 1,131,250 and 1,137,700 shares outstanding in 1993 and 1992,respectively, at $100 stated value, 10.24% cumulative dividends 113.2 113.8 1,143,750 shares outstanding in 1993 and 1992, at $200 stated value, 7.00% cumulative dividends and convertible 228.7 228.7 Common stock, $1 2/3 par value-authorized 500,000,000 shares: Issued 294,131,670 and 290,816,252 shares in 1993 and 1992, respectively 490.2 242.4 Surplus 413.0 616.0 Retained earnings 2,394.4 2,002.8 Notes receivable from ESOP (16.3) (19.5) Treasury stock-1,956,803 and 2,066,950 common shares in 1993 and 1992, respectively (51.5) (43.2) Foreign currency translation (3.3) (0.3) Total common stockholders' equity 3,226.5 2,798.2 Total stockholders' equity 3,568.4 3,140.7 Total liabilities and stockholder's equity $50,782.3 46,657.2
See Notes to consolidated financial statements. 36 Norwest Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME In millions, except per share amounts
Year ended December 31, 1993 1992 1991 INTEREST INCOME ON Loans and leases $2,505.9 2,314.6 2,555.9 Investment securities 69.0 172.9 245.3 Mortgage-backed securities - 573.1 740.9 Investment securities available for sale 116.0 14.7 - Mortgage-backed securities available for sale 588.6 164.5 - Student loans available for sale 85.3 24.2 - Mortgages held for sale 326.8 279.4 192.1 Money market investments 13.6 20.6 57.2 Trading account securities 28.9 23.0 10.7 Total interest income 3,734.1 3,587.0 3,802.1 INTEREST EXPENSE ON Deposits 777.5 925.9 1,373.0 Short-term borrowings 234.3 273.5 342.6 Long-term debt 346.2 309.8 308.6 Total interest expense 1,358.0 1,509.2 2,024.2 NET INTEREST INCOME 2,376.1 2,077.8 1,777.9 Provision for credit losses 140.1 266.7 401.9 NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 2,236.0 1,811.1 1,376.0 NON-INTEREST INCOME Trust 179.8 162.2 143.8 Service charges on deposit account 190.2 170.3 156.7 Mortgage banking 472.3 275.3 185.9 Data processing 65.5 66.1 64.2 Credit card 114.3 134.2 152.4 Insurance 176.8 155.1 140.6 Other fees and service charges 157.3 139.6 125.9 Net investment and mortgage-backed securities gains 0.1 8.9 22.3 Net investment and mortgage-backed securities available for sale gains 50.0 53.7 - Net venture capital gains (losses) 59.5 29.7 (4.6) Other 76.7 33.7 44.0 Total non-interest income 1,542.5 1,228.8 1,031.2 NON-INTEREST EXPENSES Salaries and benefits 1,416.5 1,124.8 937.8 Net occupancy 178.5 172.8 154.4 Equipment rentals, depreciation and maintenance 192.9 167.7 143.1 Business development 146.9 113.5 90.3 Communication 162.1 140.1 124.1 Data processing 100.0 94.1 90.4 FDIC assessment and regulatory examination fees 72.7 68.9 62.8 Intangible asset amortization 72.0 73.6 62.2 Other 499.2 481.1 274.4 Total non-interest expenses 2,840.8 2,436.6 1,939.5
(CONTINUED ON PAGE 38) 37 Norwest Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME (CONTINUED FROM PAGE 37) In millions, except per share amounts
Year ended December 31, 1993 1992 1991 INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF A CHANGE IN METHOD OF ACCOUNTING FOR POSTRETIREMENT MEDICAL BENEFITS 937.7 603.3 467.7 Income tax expense 284.1 163.2 66.8 Income before cumulative effect of a change in accounting for postretirement medical benefits 653.6 440.1 400.9 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 $653.6 364.1 400.9 Average Common and Common Equivalent Shares 293.3 290.6 285.4 PER COMMON SHARE NET INCOME Primary: Before cumulative effect of a change in accounting for postretirement medical benefits $ 2.13 1.42 1.34 Cumulative effect on years ended prior to December 31, 1992 of a change in accounting for postretirement medical benefits - (0.26) - Net Income $ 2.13 1.16 1.34 Fully Diluted: Before cumulative effect of a change in accounting for post retirement medical benefits $ 2.10 1.41 1.33 Cumulative effect on years ended prior to December 31, 1992 of a change in accounting for postretirement medical benefits - (0.25) - Net Income $ 2.10 1.16 1.33 DIVIDENDS $0.640 0.540 0.470
See notes to consolidated financial statements 38 Norwest Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS In millions
Year ended December 31, 1993 1992 1991 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 653.6 364.1 400.9 Adjustments to reconcile net income to net cash flows used for operating activities: Cumulative effect on years prior to December 31, 1992 of a change in accounting for postretirement medical benefits, net of tax - 76.0 - Writedown of intangible and other assets 79.8 150.0 - Provision for credit losses 140.1 266.7 401.9 Depreciation and amortization 194.8 169.0 155.2 (Gains) Losses on other real estate owned, net (8.0) (5.9) 16.6 Losses on sales of premises and equipment 4.3 29.5 3.7 Gains on sales of mortgages held for sale (140.5) (18.9) (12.9) Gains on sales of investment, mortgage-backed and venture capital securities (0.1) (36.1) (17.7) Gains on sales of investment, mortgage-backed and venture capital securities available for sale (109.5) (56.2) - Gains on sales of student loans available for sale (12.4) (0.3) - Trading account securities gains (22.0) (2.3) (12.8) Purchases of trading account securities (64,057.2) (30,912.7) (26,713.6) Proceeds from sales of trading account securites 63,932.1 30,940.9 26,756.9 Origination of mortgages held for sale (34,285.9) (21,037.7) (13,184.0) Proceeds from sales of mortgages held for sale 33,063.5 19,338.3 12,031.6 Proceeds from sales of investment and mortgage-backed securities available for sale 2,344.0 2,455.5 - Purchases of investment and mortgage- backed securities available for sale (4,521.7) (67.0) - Proceeds from maturities and paydowns of investment and mortgage-backed securities available for sale 3,068.2 691.1 -
(CONTINUED ON PAGE 40) 39 Norwest Corporation and Subsidiaries CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED FROM PAGE 39) In millions
Year ended December 31, 1993 1992 1991 Originations of student loans available for sale (1,035.7) - - Proceeds from sales of student loans available for sale 855.4 172.0 - Deferred income taxes 4.5 (119.8) 24.8 Interest receivable 31.9 4.5 53.0 Interest payable 37.1 (41.2) (12.3) Other assets, net (47.3) (118.6) (165.2) Other accrued expenses and liabilities, net 220.4 108.0 97.1 Net cash flows from (used for) operating activities 389.4 2,348.9 (176.8) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from maturities and paydowns of investment securities 228.8 806.5 573.5 Proceeds from sales of investment securities 0.7 820.8 1,287.3 Purchases of investment securities (71.9) (916.5) (1,476.9) Proceeds from maturities and paydowns of mortgage-backed securities - 2,357.6 1,888.0 Proceeds from sales of mortgage-backed securities - 493.5 3,967.4 Purchase of mortgage-backed securities - (5,517.4) (8,694.4) Proceeds from sales of consumer loans by banking subsidiaries - 259.0 100.4 Net decrease (increase) in banking subsidiaries' loans and leases (1,202.4) (3,648.4) 1,420.2 Principal collected on non-bank subsidiaries' loans and leases 4,048.4 3,241.1 2,766.1 Non-bank subsidiaries' loans and leases originated (4,523.9) (3,494.1) (3,274.3) Purchase of premises and equipment (211.3) (176.1) (107.2) Proceeds from sales of premises and equipment 1.3 16.3 25.6 Proceeds from sales of other real estate owned 117.8 125.9 139.5 Purchase of subsidiaries, net of cash and cash equivalents acquired 1,928.1 (356.4) 26.7 Net cash flows from (used for) investing activities 315.6 (5,988.2) (1,358.1)
(CONTINUED ON PAGE 41) 40 Norwest Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED FROM PAGE 40) In millions
Year ended December 31, 1993 1992 1991 CASH FLOWS FROM FINANCING ACTIVITIES Deposits, net 286.2 53.0 (683.6) Short-term borrowings, net (2,932.9) 2,709.1 (286.2) Long-term debt borrowings 4,301.0 1,558.1 1,280.0 Repayments of long-term debt (2,014.2) (683.2) (676.7) Issuances of preferred stock - - 225.4 Repurchase/redemption of preferred stock (0.7) (2.9) (30.4) Issuances of common stock 55.6 35.3 222.4 Repurchases of common stock (124.3) (85.9) (5.4) Net decrease in notes receivable from ESOP 3.2 3.0 8.1 Dividends paid (212.8) (179.0) (142.4) Net cash flows from (used for) financing activities (638.9) 3,407.5 (88.8) Net increase (decrease) in cash and cash equivalents 66.1 (231.8) (1,623.7) Cash and cash equivalents Beginning of year 2,993.1 3,224.9 4,848.6 End of year $ 3,059.2 2,993.1 3,224.9
See notes to consolidated financial statements. 41 Norwest Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
In millions, Notes Foreign except for Preferred Common Sur- Retained Receivable Treasury Currency shares Stock Stock plus Earnings from ESOP Stock Translation Total Balance, December 31, 1990, as originally reported $144.7 219.0 332.2 1,488.1 (30.6) (32.2) - 2,121.2 Adjustments for pooling of interests - 6.8 63.5 102.7 - 2.5 - 175.5 Balance, December 31, 1990, restated 144.7 225.8 395.7 1,590.8 (30.6) (29.7) - 2,296.7 Net income - - - 400.9 - - - 400.9 Dividends on Common stock - - - (126.0) - - (126.0) Preferred stock - - - (17.3) - - - (17.3) Redemption of preferred stock (29.7) - - (0.7) - - - (30.4) Issuance of 1,150,000 preferred shares 230.0 - (4.6) - - - - 225.4 Public offering of 15,438,200 common shares - 12.9 173.9 - - - - 186.8 Issuance of 5,225,194 common shares - 1.7 21.4 (3.4) - 25.4 - 45.1 Issuance of 230,000 common shares for acquisition - 0.2 (1.0) - - - (0.8) Repurchase of 323,138 common shares - - - - - (4.6) - (4.6) Repurchase and retirement of 53,710 common shares - - (0.8) - - - - (0.8) Net change in reserve for losses on equity investments - - - 1.7 - - - 1.7 Cash payments received on notes receivable from ESOP - - - - 8.1 - - 8.1 Balance, December 31, 1991 345.0 240.6 584.6 1,846.0 (22.5) (8.9) - 2,984.8
(CONTINUED ON PAGE 43) 42 Norwest Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED FROM PAGE 42)
In millions, Notes Foreign except for Preferred Common Sur- Retained Receivable Treasury Currency shares Stock Stock plus Earnings from ESOP Stock Translation Total Net income - - - 364.1 - - - 364.1 Dividends on Common stock - - - (151.2) - - - (151.2) Preferred stock - - - (27.8) - - - (27.8) Issuance of 4,348,432 common shares - 1.8 42.3 (27.8) - 34.9 - 51.2 Issuance of 899,972 common shares for acquisition - - (11.0) - - 16.7 - 5.7 Repurchase of 4,580,700 common shares - - - - - (85.9) - (85.9) Repurchase of 18,550 preferred shares (2.5) - 0.1 (0.5) - - - (2.9) Cash payments received on notes receivable from ESOP - - - - 3.0 - - 3.0 Foreign currency translation - - - - - - (0.3) (0.3) Balance, December 31, 1992 342.5 242.4 616.0 2,002.8 (19.5) (43.2) (0.3) 3,140.7 Net income - - - 653.6 - - - 653.6 Dividends on Common stock - - - (185.2) - - - (185.2) Preferred stock - - - (27.6) - - - (27.6) Stock split - 244.2 (244.2) - - - - - Issuance of 4,160,661 common shares - 1.2 65.4 (59.5) - 66.6 - 73.7 Issuance of 4,054,562 common shares for acquisitions - 2.4 (24.2) 10.1 - 49.4 - 37.7 Repurchase of 4,789,658 common shares - - - - - (124.3) - (124.3) Repurchase of 6,450 preferred shares (0.6) - - (0.1) - - - (0.7) Cash payments received on notes receivable from ESOP - - - - 3.2 - - 3.2 Tax benefits of dividends on common stock held by ESOP - - - 0.3 - - - 0.3 Foreign currency translation - - - - - - (3.0) (3.0) Balance, December 31, 1993 $341.9 490.2 413.0 2,394.4 (16.3) (51.5) (3.3) 3,568.4
See notes to consolidated financial statements. 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Norwest Corporation (the "corporation") is a regional bank holding company organized in 1929 and registered under the Bank Holding Company Act of 1956, as amended. The corporation is a diversified financial services organization which operates through subsidiaries engaged in banking and 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, New Mexico, North Dakota, Ohio, South Dakota, Texas, Wisconsin and Wyoming. The corporation also owns subsidiaries engaged in various businesses related to banking, principally mortgage banking, equipment leasing, agricultural finance, commercial finance, consumer finance, securities brokerage and investment banking, insurance, computer and data processing services, trust services and venture capital investments. 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 intercompany accounts and transactions have been eliminated. CHANGE IN ACCOUNTING FOR POSTRETIREMENT MEDICAL BENEFITS Effective January 1, 1992, the corporation adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" (FAS 106). FAS 106 requires employers to accrue the cost of retiree health care benefits and the cost of all other postretirement benefits other than pensions during the employees' active service. In prior years, this expense was recognized when benefits were paid. The cumulative liability for these expenses for years prior to 1992 of $76.0 million after tax, or $0.26 per common share, was recognized as a cumulative effect of accounting change as of January 1, 1992. As a result of applying the new method of accounting for postretirement medical benefits, medical benefits expense increased $9.5 million in 1992. 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. Cash paid for interest and income taxes for the years ended December 31 was: In millions 1993 1992 1991 Interest $1,395.4 1,550.3 2,049.2 Income taxes 216.1 196.7 52.4 Loans transferred to other real estate owned totaled $66.8 million in 1993, $104.5 million in 1992, and $113.3 million in 1991. Investment and mortgage-backed securities of $13,878.0 million and student loans of $1,330.3 million were transferred to available for sale in 1992. During 44 1993 and 1992, the corporation issued 2,127,428 and 899,972 shares of common stock, respectively, in connection with acquisitions accounted for using the purchase method. SECURITIES Investment and mortgage-backed securities which the corporation intends to hold until maturity are stated at cost, adjusted for amorization 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 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. Securities available for sale are stated at the lower of aggregate cost or market value. Investment and mortgage-backed securities are transferred to securities available for sale at their respective carrying value. Gains and losses on the sales of investment and mortgage-backed securities are computed by the specific identification method. Trading account securities are purchased with the intent to earn a profit by trading or selling the security. These securities are stated at market value. Adjustments to the carrying value are reported in other non-interest income. Securities held by the venture capital subsidiaries are included in investment securities available for sale and are stated at the lower of aggregate cost or market value. Gains and losses on the sales of such securities are computed on a specific identification basis. LOANS AND LEASES Loans are stated at their principal amount. Interest income is recognized on an accrual basis except when a loan has been past due for 90 days, unless such loan is in the process of collection and, in management's opinion, is fully secured. 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. 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 either the interest method or 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. At December 31, 1993 and 1992, the corporation had $1,351.3 and $1,158.6 million, respectively, of student loans available for sale because the corporation does not intend to hold these loans for the forseeable future. Student loans available for sale are stated at the lower of 45 aggregate cost or market value. Student loans were transferred to available for sale at their carrying value. 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 analysis 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 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 generally charged off when they become 120 days past due unless fully secured. 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. Gains and losses are determined by the difference between sales proceeds and the carrying value of the mortgages. PURCHASED MORTGAGE SERVICING RIGHTS The costs of purchased mortgage servicing rights are capitalized and are either deferred, if anticipated to be sold concurrent with the sale of the mortgage, or, if the servicing rights are retained, amortized over the estimated remaining life of the underlying loans using a method which approximates the level yield method. The carrying value of purchased mortgage servicing rights is periodically evaluated in relation to estimated future servicing net revenues. 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 cost of improvements are capitalized while 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. 46 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. In 1993, the corporation changed the amortizable life of goodwill to a maximum of 15 years from amortizable lives ranging from 15-30 years. Goodwill is amortized using the straight-line method. Other identifiable intangibles are amortized straight-line over various periods not to exceed 15 years. INTEREST RATE FUTURES, CAPS AND FLOORS, AND FORWARD CONTRACTS The corporation uses interest rate futures, caps and floors and forward contracts as part of its overall interest rate risk management strategy. 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. Realized gains and losses on positions used as hedges in mortgage banking operations are deferred and recognized when the related mortgages are sold. Positions which are not hedges of specific assets, liabilities or commitments are valued at market and the resulting gains or losses are recognized currently. The corporation also uses option agreements as part of its overall risk management strategy. Premiums paid on purchased put options which qualify as hedges are deferred and amortized over the terms of the contracts. Purchased options for uncovered puts 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 calls sold are marked to market daily with the gain limited to the amount of the option fee. INTEREST RATE SWAPS The corporation and its subsidiaries have entered into interest rate swaps as a tool to manage the interest sensitivity of the balance sheet. The contracts represent an exchange of interest payments, and 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. 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. In 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," (FAS 109) effective January 1, 1993. The corporation adopted FAS 109 as of January 1, 1993, with no material impact on the consolidated financial statements of the corporation. Prior to adoption of FAS 109, the corporation accounted for income taxes under Statement of Financial Accounting Standards No. 96. FOREIGN CURRENCY TRANSLATION The accounts of the corporation's Canadian subsidiary are measured using local currency as the functional currency. Assets and liabilities are 47 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. 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 of the 6 3/4 percent convertible subordinated debentures, the 12 percent convertible notes and the 7 percent convertible preferred stock into common stock. 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: 1993 1992 1991 Primary 293,347,385 290,552,332 285,353,846 Fully diluted 306,024,123 304,962,600 292,724,080 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. On January 14, 1994, the corporation completed its acquisition of First United Bank Group, Inc. (First United), a multibank holding company headquartered in Albuquerque, New Mexico, with total assets of $3.9 billion. The corporation issued 17,784,916 shares of its common stock in connection with the acquisition. The acquisition will be accounted for using the pooling of interests method. Unaudited pro forma net income and net income per share amounts, representing a combination of the corporation and First United for the years ended December 31, 1993, 1992 and 1991 are:
In millions, except per share amounts 1993 1992 1991 Net income $613.1 394.0 418.3 Net income per share Primary 1.89 1.19 1.33 Fully diluted 1.86 1.19 1.32
On January 1, 1994, the corporation completed its acquisition of St. Cloud National Bank & Trust Co., a $119 million bank, and on January 6, 1994, closed on St. Cloud Metropolitan Agency, Inc., an insurance agency and issued 1,105,820 and 32,969 common shares, respectively. On December 10, 1993, the corporation completed its acquisition of Winner Banshares, Inc., a $99 billion bank holding company headquartered in Winner, South Dakota, and issued 530,737 common shares. On October 29, 48 1993, the corporation completed its acquisition of FirstAmerican Bank, N.A., a $47.6 million bank, located in Colorado Springs, Colorado. On October 7, 1993, the corporation completed its acquisition of Ralston Bancshares, Inc., a $101.1 million bank holding company headquartered in Ralston, Nebraska, and issued 548,981 common shares. October 1, 1993, the corporation completed its acquisition of M & D Holding Company, a $57.1 million bank holding company headquartered in Spring Lake Park, Minnesota, and issued 536,084 common shares. On September 10, 1993, Norwest Bank Denver, N.A., a banking subsidiary of the corporation, completed its acquisition of $1.1 billion in assets of the Columbia Savings division of First Nationwide Bank, a Federal Savings Bank. On September 1, 1993, Norwest Bank Arizona, N.A., a subsidiary of the corporation, completed its acquisition of the $2.1 billion banking business of Citibank (Arizona), a subsidiary of Citicorp. On April 1, 1993, the corporation completed its acquisition of Financial Concepts Bancorp, Inc., a $175.5 million bank holding company headquartered in Green Bay Wisconsin, and issued 847,416 common shares. On February 1, 1993, the corporation completed its acquisitions of Merchants & Miners Bancshares, Inc., a $57 million bank holding company headquartered in Hibbing, Minnesota, and BORIS Systems, Inc., a $6 million data processing/transmission service, headquartered in East Lansing, Michigan, which provides services to more than 100 boards of realtors located throughout the United States, and issued 343,050 and 691,210 common shares, respectively. On January 8, 1993, the corporation completed its acquisition of Rocky Mountain Bankshares, Inc., a $105 million bank holding company with a bank in Aspen, Colorado, and issued 557,084 common shares. The acquisitions of St. Cloud National Bank & Trust Co., Winner Banshares, Inc., Ralston Bancshares, Inc. and Financial Concepts Bancorp, Inc. were accounted for using the pooling of interests method of accounting; however, the financial results of the corporation have not been restated because the effect of these acquisitions on the corporation's financial statements was not material. The acquisitions of St. Cloud Metropolitan Agency, Inc., FirstAmerican Bank, N.A., M & D Holding Company, Columbia Savings, Citibank (Arizona), Merchants & Miners Bancshares, Inc., BORIS Systems, Inc. and Rocky Mountain Bankshares, Inc. were accounted for using the purchase method. On February 9, 1993, the corporation completed its acquisition of Lincoln Financial Corporation (Lincoln), a $2.0 billion bank holding company headquartered in Fort Wayne, Indiana. The corporation issued 8,529,242 shares of its common stock in connection with the acquisition. The acquisition was accounted for using the pooling of interests method of accounting and, accordingly, the corporations' financial statements have been restated for all periods prior to the acquisition to include the accounts and operations of Lincoln. Net income and net income per share amounts of the corporation and Lincoln prior to restatement for the years ended December 31, 1992 and 1991 were: In millions, except per share amounts 1992 1991 The corporation Net income $446.7 $422.1 Net income per share Primary 1.48 1.46 Fully diluted 1.47 1.44 Lincoln Net loss $(82.6) (21.2) Net loss per share (11.47) (2.96) As of January 19, 1994, the corporation had eight other pending acquisitions with total assets of approximately $1.3 billion. The corporation expects to issue approximately 10.4 million common shares upon completion of these acquisitions. These acquisitions, subject to 49 approval of regulatory authorities, are expected to be completed during 1994 and are not significant to the financial statements of the corporation, either individually or in the aggregate. On December 29, 1992, the corporation acquired Am-Can Investment, Inc., a $33 million bank holding company headquartered in Moorhead, Minnesota, for cash. On October 2, 1992, the corporation completed its acquisition of United Bancshares, Inc. a $174 million bank holding company headquartered in Lincoln, Nebraska and issued 899,972 common shares. These acquisitions were accounted for using the purchase method. Effective January 19, 1992, Davenport Bank and Trust Company (Davenport Bank), an Iowa banking corporation headquartered in Davenport, Iowa, consolidated with Bettendorf Bank, National Association, a banking subsidiary of the corporation. The corporation issued 19,331,426 shares of its common stock to former Davenport Bank shareholders in connection with the consolidation. The consolidation was accounted for using the pooling of interests method of accounting and, accordingly, the corporation's financial statements have been restated for all periods prior to the consolidation to include the accounts and operations of Davenport Bank. On November 27, 1991, the corporation acquired MIG Insurance Brokers, Inc. (MIG), an insurance brokerage company headquartered in Minneapolis, Minnesota. As provided under the agreement, the corporation issued 230,000 shares of its common stock in exchange for all outstanding shares of MIG common stock. This acquisition was accounted for using the pooling of interests method of accounting. Financial statements prior to the acquisition date were not restated due to immateriality. Effective April 19, 1991, United Banks of Colorado, Inc. (United), a $5.5 billion bank holding company headquartered in Denver, Colorado, merged with the corporation. As provided under the agreement, the corporation issued 38,515,662 shares of its common stock in exchange for all outstanding shares of United's common stock. In addition, each outstanding share of United preferred stock was converted into the right to receive $51.50 in cash plus accrued dividends. The merger was accounted for using the pooling of interest method of accounting and accordingly, the corporation's financial statements have been restated for all periods prior to the acquisition to include the accounts and operations of United. 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 $518 million and $433 million for the years ended December 31, 1993 and 1992, respectively. 4. INVESTMENT SECURITIES Information related to the carrying and market values of investment and mortgage-backed securities for the three years ended December 31 is provided in the table on page 51. At December 31, 1991, no investment or mortgage-backed securities were classified as available for sale. 50 CARRYING AND MARKET VALUES OF INVESTMENT AND MORTGAGE-BACKED SECURITIES
1993 1992 1991 Carrying Market Carrying Market Carrying Market In millions Value Value Value Value Value Value Held for investment: U.S. Treasury and federal agencies $ - - - - 1,368.1 1,479.7 State, municipal and housing-tax exempt 586.0 633.1 736.4 789.4 915.8 975.4 Other 227.4 227.4 161.2 161.2 385.9 470.9 Total investment securities held for investment 813.4 860.5 897.6 950.6 2,669.8 2,926.0 Mortgage-backed securities: Federal agencies - - - - 10,014.8 10,314.8 Collateralized mortgage obligations - - - - 266.8 275.5 Total mortgage-backed securities held for investment - - - - 10,281.6 10,590.3 Total investment and mortgage-backed securities held for investment 813.4 860.5 897.6 950.6 12,951.4 13,516.3 Available for sale: U.S. Treasury and federal agencies 1,233.1 1,308.7 1,217.9 1,299.2 - - State, municipal and housing-tax exempt 90.0 93.0 69.4 73.8 - - Other 374.9 556.5 260.3 414.7 - - Total investment securities available for sale 1,698.0 1,958.2 1,547.6 1,787.7 - - Mortgage-backed securities: Federal Agencies 8,677.6 8,897.7 9,056.7 9,261.6 - - Collateralized mortgage obligation 132.5 134.9 261.6 263.9 - - Total mortgage- backed securities available for sale 8,810.1 9,032.6 9,318.3 9,525.5 - - Total investment and mortgage-backed securities available for sale 10,508.1 10,990.8 10,865.9 11,313.2 - - Total investment securities $11,321.5 11,851.3 11,763.5 12,263.8 12,951.4 13,516.3
51 The gross unrealized gains and losses on investment and mortgage backed securities at December 31 were:
1993 1992 Gross Gross Gross Gross Unreal- Unreal- Unreal- Unreal- ized ized ized ized In millions Gains Losses Gains Losses Held for investment: U.S. Treasury and federal agencies $ - - - - State, municipal and housing-tax exempt 48.1 1.0 57.0 4.0 Other - - - - Total investment securities held for investment 48.1 1.0 57.0 4.0 Available for sale: U.S. Treasury and federal agencies 76.5 0.9 84.3 3.0 State, municipal and housing-tax exempt 3.1 0.1 4.4 - Other 188.6 7.0 157.8 3.4 Subtotal 268.2 8.0 246.5 6.4 Mortgage-backed securities: Federal agencies 227.5 7.4 217.3 12.4 Collateralized mortgage obligations 2.7 0.3 6.5 4.2 Subtotal mortgage-backed securities available for sale 230.2 7.7 223.8 16.6 Total investment securities available for sale 498.4 15.7 470.3 23.0 Total investment securities $546.5 16.7 527.3 27.0
52 The carrying and market values of investments and mortgage-backed securities by maturity at December 31 were:
1993 1992 Carrying Market Carrying Market In millions Value Value Value Value Held for investment: Investment Securities: In one year or less $ 254.2 255.4 118.5 119.9 After one year through five years 178.9 190.9 203.6 215.8 After five years through ten years 141.8 157.1 168.0 187.0 After ten years 238.5 257.1 407.5 427.9 Total investment securities held for investment 813.4 860.5 897.6 950.6 Available for sale: Investment securities: In one year or less 279.2 341.8 174.4 232.6 After one year through five years 920.8 1,073.7 692.7 818.3 After five years through ten years 479.4 523.7 586.6 624.3 After ten years 18.6 19.0 93.9 112.5 Total investment securities available for sale 1,698.0 1,958.2 1,547.6 1,787.7 Mortgage-backed securities: In one year or less 247.6 270.3 36.8 37.5 After one year through five years 111.1 115.2 97.0 101.6 After five years through ten years 126.0 128.7 265.9 274.3 After ten years 8,325.4 8,518.4 8,918.6 9,112.1 Total mortgage-backed securities available for sale 8,810.1 9,032.6 9,318.3 9,525.5 Total investment securities available for sale 10,508.1 10,990.8 10,865.9 11,313.2 Total investment securities $11,321.5 11,851.3 11,763.5 12,263.8
53 Interest income on investment and mortgage-backed securities for each of the three years ended December 31 was:
In millions 1993 1992 1991 Held for investment: U.S. Treasury and federal agencies $ - 82.8 137.0 State, municipal and housing-tax exempt 52.9 65.0 74.8 Other 16.1 25.1 33.5 Total investment securities held for investment 69.0 172.9 245.3 Mortgage-backed securities: Federal agencies - 556.9 708.3 Collateralized mortgage obligations - 16.2 32.6 Total mortgage-backed securities held for investment - 573.1 740.9 Total investment and mortgage-backed securities held for investment 69.0 746.0 986.2 Available for sale: U.S. Treasury and federal agencies 99.3 10.9 - State, municipal and housing-tax exempt 4.6 2.7 - Other 12.1 1.1 - Total investment securities available for sale 116.0 14.7 - Mortgage-backed securities: Federal agencies 557.7 161.5 - Collateralized mortgage obligations 30.9 3.0 - Total mortgage-backed securities available for sale 588.6 164.5 - Total investment securities available for sale 704.6 179.2 - Total investment securities $773.6 925.2 986.2
Investment and mortgage-backed securities (including securities available for sale) carried at $5,807.7 million and $5,365.4 million were pledged to secure public or trust deposits or for other purposes at December 31, 1993 and 1992, respectively. 54 Total gross realized gains and gross realized losses from the sale of securities for each of the three years ended December 31 were:
In millions 1993 1992 1991 Held for investment: Investment securities: Gross realized gains $ 0.1 4.9 9.8 Gross realized losses - (1.2) (7.2) Net gains 0.1 3.7 2.6 Mortgage-backed securities: Gross realized gains - 13.8 41.2 Gross realized losses - (8.6) (21.5) Net gains - 5.2 19.7 Net realized gains on securities held for investment $ 0.1 8.9 22.3 Available for sale: Investment securities: Gross realized gains $ 23.8 0.9 - Gross realized losses (1.5) - - Net gains 22.3 0.9 - Mortgage-backed securities: Gross realized gains 35.6 52.9 - Gross realized losses (7.9) (0.1) - Net gains 27.7 52.8 - Net realized gains on securities available for sale $ 50.0 53.7 - Venture capital securities held for investment: Gross realized gains $ - 31.7 9.5 Gross realized losses - (4.5) (14.1) Net gains (losses) - 27.2 (4.6) Venture capital securities available for sale Gross realized gains 73.2 16.9 - Gross realized losses (13.7) (14.4) - Net gains 59.5 2.5 - Net venture capital gains (losses) $ 59.5 29.7 (4.6)
During 1993 securities held for investment with a total amortized cost of $29.5 million were called by the issuer and, therefore, sold by the corporation for a total gain on sales of $0.1 million. 55 5. LOANS AND LEASES The carrying values of loans and leases at December 31 were: In millions 1993 1992 Commercial $ 7,018.4 6,886.5 Construction and land development 496.2 397.6 Real estate 10,975.8 10,066.4 Consumer 8,258.5 6,759.6 Lease financing 655.4 586.3 Foreign 548.5 502.4 Total loans and leases 27,952.8 25,198.8 Unearned discount (1,007.8) (1,003.1) Loans and leases, net of unearned discount $26,945.0 24,195.7 Changes in the allowance for credit losses were: In millions 1993 1992 1991 Balance at beginning of year $ 742.7 668.1 560.0 Allowances related to assets acquired 35.7 25.5 18.8 Provision for credit losses 140.1 266.7 401.9 Credit losses (303.2) (330.3) (433.1) Recoveries 129.6 112.7 120.5 Net credit losses (173.6) (217.6) (312.6) Balance at end of year $ 744.9 742.7 668.1 Non-accrual, restructured and 90 day past due loans and other real estate owned at December 31 were: In millions 1993 1992 Non-accrual loans $172.9 231.3 Restructured loans 7.9 2.9 Total non-accrual and restructured loans 180.8 234.2 Other real estate owned 54.7 90.9 Total non-performing assets 235.5 325.1 Loans and leases past due 90 days or more* 50.0 47.6 Total non-performing assets and 90-day past due loans and leases $285.5 372.7 * Excludes non-accrual loans and leases. 56 The effect of non-accrual and restructured loans on interest income for each of the three years ended December 31 was: In millions 1993 1992 1991 Interest income As originally contracted $17.3 24.5 38.7 As recognized (5.0) (7.3) (13.9) Reduction of interest income $12.3 17.2 24.8 There are no material commitments to lend additional funds to customers whose loans were classified as non-accrual or restructured at December 31, 1993. Leveraged lease financing amounted to $144.9 million and $131.1 million at December 31, 1993 and 1992, respectively. Deferred income taxes related to leveraged leases amounted to $99.7 million and $83.0 million at the same dates, respectively. Loans and leases totaling $4,082.3 million were pledged to secure Federal Home Loan Bank (FHLB) advances at December 31, 1993. The corporation and its subsidiaries have made loans to the executive officers and directors (and their associates) of the corporation and its significant subsidiaries in the ordinary course of business. Aggregate amounts of these loans (but excluding loans to the immediate families of persons who are solely executive officers and directors of the corporation's significant subsidiaries) were $65.3 million and $61.0 million at December 31, 1993 and 1992, respectively. Activity with respect to these loans during 1993 included advances, repayments and net decreases (due to changes in executive officers and directors) of $203.0 million, and $196.6 million and $2.1 million, respectively. 6. PREMISES AND EQUIPMENT The carrying value of premises and equipment at December 31 was: In millions 1993 1992 Owned Land $ 82.3 71.3 Premises and improvements 585.0 567.9 Furniture, fixtures and equipment 782.3 648.8 Total 1,449.6 1,288.0 Capitalized leases Premises 20.2 19.6 Equipment 14.3 12.5 Total 34.5 32.1 Total premises and equipment 1,484.1 1,320.1 Less accumulated depreciation and amortization (727.6) (656.7) Premises and equipment, net $ 756.5 663.4 7. CERTIFICATES OF DEPOSIT OVER $100,000 The corporation had certificates of deposit over $100,000 of $1,557.0 million and $1,508.4 million at December 31, 1993 and 1992, respectively. Interest expense on certificates of deposit over $100,000 was $80.4 million, $86.5 million and $159.3 million for the years ended December 31, 1993, 1992, and 1991, respectively. Total brokered certificates of deposit over $100,000 were zero at December 31, 1993 and $13.5 million at December 31, 1992. 57 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, 1993, the corporation had available lines of credit totaling $1,172.7 million, including $972.7 million at a subsidiary, Norwest Financial, Inc. These financing arrangements require the maintenance of compensating balances or payment of fees, which are not material. At December 31, 1993, the corporation had revolving credit agreements totaling $200.0 million (included in the $1,172.7 million reported in the preceding paragraph). SHORT-TERM BORROWING 1993 1992 1991 In millions Amount Rate Amount Rate Amount Rate At December 31, Commercial Paper $2,711.6 3.65% $2,947.5 3.65% $3,067.2 5.07% Federal funds purchased and securities sold under agreements to repurchase 2,038.2 2.73 4,873.3 2.84 2,134.2 4.19 Other 1,055.3 3.23 848.6 5.27 752.8 4.72 Total $5,805.1 3.21 $8,669.4 3.35 $5,954.2 4.71 For the year ended December 31, Average Daily Balance Commercial Paper $2,657.0 3.37% $2,751.2 4.19% $2,739.4 6.37% Federal funds purchased and securities sold under agreements to repurchase 3,359.7 3.03 3,647.8 3.67 2,590.8 5.60 Other 1,097.1 3.85 480.8 5.09 395.3 5.97 Total $7,131.8 3.28 $6,879.8 3.98 $5,725.5 5.99 Maximum month end balance Commercial Paper $3,084.6 NA $2,947.5 NA $3,067.2 NA Federal funds purchased and securities sold under agreements to repurchase 4,580.5 NA 4,943.2 NA 3,448.1 NA Other 1,587.3 NA 849.6 NA 758.3 NA NA - not applicable 58 9. LONG-TERM DEBT Long-term debt at December 31 consisted of: In millions 1993 1992 Norwest Corporation (parent company only) Medium-Term Notes Series A, 4.5% to 9.1% due 1994-1998 $ 62.6 85.6 Floating Rate Medium-Term Notes, Series B, due 1995 200.0 - Floating Rate Medium-Term Notes, Series C, due 1995 to 1998 255.4 - Medium-Term Notes, Series C, 4.03% to 5.14%, due 1995 to 1998 44.6 - 12% Convertible Notes due 1993 - 6.7 ESOP Series A due 1996, 8.42% and 8.5% in 1993 and 1992, respectively 31.0 31.0 7 7/8% Notes due 1997 100.0 100.0 9 1/4% Subordinated Capital Notes due 1997 100.0 100.0 Floating Rate Subordinated Capital Notes due 1998 - 78.0 Floating Rate Subordinated Capital Notes due 1999 - 83.0 6 5/8% Subordinated Notes, due 2003 200.0 - ESOP Series B Notes due 1999, 8.52% and 8.6% in 1993 and 1992, respectively 13.3 13.3 7 3/4% Sinking Fund Debentures due 2003 - 51.8 6 3/4% Convertible Subordinated Debentures due 2003 0.3 0.5 6.65% Subordinated Debentures, due 2023 200.0 - Senior Notes, 11.22% to 11.66%, due 1994 to 1995 15.0 30.0 5.75% Senior Notes, due 1998 100.0 - 6% Senior Notes, due 2000 200.0 - Other Notes 6.0 3.8 Total 1,528.2 583.7 Norwest Financial, Inc., and its subsidiaries Senior Notes, 4,625% to 9.75%, due 1994 to 2003 2,479.2 2,141.8 Senior Subordinated Notes, 4.85% to 9.63%, due 1994 to 1998 262.5 262.5 Junior Subordinated Notes, 9.87% to 10%, due 1993 - 1.9 Total 2,741.7 2,406.2 Other consolidated subsidiaries FHLB Notes and Advances, 3.10% to 7.61%, due 1994 through 2012 306.5 309.1 Floating Rate FHLB Advances due 1994 through 2000 2,140.1 1,110.0 10.585% to 12.175% Notes guaranteed by Small Business Administration due 1994 through 1995 4.8 6.8 Other notes and debentures due 1994 through 2003 34.8 29.6 Mortgages payable 27.0 26.6 Capital lease obligations 19.3 17.9 Total 2,532.5 1,500.0 Less 7 3/4% Sinking Fund Debentures due 2003 held by subsidiaries - (8.9) Total $6,802.4 4,481.0 59 Notes and debentures of the corporation and Norwest Financial Services, Inc. and its subsidiaries are unsecured. During 1993, the corporation issued $100 million of senior notes at 5.75 percent due March 15, 1998 and $200 million of senior notes at 6 percent due March 15, 2000. The corporation issued $200 million of subordinated notes at 6 5/8% due March 15, 2003 and issued $200 million of subordinated debentures at 6.65 percent due October 15, 2023. Also during 1993, the corporation issued a total of $560.3 million of Medium-Term Notes. This includes $60.3 million of Medium-Term Notes, Series A, bearing interest at rates from 4.47 percent to 5.74 percent and maturing from June 14, 1995 to July 2, 1998; $200 million of Medium-Term Notes, Series B, at a floating rate of LIBOR minus five basis points and maturing July 7, 1995, and $300 million of Medium-Term Notes, Series C. The Medium-Term Notes, Series C, have maturity dates ranging from October 5, 1995 to October 22, 1998, and consist of $44.6 million of fixed rate notes and $255.4 million of floating rate notes. The fixed rate Medium- Term Notes, Series C, bear interest at rates ranging from 4.03 percent to 5.14 percent. The floating rate Medium-Term Notes, Series C, reset periodically at interest rates ranging from three month LIBOR to three month LIBOR plus 30 basis points or U.S. Treasury Bills plus 25 basis points. The corporation has entered into $55 million of interest rate swap agreements to exchange the fixed rate interest on the Medium-Term Notes, Series A to a floating rate. The $60.3 million of Medium-Term Notes, Series A, issued in 1993 combined with the interest rate swap agreements provide the corporation with $55 million of funds at an effective net interest rate of three-month LIBOR plus 0.29 percent. In addition, the corporation has entered into $20 million of interest rate swap agreements to exchange the fixed rate interest on the Medium-Term Notes, Series C, to a floating rate. $44.65 million of fixed rate Medium- Term Notes, Series C, coupled with the interest rate swap agreements provide the corporation with $20 million of funds at an effective net interest rate of three-month LIBOR plus 0.09 percent. The 9 1/4 percent 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 organization 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 and dedicate 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 6.625 percent 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 6.65 percent Subordinated Debentures due 2003 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. The Series A ESOP Notes are due April 26, 1996 and the Series B ESOP Notes are due April 26, 1999. The full principal amounts of the Series A ESOP Notes are due at maturity. The Series B ESOP Notes require payments of $4.4 million on April 25 of 1997 and 1998, with the balance due at maturity. As a result of the increase in the federal tax rate in 1993, the rates on the Series A ESOP Notes and Series B ESOP Notes were 60 adjusted retroactively from 8.5 percent to 8.6 percent, respectively, to 8.42 percent an 8.52 percent, respectively. The 7 7/8 percent Notes due 1997 were redeemed on January 20, 1994, at the principal amounts plus accrued interest. The corporation has entered into interest rate swap agreements to exchange the fixed interest rate on $50 million of the 9 1/4 percent Subordinated Capital Notes for a floating rate through 1997. The 9 1/4 percent Subordinated Capital Notes coupled with the interest rate swap agreements provide the corporation with $50 million of funds at an effective net interest rate of the six-month LIBOR plus 0.44 percent. The 6 3/4 percent 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 ranging from 1.35 percent in 1993 to 0.338 percent in 1997, and thereafter without a premium. During 1993, Norwest Financial, Inc. issued a total of $698 million of senior notes bearing interest at rates from 5.125 percent to 7.0 percent and due dates ranging from December 2, 1996, to August 1, 2003. Norwest Financial also issued $100 million of Senior Subordinated Notes, bearing interest rates ranging from 4.85 percent to 5.2 percent and maturing in 1996. Mortgages payable consist of notes secured by deeds of trust on the premises and certain other real estate owned with a net book value of $16.6 million at December 31, 1993. Interest rates on the mortgages payable range up to 9.25 percent with maturities through the year 1998. The Floating Rate FHLB advances bear interest at rates ranging from LIBOR less 0.20 percent to LIBOR less 0.07 percent, the one month LIBOR less 0.15 percent to the one month LIBOR less 0.12 percent and the three month LIBOR less 0.15 percent to the three month LIBOR less 0.10 percent. 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, 1993, the maturity dates range from 1994 to 2000. Maturities of long-term debt at December 31, 1993 were: Parent In Millions Consolidated Company Only 1994 $1,467.3 8.0 1995 984.7 309.8 1996 1,047.0 179.8 1997 631.3 205.1 1998 865.0 218.1 Thereafter 1,807.1 607.4 Total $6,802.4 1,528.2 61 10. STOCKHOLDERS' EQUITY On April 27, 1993, the stockholders approved an amendment to the corporation's Restated Certificate of Incorporation increasing the authorized shares of common stock to 500,000,000. On April 27, 1993, the Board of Directors approved a two-for-one stock split effected in the form of a 100 percent stock dividend distributed on June 28, 1993 to stockholders of record on June 4, 1993. The stock split resulted in an increase in common stock of 146,549,734 shares and was accounted for by a transfer of $244.2 million to common stock from surplus. All prior year common share and per share disclosures have been restated to reflect the stock split. The corporation has outstanding 1,143,750 shares of Cumulative Convertible Preferred Stock, Series B, $200 stated value per share, in the form of 4,575,000 depositary shares, each of which represents ownership of one quarter of a share of such preferred stock. At December 31, 1993, there were 91 holders of record of the depositary shares. Dividends are cumulative from the date of issue and are payable quarterly at a rate of 7.00 percent per annum. The convertible preferred stock is convertible at the option of the holder at any time, unless previously redeemed, into common stock of the corporation at a conversion price of $18.23 per share of common stock subject to adjustments in certain events. On or after September 1, 1995, the corporation, at its option, may redeem all or part of the outstanding shares at 104.2 percent of its stated value plus accrued and unpaid dividends. The redemption price declines during each 12-month subsequent period to 100.0 percent of the stated value plus accrued and unpaid dividends if redeemed on or after September 1, 2001. The corporation has outstanding 1,131,250 shares of 10.24 percent Cumulative Preferred Stock, $100 stated value per share, in the form of 4,525,000 depository shares, each of which represents ownership of one quarter of a share of such preferred stock. At Deember 31, 1993, there were 1,639 holders of record of the depository shares. Dividends are cumulative from the date of issue and are payable quarterly at 10.24 percent per annum. Prior to January 1, 1996, if the corporation requests the holders of this preferred stock to vote upon or consent to a merger or consolidation, and the corporation shall not have received a favorable vote or consent requisite to the consummaton of the transaction within 60 days, the corporation may redeem, at its option, all outstanding shares of 10.24 percent Cumulative Preferred Stock at the $100 stated value plus accrued and unpaid dividends. On or after January 1, 1996, the corporation, at its option, may redeem all or part of the outstanding shares at the $100 stated value plus accrued and unpaid dividends. In 1993, 1992, and 1991, holders of $6.9 million, $5.0 million and $0.7 million, respectively, of convertible subordinated debentures and the 12 percent convertible notes exchanged such debt for 695,016 shares, 831,710 shares and 92,198 shares, respectively, of the corporation's common stock. At December 31, 1993, there were 11 holders of record of the convertible subordinated debentures. 62 Common stockholders may purchase shares of common stock at market prices with no sales charges through a dividend reinvestment plan. Stockholders may purchase additional shares up to $30,000 per quarter with no sales charges under the terms of the plan. The corporation had reserved shares of authorized but unissued common stock at December 31, as follows: 1993 1992 Stock incentive plans 24,585,027 17,300,750 Convertible subordinated debentures and notes 50,500 858,004 Dividend reinvestment 1,089,842 1,408,874 Invest Norwest Program 1,067,105 249,452 Savings-Investment Plans and Executive Incentive Compensation Plan 5,108,548 1,089,514 Cumulative Convertible Preferred Stock, Series B 12,620,026 12,620,026 Directors' Formula Stock Award and Stock Deferral Plans 386,244 392,820 Employees' deferral plans 1,350,000 - Total 46,257,292 33,919,440 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 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 corporaton has reserved one 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 twelve percent of his or her salary, and the contributions will be matched 100 percent by the corporation up to six percent of the employee's salary. 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 bond, 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 of 1986, are credited to an account for the participant. Contribution expense for the plans amounted to $21.8 million, $18.3 million and $19.0 million in 1993, 1992, and 1991, respectively. 63 The corporation's SIP contains Employee Stock Ownership Plan (ESOP) provisions under which the SIP may borrow money to purchase corporation common stock. In 1989, the corporation loaned money to the SIP which was used to purchase shares of the corporation's common stock. The loans from the corporation to the SIP are repayable in monthly installments through April 26, 1999, with interest at rates of 8.35 percent and 8.45 percent. Interest income on these loans was $1.6 million, $1.8 million and $2.3 million in 1993, 1992 and 1991, respectively, and is included as a reduction in salaries and benefits expense. Total interest expense on the Series A and B ESOP Notes was $3.8 million in each of 1993, 1992, and 1991. Each quarter dividends paid to the SIP are used to make loan principal and interest payments. With each principal and interest payment, a portion of the common stock purchased in 1989 is released and allocated to participating employees. The corporation's ESOP loans to the SIP are recorded as a reduction of stockholder's equity. Total dividends paid to the SIP in 1993, 1992, and 1991 were $5.7 million, $4.9 million and $4.3 million, respectively. Norwest Financial Services, Inc. has a thrift and profit sharing plan for its employees in which eligible employees may contribute on a before tax basis up to ten percent of their salary, and the contributions will be matched 25 percent by Norwest Financial up to six percent of the employee's salary. Norwest Financial may also make a profit sharing contribution with the amount determined by the percentage return on consolidated equity of Norwest Financial and its subsidiaries. Contribution expense for the plan was $9.3 million, $7.9 million and $8.1 million in 1993, 1992 and 1991, respectively. 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 1993 1992 Plan assets at fair value* $638.2 516.4 Actuarial present value of benefit obligations Accumulated benefit obligation, including vested benefits of $454.7 and $370.8, respectively 500.8 401.7 Projected benefit obligation for service rendered to date 649.8 512.2 Plan assets (in excess of) less than projected benefit obligation 11.6 (4.2) Unrecognized net gain (loss) from past experience different from that assumed and effects of changes in assumptions (10.5) 31.4 Unrecognized net asset being amortized over approximately 17 years 16.0 22.8 Unrecognized prior service cost (2.7) (5.8) Accrued pension liability included in other liabilities $ 14.4 44.2 *Consists primarily of listed stocks and bonds and obligations of the U.S. Government and its agencies. 64 The components of net pension cost for the years ended December 31 are presented below: In millions 1993 1992 1991 Service cost-benefits earned during the year $30.4 21.7 19.5 Interest cost on projected benefit obligation 41.6 38.6 34.5 Actual return on plan assets (66.1) (38.1) (113.0) Net amortization and deferral* 49.1 (8.3) 73.3 Net pension cost $55.0 13.9 14.3 * 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 weighted average discount rate and the rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation were seven percent and six percent, respectively, for 1993 and eight percent and six percent, respectively, for 1992. The expected long-term rate of return on assets was six percent for 1993 and nine percent for 1992. Other Postretirement Benefits The corporation sponsors a medical plan 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 plan's funded status at December 31 is presented below:
In millions 1993 1992 Plan asset at fair value* $ 52.1 32.6 Accumulated postretirement benefit obligation: Retirees 88.5 70.4 Fully eligible active plan participants 11.5 10.1 Other active plan participants 66.8 50.3 166.8 130.8 Unrecognized net gain (loss) (15.7) 0.9 Accrued postretirement benefit liability included in other liabilities $ 99.0 99.1 *Consists primarily of listed stocks and bonds, municipal securities, and obligations of the U.S. government and its agencies. 65 The components of net periodic postretirement benefit cost for the year ended December 31 is presented below: In millions 1993 1992 Service cost-benefits earned during the year $ 7.4 4.8 Interest cost on accumulated postretirement benefit obligation 10.7 9.6 Actual return on plan assets (3.4) (1.2) Net amortization and deferral* 6.0 (0.4) Net periodic postretirement benefit cost $20.7 12.8 *Consists primarily of the net effects of the difference of the expected investment return and the actual investment return and amortization of gains and losses over five years. For measurement purposes, a 12.0 percent annual increase in the cost of covered health care benefits is assumed in the first two years. This rate is assumed to decrease to eight percent after seven 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 $16.0 million at December 31, 1993 and the service and interest components of the net periodic cost by $1.9 million for the year. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was seven percent in 1993 and eight percent in 1992. The expected long-term rate of return on plan assets after taxes was 3.6 percent in 1993 and 4.8 percent in 1992. In years prior to 1992, the expense for postretirement medical benefits was recognized when benefits were paid, and amounted to approximately $3.8 million in 1991. The total cost of medical benefits for the year ended December 31, 1991 is presented below: In millions of dollars 1991 Medical benefits expense $ 33.3 Total active employees 22,500 Total retired employees 3,200 STOCK INCENTIVE PLANS The corporation grants stock incentives to key employees. In April 1985, the corporation's stockholders approved the adoption of the 1985 Long- Term Incentive Compensation Plan (1985 Plan). In April 1988, 1991 and 1993, the stockholders approved amendments which increased the number of shares that may be distributed under the 1985 Plan. 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 1985 Plan. 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, 1993, 324,900 shares of restricted stock and options to acquire 8,981,891 shares of common stock were outstanding under the the 1985 plan. Stock options may be granted as incentive stock options or nonqualified 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 66 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. With the adoption of the 1985 Plan, no new grants may be made under the 1983 Stock Option and Restricted Stock Plan (1983 Plan). At December 31, 1993, 39,400 shares remained reserved under the 1983 Plan for unexercised options having an expiration date of September 25, 1994. 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. In connection with the acquisition of Financial Concepts Bancorp, Inc. (Financial Concepts), the corporation assumed Financial Concepts's 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, which options remain outstanding as of December 31, 1993. In connection with the Lincoln acquisition, the corporation assumed Lincoln's obligations under two stock option plans and the Director's Stock Compensation Plan. Under terms of the option plans, stock 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, 1993, options to acquire 59,922 shares of common stock were outstanding under Lincoln's stock option plans. In connection with the United merger, the corporation assumed United's obligations under two stock option plans and the Outside Director's 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. No new options may be granted under these plans. 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, 1993, options to acquire 16,776 shares were outstanding under United's stock option plans. The table on page 68 presents a summary of stock option transactions under the plans. At December 31, 1993 options for 6,870,128 shares were exercisable under the plans. 67 STOCK OPTION TRANSACTIONS Options Option Price Available Total for Grant Outstandings Per Share In millions December 31, 1990 7,417,450 9,795,300 $ 4.25-11.905 $ 76.4 Stockholder Amendment 9,880,188 - - - Granted* (7,611,358) 7,611,358 9.5625-18.1563 110.1 Shares Swapped 1,194,638 - - - Excercised - (4,911,484) 4.4067-14.6875 (34.8) Cancelled 60,502 (111,320) 6.9683-14.5313 (1.6) Restricted Stock Awards (201,020) (254,524) - - Termination of United Plans (3,378,088) - - - December 31, 1991 7,362,312 12,129,330 4.25-18.1563 150.1 Granted* (1,522,158) 1,522,158 16.9375-21.9688 29.9 Shares Swapped 1,271,826 - - - Excercised - (3,307,922) 4.25-19.4688 (34.3) Cancelled 167,886 (198,402) 14.5313-19.4688 (3.3) Restricted Stock Awards (124,280) - - - December 31, 1992 7,155,586 10,145,164 4.25-21.9688 142.4 Stockholder Amendment 9,000,000 - - - Granted* (1,391,620) 1,391,620 20.8125-28.6875 36.8 Shares Swapped 835,264 - - - Excercised - (2,352,981) 4.4066-23.0625 (31.2) Cancelled 66,924 (85,814) 14.5313-27.375 (1.5) Restricted Stock Awards (105,600) - - - Acquisition of Financial Concepts - 99,712 8.4101-11.6818 0.8 Termination of Lincoln Plans (173,228) - - - December 31, 1993 15,387,326 9,197,701 $ 4.25-28.6875 $147.3 *Includes 1,076,552, 1,263,568 and 1,623,662 AO Grants at December 31, 1993, 1992 and 1991, respectively. 68 12. INCOME TAXES Components of income tax expense were: In millions 1993 1992 1991 From Operations Current Federal $243.0 214.7 28.2 State 32.6 21.8 13.4 Foreign 4.0 1.3 0.4 Total current 279.6 237.8 42.0 Deferred Federal 5.5 (82.1) 25.4 State (1.0) 7.5 ( 0.6) Total deferred 4.5 (74.6) 24.8 Total from operations 284.1 163.2 66.8 From change in accounting for postretirement medical benefits Deferred Federal - (39.2) - State - (6.0) - Total deferred - (45.2) - Total $284.1 118.0 66.8 Income tax expense applicable to net gains on investment/mortgage-backed securities for the years ended December 31, 1993, 1992, and 1991 was $18.7 million, $22.4 million and $8.3 million, respectively. Income before income taxes from operations outside the United States was not material. The net deferred tax included the following major temporary differences at December 31: In millions 1993 1992 Deferred tax liabilities Depreciation $ 22.8 26.3 Lease financing 168.3 131.1 Other 83.0 31.1 Total deferred tax liabilities 274.1 188.5 Deferred tax assets Provision for credit losses (215.1) (211.6) Expenses deducted when paid (98.6) (109.8) Mark to market (19.6) - Postretirement benefits other than pensions (37.5) (37.5) Other (127.3) (20.3) Total deferred tax assets (498.1) (379.2) Valuation allowance - - Deferred tax assets, net (498.1) (379.2) Total net deferred tax assets $(224.0) (190.7) 69 Pursuant to FAS 109, the corporation has determined that it is not required to establish a valuation reserve for the deferred tax asset since it is more likely than not that the deferred tax asset of $224.0 million 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 asset will be realized is based on federal taxable income of over $1.4 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. A reconciliation of the federal income tax rate to effective income tax rates follows: 1993 1992 1991 Federal income tax rate 35.0% 34.0 34.0 Adjusted for State income taxes 2.2 3.2 1.5 Tax-exempt income (3.1) (6.9) (8.0) Federal tax benefit limitation - (6.4) (10.6) Charitable contributions of appreciated assets (2.3) (1.3) (0.2) Other, net (1.5) 1.9 (2.4) Effective income tax rate 30.3% 24.5 14.3 13. COMMITMENTS AND CONTINGENT LIABILITIES At December 31, 1993, the corporation and its subsidiaries were obligated under noncancellable 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 $152.6 million, $135.9 million and $129.6 million in 1993, 1992 and 1991, respectively. 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, 1993 were: In millions Capital Operating Leases Leases 1994 $ 2.6 $ 67.7 1995 2.4 58.6 1996 2.2 47.1 1997 2.2 38.7 1998 2.2 32.3 Thereafter 49.6 278.3 Total minimum rental payments 61.2 $522.7 Less interest (41.9) Present value of net minimum rental payments $ 19.3 70 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 notional amount of those instruments. The corporation uses the same credit policies in making commitments and conditional obligations as it does on balance sheet instruments. The corporation uses the same credit and collateral policies in making loans which are subsequently sold with recourse obligations as it does for loans not sold. For interest rate futures, caps, floors, and swap transactions, forward contracts and options written, the contract or notional amounts do not represent exposure to credit loss. The corporation controls the credit risk of its interest rate futures, caps, floors and swaps, forward contracts and option contracts through credit approvals, limits, and monitoring procedures. A summary of the contract or notional amounts of these financial instruments at December 31, is as follows: In millions 1993 1992 Commitments to extend credit $6,091.2 4,674.3 Standby letters of credit* 885.9 744.1 Other letters of credit 404.9 317.1 Forward contracts for delivery of securities 7,962.6 7,569.4 Interest rate swap agreements 1,891.2 1,377.5 Futures contracts - 1,845.0 Interest rate caps and floors 1,213.0 4,001.3 Option contracts: Purchased 2,107.5 - Written 400.0 - Foreign exchange options: Purchased 79.5 4.7 Written 8.9 4.6 * Total standby letters of credit are net of participations in standby letters of credit sold to other institutions of $319.0 million in 1993 and $195.2 million in 1992. Commitments to extend credit generally have fixed expiration dates or other termnation 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 counter-party. 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 the corporation to guarantee the performance of a customer to a third party. Outstanding standby letters of credit at December 31, 1993 supported $500.3 million of industrial revenue bonds, $181.3 million of supplier payment guarantees, $148.9 71 million of performance bonds and $374.4 millon of other obligations of unaffiliated parties with maturities up to 14 years, eight years, 15 years and eight years, respectively. Risks associated with such standby letters of credit are included 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 to customers. As part of its overall risk management strategy, the corporation does not believe it has any significant concentrations of credit risk. The corporation has entered into mandatory and standby forward contracts to reduce interest rate 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 price or yield. In the event the counter-party is unable to meet its contractual obligations, the corporation may be exposed to the risk of selling the mortgage loans at the prevailing market prices. Interest rate swap transactions generally involve the exchange of fixed and floating rate interest payment obligations without the exchange of the underlying financial instrument. The corporation becomes a principal in the exchange of interest payments with other parties and, therefore, is exposed to loss should the counter-party default. The corporation minimizes this risk by performing normal credit reviews on its swap customers and minimizes its exposure to the interest rate risk inherent in customer swap transactions by entering into offsetting swap positions that essentially counterbalance each other. Entering into interest rate swap agreements involves not only the risk of dealing with counter-parties and their ability to meet the terms of the contracts but also the interest rate risk associated with unmatched positions. Notional principal amounts often are used to express the volume of these transactions, but the amounts potentially subject to credit risk are much smaller. Interest rate caps and floors written by the corporation enable the customers to transfer, modify, or reduce their interest rate risk. 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. As a writer of options, the corporation receives a premium at the outset and then bears the risk of an unfavorable change in the price of the financial instrument underlying the option. The corporation has written $400 million of uncovered call options as of December 31, 1993. Fees received on the sales of these options were $1.5 million and the market value as of December 31, 1993, was $2.6 million. As of December 31, 1993 the corporation has hedged for one year $2.0 billion of variable rate FHLB borrowings and variable rate deposits using a stream of purchased put options on Euro Futures. The corporation also had $50 million of notional value purchased put options on Euro Futures outstanding as part of the corporation's trading account portfolio, which are valued at market. Norwest Mortgage, Inc., prior to 1985, sold mortgage loans 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 for these sales transactions were $203.8 million at December 31, 1993, and $268.5 million at December 31, 1992. The liability under these recourse arrangements is not material. The corporation and certain subsidiaries are defendants in various matters of litigation generally incidental to their business. Although it 72 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 of the corporation and its subsidiaries. 14. SEGMENT REPORTING The corporation's operations include three primary business segments: banking, mortgage banking and consumer finance. The corporation, primarily through its subsidiary banks, offer diversified banking services including retail, commercial and corporate banking, equipment leasing, trust services, securities brokerage and investment banking and venture capital investments. 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 where servicing rights have been retained. Consumer finance activities, provided through the corporation's Norwest Financial subsidiaries, include providing direct installment loans to individuals, purchasing of sales finance contracts, private label and lease accounts receivable financing and other related products and services. 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 1993: Banking $2,380.9 397.2 39,045.3 Mortgage banking 698.6 56.3 6,444.5 Consumer finance 839.1 200.1 5,292.5 Total $3,918.6 653.6 50,782.3 1992:** Banking $2,177.6 227.7 36,698.0 Mortgage banking 450.8 53.4 5,130.1 Consumer finance 678.2 159.0 4,829.1 Total $3,306.6 440.1 46,657.2 1991: Banking $1,980.5 246.0 35,258.8 Mortgage banking 268.6 31.4 3,308.4 Consumer finance 560.0 123.5 4,169.1 Total $2,809.1 400.9 42,736.3 * Revenues, 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. ** Organizational earnings is presented prior to the cumulative effect of a change in accounting for postretirement medical benefits, which totaled $76.0 million net of tax. Organizational earnings for 1992 reflect additional postretirement benefit costs as compared with 1991 due to the change in accounting of $3.9 million in banking, $0.3 million in mortgage banking and $1.4 million in consumer finance. 73 15. MORTGAGE BANKING ACTIVITIES The detail of mortgage banking non-interest income for each of the three years ended December 31 is presented below: In millions 1993 1992 1991 Origination fees $135.6 103.8 60.0 Servicing fees 56.1 39.9 11.7 Net gains on sales of servicing rights 61.7 62.4 76.5 Net gains on sales of mortgages 140.5 19.8 13.0 Other mortgage fee income 78.4 49.4 24.7 Total mortgage banking non-interest income $472.3 275.3 185.9 Mortgage loans serviced for others are not included in the accompanying consolidated statements of financial condition. The outstanding balances of serviced loans were $45,668.2 million, $21,577.7 million and $8,614.8 million at December 31, 1993, 1992 and 1991, respectively. Changes in loan servicing rights purchased for each of the three years ended December 31, were: In millions 1993 1992 1991 Balance at beginning of year $ 64.0 35.8 31.6 Purchases 169.9 133.4 93.1 Sales (2.5) (90.9) (82.1) Amortization (27.7) (11.5) ( 4.0) Valuation adjustment due to changes in prepayment assumptions (18.5) (2.8) (2.8) Balance at end of year $ 185.2 64.0 35.8 16. FAIR VALUES 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. FINANCIAL INSTRUMENTS The fair value estimates disclosed in the table on page 75 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 tax assets and other liabilities. The estimated fair values of the corporation's financial instruments as of December 31 are set forth in the following table on page 75 and explained below. The 1992 and 1991 fair values of loans and leases and student loans available for sale have been restated to conform with the methodologies used in the 1993 valuations. 74 FAIR VALUES OF FINANCIAL INSTRUMENTS
1993 1992 1991 Carrying Fair Carrying Fair Carrying Fair In millions Amount Value Amount Value Amount Value Financial assets: Cash and cash equivalents $ 3,059.2 $3,059.2 2,993.1 2,993.1 3,224.9 3,224.9 Trading account securities 279.1 279.1 132.0 132.0 157.9 157.9 Investment securities 813.4 860.5 897.6 950.6 2,669.8 2,926.0 Mortgage-backed securities - - - - 10,281.6 10,590.3 Investment securities available for sale 1,698.0 1,958.2 1,547.6 1,787.7 - - Mortgage-backed securities available for sale 8,810.1 9,032.6 9,318.3 9,525.5 - - Student loans available for sale 1,351.3 1,351.3 1,158.6 1,158.6 - - Mortgages held for sale 6,090.7 6,103.4 4,727.8 4,727.8 3,007.7 3,007.7 Loans and leases, net 26,200.1 26,455.7 23,453.0 23,699.5 21,102.2 21,412.7 Interest receivable 270.8 270.8 301.4 301.4 308.4 308.4 Excess servicing rights receivable 54.4 86.7 9.0 20.7 3.0 3.0 Total financial assets 48,627.1 49,457.5 44,538.4 45,296.9 40,755.5 41,630.9 Financial liabilities: Non-maturity deposits 21,937.9 21,937.9 18,377.0 18,377.0 16,741.3 16,741.3 Deposits with stated maturities 10,635.3 10,798.9 10,327.4 10,523.2 11,807.4 12,083.5 Short-term borrowings 5,805.1 5,805.1 8,669.4 8,669.4 5,954.2 5,954.2 Long-term debt 6,802.4 6,880.2 4,481.0 4,573.0 3,610.4 3,805.8 Interest payable 219.1 219.1 256.2 256.2 292.7 292.7 Total financial liabilities 45,399.8 45,641.2 42,111.0 42,398.8 38,406.0 38,877.5 Off-balance sheet financial instruments: Forward delivery commitments 28.3 28.3 (35.7) (35.7) (122.7) (122.7) Interest rate swaps 11.2 14.8 0.7 (7.0) 0.7 18.0 Futures contracts 0.5 - - - 17.9 - Interest rate caps/floors 2.4 17.2 23.4 36.3 10.7 55.1 Options contracts to sell 4.2 8.1 - - (3.8) (11.5) Total off-balance sheet financial instruments 46.6 68.4 (11.6) (6.4) (97.2) (61.1) Net financial instruments $ 3,273.9 $ 3,884.7 2,415.8 2,891.7 2,252.3 2,692.3
75 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. TRADING ACCOUNT SECURITIES, INVESTMENT SECURITIES, MORTGAGE-BACKED SECURITIES, INVESTMENTS AND MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE AND STUDENT LOANS 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 value of mortgages held for sale are stated at market. LOANS AND LEASES AND STUDENT LOANS AVAILABLE FOR SALE Fair values of 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 student loans available 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 book 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. 76 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 counter-party 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, OPTIONS AND INTEREST RATE CAPS AND FLOORS The fair value of forward delivery commitments, interest rate caps, floors, swaps and futures contracts 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. CERTAIN NON-FINANCIAL INSTRUMENTS Supplemental fair value information for certain non-financial instruments as of December 31 are 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 75, is presented in the table on page 78 for information purposes. This combination is not necessarily indicative of the "franchise value" or the fair value of the corporation taken as a whole. Certain values of non- financial instruments for 1992 and 1991 have been restated to conform with the non-financial instruments and related methodologies reported in the 1993 information. 77 In millions 1993 1992 1991 Non-financial instrument assets and liabilities: Premises and equipment, net $ 756.5 663.4 623.2 Other assets 1,398.7 1,455.4 1,357.6 Accrued expenses and other liabilities (1,814.1)(1,405.5) (1,345.5) Other values: Non-maturity deposits 1,267.3 1,101.0 1,035.0 Consumer finance network 3,128.5 2,374.0 1,932.2 Credit card 245.3 84.6 109.2 Banking subsidiaries' consumer loans 269.3 224.4 198.3 Mortgage servicing 431.4 187.2 69.7 Mortgage loan origination/ wholesale network 836.4 707.6 180.4 Trust department 606.8 547.4 485.3 Net fair value of certain non-financial instruments 7,126.1 5,939.5 4,645.4 Fair value of financial instruments 3,884.7 2,891.7 2,692.3 Net stockholders' equity at the fair value of net financial instruments and certain non-financial instruments* $11,010.8 8,831.2 7,337.7 * Amounts due not include applicable deferred income tax, 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 book value, which approximates fair value. NON-MATURITY DEPOSITS The fair value table of financial instruments on page 75 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 $20,670.6 million, $17,276.0 million, and $15,706.3 million at December 31, 1993, 1992 and 1991, 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 estimated to be $3,128.5 million, $2,374.0 million and $1,932.2 million at December 31, 1993, 1992 and 1991, respectively. Such estimates are 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. CREDIT CARD The fair value of financial instruments on page 75 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 is estimated to exceed book value by $245.3 million, $84.6 million and $109.2 million at December 31, 1993, 1992 and 1991, respectively. This represents the fair value related to such future balances of both 78 securitized and on-balance sheet credit card receivables based on a discounted cash flow analysis, utilizing an assumed investor yield on similar portfolio acquisitions. BANKING SUBSIDIARIES' CONSUMER LOANS For purposes of the table of fair values of financial instruments on page 75, 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 to be $269.3 million, $224.4 million and $198.3 million at December 31, 1993, 1992 and 1991, respectively. This fair value 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 Mortgage servicing represents estimated current value in the servicing portfolio. The corporation estimates that the fair value of its mortgage servicing exceeds book values by $431.4 million, $187.2 million and $69.7 million at December 31, 1993, 1992, and 1991, respectively. MORTGAGE LOAN ORIGINATION/WHOLESALE NETWORK The supplemental fair value table includes the fair value associated with the corporation's origination network for mortgage loans, which is estimated to be $836.4 million, $707.6 million and $180.4 million at December 31, 1993, 1992 and 1991, respectively. 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 to be $606.8 million, $547.4 million and $485.3 million at December 31, 1993, 1992 and 1991, respectively. Such estimates are based on current trust revenues using an industry multiple. 79 17. PARENT COMPANY FINANCIAL INFORMATION Condensed financial information for Norwest Corporation (parent company only) follows: BALANCE SHEETS In millions At December 31, 1993 1992 Assets Interest-bearing deposits with subsidiary banks $ 155.4 146.4 Advances to non-bank subsidiaries 2,313.8 1,556.3 Capital notes and term loans of subsidiaries Banks 353.0 333.0 Non-banks 371.5 237.8 Total capital notes and term loans of subsidiaries 724.5 570.8 Investments in subsidiaries Banks 2,904.1 2,367.2 Non-banks 803.4 837.1 Total investment in subsidiaries 3,707.5 3,204.3 Investment and mortgage-backed securities 211.7 148.2 Investment securities available for sale 91.4 105.9 Other assets 173.0 186.6 Total assets $7,377.3 5,918.5 Liabilities and Stockholders' Equity Short-term borrowings $2,094.1 2,028.7 Accrued expenses and other liabilities 186.6 165.4 Long-term debt with non-affiliates 1,528.2 583.7 Stockholders' equity 3,568.4 3,140.7 Total liabilities and stockholders'equity $7,377.3 5,918.5 80 STATEMENTS OF INCOME In millions Year ended December 31, 1993 1992 1991 Income Dividends from subsidiaries Banks $395.1 311.5 102.6 Non-banks 215.7 168.8 107.6 Total dividends from subsidiaries 610.8 480.3 210.2 Interest from subsidiaries 91.2 109.1 173.4 Service fees from subsidiaries 58.0 50.0 45.5 Other income 38.2 29.0 21.8 Total income 798.2 668.4 450.9 Expenses Interest to subsidiaries 1.5 1.0 1.7 Other interest 140.0 134.0 191.7 Other expenses 113.0 140.8 56.8 Total expenses 254.5 275.8 250.2 Income before income taxes, equity in undistributed earnings of subsidiaries, and cumulative effect of a change in accounting for postretirement medical benefits 543.7 392.6 200.7 Income tax benefit 24.4 43.3 39.9 Income before equity in undistributed earnings of subsidiaries and cumulative effect of a change in accounting for postretirement medical benefits 568.1 435.9 240.6 Equity in undistributed earnings of subsidiaries 85.5 4.2 160.3 Income before cumulative effect of a change in accounting for postretirement medical benefits 653.6 440.1 400.9 Cumulative effect on years ended prior to December 31, 1992 of a change in accounting for post retirement medical benefits net of tax - (76.0) - Net income $653.6 364.1 400.9 81 STATEMENTS OF CASH FLOWS In millions 1993 1992 1991 Year ended December 31, Cash Flows From Operating Activities Net income $ 653.6 364.1 400.9 Adjustments to reconcile net income to net cash flows from operating activities: Cumulative effect on years ended prior to December 31, 1992 of a change in accounting for postretirement medical benefits, net of tax - 76.0 - Equity in undistributed earnings of subsidiaries (85.5) (4.2) (160.3) Depreciation and amortization 12.2 12.9 12.9 Other assets, net (3.7) (36.4) 9.4 Accrued expenses and other liabilities, net 32.0 (5.9) (41.3) Net cash flows from operating activities 608.6 406.5 221.6 Cash Flows From Investing Activities Advances to non-bank subsidiaries, net (762.5) 580.8 (328.5) Investment securities, net (63.5) 46.5 (56.9) Investment securities available for sale, net 14.5 (105.9) - Principal collected on capital notes and term loans of subsidiaries 23.3 75.6 383.5 Capital notes and term loans made to subsidiaries (218.2) (143.2) (322.1) Investment in subsidiaries, net (354.0) (241.6) (220.0) Net cash flows from (used for) investing activities (1,360.4) 212.2 (544.0) Cash Flows From Financing Activities Short-term borrowings, net 84.3 (158.8) (20.6) Taxes receivable from affiliates, net 4.7 (4.7) 2.8 Proceeds from issuance of long-term debt with non-affiliates 1,263.2 - 25.0 Repayment of long-term debt with non-affiliates (312.4) (137.5) (148.9) Issuances of common stock 55.6 35.3 222.4 Repurchases of common stock (124.3) (85.9) (5.4) Issuances of preferred stock - - 225.4 Redemption of preferred stock (0.7) (2.9) (30.4) Net decrease in ESOP loans 3.2 3.0 8.1 Dividends paid (212.8) (179.0) (142.4) Net cash flows from (used for) financing activities 760.8 (530.5) 136.0 Net increase (decrease) in cash and cash equivalents 9.0 88.2 (186.4) Cash and cash equivalents Beginning of year 146.4 58.2 244.6 End of year $ 155.4 146.4 58.2 82 Federal law prevents the corporation from borrowing from its subsidiary banks unless loans are secured by specified assets and with respect to the corporation and any affiliate other than a bank, 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 the bank's net profits for that year combined with its retained net profits for the preceeding two calendar years. Under this formula, at December 31, 1993 the corporation's national banks could have declared $483.2 million of aggregate dividends, in addition to amounts previously paid, without the approval of the Comptroller of the Currency, subject to minimum regulatory capital requirements. In addition, the corporation's non-bank subsidiaries could have declared dividends totaling $803.4 million. 83 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, 1993 and 1992 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, 1993. 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, 1993 and 1992, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1993, in conformity with generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, Norwest Corporation adopted the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" in 1992. By /s/ KPMG Peat Marwick KPMG Peat Marwick Minneapolis, Minnesota January 19, 1994 84 MANAGEMENT'S REPORT The management of Norwest Corporation has prepared and is responsible for the contents 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. By /s/ Richard M. Kovacevich Richard M. Kovacevich President and Chief Executive Officer By /s/ John T. Thornton John T. Thornton Executive Vice President and Chief Financial Officer By /s/ Michael A. Graf Michael A. Graf Senior Vice President and Controller January 19, 1994 85 Norwest Corporation and Subsidiaries SIX-YEAR CONSOLIDATED FINANCIAL SUMMARY
In millions, except per share amounts and ratios 1993 1992 1991 1990 1989 1988 Year Ended December 31, Statements of Income Interest income $3,734.1 3,587.0 3,802.1 3,690.7 3,440.7 2,948.2 Interest expense 1,358.0 1,509.2 2,024.2 2,201.2 2,100.9 1,696.4 Net interest income 2,376.1 2,077.8 1,777.9 1,489.5 1,339.8 1,251.8 Provision for credit losses 140.1 266.7 401.9 428.3 225.5 184.0 Net interest income after provision for credit losses 2,236.0 1,811.1 1,376.0 1,061.2 1,114.3 1,067.8 Non-interest income 1,542.5 1,228.8 1,031.2 872.1 711.3 604.0 Non-interest expenses 2,840.8 2,436.6 1,939.5 1,666.9 1,454.7 1,359.6 Income before income taxes and cumulative effect of a change in accounting for postretirement medical benefits 937.7 603.3 467.7 266.4 370.9 312.2 Income tax expense 284.1 163.2 66.8 110.1 96.0 28.4 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 $ 653.6 364.1 400.9 156.3 274.9 283.8 Per Common Share Net income* Primary 2.13 1.16 1.34 0.57 1.00 1.04 Fully diluted 2.10 1.16 1.33 0.57 0.99 1.02 Dividends declared 0.640 0.540 0.470 0.423 0.380 0.325 Stockholders' equity 11.04 9.69 9.16 8.04 7.86 7.25 Stock price range 29- 22 1/8- 18 7/16- 11 13/16- 12 1/16- 8 13/16- 20 5/8 16 5/8 9 3/8 6 3/4 7 15/16 6 1/8 Selected Consolidated Balance Sheet Data At December 31, Assets $50,782 46,657 42,736 41,091 36,229 32,985 Investment and mortgage-backed securities 813 898 12,951 9,691 8,064 7,312 Investment and mortgage-backed securities available for sale 10,508 10,866 - - - - Loans, leases, and student loans and mortgages held for sale 34,387 30,082 24,778 25,551 23,912 21,367 Deposits 32,573 28,704 28,549 28,521 24,500 22,559 Long-term debt 6,802 4,481 3,610 3,007 2,658 2,381 Stockholders' equity 3,568 3,141 2,985 2,297 2,164 2,136 Ratios** Per $100 of average assets Net interest income (tax-equivalent basis) $ 5.08 4.94 4.49 4.21 4.18 4.24 Provision for credit losses 0.30 0.62 0.99 1.16 0.67 0.59 Net interest income after provision for credit losses 4.78 4.32 3.50 3.05 3.51 3.65 Non-interest income 3.25 2.87 2.54 2.37 2.12 1.94 Non-interest expenses 5.99 5.69 4.78 4.54 4.34 4.36 Income before income taxes and cumulative effect of a change in accounting for postretirement medical benefits 2.04 1.50 1.26 0.88 1.29 1.23 Income tax expense 0.60 0.38 0.16 0.29 0.29 0.10 Less tax-equivalent adjustment 0.06 0.09 0.11 0.16 0.18 0.22 Cumulative effect on years ended prior to December 31, 1992 of a change in accounting for postretirement medical benefits, net of tax - (0.18) - - - - Net Income* $ 1.38 0.85 0.99 0.43 0.82 0.91 Leverage*** 14.2X 14.1 15.2 16.7 15.8 15.4 Return on common equity* 20.9% 12.4 15.5 7.1 13.2 14.7 Return on total equity* 19.6% 11.9 15.0 7.1 13.0 14.0 Stockholders' equity to average assets 7.0% 7.1 6.6 6.0 6.3 6.5 Dividend payout ratio 30.0% 46.8 35.1 74.1 38.0 31.3 Tier I at December 31,**** 9.84% 10.03 9.99 7.18 Tier I and Tier II at December 31,**** 12.60% 12.85 13.89 11.84 Leverage ratio**** 6.60% 6.76 6.72 5.58
*Excluding the cumulative effect of a change in accounting for postretirement medical benefits, 1992 primary net income per common share would have been $1.42, fully diluted net income per common share would have been $1.41, return on common equity would have been 15.2%, return on total equity would have been 14.4%, and net income per $100 of average assets would have been $1.03. **Based on average balances and net income for the periods. ***The ratio of average assets to average stockholders' equity. ****Information not available for periods prior to 1990. 86 Norwest Corporation and Subsidiaries CONSOLIDATED AVERAGE BALANCE SHEETS AND RELATED YIELDS AND RATES*
1993 1992 1991 Interest Average Interest Average Interest Average Average Income/ Yields/ Average Income/ Yields/ Average Income/ Yields/ In millions, except ratios Balance Expense Rates Balance Expense Rates Balance Expense Rates Assets Money market investments $ 427 $ 13.6 3.19% $ 524 $ 20.6 3.94% $ 826 $ 57.3 6.92% Trading account securities 254 30.3 11.90 344 23.9 6.95 157 11.6 7.33 Investment securities U.S. Treasury and federal agencies - - - 1,123 82.8 7.38 1,625 137.0 8.43 State, municipal and housing-tax exempt 689 76.3 11.09 868 94.3 10.87 975 110.2 11.30 Other investment securities 214 15.9 7.47 423 24.9 5.92 440 33.3 7.61 Mortgage-backed securities Federal agencies - - - 7,183 556.9 7.75 7,900 708.3 8.97 Collateralized mortgage obligations - - - 205 16.2 7.91 378 32.6 8.63 Investment securities available for sale 1,584 117.9 7.45 162 14.9 9.20 - - - Mortgage-backed securities available for sale 8,778 588.7 6.71 2,093 164.5 7.86 - - - Total investment securities 11,265 798.8 7.09 12,057 954.5 7.92 11,318 1,021.4 9.03 Student loans available for sale 1,267 85.3 6.73 345 24.2 6.99 - - - Mortgages held for sale 4,931 326.8 6.63 3,639 279.4 7.68 2,100 192.1 9.15 Loans and leases (net of unearned discount) Commercial 7,784 588.6 7.56 7,440 609.9 8.20 8,145 797.3 9.79 Real estate 10,046 873.4 8.69 7,865 777.2 9.88 7,440 821.4 11.04 Consumer 7,115 1,049.9 14.75 6,502 934.1 14.37 6,569 946.4 14.41 Total loans and leases 24,945 2,511.9 10.07 21,807 2,321.2 10.64 22,154 2,565.1 11.58 Allowance for credit losses (761) (687) (631) Net loans and leases 24,184 21,120 21,523 Total earning assets (before the allowance for credit losses) 43,089 3,766.7 8.74 38,716 3,623.8 9.36 36,555 3,847.5 10.53 Cash and due from banks 2,611 2,361 2,248 Other assets 2,499 2,461 2,433 Total assets $47,438 $42,851 $40,605 Liabilities and Stockholders' Equity Noninterest-bearing deposits $ 7,137 $ 5,696 $ 4,934 Interest-bearing deposits Savings and NOW accounts 3,363 66.0 1.96 3,174 87.0 2.74 2,977 127.6 4.29 Money market accounts 8,736 191.9 2.20 7,815 195.4 2.50 7,310 357.8 4.89 Savings certificates 8,785 438.8 4.99 9,417 555.9 5.90 10,208 735.9 7.21 Certificates of deposit and other time 1,361 65.7 4.83 1,448 84.0 5.80 1,980 140.5 7.10 Foreign time 489 15.1 3.09 112 3.6 3.23 200 11.2 5.58 Total interest-bearing deposits 22,734 777.5 3.42 21,966 925.9 4.22 22,675 1,373.0 6.06 Short-term borrowings 7,132 234.3 3.28 6,879 273.5 3.98 5,726 342.6 5.98 Long-term debt 5,806 346.2 5.96 4,010 309.7 7.72 3,422 308.6 9.02 Interest-bearing liabilities 35,672 1,358.0 3.81 32,855 1,509.1 4.59 31,823 2,024.2 6.36 Capitalized interest expense - - - Net interest expense 1,358.0 1,509.1 2,024.2 Other liabilities 1,287 1,252 1,179 Stockholders' equity 3,342 3,048 2,669 Total liabilities and stockholders' equity $47,438 $42,851 $40,605 Net interest income (tax-equivalent basis) $2,408.7 $2,114.7 $1,823.3 Yield spread 4.93 4.77 4.17 Net interest income to earning assets 5.59 5.46 4.99 Interest-bearing liabilities to earning assets 82.78 84.86 87.05
*Interest income/expense and yields/rates are calculated on a tax-equivalent basis utilizing a federal incremental tax rate of 35% in 1993 and 34% in each preceding period presented. Non-accrual loans and the related negative income effect has been included in the calculation of average rates. NM-Not meaningful 87
1990 1989 1988 Average Balance Interest Average Interest Average Interest Average 5 Year % Change Average Income/ Yields/ Average Income/ Yields/ Average Income/ Yields/ Growth 1993 Over Balance Expense Rates Balance Expense Rates Balance Expense Rates Rate % 1992 $ 1,352 $ 115.0 8.50% $ 1,214 $ 112.1 9.23% $ 1,096 $ 86.6 7.90% (17.2)% (18.5)% 119 10.2 8.59 78 7.1 9.10 72 6.4 8.89 28.7 (26.2) 1,775 156.0 8.78 2,125 186.4 8.77 2,938 239.8 8.16 (100.0) (100.0) 1,098 124.9 11.37 1,226 136.6 11.14 1,322 148.5 11.23 (12.2) (20.6) 657 51.9 7.92 569 40.3 7.10 465 30.3 6.53 (14.4) (49.4) 4,573 443.1 9.69 2,357 230.7 9.79 1,567 141.9 9.05 (100.0) (100.0) 714 63.1 8.84 1,149 104.8 9.12 1,502 124.3 8.28 (100.0) (100.0) - - - - - - - - - NM 877.8 - - - - - - - - - NM 319.4 8,817 839.0 9.52 7,426 698.8 9.41 7,794 684.8 8.79 7.7 (6.6) - - - - - - - - - NM 267.2 1,420 137.8 9.71 662 63.4 9.58 309 31.6 10.23 74.0 35.5 8,677 949.0 10.94 8,814 1,025.8 11.64 8,189 850.4 10.39 (1.0) 4.6 6,580 754.8 11.47 6,242 721.3 11.56 5,460 615.9 11.28 13.0 27.7 6,321 942.2 14.91 5,916 872.9 14.76 5,223 742.5 14.22 6.4 9.4 21,578 2,646.0 12.26 20,972 2,620.0 12.49 18,872 2,208.8 11.70 5.7 14.4 (455) (395) (400) 13.7 10.8 21,123 20,577 18,472 5.5 14.5 33,286 3,748.0 11.26 30,352 3,501.4 11.54 28,143 3,018.2 10.72 8.9 11.3 2,123 1,995 1,922 6.3 10.6 1,777 1,570 1,514 10.5 1.5 $36,731 $33,522 $31,179 8.8 10.7 $ 4,491 $ 4,225 $ 4,275 10.8 25.3 2,735 135.1 4.94 2,700 132.4 4.90 2,733 131.9 4.83 4.2 6.0 5,968 368.4 6.17 4,824 312.7 6.48 4,826 270.2 5.60 12.6 11.8 8,564 684.7 8.00 7,866 641.8 8.16 6,627 488.1 7.37 5.8 (6.7) 2,598 218.7 8.42 2,827 252.2 8.92 2,828 216.6 7.66 (13.6) (6.0) 240 19.6 8.17 311 28.9 9.29 263 19.1 7.26 13.2 336.6 20,105 1,426.5 7.10 18,528 1,368.0 7.38 17,277 1,125.9 6.52 5.6 3.5 6,272 510.5 8.14 5,204 479.5 9.21 4,553 344.8 7.57 9.4 3.7 2,691 264.2 9.82 2,498 253.5 10.15 2,162 226.2 10.46 21.8 44.8 29,068 2,201.2 7.57 26,230 2,101.0 8.01 23,992 1,696.9 7.07 8.3 8.6 - (0.1) (0.5) 2,201.2 2,100.9 1,696.4 979 950 881 7.9 2.9 2,193 2,117 2,031 10.5 9.7 $36,731 $33,522 $31,179 8.8 10.7 $1,546.8 $1,400.5 $1,321.8 3.69 3.53 3.65 4.65 4.61 4.70 87.33 86.42 85.25
88 Norwest Corporation and Subsidiaries INCOME STATEMENT DATA
1993 Over 1992 1992 Over 1991 In millions Volume Yield/Rate Total Volume Yield/Rate Total Changes in Tax-Equivalent Net Interest Income* Interest income Loans and leases $ 334.0 (143.3) 190.7 (40.2) (203.7) (243.9) Investment securities (126.5) 16.7 (109.8) (57.8) (20.7) (78.5) Mortgage-backed securities (573.1) - (573.1) (79.7) (88.1) (167.8) Investment securities available for sale 130.7 (27.7) 103.0 14.9 NM 14.9 Mortgage-backed securities available for sale 525.4 (101.2) 424.2 164.5 NM 164.5 Total investment/mortgage-backed securities (43.5) (112.2) (155.7) 41.9 (108.8) (66.9) Money market and trading account securities (9.5) 8.9 (0.6) (8.2) (16.2) (24.4) Student loans available for sale 64.4 (3.3) 61.1 24.2 NM 24.2 Mortgages held for sale 99.1 (51.7) 47.4 140.9 (53.6) 87.3 Total 444.5 (301.6) 142.9 158.6 (382.3) (223.7) Interest expense Interest bearing deposits 32.3 (180.7) (148.4) (43.0) (404.1) (447.1) Short-term borrowings 10.0 (49.2) (39.2) 69.0 (138.1) (69.1) Long-term debt 138.5 (102.0) 36.5 53.1 (52.0) 1.1 Total 180.8 (331.9) (151.1) 79.1 (594.2) (515.1) Net interest income $ 263.7 30.3 294.0 79.5 211.9 291.4
Analysis of Selected Non-interest Expenses 1993 % Change 1992 % Change 1991 1990 1989 Salaries and benefits Salaries $1,162.8 22.6% $ 948.7 20.0% $790.7 675.6 613.3 Benefits 253.7 44.0 176.1 19.7 147.1 126.6 111.9 Total $1,416.5 25.9% $1,124.8 19.9% $937.8 802.2 725.2 Business development Advertising $ 69.0 42.0% $ 48.6 31.3% $ 37.0 28.9 26.4 Other business development 77.9 20.1 64.9 21.8 53.3 47.6 38.6 Total $ 146.9 29.4% $ 113.5 25.7% $ 90.3 76.5 65.0 Other non-interest expenses Professional fees $ 56.2 14.5% $ 49.1 32.5% $ 37.0 35.9 32.1 Other employment 37.6 19.1 31.5 31.5 24.0 27.9 19.2 Insurance claims 42.2 64.5 25.7 16.3 22.1 21.1 24.1 Charitable contributions 71.7 192.0 24.6 300.0 6.1 8.6 7.0 Other real estate owned, net (4.1) NM 5.8 (80.0) 29.1 46.9 23.2 Other 295.6 (14.2) 344.4 120.6 156.1 128.4 113.9 Total $ 499.2 3.8% $ 481.1 75.3% $274.4 268.8 219.5
*Changes in the average balance/rate are allocated based on the percentage relationship of the change in average balance or average rate to the total increase (decrease). NM-Not meaningful 89 Norwest Corporation and Subsidiaries LOAN INFORMATION
In millions 1993 1992 1991 1990 1989 1988 Loans and Leases at December 31, Commercial, financial and industrial $ 6,196 6,158 5,949 6,816 6,899 6,845 Agricultural 822 729 704 729 674 564 Construction and land development 496 398 466 712 840 789 Real estate Secured by 1-4 family residential properties 8,060 7,325 4,732 4,977 3,677 3,614 Secured by other properties 2,916 2,742 2,987 3,267 3,175 2,541 Consumer 6,212 5,486 6,141 5,764 5,589 4,756 Credit card and check credit 2,047 1,274 1,127 879 1,349 1,378 Lease financing 655 585 575 517 474 323 Foreign Consumer installment 425 425 - - - - Real estate secured by 1-4 family residential properties 30 15 - - - - Other 94 62 61 50 60 85 Total loans and leases 27,953 25,199 22,742 23,711 22,737 20,895 Unearned discount (1,008) (1,003) (972) (921) (887) (756) Total loans and leases net of unearned discount $26,945 24,196 21,770 22,790 21,850 20,139 Allowance for Credit Losses Balance at beginning of year $ 742.7 668.1 560.0 391.1 379.6 494.5 Allowances related to assets acquired/sold 35.7 25.5 18.8 56.7 10.0 14.1 Provision for credit losses 140.1 266.7 401.9 428.3 225.5 184.0 Credit losses Commercial, financial and industrial 60.1 84.9 137.9 124.1 92.7 81.9 Agricultural 2.6 3.7 3.9 2.3 4.4 8.8 Construction and land development 11.9 15.7 21.2 35.6 23.0 10.1 Real estate 44.4 67.8 98.9 67.9 38.8 32.3 Consumer 111.1 110.7 120.7 97.6 77.3 66.4 Credit card and check credit 51.9 41.9 44.9 54.1 44.6 28.0 Lease financing 2.2 2.7 3.8 2.6 2.0 1.8 Foreign Consumer installment 18.5 2.9 - - - - Other 0.5 - 1.8 0.7 7.3 161.2 Total credit losses 303.2 330.3 433.1 384.9 290.1 390.5 Recoveries Commercial, financial and industrial 40.7 39.5 45.9 25.4 23.6 20.1 Agricultural 4.0 4.7 3.9 4.9 5.6 7.4 Construction and land development 7.3 2.4 6.5 1.1 0.7 1.5 Real estate 32.6 24.7 23.5 8.4 6.0 5.4 Consumer 31.4 28.6 25.8 19.8 17.9 13.8 Credit card and check credit 8.7 7.5 6.8 4.6 3.4 3.0 Lease financing 0.3 0.6 0.3 0.4 0.5 0.5 Foreign Consumer installment 3.5 - - - - - Other 1.1 4.7 7.8 4.2 8.4 25.8 Total recoveries 129.6 112.7 120.5 68.8 66.1 77.5 Net credit losses 173.6 217.6 312.6 316.1 224.0 313.0 Balance at end of year $ 744.9 742.7 668.1 560.0 391.1 379.6 Allocation of Allowance for Credit Losses Commercial $ 129.7 141.8 170.8 164.9 119.2 111.9 Consumer 184.2 156.2 139.2 108.3 97.2 67.8 Real estate 192.0 217.5 148.4 148.4 79.7 69.9 Foreign 20.0 22.0 5.0 7.0 6.0 23.0 Unallocated 219.0 205.2 204.7 131.4 89.0 107.0 Total $ 744.9 742.7 668.1 560.0 391.1 379.6 Credit Quality Ratios Net credit losses as a percent of average loans and leases 0.70% 1.00 1.45 1.46 1.07 1.66 Allowance for credit losses to Total loans and leases at year-end 2.76% 3.07 3.07 2.46 1.79 1.88 Net credit losses 4.29X 3.41 2.14 1.77 1.75 1.21 Provision for credit losses to average loans and leases 0.56% 1.22 1.87 1.98 1.08 0.97 Earnings coverage of net credit losses 6.21X 3.65 2.79 2.20 2.66 1.59
90 Norwest Corporation and Subsidiaries OTHER BALANCE SHEET DATA Maturity of Total Investment Securities*
Carrying Value Total Within 1 Year 1-5 Years 5-10 Years After 10 Years Total Market In millions Amount/Yield Amount/Yield Amount/Yield Amount/Yield Amount/Yield Value AT DECEMBER 31, 1993 Held for Investment State, municipal and housing-tax exempt** $ 66 6.55% $ 179 7.42% $139 8.73% $ 202 7.99% $ 586 7.83% $ 633 Other 188 6.00 - - 3 6.00 36 6.00 227 6.00 227 Total securities held for investment 254 6.15 179 7.42 142 8.68 238 7.68 813 7.32 860 Available for Sale Investment Securities: U.S.Treasury and federal agencies 192 7.09 611 6.55 428 8.03 2 3.29 1,233 7.14 1,309 State, municipal and housing tax-exempt** 13 6.55 40 7.57 34 8.73 3 7.99 90 7.87 93 Other 74 8.59 270 8.55 17 9.79 14 8.70 375 8.53 556 Total investment securities available for sale 279 7.46 921 7.18 479 8.14 19 8.13 1,698 7.51 1,958 Mortgage-backed Securities: Federal agencies 239 9.65 97 7.31 124 12.25 8,217 6.46 8,677 6.62 8,898 Collateralized mortgage obligations 9 6.43 14 6.43 2 6.43 108 5.67 133 5.81 135 Total mortgage-backed securities available for sale 248 9.53 111 7.21 126 12.15 8,325 6.43 8,810 6.61 9,033 Total securities available for sale 527 8.43 1,032 7.18 605 8.98 8,344 6.43 10,508 6.75 10,991 Total investment securities $ 781 6.69 $1,211 7.22 $ 747 8.92 $8,582 6.47 $11,321 6.79 $11,851
Maturity of Loans*** Within 1 Year 1-5 Years After 5 Years Total Commercial $4,132 2,516 370 $ 7,018 Construction and land development 311 163 22 496 Real estate 823 1,617 476 2,916 Foreign 82 11 - 93 Total $5,348 4,307 868 $10,523 Predetermined interest rates $1,517 2,129 348 $ 3,994 Floating interest rates 3,831 2,178 520 6,529 Total $5,348 4,307 868 $10,523
Maturity of Time Deposits of $100,000 or more Within 3 3-6 6-12 Over 12 Months Months Months Months Total Certificates of deposit and other time $452 252 273 391 $1,368 Foreign time 189 - - - 189 Total $641 252 273 391 $1,557
Deposits at December 31, 1993 1992 1991 1990 1989 Noninterest-bearing deposits $ 8,339 6,785 6,032 5,789 5,115 Interest-bearing deposits Savings and NOW accounts 3,445 3,545 2,972 3,215 2,806 Money-market accounts 10,144 8,047 7,738 6,842 5,300 Savings certificates 9,078 8,784 10,031 9,082 7,425 Certificates of deposit and other time**** 1,368 1,386 1,621 3,306 3,585 Foreign time**** 189 157 155 287 269 Total deposits $32,573 28,704 28,549 28,521 24,500
*Based on contracted maturities. **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, 1993, the amount of the increases in the yields for these securities and for total securities available for sale is 2.12% and 0.02%, respectively, and for total securities held for investment is 3.99% and 2.88%, respectively. ***Excludes leases of $655 million and consumer and residential mortgage loans of $16,775 million. ****There were no time deposits of less than $100,000 in 1993. 91 Norwest Corporation and Subsidiaries QUARTERLY CONDENSED CONSOLIDATED FINANCIAL INFORMATION
In millions, except per 1993 Quarters 1992 Quarters share amounts and ratios Fourth Third Second First Fourth Third***Second*** First*** Interest income $ 965.9 933.1 919.2 915.9 907.0 873.4 894.5 912.1 Interest expense 346.8 339.2 336.2 335.8 340.3 352.1 395.6 421.2 Net interest income 619.1 593.9 583.0 580.1 566.7 521.3 498.9 490.9 Provision for credit losses 40.5 23.0 39.4 37.2 112.2 43.3 47.6 63.6 Non-interest income 426.0 367.1 411.4 338.0 305.0 350.4 296.7 276.7 Non-interest expenses 750.4 711.4 725.3 653.7 660.8 636.2 583.8 555.8 Income before income taxes and cumulative effect of a change in accounting for postretirement medical benefits 254.2 226.6 229.7 227.2 98.7 192.2 164.2 148.2 Income tax expense 79.2 59.3 68.6 77.0 33.1 59.5 36.8 33.8 Cumulative effect on years ended prior to December 31, 1992 of a change in accounting for post- retirement medical benefits, net of tax - - - - - - - (76.0) Net income $175.0 167.3 161.1 150.2 65.6 132.7 127.4 38.4 Per Common Share Net income* Primary $ 0.57 0.55 0.52 0.49 0.20 0.43 0.41 0.11 Fully diluted 0.56 0.54 0.52 0.48 0.20 0.43 0.41 0.11 Dividends declared 0.165 0.165 0.165 0.145 0.145 0.145 0.125 0.125 Stockholders' equity 11.04 10.65 10.31 10.03 9.69 9.66 9.40 9.13 Stock price range 29- 28- 28 3/8- 20 5/8- 22 1/8- 19 13/16- 19 7/8- 19 1/16- 22 1/2 25 5/8 22 7/8 26 18 5/8 17 3/4 17 3/8 16 5/8 Tax-equivalent Yields and Rates Money market investments 3.23% 3.08 3.13 3.24 3.10 3.51 4.15 5.17 Trading account securities 10.42 13.61 17.09 5.99 6.38 6.71 7.47 6.94 Investment and mortgage-backed securities 10.42 10.49 10.04 9.98 7.18 8.21 7.67 8.21 Investment and mortgage-backed securities available for sale 6.46 6.62 6.87 7.28 8.20 7.39 6.56 - Total investment securities 6.76 6.94 7.13 7.50 7.78 8.01 7.65 8.21 Mortgages held for sale 6.15 6.49 6.88 7.40 7.06 7.74 7.86 8.41 Student loans available for sale 6.34 6.62 7.24 6.73 7.09 6.63 - - Loans and leases 9.90 10.00 10.10 10.35 10.34 10.57 10.74 11.00 Total earning assets 8.44 8.65 8.87 9.09 9.06 9.32 9.33 9.76 Interest-bearing deposits 3.26 3.38 3.50 3.57 3.62 3.99 4.41 4.82 Short-term borrowings 3.28 3.21 3.24 3.41 3.38 3.88 4.12 4.58 Long-term debt 5.59 5.79 6.21 6.41 7.03 7.33 8.17 8.60 Interest-bearing liabilities 3.68 3.75 3.88 3.95 4.02 4.42 4.77 5.18 Yield spread 4.76 4.90 4.99 5.14 5.04 4.90 4.56 4.58 Net interest income to earning assets 5.45 5.54 5.65 5.77 5.70 5.61 5.24 5.29 Ratios** Return on assets* 1.37% 1.38 1.41 1.35 0.59 1.26 1.19 1.09 Leverage 14.62X 14.19 13.87 14.08 14.10 13.49 14.35 14.32 Return on common equity* 21.3% 21.0 20.8 20.4 8.28 18.2 18.3 16.7
*Excluding the cumulative effect of a change in accounting for postretirement medical benefits, 1992 first quarter primary net income per common share would have been $0.37, fully diluted net income per common share would have been $0.36, 1992 return on assets would have been 1.09%, and 1992 return on common equity would have been 16.7%. **Based on average balances and net income for the periods. ***Restated to reflect the adoption of FAS 106. (CONTINUED ON PAGE 93) 92 Norwest Corporation and Subsidiaries QUARTERLY CONDENSED CONSOLIDATED FINANCIAL INFORMATION (CONTINUED FROM PAGE 92 )
In millions, except per 1993 Quarters 1992 Quarters share amounts and ratios Fourth Third Second First Fourth Third* Second* First* Average Assets Money market investments $ 746 297 296 364 450 616 613 418 Trading account securities 307 243 250 216 254 349 443 330 Investment and mortgage-backed securities 843 893 935 943 5,047 8,584 12,669 12,924 Investment and mortgage-backed securities available for sale 10,246 10,252 10,353 10,601 6,096 2,754 172 - Total investment securities 11,089 11,145 11,288 11,544 11,143 11,338 12,841 12,924 Mortgages held for sale 6,079 5,544 4,420 3,647 4,620 3,651 3,425 2,849 Student loans available for sale 1,353 1,198 1,278 1,240 1,004 377 2 - Loans and leases, net of unearned discount 26,476 25,038 24,340 23,897 22,869 21,457 21,502 21,382 Total average earning assets 46,050 43,465 41,872 40,908 40,340 37,788 38,826 37,903 Allowance for credit losses (762) (768) (758) (755) (696) (685) (692) (674) Cash and due from banks 2,803 2,684 2,512 2,441 2,520 2,243 2,310 2,373 Other assets 2,754 2,537 2,314 2,385 2,383 2,420 2,427 2,477 Total average assets $50,845 47,918 45,940 44,979 44,547 41,766 42,871 42,079 Average Liabilities and Stockholders' Equity Noninterest-bearing deposits $ 8,420 7,259 6,633 6,211 6,343 5,683 5,427 5,325 Interest-bearing deposits 24,746 22,664 21,809 21,684 21,669 21,687 22,119 22,396 Short-term borrowings 6,159 7,266 7,417 7,701 7,617 5,791 7,436 6,674 Long-term debt 6,621 6,036 5,529 5,017 4,450 4,252 3,754 3,580 Other liabilities 1,420 1,316 1,240 1,172 1,309 1,258 1,137 1,165 Stockholders' equity 3,479 3,377 3,312 3,194 3,159 3,095 2,998 2,939 Total average liabilities and stockholders' equity $50,845 47,918 45,940 44,979 44,547 41,766 42,871 42,079
*Restated to reflect the adoption of FAS 106. The financial information on pages 92 and 93 is unaudited. In the opinion of managment, all adjustments necessary (which are of a normal recurring nature) have been included for a fair presentation of the results of operations. 93 EX-2 2 UNAUDITED PRO FORMA FINANCIAL INFORMATION Exhibit 2. NORWEST CORPORATION AND SUBSIDIARIES UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION The following Unaudited Pro Forma Combined Financial Information has been presented using the pooling of interests method of accounting. The Unaudited Pro Forma Combined Balance Sheet as of December 31, 1993 has been prepared to reflect the acquisition of First United Bank Group, Inc. ("First United") and the acquisitions of the combined balances for St. Cloud National Bank & Trust Co., First National Bank of Arapahoe County, First National Bank of Lakewood, First National Bank of Southeast Denver, Lindeberg Financial Corporation, Bank of Montana System, D.L. Bancshares, Inc., Community Credit Co., Double Eagle Financial Corporation and LaPorte Bancorporation, (the "Combining Companies") with Norwest Corporation and subsidiaries (the "corporation"), all of which are expected to be consummated in fiscal 1994. The acquisition of First United is not individually significant to the corporation, but is material to the financial statements and the corporation will restate the financial statements as required in a pooling of interests transaction. The acquisitions of the Combining Companies are not significant or material to the financial statements of the corporation, either individually or in the aggregate, and accordingly, the corporation will not restate its financial statements for such acquisitions. Therefore, the Unaudited Pro Forma Combined Income Statement and Unaudited Pro Forma Combined Earnings Per Share Data for the year ended December 31, 1993 represent a combination of the Consolidated Statements of Income of the corporation, First United and the Combining Companies. First United's net loss for the year ended December 31, 1993 includes charges taken pursuant to the merger agreement for additional credit related reserves of approximately $23.6 million and merger related expenses and certain restructuring charges and reserves, including termination costs, systems and operations costs, and investment banking, legal, and accounting expenses of approximately $76.1 million. The Unaudited Pro Forma Combined Income Statements and Unaudited Pro Forma Combined Earnings Per Share Data for the years ended December 31, 1992 and 1991 represent a combination of the Consolidated Statements of Income of the corporation and First United. The Unaudited Pro Forma Combined Financial Information has not been adjusted to reflect immaterial differences in the accounting and reporting policies between the corporation, First United and the Combining Companies. Such Unaudited Pro Forma Combined Financial Information is not necessarily indicative of the consolidated financial position or results of operations which would have actually been attained if the acquisitions had been consummated in the past or what may be attained in the future. Certain of the acquisitions included in the Unaudited Pro Forma Combined Financial Information are pending approval by the regulatory agencies, however, such acquisitions would not have a significant impact on the Unaudited Pro Forma Combined Financial Statements if such approvals were to be denied. 94 NORWEST CORPORATION AND SUBSIDIARIES UNAUDITED PRO FORMA COMBINED BALANCE SHEET DECEMBER 31, 1993 In millions
PRO FORMA FIRST COMBINED NORWEST UNITED BANK COMBINING PRO FORMA BALANCE ASSETS CORPORATION GROUP,INC. COMPANIES ENTRIES (1) SHEET Cash and due from banks $ 2,653.6 246.8 72.1 (10.4) 2,962.1 Federal funds sold and resale agreements 405.6 302.1 58.9 - 766.6 Trading account securities 279.1 - - - 279.1 Investment securities 813.4 880.4 605.2 (58.6) 2,240.4 Investment securities available for sale 1,698.0 514.6 - 7.8 2,220.4 Mortgage-backed securities available for sale 8,810.1 - - - 8,810.1 Total investment securities 11,321.5 1,395.0 605.2 (50.8) 13,270.9 Student loans available for sale 1,351.3 - - - 1,351.3 Mortgages held for sale 6,090.7 - - - 6,090.7 Loans and leases, net of unearned discount 26,945.0 1,815.3 848.4 (47.7) 29,561.0 Allowance for credit losses (744.9) (46.4) (16.2) 0.4 (807.1) Net loans and leases 26,200.1 1,768.9 832.2 (47.3) 28,753.9 Premises and equipment, net 756.5 85.6 27.7 (0.9) 868.9 Interest receivable and other assets 1,723.9 126.2 42.2 0.1 1,892.4 Total assets $50,782.3 3,924.6 1,638.3 (109.3) 56,235.9 LIABILITIES AND STOCKHOLDERS' EQUITY Deposits Noninterest-bearing $ 8,338.9 715.4 231.6 (3.7) 9,282.2 Interest-bearing 24,234.3 2,687.9 1,020.0 (72.3) 27,869.9 Total deposits 32,573.2 3,403.3 1,251.6 (76.0) 37,152.1 Short-term borrowings 5,805.1 191.7 109.0 (3.8) 6,102.0 Accrued expenses and other liabilities 2,033.2 88.6 30.7 (0.1) 2,152.4 Long-term debt 6,802.4 48.5 100.8 (21.8) 6,929.9 Preferred stock 341.9 38.1 2.1 (40.2) 341.9 Common stock 490.2 13.7 14.4 21.5 539.8 Surplus 413.0 101.8 36.9 8.2 559.9 Retained earnings 2,394.4 38.9 95.7 - 2,529.0 Notes receivable from ESOP (16.3) - - - (16.3) Treasury stock (51.5) - (2.9) 2.9 (51.5) Foreign currency translation (3.3) - - - (3.3) Total common stockholders' equity 3,226.5 154.4 144.1 32.6 3,557.6 Total stockholders' equity 3,568.4 192.5 146.2 (7.6) 3,899.5 Total liabilities and stockholders' equity $50,782.3 3,924.6 1,638.3 (109.3) 56,235.9
See note to unaudited pro forma combined balance sheet. 95 NORWEST CORPORATION AND SUBSIDIARIES NOTE TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET (1) Reflects the 1994 completed and pending acquisitions of: St. Cloud National Bank & Trust Co. through the issuance of approximately 1,105,822 of the corporation's common stock, Lindeberg Financial Corporation through the issuance of approximately 409,940 shares of the corporation's common stock, First National Bank of Arapahoe County through the issuance of approximately 257,319 shares of the corporation's common stock, First National Bank of Lakewood through the issuance of approximately 332,952 shares of the corporation's common stock, First National Bank of Southeast Denver through the issuance of approximately 792,421 shares of the corporation's common stock, First United Bank Group, Inc. through the issuance of approximately 17,784,986 shares of the corporation's common stock, Bank of Montana System through the issuance of approximately 4,186,000 shares of the corporation's common stock, D.L. Bancshares, Inc. through the issuance of approximately 310,269 shares of the corporation's common stock, Community Credit Co. through the issuance of approximately 3,727,000 shares of the corporation's common stock, Double Eagle Financial Corporation through the issuance of approximately 360,000 shares of the corporation's common stock and LaPorte Bancorporation through the issuance of approximately 524,322 shares of the corporation's common stock. As a result, adjustments of $21,500,000 and $8,200,000 have been made to common stock and surplus, respectively, to properly state the par value of the corporation's common stock and the elimination of Bank of Montana System's treasury stock. Also, the pro forma adjustments reflect: The elimination of $30,200,000 of First United's preferred stock to reflect the exchange of First United's Series A and Series C preferred stock for the corporation's common stock and the redemption for cash of $7,900,000 of First United's Series B preferred stock. The divestiture of certain assets and liabilities of Bank of Montana System's branch banks in Lewistown, Anaconda and Butte, Montana at book value. The proposed divestiture would include $1,100,000 cash, $28,800,000 of net loans, $1,400,000 of net premises and equipment, $100,000 of other assets, $11,700,000 and $72,300,000 of non-interest bearing and interest bearing deposits, respectively, $2,700,000 of short-term borrowings and other liabilities, and $55,300,000 of investment securities to be 96 converted to cash for payment for the excess liabilities to be sold. In addition, an adjustment is made to reflect the retirement of Bank of Montana System's long-term debt of $18,500,000 owed to Norwest Bank Minnesota, N.A., a wholly-owned subsidiary of the corporation, using the proceeds of a loan in such amounts to be made by the corporation to Bank of Montana System at the time of the Merger, and to reflect the related elimination of said loan from the corporation to Bank of Montana System. The purchase of $300,000 minority interest of D.L. Bancshares, Inc. and the retirement of D.L. Bancshares, Inc.'s long-term debt of $3,300,000 immediately following the Merger using cash generated from the conversion of investment securities. The repayment of $900,000 of Double Eagle Financial Corporation's short-term notes payable using cash provided by United Title Agency of Arizona, Inc., its wholly-owned subsidiary. The purchase of $500,000 of other assets from Title Network, Ltd and the contribution of $25,000 to capitalize the joint venture with Peter F. Hunt by American Land Title Co., Inc. The purchase of $8,000,000 in demand deposits in Arizona of First Nationwide Bank, A Federal Savings Bank, assumed to be converted into investment securities for a purchase premium of $200,000. 97 NORWEST CORPORATION AND SUBSIDIARIES UNAUDITED PRO FORMA COMBINED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1993 In millions
PRO FORMA FIRST COMBINED NORWEST UNITED BANK COMBINING PRO FORMA INCOME CORPORATION GROUP,INC. COMPANIES ENTRIES STATEMENT Interest income on Loans and leases $2,505.9 142.7 83.9 - 2,732.5 Investment securities 69.0 58.4 33.8 - 161.2 Mortgage-backed securities - - - - - Investment securities available for sale 116.0 5.3 - - 121.3 Mortgage-backed securities available for sale 588.6 - - - 588.6 Student loans available for sale 85.3 - - - 85.3 Mortgages held for sale 326.8 - - - 326.8 Other 42.5 6.2 0.1 - 48.8 Total interest income 3,734.1 212.6 117.8 - 4,064.5 Interest expense on Deposits 777.5 74.8 30.2 - 882.5 Short-term borrowings 234.3 3.8 11.1 - 249.2 Long-term debt 346.2 6.3 0.4 - 352.6 Total interest expense 1,358.0 84.9 41.7 - 1,484.6 Net interest income 2,376.1 127.7 76.1 - 2,579.9 Provision for credit losses 140.1 18.1 4.5 - 162.7 Net interest income after provision for credit losses 2,236.0 109.6 71.6 - 2,417.2 Non-interest income Trust 179.8 7.4 1.1 - 188.3 Service charges on deposit accounts 190.2 21.4 7.6 - 219.2 Mortgage banking 472.3 2.5 0.7 - 475.5 Credit card 114.3 - - - 114.3 Insurance 176.8 - 2.5 - 179.3 Other fees and service charges 157.3 3.6 1.1 - 162.0 Other 251.8 7.6 27.6 - 287.0 Total non-interest income 1,542.5 42.5 40.6 - 1,625.6 Non-interest expenses Salaries and benefits 1,416.5 57.9 30.7 - 1,505.1 Net occupancy 178.5 10.6 9.6 - 198.7 Equipment rentals, depreciation and maintenance 192.9 9.1 0.3 - 202.3 Business development 146.9 - - - 146.9 Communication 162.1 6.8 - - 168.9 Data processing 100.0 8.2 - - 108.2 FDIC assessment and regulatory examination fees 72.7 6.9 - - 79.6 Intangible asset amortization 72.0 8.3 - - 80.3 Other 499.2 102.2 42.8 - 644.2 Total non-interest expenses 2,840.8 210.0 83.4 - 3,143.2 Income (loss) before income taxes and cumulative effect of a change in method of accounting for postretirement medical benefits 937.7 (57.9) 28.8 - 908.6 Income tax expense (benefit) 284.1 (16.6) 9.8 - 277.3 Net income (loss) before cumulative effect of a change in method of accounting for postretirement medical benefits $ 653.6 (41.3) 19.0 - 631.3
98 NORWEST CORPORATION AND SUBSIDIARIES UNAUDITED PRO FORMA COMBINED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1992* In millions
PRO FORMA FIRST COMBINED NORWEST UNITED BANK PRO FORMA INCOME CORPORATION GROUP,INC. ENTRIES STATEMENT Interest income on Loans and leases $2,314.6 140.7 - 2,455.3 Investment securities 172.9 68.2 - 241.1 Mortgage-backed securities 573.1 - - 573.1 Investment securities available for sale 14.7 2.6 - 17.3 Mortgage-backed securities available for sale 164.5 - - 164.5 Student loans available for sale 24.2 - - 24.2 Mortgages held for sale 279.4 - - 279.4 Other 43.6 8.3 - 51.9 Total interest income 3,587.0 219.8 - 3,806.8 Interest expense on Deposits 925.9 89.7 - 1,015.6 Short-term borrowings 273.5 4.4 - 277.9 Long-term debt 309.8 7.3 - 317.1 Total interest expense 1,509.2 101.4 - 1,610.6 Net interest income 2,077.8 118.4 - 2,196.2 Provision for credit losses 266.7 4.1 - 270.8 Net interest income after provision for credit losses 1,811.1 114.3 - 1,925.4 Non-interest income Trust 162.2 6.7 - 168.9 Service charges on deposit accounts 170.3 20.4 - 190.7 Mortgage banking 275.3 2.4 - 277.7 Credit card 134.2 - - 134.2 Insurance 155.1 - - 155.1 Other fees and service charges 139.6 2.8 - 142.4 Other 192.1 12.4 - 204.5 Total non-interest income 1,228.8 44.7 - 1,273.5 Non-interest expenses Salaries and benefits 1,124.8 50.6 - 1,175.4 Net occupancy 172.8 8.9 - 181.7 Equipment rentals, depreciation and maintenance 167.7 8.1 - 175.8 Business development 113.5 - - 113.5 Communication 140.1 6.0 - 146.1 Data processing 94.1 6.4 - 100.5 FDIC assessment and regulatory examination fees 68.9 6.3 - 75.2 Intangible asset amortization 73.6 2.8 - 76.4 Other 481.1 27.6 - 508.7 Total non-interest expenses 2,436.6 116.7 - 2,553.3 Income before income taxes and cumulative effect of a change in method of accounting for postretirement medical benefits 603.3 42.3 - 645.6 Income tax expense 163.2 12.4 - 175.6 Net income before cumulative effect of a change in method of accounting for postretire- ment medical benefits $ 440.1 29.9 - 470.0
*Excludes the cumulative effect of a change in accounting for postretirement medical benefits of $76 million. 99 NORWEST CORPORATION AND SUBSIDIARIES UNAUDITED PRO FORMA COMBINED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1991 In millions
PRO FORMA FIRST COMBINED NORWEST UNITED BANK PRO FORMA INCOME CORPORATION GROUP,INC. ENTRIES STATEMENT Interest income on Loans and leases $2,555.9 145.7 - 2,701.6 Investment securities 245.3 58.6 - 303.9 Mortgage-backed securities 740.9 - - 740.9 Investment securities available for sale - - - - Mortgage-backed securities available for sale - - - - Student loans available for sale - - - - Mortgages held for sale 192.1 - - 192.1 Other 67.9 19.5 - 87.4 Total interest income 3,802.1 223.8 - 4,025.9 Interest expense on Deposits 1,373.0 109.5 - 1,482.5 Short-term borrowings 342.6 9.8 - 352.4 Long-term debt 308.6 6.8 - 315.4 Total interest expense 2,024.2 126.1 - 2,150.3 Net interest income 1,777.9 97.7 - 1,875.6 Provision for credit losses 401.9 4.5 - 406.4 Net interest income after provision for credit losses 1,376.0 93.2 - 1,469.2 Non-interest income Trust 143.8 5.8 - 149.6 Service charges on deposit accounts 156.7 15.8 - 172.5 Mortgage banking 185.9 1.3 - 187.2 Credit card 152.4 - - 152.4 Insurance 140.6 - - 140.6 Other fees and service charges 125.9 2.7 - 128.6 Other 125.9 7.2 - 133.1 Total non-interest income 1,031.2 32.8 - 1,064.0 Non-interest expenses Salaries and benefits 937.8 45.5 - 983.3 Net occupancy 154.4 9.2 - 163.6 Equipment rentals, depreciation and maintenance 143.1 7.8 - 150.9 Business development 90.3 - - 90.3 Communication 124.1 5.2 - 129.3 Data processing 90.4 3.9 - 94.3 FDIC assessment and regulatory examination fees 62.8 5.0 - 67.8 Intangible asset amortization 62.2 2.4 - 64.6 Other 274.4 23.0 - 297.4 Total non-interest expenses 1,939.5 102.0 - 2,041.5 Income before income taxes and cumulative effect of a change in method of accounting for postretirement medical benefits 467.7 24.0 - 491.7 Income tax expense 66.8 6.6 - 73.4 Net income before cumulative effect of a change in method of accounting for postretire- ment medical benefits $ 400.9 17.4 - 418.3
100 NORWEST CORPORATION AND SUBSIDIARIES UNAUDITED PRO FORMA COMBINED EARNINGS PER SHARE DATA Pro forma net income per common share has been computed based on the pro forma combined historical net income and on the historical combined weighted average common shares outstanding giving effect to the issuance of approximately 17.8 million common shares in connection with the acquisition of First United Bank Group, Inc. as of the beginning of the earliest period presented and, in addition, the issuance of approximately 12.0 million common shares in connection with the acquisition of the combining companies as of the beginning of 1993. The following table sets forth amounts, adjusted for the effect of common stock equivalents, used to compute net income per common share data (in millions except per share amounts): Year Ended December 31 1993 1992* 1991 Net income: Used for Primary $600.9 437.7 396.9 Used for Fully Diluted $619.9 458.1 405.7 Average Common and Common Equivalent Shares: Used for Primary 319.7 303.4 297.3 Used for Fully Diluted 335.8 322.4 306.8 Net Income Per Common Share: Primary $ 1.88 1.44 1.33 Fully Diluted $ 1.85 1.42 1.32 * Excludes the cumulative effect of a change in accounting for postretirement medical benefits of $76 million. 101 EX-10 3 CONSULTING AGREEMENT Exhibit 10(g). CONSULTING AGREEMENT AGREEMENT dated January 19, 1994, by and between Norwest Corporation ("Norwest"), a Delaware corporation, and Gerald J. Ford (the "Consultant"). WHEREAS, the Consultant has served as the Chairman, President and Chief Executive Officer of First United Bank Group, Inc. ("First United") and its predecessors, and as such has extensive knowledge of and contacts in the business of commercial banking in the States of New Mexico and Texas; and WHEREAS, Norwest has acquired First United (the "Acquisition") and is desirous of receiving advice from the Consultant with respect to certain matters; and WHEREAS, the Consultant is willing to serve as a consultant to Norwest for the purposes described in this Agreement. NOW THEREFORE, in consideration of the mutual covenants contained herein, and upon the terms and conditions hereof, the parties hereby agree as follows: 1. Effectiveness; Term. This Agreement shall become effective commencing on the date of this Agreement and, subject to the terms and conditions hereof, shall continue until the fourth anniversary hereof. 2. Consultancy. Norwest shall engage the Consultant as a consultant, and the Consultant hereby accepts such engagement, for the period and upon the terms and conditions contained in this Agreement. Consultant shall be an independent contractor. 3. Duties. (a) Consistent with the provisions of this Section 3(a), the Consultant shall serve Norwest and shall have such authority and such responsibilities as Norwest reasonably may determine from time to time are consistent with the Consultant's status as a consultant to Norwest, and former President, Chief Executive Officer and Chairman of First United. Such responsibilities shall include participation in appropriate strategies for Norwest and Norwest affiliates in Texas and New Mexico in light of local markets, identification of acquisition candidates in the States of Texas and New Mexico for Norwest and Norwest's affiliates, representation of Norwest at meetings with representatives of such potential acquisition candidates, and assistance to Norwest in marketing and other business related activities in Texas and New Mexico. The consultant shall report to such senior management personnel of Norwest as its Chief Executive Officer may reasonably designate. (b) (i) Throughout the term of this Agreement, the Consultant shall devote his energy and skill to the performance of his duties hereunder in a manner which will faithfully and diligently further the business and interests of Norwest and its affiliates; provided, however, that the Consultant may serve, or continue to serve, on the boards of directors of, and hold any other offices or positions in, or serve as a consultant to, or as employee of, such companies or organizations which will not materially affect the performance of the Consultant's duties pursuant to this Agreement, except that any confidential information pertaining to Norwest that the Consultant possesses shall be subject to the restrictions set forth in Section 7 hereof. 102 (ii) The Consultant may perform the duties specified in this Agreement during the hours, and at the location, which he selects, except that he shall be required to attend and participate in such meetings as Norwest may reasonably request. 4. Compensation. (a) Consulting Fees. During the period of consultancy, Norwest shall pay the Consultant, as compensation for the services to be rendered pursuant to the terms hereof, a consulting fee of $300,000 per year, with such amount payable in quarterly installments with an installment payable on the twentieth day of each of January, April, July and October, provided that the initial amount payable pursuant hereto shall be paid on the execution hereof and shall not be reduced by virtue of this agreement commencing subsequent to the 1st day of January, 1994. (b) Reimbursement of Expenses. Norwest shall reimburse the Consultant promptly after the Consultant requests reimbursement for all reasonable travel and other out-of-pocket expenses incurred by the Consultant in performing his obligations under this Agreement, provided that the Consultant properly accounts therefor in accordance with Norwest's existing policies. Reasonable travel and other expenses shall include, but not be limited to, the reimbursable travel and expenses customarily paid for by Norwest for its senior executive officers. 5. Termination of Consulting Duties. If, as a result of the Consultant's incapacity due to physical or mental illness, the Consultant shall have been absent from his consulting duties with Norwest for three consecutive months, or for 90 days in any 12 month period, and the Consultant shall not have returned to the performance of his duties under this Agreement, Norwest may terminate this Agreement for "Disability". Norwest may also terminate this Agreement upon the death of the Consultant or upon his willful failure to materially perform his duties hereunder. The Consultant may terminate this Agreement at any time and for any reason upon at least 60 days prior written notice to Norwest, provided that if such notice is given less than 60 days prior to the 20th day of January, April, July or October, as the case may be, Norwest shall not be required to make the payment contemplated by Section 4(a) on such 20th day. 6. Successors. In the event Norwest or any of its successors or assigns (i) consolidates with or merges into any other person and shall not be the continuing or surviving corporation or entity of such consolidation or merger, or (ii) transfers or conveys all or substantially all of its properties and assets to any person, then, and in each such case, proper provision shall be made so that the successors and assigns of Norwest assume the obligations set forth in this Agreement. 7. Confidentiality. All non-public information regarding Norwest obtained by the Consultant in the performance of his duties pursuant to this Agreement shall be treated as the sole property of Norwest, and upon termination of this Agreement, the Consultant shall return to Norwest all of such written information and all documents or other materials containing, reflecting or referring to such information. The Consultant shall keep confidential all such information, provided, however, the obligation to keep such information confidential shall not apply to (i) any information which was or becomes generally known to the public or (ii) disclosures in accordance with an order of a court of competent jurisdiction or any administrative agency; provided further, however, that nothing contained in this Agreement shall be deemed to prohibit the Consultant from serving as a director, officer, executive, or consultant with any commercial bank, thrift institution or similar 103 entity, but the Consultant may not in this regard utilize any such confidential information; and provided further, however, that all acquisition candidates in the states of New Mexico and Texas identified by Consultant prior to or during the term of this Agreement or known to Consultant to have been identified by Norwest prior to or during the term of this Agreement shall not be identified to or discussed with any person or entity (other than Norwest and its representatives) as acquisition candidates by Consultant and Consultant shall not participate in any discussions or proposals regarding the potential acquisition of such candidates except on behalf of and under the direction of Norwest unless Consultant shall have obtained the prior written consent of Norwest, which consent shall not be unreasonably withheld. 8. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 9. Indulgences. Neither the failure nor any delay on the part of either party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power, or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. 10. Notices. All notices, requests, demands and other communications required or permitted under this Agreement and the transactions contemplated herein shall be in writing and shall be deemed to have been duly given, made and received when sent by telecopy or personally or one business day after when sent by overnight delivery service addressed as set forth below: (i) Norwest Corporation Sixth and Marquette Minneapolis, MN 55479-1026 Attn: Secretary (ii) Gerald J. Ford Madison Financial Inc. 200 Crescent Court Suite 1350 Dallas, Texas 75201 Any party may alter the address to which communications or copies are to be sent by giving notice of such change of address in conformity with the provisions of this subparagraph for the giving of notice, which shall be effective only upon receipt. 11. Provisions Separable. The provisions of this Agreement are independent of and separable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part. 12. Entire Agreement. This Agreement contains the entire understanding between the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements and understandings, inducements or conditions express or implied, oral or written except as herein contained, which shall be deemed terminated effective immediately. This Agreement may not be modified or amended other than by an agreement in writing executed by all of the parties hereto. 104 13. Headings. The headings of Sections herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. 14. Survival. The terms of Section 7 shall survive termination of this Agreement. 15. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Minnesota without giving effect to the principle of conflict of laws thereof. Nothing in this Agreement shall modify any obligation of Consultant as a director of Norwest. IN WITNESS WHEREOF, Norwest has caused this Agreement to be executed by its officer thereunto duly authorized, and the Consultant has signed this Agreement, all as of the day and year first above written. Norwest Corporation Attest: By: /s/ Laurel A. Holschuh By: /s/ Kenneth R. Murray Title: Secretary Title: Executive Vice President /s/ Gerald J. Ford Gerald J. Ford 105 EX-11 4 EARNINGS PER SHARE COMPUTATION Exhibit 11. NORWEST CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE
In thousands, except per share Amounts Year Ended December 31 1993 1992 1991 1990 1989 PRIMARY: Weighted average number of common shares outstanding $290,689 288,130 283,240 269,357 267,310 Net effect of assumed exercise of stock options based on treasury stock method using average market price 2,658 2,422 2,114 1,104 1,704 $293,347 290,522 285,354 270,461 269,014 Income before cumulative effect of a change in accounting for postretirement medical benefits $653,632 440,035 400,870 156,277 274,944 Less dividends accrued on Cumulative Preferred Stock (11,606) (11,751) (12,581) (2,592) (6,105) Less dividends accrued on Cumulative Convertible Preferred Stock, Series B (16,013) (16,078) (6,034) - - Income before cummulative effect of a change in accounting for postretirement medical benefits, as adjusted 626,013 412,206 382,255 153,685 268,839 Cumulative effect of a change in accounting for postretirement medical benefits - (75,974) - - - Net income, as adjusted $626,013 336,232 382,255 153,685 268,839 Income per share before cumulative effect of a change in accounting for postretirement medical benefits $ 2.13 1.42 1.34 0.57 1.00 Net income per share $ 2.13 1.16 1.34 0.57 1.00 FULLY DILUTED: Weighted average number of common shares outstanding 290,689 288,130 283,240 269,357 267,310 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 2,634 2,944 3,106 1,288 1,966 Assumed conversion of 6-3/4% convertible subordinated debentures due 2003 and 12% convertible notes due 1993 as of the beginning of the period 73 1,206 1,722 2,032 2,571 Assumed conversion of Cumulative Convertible Preferred Stock, Series B 12,628 12,683 4,656 - - 306,024 304,963 292,724 272,677 271,847 Income before cumulative effect of a change in accounting for postretirement medical benefits $653,632 440,035 400,870 156,277 274,944 Less dividends accrued on Cumulative Preferred Stock (11,606) (11,751) (12,581) (2,592) (6,105) 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 16 699 869 938 1,048 Income before cumulative effect of a change in accounting for postretirement medical benefits, as adjusted 642,042 428,983 389,158 154,623 269,887 Cumulative effect of a change in accounting for postretirement mendical benefits - (75,974) - - - Net income, as adjusted $642,042 353,009 389,158 154,623 269,887 Income per share before cumulative effect of a change in accounting for postretirement medical benefits $ 2.10 1.41 1.33 0.57 0.99 Net income per share $ 2.10 1.16 1.33 0.57 0.99
106 EX-12 5 RATIO OF EARNINGS TO FIXED CHARGES Exhibit 12(a). NORWEST CORPORATION AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Year Ended December 31 (In thousands) 1993 1992 1991 1990 1989 Computation of Income: Income before income taxes $ 937,705 603,281 467,685 266,417 371,030 Capitalized interest - (24) - (13) (165) Income before income taxes and capitalized interest 937,705 603,257 467,685 266,404 370,865 Fixed charges 1,401,677 1,549,135 2,059,643 2,234,004 2,131,427 Total income for computation $2,339,382 2,152,392 2,527,328 2,500,408 2,502,292 Total income for computation excluding interest on deposits from fixed charges $1,561,888 1,226,461 1,154,308 1,073,853 1,134,320 Computation of Fixed Charges: Net rental expense (a) $ 130,892 119,902 106,183 98,548 90,829 Portion of rentals deemed representative of interest $ 43,631 39,967 35,394 32,849 30,276 Interest: Interest on deposits 777,494 925,931 1,373,020 1,426,555 1,367,972 Interest on federal funds and other short-term borrowings 234,263 273,432 342,595 510,443 479,458 Interest on long-term debt 346,289 309,781 308,634 264,144 253,556 Capitalized interest - 24 - 13 165 Total interest 1,358,046 1,509,168 2,024,249 2,201,155 2,101,151 Total fixed charges $1,401,677 1,549,135 2,059,643 2,234,004 2,131,427 Total fixed charges- excluding interest on deposits $ 624,183 623,204 686,623 807,449 763,455 Ratio of Income to Fixed Charges: Excluding interest on deposits 2.50x 1.97 1.68 1.33 1.49 Including interest on deposits 1.67x 1.39 1.23 1.12 1.17
(a) Includes equipment rentals. 107 EX-12 6 RATIO OF EARNINGS TO FIXED CHARGES/DIVIDENDS Exhibit 12(b). NORWEST CORPORATION AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Year Ended December 31 (In Thousands) 1993 1992 1991 1990 1989 Computation of Income: Income before income taxes $ 937,705 603,281 467,685 266,417 371,030 Capitalized interest - (24) - (13) (165) Income before income taxes and capitalized interest 937,705 603,257 467,685 266,404 370,865 Fixed charges 1,401,677 1,549,135 2,059,643 2,234,004 2,131,427 Total income for computation $2,339,382 2,152,392 2,527,328 2,500,408 2,502,292 Total income for computation excluding interest on deposits from fixed charges $1,561,888 1,226,461 1,154,308 1,073,853 1,134,320 Computation of Fixed Charges: Net rental expense (a) $ 130,892 119,902 106,183 98,548 90,829 Portion of rentals deemed representative of interest $ 43,631 39,967 35,394 32,849 30,276 Interest: Interest on deposits 777,494 925,931 1,373,020 1,426,555 1,367,972 Interest on federal funds and other short-term borrowings 234,263 273,432 342,595 510,443 479,458 Interest on long-term debt 346,289 309,781 308,634 264,144 253,556 Capitalized interest - 24 - 13 165 Total interest 1,358,046 1,509,168 2,024,249 2,201,155 2,101,151 Total fixed charges $1,401,677 1,549,135 2,059,643 2,234,004 2,131,427 Total fixed charges- excluding interest on deposits $ 624,183 623,204 686,623 807,449 763,455 Preferred stock dividends 27,618 27,829 17,271 2,592 6,104 Pre-tax earnings needed to meet preferred stock dividend requirements 39,622 38,154 20,148 4,419 8,227 Total combined fixed charges and preferred stock dividends $1,441,299 1,587,289 2,079,791 2,238,423 2,139,654 Total combined fixed charges and preferred dividends excluding interest on deposits $ 663,805 661,358 706,771 811,868 771,682 Ratio of Income to combined Fixed Charges and Preferred Stock Dividends: Excluding interest deposits 2.35x 1.85 1.63 1.32 1.47 Including interest on deposits 1.62x 1.36 1.22 1.12 1.17
(a) Includes equipment rentals. 108 EX-21 7 SUBSIDIARIES OF THE CORPORATION Exhibit 21. SUBSIDIARIES OF THE CORPORATION The following is a list of subsidiaries of the Corporation. All bank subsidiaries which have the words "National Association" (N.A.) or "National" in their respective titles are organized under the laws of the United States; and all state bank subsidiaries are incorporated under the laws of the state in which each is domiciled. Each non-bank subsidiary is incorporated or organized in the jurisdiction appearing opposite its name. Bank Subsidiaries ARIZONA Norwest Bank Arizona, N.A. COLORADO FirstAmerican Bank, N.A. First National Bank of Arapaphoe County First National Bank of Lakewood First National Bank of Southeast Denver Norwest Bank Academy Place, N.A. Norwest Bank Boulder, N.A. Norwest Bank Brighton, N.A. Norwest Bank Colorado, N.A. Norwest Bank Colorado Springs, N.A. Norwest Bank Colorado Springs-East, N.A. Norwest Bank Delta, N.A. Norwest Bank Durango, N.A. Norwest Bank Fort Collins, N.A. Norwest Bank Fort Collins-South, N.A. Norwest Bank Garden of the Gods, N.A. Norwest Bank Grand Junction, N.A. Norwest Bank Grand Junction-Downtown, N.A. Norwest Bank Greeley, N.A. Norwest Bank Ignacio, N.A. Norwest Bank LaSalle, N.A. Norwest Bank Longmont, N.A. Norwest Bank Montrose, N.A. Norwest Bank of Aspen, N.A. Norwest Bank Pueblo, N.A. Norwest Bank Steamboat Springs, N.A. Norwest Bank Sterling, N.A. Norwest Bank Sunset Park, N.A. ILLINOIS Norwest Bank Illinois, N.A. INDIANA Norwest Bank Angola Norwest Bank Bluffton Norwest Bank Decatur Norwest Bank Fort Wayne, N.A. Norwest Bank Indiana, N.A. Norwest Bank Monticello Norwest Bank Peru Norwest Bank Rochester Norwest Bank Rushville, N.A. Norwest Bank Shipshewana 109 Norwest Bank Wabash, N.A. IOWA Dial National Bank Norwest Bank Iowa, N.A. MINNESOTA Forest Lake State Bank Norwest Bank Minnesota, N.A. Norwest Bank Minnesota Central, N.A. Norwest Bank Minnesota Mesabi, N.A. Norwest Bank Minnesota North, N.A. Norwest Bank Minnesota South, N.A. Norwest Bank Minnesota South Central, N.A. Norwest Bank Minnesota Southeast, N.A. Norwest Bank Minnesota Southwest, N.A. Norwest Bank Minnesota West, N.A. Norwest Bank Red Wing, N.A. Norwest Bank Waseca, N.A. St. Cloud National Bank & Trust Co. MONTANA Norwest Bank Anaconda-Butte, N.A. Norwest Bank Billings, N.A. Norwest Bank Dillon, N.A. Norwest Bank Great Falls, N.A. Norwest Bank Helena, N.A. Norwest Bank Kalispell, N.A. Norwest Bank Lewistown, N.A. NEBRASKA Norwest Bank Nebraska, N.A. NEW MEXICO United New Mexico Bank (Alamogordo) United New Mexico Bank (Albuquerque) United New Mexico Bank (Carlsbad) United New Mexico Bank (Gallup) United New Mexico Bank (Las Cruces) United New Mexico Bank (Membres County) United New Mexico Bank (Portales) United New Mexico Bank (Roswell) United New Mexico Bank (Socorso) United New Mexico Bank (Vaughn) NORTH DAKOTA Norwest Bank North Dakota, N.A. OHIO Norwest Bank Van Wert SOUTH DAKOTA Dial Bank Norwest Bank South Dakota, N.A. Norwest State Bank TEXAS First National Bank of Borger 110 First National Bank in Canyon First National Bank of West Texas First National Bank of Central Texas First National Bank, Crane First National Bank, Post Midland National Bank Yoakum County State Bank WISCONSIN Norwest Bank La Crosse, N.A. Norwest Bank Wisconsin, N.A. Norwest Bank Wisconsin Eau Claire, N.A. Norwest Bank Wisconsin Waupun, N.A. WYOMING Norwest Bank Wyoming, N.A. Norwest Bank Wyoming Lovell, N.A. Edge Act Corporations Norwest Bank International Norwest Bank International, Colorado Norwest Bank International, Iowa Norwest Bank International, Wisconsin Non-Bank Subsidiaries Jurisdiction of Incorporation or Directly Owned: Organization Am-Can Investment, Inc. Minnesota Blackhawk Bancorporation Iowa Blue Spirit Insurance Company Vermont Chalfen Bankshares, Inc. Minnesota Fidelity National Life Insurance Company Arizona First Illini Bancorp, Inc. Illinois First Interstate Equipment Finance Wisconsin GST Co. Delaware Lomas Properties, Inc. New Mexico Midwest Credit Life Insurance Company Arizona Minnesota FSL Corporation Minnesota Minnetonka Overseas Investment Limited Cayman Islands, BWI Northern Prairie Indemnity Limited Cayman Islands, BWI Nortico Investments Limited Cayman Islands, BWI Norwest Agricultural Credit, Inc. Minnesota Norwest Alliance System, Inc. (inactive) Minnesota Norwest Audit Services, Inc. Minnesota Norwest BancAssurance Company Delaware Norwest Capital Management & Trust Co., Montana Montana Norwest Capital Markets, Inc. Minnesota Norwest Colorado, Inc. Colorado Norwest Credit, Inc. Minnesota Norwest Financial Services, Inc. Iowa Norwest Holding Company Delaware Norwest Indiana, Inc. Indiana Norwest Insurance, Inc. Minnesota Norwest Insurance Arizona, Inc. Arizona Norwest Investment Advisors, Inc. Minnesota Norwest Investment Management, Inc. Minnesota Norwest Investment Services, Inc. Minnesota Norwest Investors, Inc. Minnesota 111 Norwest Limited, Inc. Minnesota Norwest Nova, Inc. (inactive) Minnesota Norwest Properties, Inc. Minnesota Norwest Technical Services, Inc. Minnesota Peoples Mortgage and Investment Company Iowa Peregrine Capital Management, Inc. Minnesota P B Bancorp of Cedar Rapids, Inc. Iowa P N, Inc. Minnesota Spectrum Properties, Inc. Colorado St. Cloud Metropolitan Agency, Inc. Montana United Banks Financial Services Corporation (inactive) Colorado United Banks Insurance Services, Inc. Colorado United Equity Corporation (inactive) Colorado Wyoming National Bancorporation Wyoming Indirectly Owned: Abramson-Nault-Kreager-Oas Agency, Inc. (inactive) Minnesota American Land Title Co., Inc. Nebraska ATI Holding Company Minnesota Blackhawk Leasing Corporation (inactive) Minnesota Blue Spirit Insurance Company Arizona Boris Systems, Inc. Michigan Buffam, Inc. (inactive) Montana Capitol Community Development Corp. Colorado Cardinal Asset Management, Inc. Delaware Centennial Investment Corporation Minnesota Centurion Agency Ohio, Inc. (inactive) Ohio Centurion Agencies, Co. Iowa Centurion Casualty Company Iowa Centurion Life Insurance Company Missouri CGT Insurance Company Bahamas CHM Insurance Company South Dakota Clinton Street Garage Company Indiana Commonwealth Leasing Corporation Minnesota Copper Asset Management, Inc. Delaware Crop Hail Management Montana Crop Risk Management, Inc. (inactive) Texas Davenport Blackhawk Civic Corp. Iowa Davenport Bancorporation Iowa D.B. Food Service, Inc. Iowa Des Moines Holding Company (inactive) Iowa 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 Dial Finance Company of Washington (inactive) Washington Eau Claire Asset Management, Inc. Delaware Ellis Advertising, Inc. Iowa Falcon Asset Management, Inc. Delaware Faxual Credit Reporting Service, Inc. California FDMC, Inc. Colorado Fidelity National Life Insurance Company Arizona First DialWest Escrow Company, Inc. California 112 First Interstate Insurance Agency of Wisconsin, Inc. (inactive) Wisconsin Flore Properties, Inc. Minnesota Ford Bank Group, Inc. Texas Ford Bank Group Holdings, Inc. Texas Fremont Properties, Inc. Colorado Green Bay Asset Management, Inc. Delaware IntraWest Asset Management, Inc. Delaware IntraWest Insurance Company Arizona Iowa Asset Management, Inc. Delaware La Crosse Asset Management, Inc. Delaware LaSalle, Inc. Indiana Lincoln Building Corporation Colorado Mail Systems Co. Iowa Mercury Marine Finance, Inc. Iowa Minnetonka Representacoes Comerciais Ltda Brazil Mountain States Bankcard Association Colorado Nabankco, Inc. Indiana Nat-Lea, Inc. Indiana Norwest Agencies Montana, Inc. Montana Norwest Asia Limited Hong Kong Norwest Bank Building Company Minnesota Norwest Business Credit, Inc. Minnesota Norwest Center, Inc. Minnesota Norwest Credit Services New York, Inc. New York Norwest Equipment Finance, Inc. Minnesota Norwest Equity Capital, Inc. Minnesota Norwest Financial, Inc.* Iowa Norwest Financial Acceptance, Inc. Iowa Norwest Financial Business Credit, Inc. Iowa Norwest Financial Coast, Inc. California Norwest Financial Communication Services Group, Inc. 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 Resources, Inc. Iowa Norwest Funding, Inc. Minnesota Norwest Funding II, Inc. Minnesota Norwest Growth Fund, Inc. Minnesota Norwest Insurance Wyoming, Inc. Wyoming Norwest International Commercial Services Limited Hong Kong Norwest Mortgage, Inc. Minnesota Norwest Mortgage Asset Management Corp. Minnesota Norwest Mortgage Closing Services, Inc. Iowa Norwest Mortgage Conventional 1, Inc. Delaware Norwest Mortgage Insured 1, Inc. Delaware __________________ * 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 (71 subsidiaries at February 4, 1994). Such subsidiaries were incorporated or otherwise organized in: Alabama, Alaska, Arizona, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, 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 Ontario, Canada. 113 Norwest Mortgage Insured 2, Inc. Delaware Norwest Mortgage of New York, Inc. New York Norwest Operations Services, Inc. Colorado Norwest Properties Holding Company Minnesota Norwest Rural Insurance Services, Inc. Minnesota Norwest Trust Company, New York (a Limited Purpose Trust Company) New York Norwest V.C. Partners Minnesota Norwest Venture Capital Management, Inc. Minnesota Pearl Properties, Inc. Colorado RD Leasing, Inc. (inactive) Minnesota Regency Insurance Agency, Inc. Minnesota Rural Community Insurance Company Minnesota Rural Community Insurance, Inc. Minnesota Servcorp of Yankton, Inc. South Dakota Shipshewana Insurance Agency, Inc. Indiana South Bend Asset Management, Inc. Delaware South Dakota Asset Management, Inc. Delaware Stoutco, Inc. Colorado Superior Asset Management, Inc. Delaware Superior Central Asset Management, Inc. Delaware Superior Guaranty Insurance Company Vermont Superior Mesabi Asset Management, Inc. Delaware Superior North Asset Management, Inc. Delaware Superior Red Wing Asset Management, Inc. Delaware Superior South Asset Management, Inc. Delaware Superior South Central Asset Management, Inc. Delaware Superior Southeast Asset Management, Inc. Delaware Superior Southwest Asset Management, Inc. Delaware Superior West Asset Management, Inc. Delaware Teller Properties, Incorporated Colorado The Bank Information Services, Inc. (inactive) Minnesota The Bankers Company Colorado Tower Data Processing Corporation Iowa TW Properties, Inc. Colorado U.S. Recognition, Inc. New Jersey United Asset Management Services, Inc. (inactive) Colorado United Delivery Systems, Inc. Colorado United Mortgage Company Colorado United New Mexico Financial Corporation New Mexico Warranty Title, Inc. Minnesota Waupun Asset Management, Inc. Delaware Note: Not included in the above list of subsidiaries of the corporation are certain subsidiaries formed solely for the purpose of reserving a name. Information provided as of February 1, 1994 114 EX-23 8 CONSENT OF EXPERTS Exhibit 23. CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors Norwest Corporation: We consent to incorporation by reference of our report dated January 19, 1994 relating to the consolidated balance sheets of Norwest Corporation and subsidiaries as of December 31, 1993 and 1992, 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, 1993, which report appears in the December 31, 1993, Form 10-K of Norwest Corporation, in the following Registration Statements of Norwest Corporation: Nos. 2-95331, 33-10820, 33-11438, 33-21484, 33-21485, 33- 35162, 33-38767, 33-42198, 33-50305, 33-50307, 33-50309 and 33-50311 on Form S-8, Nos. 33-38013 (Post-effective Amendment No. 1 on Form S-8) and Nos. 33-1387, 33-12520, 33-13865, 33-38458 and 33-38806 on Form S-3 and No. 33-57904 on Form S-4. By /s/ KPMG Peat Marwick KPMG Peat Marwick Minneapolis, Minnesota March 8, 1994 115 EX-24 9 POWER OF ATTORNEY 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 WILLIAM A. HODDER, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and STEPHEN E. WATSON, 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 attorney-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 a Report on Form 10-K, 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 hereunto set the undersigned's hand this 22nd day of February, 1994. /s/ David A. Christensen 116 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 WILLIAM A. HODDER, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and STEPHEN E. WATSON, 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 attorney-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 a Report on Form 10-K, 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 hereunto set the undersigned's hand this 22nd day of February, 1994. /s/ Pierson M. Grieve 117 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 WILLIAM A. HODDER, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and STEPHEN E. WATSON, 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 attorney-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 a Report on Form 10-K, 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 hereunto set the undersigned's hand this 22nd day of February, 1994. /s/ Charles M. Harper 118 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 WILLIAM A. HODDER, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and STEPHEN E. WATSON, 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 attorney-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 a Report on Form 10-K, 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 hereunto set the undersigned's hand this 22nd day of February, 1994. /s/ N. Berne Hart 119 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 WILLIAM A. HODDER, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and STEPHEN E. WATSON, 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 attorney-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 a Report on Form 10-K, 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 hereunto set the undersigned's hand this 22nd day of February, 1994. /s/ William A. Hodder 120 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 WILLIAM A. HODDER, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and STEPHEN E. WATSON, 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 attorney-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 a Report on Form 10-K, 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 hereunto set the undersigned's hand this 22nd day of February, 1994. /s/ George C. Howe 121 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 WILLIAM A. HODDER, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and STEPHEN E. WATSON, 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 attorney-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 a Report on Form 10-K, 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 hereunto set the undersigned's hand this 22nd day of February, 1994. /s/ Lloyd P. Johnson 122 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 WILLIAM A. HODDER, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and STEPHEN E. WATSON, 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 attorney-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 a Report on Form 10-K, 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 hereunto set the undersigned's hand this 22nd day of February, 1994. /s/ Reatha Clark King 123 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 WILLIAM A. HODDER, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and STEPHEN E. WATSON, 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 attorney-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 a Report on Form 10-K, 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 hereunto set the undersigned's hand this 22nd day of February, 1994. /s/ Richard M. Kovacevich 124 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 WILLIAM A. HODDER, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and STEPHEN E. WATSON, 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 attorney-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 a Report on Form 10-K, 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 hereunto set the undersigned's hand this 22nd day of February, 1994. /s/ Richard S. Levitt 125 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 WILLIAM A. HODDER, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and STEPHEN E. WATSON, 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 attorney-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 a Report on Form 10-K, 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 hereunto set the undersigned's hand this 22nd day of February, 1994. /s/ Richard D. McCormick 126 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 WILLIAM A. HODDER, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and STEPHEN E. WATSON, 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 attorney-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 a Report on Form 10-K, 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 hereunto set the undersigned's hand this 22nd day of February, 1994. /s/ Cynthia H. Milligan 127 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 WILLIAM A. HODDER, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and STEPHEN E. WATSON, 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 attorney-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 a Report on Form 10-K, 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 hereunto set the undersigned's hand this 22nd day of February, 1994. /s/ John E. Pearson 128 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 WILLIAM A. HODDER, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and STEPHEN E. WATSON, 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 attorney-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 a Report on Form 10-K, 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 hereunto set the undersigned's hand this 22nd day of February, 1994. /s/ Ian M. Rolland 129 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 WILLIAM A. HODDER, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and STEPHEN E. WATSON, 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 attorney-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 a Report on Form 10-K, 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 hereunto set the undersigned's hand this 22nd day of February, 1994. /s/ Stephen E. Watson 130 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 WILLIAM A. HODDER, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and STEPHEN E. WATSON, 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 attorney-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 a Report on Form 10-K, 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 hereunto set the undersigned's hand this 22nd day of February, 1994. /s/ Michael W. Wright 131 -----END PRIVACY-ENHANCED MESSAGE-----