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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
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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
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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.
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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
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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.
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