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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, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-2979
NORWEST CORPORATION
A Delaware Corporation - I.R.S. No. 41-0449260
Norwest Center
Sixth and Marquette
Minneapolis, Minnesota 55479
Telephone (612) 667-1234
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
-------------------- -----------------------
Common Stock ($1 2/3 par value) New York Stock Exchange
Chicago Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Chicago Stock Exchange
6 3/4% Convertible Subordinated New York Stock Exchange
Debentures Due 2003
No securities are registered pursuant to Section 12(g) of the Act.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes x No __
----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
On January 31, 1996, 359,079,058 shares of common stock were outstanding having
an aggregate market value, based upon a closing price of $34.375 per share, of
$12,343.3 million. At that date, the aggregate market value of the voting stock
held by non-affiliates was in excess of $11,160.2 million.
Documents Incorporated by Reference
Portions of the corporation's Notice of Annual Meeting and Proxy Statement for
the annual meeting of stockholders to be held April 23, 1996, are incorporated
by reference into Part III.
PART I
ITEM 1. BUSINESS
GENERAL
Norwest Corporation (the corporation) is a diversified financial services
company organized under the laws of Delaware in 1929 and registered under the
Bank Holding Company Act of 1956, as amended (the BHC Act). As a diversified
financial services organization, the corporation owns subsidiaries engaged in
banking and in a variety of related businesses. Subsidiaries of the corporation
provide retail, commercial, and corporate banking services to customers through
banks located in Arizona, Colorado, Illinois, Indiana, Iowa, Minnesota, Montana,
Nebraska, Nevada, New Mexico, North Dakota, Ohio, South Dakota, Texas, Wisconsin
and Wyoming. Additional financial services are provided to customers by
subsidiaries engaged in various businesses, principally mortgage banking,
consumer finance, equipment leasing, agricultural finance, commercial finance,
securities brokerage and investment banking, insurance agency services, computer
and data processing services, trust services, mortgage-backed securities
servicing and venture capital investment.
At December 31, 1995, the corporation and its subsidiaries employed 45,404
persons, had consolidated total assets of $72.1 billion, total deposits of $42.0
billion, and total stockholders' equity of $5.3 billion. Based on total assets
at December 31, 1995, the corporation was the 13th largest bank holding company
in the United States.
The corporation provides to its subsidiaries various services, including
strategic planning, asset and liability management, investment administration
and portfolio planning, tax planning, new product and business development,
advertising, administrative and audit, employee benefits and payroll management.
In addition, the corporation provides funds to its subsidiaries. The
corporation derives substantially all its income from investments in and
advances to its subsidiaries and service fees received from its subsidiaries.
The Financial Review, which begins on page 17 in the Appendix, discusses
developments in the corporation's businesses during 1995 and provides financial
and statistical data relative to the business and operations of the corporation.
A brief description of the primary business lines of the corporation follows.
Refer to Note 16 of the corporation's consolidated financial statements for
additional information about the corporation's business segments.
Banking
As of February 1, 1996, the corporation's 40 subsidiary banks, located in 16
states with 734 locations, offer diversified financial services including
retail, commercial and corporate banking, equipment leasing, and trust services;
and through their affiliates offer insurance, securities brokerage, investment
banking and venture capital investment. Investment services are provided to
customers by Norwest Investment Services, Inc., a registered broker/dealer and a
registered investment adviser, which operates in 15 states with 161 offices,
primarily in banking locations. Norwest Insurance, Inc. and its subsidiaries
operate insurance agencies in seven states with 87 offices offering complete
lines of commercial and personal coverages to customers. A subsidiary of the
corporation operates one of the nation's top two crop insurance managing general
agencies. There are also three insurance companies that are owned by bank
affiliates and three other insurance companies that are owned directly or
indirectly by the corporation that reinsure credit-related insurance products
for banking affiliates.
Norwest Bank Minnesota, N.A. is the largest bank in the group with total assets
of $18.2 billion at December 31, 1995. Eight other banks in the group exceeded
$2.0 billion in total assets: Norwest Bank Iowa, N.A. ($6.7 billion), Norwest
Bank Colorado, N.A. ($6.6 billion), Norwest Bank South Dakota, N.A. ($5.2
billion), Norwest Bank Arizona, N.A. ($3.6 billion), Norwest Bank Wyoming, N.A.
($3.2 billion), Norwest Bank Nebraska, N.A. ($2.2 billion), Norwest Bank New
Mexico, N.A. ($2.1 billion), and Norwest Bank Indiana, N.A. ($2.1 billion).
Norwest Venture Capital consists of a group of five affiliated companies engaged
in making and managing investments in start-up businesses, emerging growth
companies, management buy-outs, acquisitions and corporate recapitalizations.
During 1995, Norwest Venture Capital made new investments of $116.5 million.
Norwest
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Venture Capital's investments typically range from $1,500,000 to
$15,000,000; however, larger sums may be invested in a single company, sometimes
through syndication with other venture capitalists. Most Norwest Venture
Capital emerging growth company clients are engaged in technology-related
businesses, such as computer software, telecommunications, medical products,
health care delivery, and industrial automation. Remaining clients are engaged
in environmental-related businesses and non-technology businesses, such as
specialty retailing and consumer-related businesses. Financing of management
buy-outs is done for a variety of businesses.
Mortgage Banking
Subsidiaries of the corporation originate and purchase residential first
mortgage loans for sale to various investors and provide servicing of mortgage
loans for others. Income is primarily earned from origination fees, loan
servicing fees, interest on mortgages held for sale, and the sale of mortgages
and servicing rights. Norwest Mortgage offers a wide range of FHA, VA and
conventional loan programs through a network of 724 offices in all 50 states.
Approximately 42 percent of the mortgages are FHA and VA mortgages guaranteed by
the federal government and sold as GNMA securities. In 1995 the company funded
$33.9 billion of mortgages, with the average loan being approximately $105,200.
This compares with $24.9 billion of fundings in 1994 and $33.7 billion in 1993.
The five states with the highest originations in 1995 are: California $5,544.5
million; Minnesota $2,498.6 million; Illinois $1,946.0 million; Colorado
$1,806.7 million; and Washington $1,734.4 million. The originations in these
five states comprise approximately 40 percent of total originations in 1995.
The five highest states in servicing include: California $23.4 billion;
Minnesota $8.5 billion; Colorado $5.6 billion; Texas $4.9 billion; and Illinois
$4.7 billion. These five states comprise approximately 44 percent of the total
servicing portfolio at year-end 1995. As of December 31, 1995, the mortgage
servicing portfolio totaled $107.4 billion with a weighted average coupon of
7.76 percent, as compared with $71.5 billion and 7.53 percent, respectively, at
December 31, 1994. The increase in 1995 was due in part to acquisitions of
Directors Mortgage Loan Corporation and the servicing portfolio of
BarclaysAmerican/Mortgage Corporation.
Consumer Finance
Norwest Financial consists of Norwest Financial Services, Inc. and its
subsidiaries and Island Finance, a group of eight companies operating in the
Caribbean and Central America. Consumer finance activities include providing
direct installment loans to individuals, purchasing sales finance contracts,
providing private label and other lease and accounts receivables services and
providing other related products and services. Norwest Financial provides
consumer finance products and services through 1,199 stores in 47 states, Guam,
all ten Canadian provinces, the Caribbean and Central America. At December 31,
1995, consumer finance receivables accounted for 93 percent of Norwest
Financial's total receivables. Direct installment loans to individuals
constitute the largest portion of the consumer finance business and, in
addition, sales finance contracts are purchased from retailers. The five states
with the largest consumer finance receivables are: California $448 million;
Florida $224 million; Texas $222 million; Illinois $201 million; and Ohio $194
million. Consumer finance receivables in Puerto Rico and Canada totaled $1.0
billion and $489 million, respectively, at December 31, 1995. The consumer
finance receivables of Puerto Rico, Canada, and the five largest states listed
above comprise approximately 42 percent of total consumer finance receivables at
year-end 1995. The average installment loan made during 1995 was approximately
$2,400, while sales finance contracts purchased during the year averaged
approximately $1,100. Comparable amounts in both 1994 and 1993 were $2,800 and
$1,000, respectively.
Norwest Financial's insurance subsidiaries are primarily engaged in the business
of providing, directly or through reinsurance arrangements, credit life and
credit disability insurance as a part of Norwest Financial's consumer finance
business. Property, involuntary unemployment and non-filing insurance also are
sold as part of Norwest Financial's consumer finance business, either directly
or through a reinsurance arrangement with one of its insurance subsidiaries or
on an agency basis.
Norwest Financial Information Services Group, Inc.(NFISG) has developed and
installed an on-line, real-time information processing and communications system
which connects, over leased telecommunication facilities, equipment located in
branch offices to the computer center in Norwest Financial's home office.
Branch employees use the computer to process loans and payments, to write checks
and to perform bookkeeping functions. In addition, as of December 31, 1995,
NFISG had contracts to supply information services to 27 other finance
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companies. On that date, approximately 2,700 branch offices were being served
and 6.1 million accounts were being maintained on the system.
Acquisitions
The corporation expands its businesses in part by acquiring banking institutions
and other companies engaged in activities closely related to banking. See Note
2 of the corporation's consolidated financial statements beginning on page 38 in
the Appendix regarding acquisitions by the corporation since 1993.
The acquisition of banking institutions and other companies by the corporation
is subject to the prior approval of the Board of Governors of the Federal
Reserve System (the Federal Reserve Board) and may be subject to the prior
approval of other federal and state regulatory authorities. Effective September
29, 1995, under the interstate banking provisions of the Reigle-Neal Interstate
Banking and Branching Act of 1994 (the Reigle-Neal Act), the corporation is
permitted to acquire banks in any state subject to the prior approval of the
Federal Reserve Board, certain limited conditions that a state may impose and
deposit concentration limits of 10 percent nationwide and 30 percent in any one
state, unless it is the initial entry of a banking institution into that state.
Effective June 1, 1997, under the interstate branching provisions of the Reigle-
Neal Act, banking subsidiaries of the corporation will be permitted to acquire
directly a banking institution located in a state other than the state in which
the acquiring bank is located (interstate bank merger), through merger,
consolidation, or purchase of assets and assumption of liabilities, unless the
state in which either of the banks is located has enacted a law opting out of
the interstate branching provisions of the Reigle-Neal Act. An interstate bank
merger may occur before June 1, 1997, if the states in which the merging banks
are located have enacted a law authorizing interstate bank mergers. Interstate
bank mergers are subject to the prior approval of the applicable federal and
state regulatory authorities, and may be subject to certain limited conditions
that a state may impose and the concentration limits outlined above.
In determining whether to approve a proposed bank acquisition or merger, bank
regulatory authorities consider a number of factors including the effect of the
proposed acquisition on competition, the public benefits expected to be derived
from the consummation of the proposed transaction, the projected capital ratios
and levels on a post acquisition basis, and the acquiring institution's record
of addressing the credit needs of the communities it serves, including the needs
of low and moderate income neighborhoods, consistent with the safe and sound
operation of the bank, under the Community Reinvestment Act of 1977, as amended.
COMPETITION
Legislative and regulatory changes coupled with technological advances have
significantly increased competition in the financial services industry. The
corporation's 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 and
mutual funds. Competition has also increased from such non-banking institutions
as brokerage houses and insurance companies, as well as financial services
subsidiaries of commercial and manufacturing companies, that are not necessarily
subject to the same regulatory restrictions as banks and bank holding companies.
GOVERNMENT POLICIES, SUPERVISION AND REGULATION
General
As a bank holding company, the corporation is subject to the supervision and
examination by the Federal Reserve Board. The corporation's banking
subsidiaries are subject to supervision and examination by applicable federal
and state banking agencies. The deposits of the corporation's banking
subsidiaries are primarily insured by the Bank Insurance Fund (BIF); deposits
attributable to certain of the corporation's savings associations are insured by
the Savings Association Insurance Fund (SAIF). For that reason, such banking
subsidiaries are subject to regulation by the Federal Deposit Insurance
Corporation (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.
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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.
Refer to Note 19 of the corporation's consolidated financial statements for
additional information.
Holding Company Structure
The corporation is a legal entity separate and distinct from its banking and
nonbanking subsidiaries. Accordingly, the right of the corporation, and thus the
right of the corporation's creditors, to participate in any distribution of the
assets or earnings of any subsidiary, other than in its capacity as a creditor
of the subsidiary, is necessarily subject to the prior payment of claims of
creditors of such subsidiary. The principal sources of the corporation's
revenues are dividends and fees from its subsidiaries.
The corporation's banking subsidiaries are subject to restrictions under federal
law which limit the transfer of funds by the subsidiary banks to the corporation
and its non-bank subsidiaries, whether in the form of loans, extensions of
credit, investments, or asset purchases. Such transfers by any subsidiary bank
to the corporation or any non-bank subsidiary are limited in amount to 10
percent of the bank's capital and surplus and, with respect to the corporation
and all non-bank subsidiaries, to an aggregate of 20 percent of the bank's
capital and surplus. Further, such loans and extensions of credit are required
to be secured in specified amounts.
The Federal Reserve Board has a policy to the effect that a bank holding company
is expected to act as a source of financial and managerial strength to each of
its subsidiary banks and to commit resources to support each subsidiary bank.
This support may be required at times when the corporation may not have the
resources to provide 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 stockholder of
most of its subsidiary banks, is subject to such provisions.
Capital Requirements
Under the Federal Reserve Board's risk-based capital guidelines for bank holding
companies, the minimum ratio of total capital to risk-adjusted assets (including
certain off-balance sheet items, such as stand-by letters of credit) is eight
percent. At least half of the total capital is to be comprised of common stock,
minority interests and noncumulative perpetual preferred stock (Tier 1 capital).
The remainder (Tier 2 capital) may consist of hybrid capital instruments,
perpetual stock, mandatory convertible debt securities, a limited amount of
subordinated debt, other preferred stock and a limited amount of the allowance
for credit losses. Additionally, the risk-based capital guidelines specify that
all intangibles, including core deposit intangibles, as well as mortgage
servicing rights (MSRs), and purchased credit card relationships (PCCRs) be
deducted from Tier 1 capital. The guidelines, however, grandfather identifiable
intangible assets (other than MSRs and PCCRs) acquired on or before February 19,
1992, and permit the inclusion of readily marketable PMSRs and PCCRs in Tier 1
capital to the extent that (i)
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MSRs and PCCRs do not exceed 50 percent of Tier 1 capital and (ii) PCCRs do not
exceed 25 percent of Tier 1 capital. For such purposes, MSRs and PCCRs each are
included in Tier 1 capital only up to the lesser of (a) 90 percent of their fair
market value (which must be determined quarterly) and (b) 100 percent of the
remaining unamortized book value of such assets. The OCC has adopted
substantially similar regulations. In addition, the Federal Reserve Board has
specified minimum "leverage ratio" (the ratio of Tier 1 capital to quarterly
average total assets) guidelines for bank holding companies and state member
banks. These guidelines provide for a minimum leverage ratio of three percent
for bank holding companies and state member banks that meet certain specified
criteria, including that they have the highest regulatory rating. All other bank
holding companies and state member banks are required to maintain a leverage
ratio of three percent plus an additional cushion of one to two percent. The
guidelines also provide that banking organizations experiencing internal growth
or making acquisitions are expected to maintain strong capital positions
substantially above the minimum supervisory levels, without significant reliance
on intangible assets. Furthermore, the guidelines indicate that the Federal
Reserve Board will continue to consider a "tangible Tier 1 leverage ratio" in
evaluating proposals for expansion or new activities. The tangible Tier 1
leverage ratio is the ratio of a banking organization's Tier 1 capital, less all
intangibles, to total assets, less all intangibles. Each of the corporation's
banking subsidiaries is also subject to capital requirements adopted by
applicable regulatory agencies which are substantially similar to the foregoing.
At December 31, 1995, the corporation's Tier 1 and total capital (the sum of
Tier 1 and Tier 2 capital) to risk-adjusted assets ratios were 8.11 percent and
10.18 percent, respectively, and the corporation's leverage ratio was 5.65
percent. Neither the corporation nor any subsidiary bank has been advised by the
appropriate federal regulatory agency of any specific leverage ratio applicable
to it.
As a result of federal law enacted in 1991 that required each federal banking
agency to revise its risk-based capital standards to ensure that those standards
take adequate account of interest rate risk, concentration of credit risk and
the risks of nontraditional activities, each of the federal banking agencies has
revised the risk-based capital guidelines described above to take account of
concentration of credit risk and risk of nontraditional activities. In
addition, the Federal Reserve Board, the FDIC and the OCC recently adopted a new
rule that amends, effective September 1, 1995, the capital standards to include
explicitly a bank's exposure to declines in the economic value of its capital
due to changes in interest rates as a factor to be considered in evaluating a
bank's interest rate exposure. Such agencies have issued for comment a joint
policy statement that describes the process to be used to measure and assess the
exposure of a bank's net economic value to changes in interest rates. These
agencies have indicated that in the second step of this regulation process they
intend to issue a rule that would propose to establish an explicit minimum
capital charge for interest rate risk based on the level of a bank's measured
interest rate exposure. The agencies intend to implement the second step after
the agencies and the banking industry have had more experience with the proposed
supervisory and measurement process. The corporation does not believe that
these recent proposals and revisions to the capital guidelines will materially
impact its operations.
Federal Deposit Insurance Corporation Improvement Act of 1991
In December 1991, Congress enacted the Federal Deposit Insurance Corporation
Improvement Act of 1991 (FDICIA), which substantially revised the bank
regulatory and funding provisions of the Federal Deposit Insurance Act and made
revisions to several other federal banking statutes. Among other things, FDICIA
requires the federal banking regulators to take "prompt corrective action" in
respect of depository institutions insured by the FDIC that do not meet minimum
capital requirements. FDICIA establishes five capital tiers: "well capitalized",
"adequately capitalized", "undercapitalized", "significantly undercapitalized"
and "critically undercapitalized".
Under applicable regulations, an FDIC-insured depository institution is defined
to be well capitalized if it maintains a leverage ratio of at least five
percent, a risk-adjusted Tier 1 capital ratio of at least six percent, and a
risk-adjusted total capital ratio of at least 10 percent, and is not subject to
a directive, order, or written agreement to meet and maintain specific capital
levels. An insured depository institution is defined to be adequately
capitalized if it meets all of its minimum capital requirements as described
above. An insured depository institution will be considered undercapitalized if
it fails to meet any minimum required measure, significantly undercapitalized if
it has a risk-adjusted total capital ratio of less than six percent, risk-
adjusted Tier 1 capital ratio of less than three percent, or a leverage ratio of
less than three percent, and critically undercapitalized if it fails to maintain
a level of tangible equity equal to at least two percent of total assets. An
insured depository institution may be deemed to be in a capitalization category
that is lower than is indicated by its actual capital position if it
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receives an unsatisfactory examination rating. As of December 31, 1995, all of
the corporation's banking subsidiaries were well capitalized.
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a dividend) or paying any management fee to
its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are subject to a
wide range of limitations on operations and activities, including growth
limitations, and are required to submit a capital restoration plan. The federal
banking agencies may not accept a capital plan without determining, among other
things, that the plan is based on realistic assumptions and is likely to succeed
in restoring the depository institution's capital. In addition, for a capital
restoration plan to be acceptable, the depository institution's parent holding
company must guarantee that the institution will comply with such capital
restoration plan. The aggregate liability of the parent holding company is
limited to the lesser of (i) an amount equal to five percent of the depository
institution's total assets at the time it became undercapitalized and (ii) the
amount which is necessary (or would have been necessary) to bring the
institution into compliance with all capital standards applicable with respect
to such institution as of the time it fails to comply with the plan. If a
depository institution fails to submit an acceptable plan, it is treated as if
it were significantly undercapitalized.
Significantly undercapitalized depository institutions may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized, requirements to reduce total
assets, and cessation of receipt of deposits from correspondent banks.
Critically undercapitalized institutions are subject to the appointment of a
receiver or conservator.
FDICIA, as amended by the Reigle Community Development and Regulatory
Improvement Act of 1994 enacted on August 22, 1994, directs that each federal
banking agency prescribe standards, by regulation or guideline, for depository
institutions relating to internal controls, information systems, internal audit
systems, loan documentation, credit underwriting, interest rate exposure, asset
growth, compensation, asset quality, earnings, stock valuation, and such other
operational and managerial standards as the agency deems appropriate. The FDIC,
in consultation with the other federal banking agencies, has adopted a final
rule and guidelines with respect to internal and external audit procedures and
internal controls in order to implement those provisions of FDICIA intended to
facilitate the early identification of problems in financial management of
depository institutions. On July 10, 1995, the federal banking agencies
published the final rules implementing three of the safety and soundness
standards required by FDICIA, including operational and managerial standards,
asset quality and earnings standards, and compensation standards. The impact of
such standards on the corporation has not yet been fully determined, but
management does not believe it will be material.
FDICIA also contains a variety of other provisions that may affect the
operations of the corporation, including new reporting requirements, revised
regulatory standards for real estate lending, "truth in savings" provisions, and
the requirement that a depository institution give 90 days' notice to customers
and regulatory authorities before closing any branch.
Under other regulations promulgated under FDICIA a bank cannot accept brokered
deposits (that is, deposits obtained through a person engaged in the business of
placing deposits with insured depository institutions or with interest rates
significantly higher that prevailing market rates) unless (i) it is well
capitalized or (ii) it is adequately capitalized and receives a waiver from the
FDIC. A bank that cannot receive brokered deposits also cannot offer "pass-
through" insurance on certain employee benefit accounts, unless it provides
certain notices to affected depositors. In addition, a bank that is adequately
capitalized and that has not received a waiver from the FDIC may not pay an
interest rate on any deposits in excess of 75 basis points over certain
prevailing market rates. There are no such restrictions on a bank that is well
capitalized. At December 31, 1995, all of the corporation's banking subsidiaries
were well capitalized and, therefore, were not subject to these restrictions.
FDIC Insurance
Each BIF member institution pays FDIC insurance premiums based on the
institution's annual assessment rate assigned to it by the FDIC. The assessment
rate is based on the institution's capitalization risk category and "supervisory
subgroup." An institution's capitalization risk category is based on the FDIC's
determination of
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whether the institution is well capitalized, adequately capitalized or less than
adequately capitalized. An institution's supervisory subgroup is based on the
FDIC's assessment of the financial condition of the institution and the
probability that FDIC intervention or other corrective action will be required.
Subgroup A institutions are financially sound institutions with few minor
weaknesses; Subgroup B institutions are institutions that demonstrate weakness
which, if not corrected, could result in significant deterioration; and Subgroup
C institutions are institutions for which there is a substantial probability
that the FDIC will suffer a loss in connection with the institution unless
effective action is taken to correct the areas of weakness. In 1995, the FDIC
assessment rate ranged from 4 cents per $100 of domestic deposits (for well
capitalized Subgroup A institutions) to 31 cents (for undercapitalized Subgroup
C institutions). The FDIC has approved regulations that would substantially
eliminate deposit insurance premiums for the corporation's banking subsidiaries
in 1996. In 1995, the corporation incurred $69.9 million of FDIC assessment
expense, net of $20.6 million in insurance premium refunds, as compared with
$79.2 million in 1994.
Deposits insured by SAIF held by the corporation's bank subsidiaries as a result
of savings association acquisitions by the corporation and its subsidiaries
continue to be assessed at the applicable SAIF insurance premium rate. Current
federal law provides that the SAIF assessment rate may not be less than 0.18%
from January 1, 1994 through December 31, 1997. After December 31, 1997, the
SAIF assessment rate must be a rate determined by the FDIC to be appropriate to
increase the SAIF's reserve ratio to 1.25% of insured deposits or such higher
percentage as the FDIC determines to be appropriate, but the assessment rate may
not be less than 0.15%. In order to mitigate the potential effects of a
BIF/SAIF premium disparity, Congress recently proposed legislation in September
of 1995 that would, among other things, recapitalize the SAIF by imposing a
special one-time assessment on SAIF deposits. The proposed legislation also
contemplates the merger of the BIF and the SAIF into one insurance fund after
the SAIF is recapitalized. This legislation is included in the current balanced
budget legislation and as such, its approval has not yet been finalized. As a
result of such pending legislation and to provide for such special assessment
when and if imposed, the corporation has established a reserve of $23.5 million
based on an estimated insurance premium rate of 66 cents per $100 of insured
deposits, which reserve has been funded primarily by the refund of BIF insurance
premiums. The effect of this legislation, if adopted, is not anticipated to be
material to the corporation.
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ITEM 2. PROPERTIES
The corporation's bank subsidiaries operate out of 734 banking locations, of
which 505 are owned directly and 229 are leased from outside parties. The
mortgage banking operation leases its headquarters facilities and servicing
center in Des Moines, Iowa and leases servicing centers in Minneapolis,
Minnesota; Southfield, Michigan; Phoenix, Arizona; Riverside, California;
Charlotte, North Carolina; and leases all mortgage production offices
nationwide. In addition, the mortgage banking operation owns an additional
servicing center located in Springfield, Ohio. Norwest Financial owns its
headquarters in Des Moines, Iowa, and leases all consumer finance branch
locations. The corporation and Norwest Bank Minnesota, N.A. lease their offices
in Minneapolis, Minnesota.
The accompanying notes to consolidated financial statements on pages 45 and 59
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
The corporation and certain subsidiaries are defendants in various matters of
litigation generally incidental to their businesses. Although it is difficult
to predict the ultimate outcome of these cases, management believes, based on
discussions with counsel, that any ultimate liability will not materially affect
the consolidated financial position and results of operations of the corporation
and its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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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 this Form 10-K. The high and low sales prices for the
corporation's common stock for each quarter during the past two years and
information regarding cash dividends is set forth on pages 50 through 52, 72,
and 81 in the Appendix. The number of holders of record of the common stock and
securities convertible into common stock of the corporation at January 31, 1996
were:
Title of Class Number of Holders
-------------- -----------------
6 3/4 % Convertible
Subordinated Debentures Due 2003.......................... 6
Common Stock, par value $1 2/3 per share.................. 32,445
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data begins on page 75 in the Appendix.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The discussion and analysis is presented beginning on page 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 30 in the Appendix. The report of independent certified public
accountants on the corporation's consolidated financial statements is presented
on page 73 in the Appendix.
Selected quarterly financial data is presented on pages 81 and 82 in the
Appendix.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
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
The corporation filed Current Reports on Form 8-K dated October 4,
1995, filing certain documents in connection with the offering of
Medium-Term Notes, Series I; and November 1, 1995, filing certain
documents in connection with the offering of Medium-Term Notes, Series
H, and a Certificate Eliminating the Certificate of Designations with
respect to the Cumulative Convertible Preferred Stock, Series B.
(c) Exhibits
3(a). Restated Certificate of Incorporation, as amended, incorporated by
reference to Exhibit 3(b) to the corporation's Current Report on
Form 8-K dated June 28, 1993. Certificate of Amendment of
Certificate of Incorporation of the corporation authorizing
4,000,000 shares of Preference Stock, incorporated by reference to
Exhibit 3 to the corporation's Current Report on Form 8-K dated July
3, 1995.
3(b). Certificate of Designations of powers, preferences and rights
relating to the corporation's ESOP Cumulative Convertible Preferred
Stock incorporated by reference to Exhibit 4 to the corporation's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1994.
3(c). Certificate of Designations of powers, preferences and rights
relating to the corporation's Cumulative Tracking Preferred Stock
incorporated by reference to Exhibit 3 to the corporation's Current
Report on Form 8-K dated January 9, 1995.
3(d). Certificate of Designations of powers, preferences and rights
relating to the corporation's 1995 ESOP Cumulative Convertible
Preferred Stock incorporated by reference to Exhibit 4 to the
corporation's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995.
3(e). Certificate Eliminating the Certificate of Designations with respect
to the Cumulative Convertible Preferred Stock, Series B,
incorporated by reference to Exhibit 3(a) to the corporation's
Current Report on Form 8-K dated November 1, 1995.
3(f). Certificate Eliminating the Certificate of Designations with respect
to the 10.24% Cumulative Preferred Stock incorporated by reference
to Exhibit 3 to the corporation's Current Report on Form 8-K dated
February 20, 1996.
3(g). 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.
12
4(a). See 3(a) through 3(g) 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). 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(b). Employees' Stock Deferral Plan incorporated by reference to Exhibit
10(c) to the corporation's Annual Report on Form 10-K for the year
ended December 31, 1992.
*10(c). Employees' Deferred Compensation Plan, as amended.
*10(d). Executive Incentive Compensation Plan incorporated by reference to
Exhibit 19(a) to the corporation's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1988. Amendment to Executive Incentive
Compensation Plan incorporated by reference to Exhibit 19(b) to the
corporation's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1989.
*10(e). Performance-Based Compensation Policy for Covered Executive Officers
incorporated by reference to Exhibit 10(a) to the corporation's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1994.
*10(f). Supplemental Savings Investment Plan, as amended.
*10(g). Executive Financial Counseling Plan incorporated by reference to
Exhibit 10(f) to the corporation's Annual Report on Form 10-K for
the year ended December 31, 1987.
*10(h). Supplemental Long Term Disability Plan incorporated by reference to
Exhibit 10(f) to the corporation's Annual Report on Form 10-K for
the year ended December 31, 1990. Amendment to Supplemental Long
Term Disability Plan, incorporated by reference to Exhibit 10(g) to
the corporation's Annual Report on Form 10-K for the year ended
December 31, 1992.
*10(i). Deferred Compensation Plan for Non-Employee Directors, as amended.
*10(j). 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(k). Directors' Formula Stock Award Plan, as amended, incorporated by
reference to Exhibit 10(a) to the corporation's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1995.
*10(l). Directors' Stock Deferral Plan incorporated by reference to Exhibit
19 to the corporation's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1992.
*10(m). Agreement between the corporation and Lloyd P. Johnson dated March
11, 1991, incorporated by reference to Exhibit 19(c) to the
corporation's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1991.
13
*10(n). Agreement between the corporation and Richard M. Kovacevich dated
March 18, 1991, incorporated by reference to Exhibit 19(e) to the
corporation's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1991. Amendment effective January 1, 1995 to the March 18,
1991 agreement between the corporation and Richard M. Kovacevich,
incorporated by reference to Exhibit 10(c) to the corporation's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1995.
*10(o). Form of agreement between the corporation and 13 executive officers,
including one director, incorporated by reference to Exhibit 19(f)
to the corporation's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1991. Amendment effective January 1, 1995, to the
March 11, 1991 agreement between the corporation and Richard M.
Kovacevich incorporated by reference to Exhibit 10(b) to the
corporation's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995.
*10(p). Consulting Agreement between the corporation and Gerald J. Ford
dated January 19, 1994, incorporated by reference to Exhibit 10(q)
to the corporation's Annual Report on Form 10-K for the year ended
December 31, 1993.
11. Computation of Earnings Per Share.
12(a). Computation of Ratio of Earnings to Fixed Charges.
12(b). Computation of Ratio of Earnings to Fixed Charges and Preferred
Stock Dividends.
21. Subsidiaries of the Corporation
23. Consent of Experts.
24. Powers of Attorney.
___________________
* Management contract or compensatory plan or arrangement.
Stockholders may obtain a copy of any Exhibit, Item 14(c), none of which are
contained herein, upon payment of a reasonable fee, by writing Norwest
Corporation, Office of the Secretary, Norwest Center, Sixth and Marquette,
Minneapolis, Minnesota 55479-1026.
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 26th day of
February, 1996.
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 26th day of February, 1996, by the following persons on
behalf of the registrant and in the capacities indicated.
By /s/ JOHN T. THORNTON
------------------------
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
By /s/ MICHAEL A. GRAF
-----------------------
Michael A. Graf
Senior Vice President and Controller
(Principal Accounting Officer)
The Directors of Norwest Corporation listed below have duly executed powers of
attorney empowering Richard S. Levitt to sign this document on their behalf.
David A. Christensen Richard M. Kovacevich
Gerald J. Ford Richard D. McCormick
Pierson M. Grieve Cynthia H. Milligan
Charles M. Harper Benjamin F. Montoya
William A. Hodder Ian M. Rolland
Lloyd P. Johnson Stephen E. Watson
Reatha Clark King Michael W. Wright
By /s/ RICHARD S. LEVITT
---------------------
Richard S. Levitt
Director and Attorney-in-Fact
February 26, 1996
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, 1995
Contents
--------
Page
----
Financial Review........................................ 17
Financial Statements.................................... 30
Independent Auditors' Report............................ 73
Management's Report..................................... 74
Six-Year Consolidated Financial Summary................. 75
Consolidated Average Balance Sheets
and Related Yields and Rates............................ 77
Quarterly Condensed Consolidated Financial Information.. 81
16
FINANCIAL REVIEW
This financial review should be read with the consolidated financial statements
and accompanying notes presented on pages 30 through 72 and other information
presented on pages 75 through 82.
Earnings Performance
Norwest Corporation (the corporation) reported record net income of $956.0
million in 1995, an increase of 19.4 percent over earnings of $800.4 million in
1994, which were up 30.6 percent over the $613.1 million earned in 1993. Net
income per fully diluted common share was $2.73 in 1995, compared with $2.41 in
1994 and $1.86 in 1993, an increase of 13.3 percent and 29.6 percent,
respectively. Return on realized common equity was 22.3 percent and return on
assets was 1.44 percent for 1995, compared with 21.4 percent and 1.45 percent,
respectively, in 1994, and 18.2 percent and 1.20 percent, respectively, in 1993.
The corporation's results for periods prior to 1994 were previously restated to
include the results of First United Bank Group, Inc. (First United), which was
acquired by the corporation effective January 14, 1994 and was accounted for
using the pooling of interests method of accounting. Included in 1993 earnings
were First United's $16.5 million of additional provision for credit losses for
the purpose of conforming First United's credit loss practices and policies to
those of the corporation and $83.2 million of merger and transition related
expenses.
Norwest Corporation and Subsidiaries
Consolidated Income Summary
5 Year
Growth
In millions 1995 Change 1994 Change 1993 1992 1991 Rate
-------- ------ ------- ------ -------- -------- -------- -----
Interest income
(tax-equivalent basis).... $5,750.8 30.0% $4,422.7 11.1% $3,979.6 $3,844.3 $4,073.7 7.8%
Interest expense........... 2,448.0 54.0 1,590.1 10.2 1,442.9 1,610.6 2,150.3 1.1
-------- -------- -------- -------- --------
Net interest income....... 3,302.8 16.6 2,832.6 11.7 2,536.7 2,233.7 1,923.4 15.2
Provision for credit
losses.................... 312.4 89.4 164.9 4.2 158.2 270.8 406.4 (6.3)
-------- -------- -------- -------- --------
Net interest income after
provision for credit
losses................... 2,990.4 12.1 2,667.7 12.2 2,378.5 1,962.9 1,517.0 20.2
Non-interest income........ 1,865.0 13.8 1,638.3 3.4 1,585.0 1,273.7 1,064.0 15.8
Non-interest expenses...... 3,399.1 9.8 3,096.4 1.5 3,050.4 2,553.1 2,041.5 14.3
-------- -------- -------- -------- --------
Income before income
taxes.................... 1,456.3 20.4 1,209.6 32.5 913.1 683.5 539.5 33.5
Income tax expense......... 466.8 22.8 380.2 42.6 266.7 175.6 73.4 32.3
Tax-equivalent adjustment.. 33.5 15.5 29.0 (12.9) 33.3 37.9 47.8 (10.8)
-------- -------- -------- -------- --------
Income before cumulative
effect of a change in
accounting for
postretirement medical
benefits.................. 956.0 19.4 800.4 30.6 613.1 470.0 418.3 41.4
Cumulative effect on years
ended prior to December
31, 1992 of a change in
accounting for
postretirement medical
benefits.................. _ _ _ _ _ (76.0) _ _
-------- -------- -------- -------- --------
Net income................. $ 956.0 19.4% $ 800.4 30.6% $ 613.1 $ 394.0 $ 418.3 41.4%
======== ======== ======== ======== ========
Organizational Earnings
Banking The Banking Group reported record earnings of $602.2 million in 1995,
18.8 percent over 1994 earnings of $507.1 million, which increased 42.1 percent
over 1993 earnings of $356.7 million. Included in the 1993 Banking Group results
are First United's additional provision for credit losses and merger and
transition related expenses totaling $99.7 million before income taxes. The
Banking Group earnings increases in 1995 and 1994 reflect a 17.4 percent and
17.1 percent growth in tax-equivalent net interest income, respectively,
primarily due to increases in average earning assets and net interest margin.
The Banking Group's provision for credit losses increased to $143.0 million in
1995, compared with $50.5 million for 1994, due to higher net charge-offs. In
1994, the provision for loan losses decreased from 1993 reflecting lower
17
levels of net credit losses and non-performing assets. Non-interest income in
the Banking Group increased 24.1 percent from 1994 and decreased 9.7 percent
from 1993 to 1994 due largely to investment securities losses in 1994. Non-
interest income in 1995 also benefited from growth in service charges and other
fees and higher venture capital gains. The Banking Group non-interest expenses
increased 14.9 percent in 1995 reflecting additional operating expenses related
to acquired companies, partially offset by reductions in FDIC insurance premiums
discussed below. The Banking Group non-interest expenses decreased 1.5 percent
in 1994.
The venture capital subsidiaries realized $102.1 million of net gains in 1995,
compared with net gains of $77.1 million in 1994 and net gains of $59.5 million
in 1993. Virtually all appreciated securities included in the $59.5 million of
net venture capital gains in 1993 were contributed to the Norwest Foundation,
compared with $19.6 million in 1994 and none in 1995, due to the funding status
of the Foundation. Contribution amounts of these appreciated securities, which
included cost basis, were $69.8 million in 1993 and $21.8 million in 1994. Net
unrealized appreciation in the venture capital investment portfolio was $169.3
million at December 31, 1995 and $61.3 million at December 31, 1994.
In September 1995, the Banking Group received refunds of $20.6 million due to
the FDIC premium reduction. Effective with the fourth quarter of 1995, the
Banking Group is currently assessed insurance premiums at the reduced rate of
approximately 4 cents per $100 of insured deposits, down from 23 cents per $100
of insured deposits. The FDIC has approved regulations that will substantially
eliminate deposit insurance premiums for Banking Group deposits in 1996.
Legislation also has been introduced in Congress that would impose a one-time
charge on deposits insured by the Savings Association Insurance Fund (SAIF) to
recapitalize the SAIF deposit insurance fund for savings and loan associations.
In the past five years, the corporation has acquired savings and loan
associations and would be subject to such a charge. Consequently, a $23.5
million accrual for such an assessment was established when the FDIC premium
refund was received.
Mortgage Banking Mortgage Banking earned a record $104.9 million in 1995, $70.8
million in 1994 and $56.3 million in 1993. The 48.0 percent increase in 1995
earnings was principally due to increases in mortgage loan fundings and the
servicing portfolio. Sales of servicing rights and growth in the servicing
portfolio contributed to the 25.9 percent increase in 1994 earnings. Fundings
were $33.9 billion in 1995, compared with $24.9 billion in 1994 and $33.7
billion in 1993. Approximately 19.6 percent of 1995 fundings were attributed to
mortgage loan refinancings, compared with 16.0 percent in 1994 and 45.6 percent
in 1993. Net servicing retained during 1995 totalled $35.9 billion, compared
with $25.8 billion in 1994 and $24.1 billion in 1993. The servicing portfolio
increased to $107.4 billion at December 31, 1995, compared with $71.5 billion at
December 31, 1994. The increase in 1995 was due in part to acquisitions of
Directors Mortgage Loan Corporation and the servicing portfolio of
BarclaysAmerican/Mortgage Corporation. In January 1996, Norwest Mortgage, Inc.
also signed a definitive agreement to acquire substantially all the assets of
Prudential Home Mortgage Company, Inc., including $40 billion of its servicing
portfolio. Mortgage Banking earnings were also positively impacted by the
corporation's adoption of Statement of Financial Accounting Standards No. 122,
"Accounting for Mortgage Servicing Rights, an amendment of FASB Statement No.
65" (FAS 122) in 1995. FAS 122 sets standards related to capitalizing values for
mortgage servicing and recognition of impairment valuations for amounts
previously capitalized. Under FAS 122 the corporation recognizes as separate
assets the rights to service mortgage loans for others whether the servicing
rights are acquired through purchase transactions or through loan originations.
Approximately 125 basis points of originated mortgage loans, or $233.1 million,
were capitalized as mortgage servicing rights in 1995. Mortgage servicing
impairment valuation provisions, including writedowns of excess servicing
rights, totaled $70.5 million in 1995. Amortization of capitalized mortgage
servicing rights, including excess servicing rights, was $139.6 million in 1995,
compared with $64.1 million and $66.6 million in 1994 and 1993, respectively.
The additional amortization in 1995 principally reflects increased prepayments
due to lower interest rates. Combined gains on sales of mortgages and servicing
rights were $57.1 million in 1995, compared with $204.5 million in 1994 and
$202.2 million in 1993.
Norwest Financial Norwest Financial (including Norwest Financial Services, Inc.
and Island Finance) reported record earnings of $248.9 million in 1995, an 11.8
percent increase over the $222.5 million earned in 1994, which was an increase
of 11.2 percent over the $200.1 million earned in 1993. The increases were
primarily due to increases in tax-equivalent net interest income of 21.4 percent
and 12.5 percent, respectively, for 1995 and 1994. The increase in tax-
equivalent net interest income was due to 28.4 percent and 14.4 percent
increases in average finance receivables in 1995 and 1994, respectively. The
1995 increase in tax-equivalent net interest income and average receivables was
also due in part to the acquisition of ITT Financial Corporation's Island
Finance business, with $1 billion in receivables in Puerto Rico, the Virgin
Islands and elsewhere in the Caribbean. Net interest margin decreased 66 basis
points in 1995 and decreased 29 basis points in 1994, reflecting a narrowing of
the yield spread on earning assets. Norwest Financial's non-interest expenses
increased 22.9 percent
18
and 10.0 percent in 1995 and 1994, respectively, primarily due to the
acquisition of Island Finance and the March 1994 acquisition of the consumer
finance business of Community Credit Co.
Norwest Corporation and Subsidiaries
Organizational Earnings*
In millions 1995 1994 1993 1992 1991
------- ------ ------ ------ ------
Years Ended December 31,
- ------------------------
Banking................................. $602.2 507.1 356.7 257.6 263.4
Mortgage Banking........................ 104.9 70.8 56.3 53.4 31.4
Norwest Financial....................... 248.9 222.5 200.1 159.0 123.5
------ ----- ----- ----- -----
Consolidated income before cumulative
effect of a change in accounting
for postretirement medical benefits.... 956.0 800.4 613.1 470.0 418.3
Cumulative effect on years ended prior
to December 31, 1992 of a change in
accounting for postretirement medical
benefits .............................. -- -- -- (76.0) --
------ ----- ----- ----- -----
Net income.............................. $956.0 800.4 613.1 394.0 418.3
====== ===== ===== ===== =====
*Earnings of the entities listed are impacted by intercompany revenues and
expenses, such as interest on borrowings from the parent company, corporate
service fees and allocations of federal income taxes.
Consolidated Income Statement Analysis
Net Interest Income Net interest income on a tax-equivalent basis is the
difference between interest earned on assets and interest paid on liabilities,
with adjustments made to present yields on tax-exempt assets as if such income
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 1995, tax-equivalent net interest income provided
63.9 percent of the corporation's net revenues, compared with 63.4 percent in
1994 and 61.5 percent in 1993.
Total tax-equivalent net interest income was $3,302.8 million in 1995, a 16.6
percent increase over the $2,832.6 million reported in 1994. Growth in tax-
equivalent net interest income over 1994 was primarily due to an 18.7 percent
increase in average earning assets, partially offset by an eight basis point
decrease in net interest margin. The increase in average earning assets was
primarily due to a 17.6 percent increase in average loans and leases and a 16.5
percent increase in investment securities. The 1994 increase in tax-equivalent
net interest income of 11.7 percent over the $2,536.7 million reported in 1993
was due to an 8.2 percent increase in average earning assets and a 16 basis
point increase in net interest margin. Non-accrual and restructured loans
reduced net interest income by $11.7 million in 1995, $12.3 million in 1994 and
$13.9 million in 1993. Detailed analyses of net interest income appear on pages
76, 77 and 78 and a discussion of the corporation's asset and liability
management process begins on page 26.
Net interest margin, the ratio of tax-equivalent net interest income divided by
average earning assets, was 5.58 percent in 1995, 5.66 percent in 1994 and 5.50
percent in 1993. The decrease in margin in 1995 was due to a narrowing of the
yield spread on earning assets and a change in funding mix due to increases in
long-term debt. The increase in margin in 1994 was due to an improvement in the
yield spread of nine basis points, from 4.85 percent in 1993 to 4.94 percent in
1994, and a shift in the mix of earning assets to higher-yielding loans. Average
loans and leases comprised 60.0 percent of average earning assets in 1995,
compared with 60.6 percent in 1994 and 57.6 percent in 1993.
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
$312.4 million in 1995, $164.9 million in 1994 and $158.2 million in 1993. The
provision for credit losses was 0.88 percent of average loans and leases in
1995, compared with 0.55 percent in 1994 and 0.60 percent in 1993. The provision
for credit losses was higher in 1995 compared with 1994 as well as in 1994
compared with 1993 due to higher net charge-offs and loan growth. As a
percentage of average loans, both net charge-offs and provision increased in
1995 compared with 1994. However, these ratios declined in 1994 compared with
1993. Also, as previously discussed, the 1993 provision for credit losses
includes additional provisions for credit losses taken by First United of $16.5
million.
Net credit losses were $304.2 million in 1995, $193.2 million in 1994 and $178.3
million in 1993. Net credit losses as a percent of average loans and leases were
0.86 percent in 1995, compared with 0.64 percent in 1994 and 0.67 percent in
1993.
19
The increase in net credit losses in 1995 over 1994 was due principally to
increases in consumer and credit card net charge-offs of $108.2 million. The
increase in net credit losses in 1994 over 1993 was due to increases in consumer
and credit card net charge-offs of $35.1 million, partially offset by a $17.0
million reduction in commercial loan net charge-offs. The net charge-off ratio,
the ratio of net credit losses to average loans and leases, for Norwest
Financial was 2.52 percent in 1995, compared with 2.00 percent in 1994 and 2.16
percent in 1993. Norwest Card Services' net charge-off ratio was 4.77 percent in
1995 compared with 3.07 percent in 1994 and 3.54 percent in 1993. The higher
consumer loan net credit losses reflect, in part, growth in the overall
portfolio, including the acquisition of Island Finance in 1995. Norwest
Financial's net charge-offs in 1995 increased $60.7 million over 1994, of which
$23.6 million related to Island Finance. Further, $49.2 million of 1995 net
credit card charge-offs relate to receivables from the corporation's direct mail
programs which were suspended in 1995.
Non-interest Income Non-interest income is a significant source of the
corporation's revenue, representing 36.1 percent of tax-equivalent net revenues
in 1995, compared with 36.6 percent in 1994 and 38.5 percent in 1993.
Consolidated non-interest income increased 13.8 percent in 1995 to $1,865.0
million, compared with $1,638.3 million in 1994. Non-interest income includes
net investment securities losses of $35.6 million and $79.2 million in 1995 and
1994, which provided opportunities to reinvest at higher yields. Excluding
investment securities gains (losses) and venture capital gains, non-interest
income increased 9.6 percent in 1995 and 11.1 percent in 1994 over the
respective preceding year. Primary contributors to the increase in non-interest
income in 1995 were higher fees and service charges including trust fees and
service charges on deposit accounts, credit card and insurance fees, and trading
revenues, partially offset by lower mortgage banking revenues from reduced sales
of servicing rights.
The increases in trust fees and deposit service charges are evidence of
increased business activity and marketing efforts. Mortgage banking revenues
decreased $48.2 million in 1995 from reduced gains on sales of mortgages and
servicing rights. Total combined gains of $57.1 million were recorded on sales
in 1995 compared with $204.5 million in 1994. This decrease was offset by a
$99.2 million increase in origination, servicing and other fee revenue. Such fee
increases resulted from growth in the corporation's servicing portfolio and
higher mortgage loan funding levels. Servicing fees are expected to increase as
the servicing portfolio grows through retention of servicing generated and
through acquisitions. Sales of servicing reflect consideration of the portfolio
mix and opportunistic pricing spreads. Future sales of servicing rights are
largely dependent upon portfolio characteristics and prevailing market
conditions. Credit card fees were $132.8 million in 1995, up from $116.5 million
in 1994, due to marketing activities, partially offset by repurchases of credit
card receivables from securitized credit card receivable trusts which were
completed in the second quarter of 1994. Revenues on securitized credit card
receivables are recorded in non-interest income rather than net interest income.
The increase in insurance fees is attributed largely to commissions on credit
life insurance, related to the growth in the consumer loan portfolio. Other non-
interest income increased $29.6 million from 1994 primarily due to trading
account revenues as discussed below. Net venture capital gains were $102.1
million in 1995 compared with $77.1 million in 1994. Sales of venture capital
securities generally relate to timing of holdings becoming publicly traded and
subsequent market conditions, causing venture capital gains to be unpredictable
in nature.
Consolidated non-interest income increased 3.4 percent in 1994 from $1,585.0
million in 1993, primarily due to increased mortgage banking revenues, venture
capital gains and growth in insurance fees, trust fees and deposit service
charges, offset by net losses on investment securities. The growth in mortgage
banking revenues principally reflected growth in the servicing portfolio. The
increases in various fee based services related to growth in consumer-related
lending and other marketing initiatives. Other non-interest income decreased
$38.8 million from 1993 primarily due to trading account losses.
Trading Revenues The corporation conducts trading of debt and equity
securities, money market instruments, derivative products and foreign exchange
contracts to satisfy the investment and risk management needs of its customers
and those of the corporation. Trading activities are conducted within risk
limits established and monitored by the Asset and Liability Management Committee
as further discussed in the Interest Rate Sensitivity and Liquidity Management
section of the Financial Review on page 26.
Interest income derived from trading account securities was $14.8 million, $24.6
million and $28.9 million for the three years ended December 31, 1995, 1994 and
1993, respectively. Non-interest trading revenues (losses) during 1995, 1994 and
1993, were $39.9 million, $(18.1) million and $41.7 million, respectively. The
table in Note 14 to the consolidated financial statements on page 60 provides a
summary of the corporation's trading revenues in the principal markets in which
the corporation participates.
20
Non-interest Expenses Consolidated non-interest expenses increased 9.8 percent
in 1995 to $3,399.1 million, reflecting higher salary and benefit costs,
additional intangible asset amortization and higher operating expenses
associated with acquisitions, and growth in Mortgage Banking.
Changes in personnel expenses by business segment for 1995 include an increase
of 8.6 percent for the Banking Group, an increase of 21.1 percent for Mortgage
Banking, and an increase of 19.2 percent for Norwest Financial. Normalized for
acquisitions, personnel expense increased 1.9 percent for the Banking Group, 2.8
percent for Mortgage Banking and 8.9 percent for Norwest Financial.
Of the 1995 increases of $40.2 million in communication expenses, $37.3 million
in equipment rentals, depreciation and maintenance, and $27.1 million in net
occupancy expenses, the Banking Group contributed $16.9 million, $24.8 million
and $12.3 million, respectively, and Mortgage Banking contributed $16.1 million,
$10.7 million and $8.3 million, respectively. Other non-interest expense
decreased principally due to mortgage origination cost deferrals related to
increased fundings.
Consolidated non-interest expenses increased 1.5 percent in 1994 from $3,050.4
million in 1993 reflecting higher salaries and benefits costs, occupancy charges
and equipment expenses, primarily due to acquisitions and an increased number of
stores at Norwest Financial. Offsetting these increases were lower charitable
contributions, as well as First United's non-recurring 1993 charges of $81.3
million, which included systems and operations costs of $39.8 million, severance
and transitional benefits of $9.3 million, other real estate write-downs of $7.1
million and other asset write-downs of $25.1 million.
Of the $99.4 million increase in personnel expense in 1994, $50.1 million is
attributable to salaries expense and $49.3 million is due to benefits expense,
representing increases over 1993 of 4.1 percent and 18.7 percent, respectively.
Benefits expense was higher due to increases in pension and savings plan
expenses as well as higher medical costs. Changes in personnel expenses by
business segment for 1994 included an increase of 6.9 percent for the Banking
Group normalized for acquisitions, a decrease of 8.5 percent for Mortgage
Banking reflecting lower levels of originations and fundings, and an increase of
14.6 percent for Norwest Financial.
Of the 1994 increases of $38.1 million in net occupancy expenses and $33.4
million in equipment rentals, depreciation and maintenance, Mortgage Banking
contributed $13.8 million and $15.7 million, respectively.
Other non-interest expenses decreased by $195.7 million to $406.7 million in
1994. Charitable contributions decreased $47.9 million due to the funding status
of the Norwest Foundation. Included in 1993 were the merger and transition
expenses related to the First United acquisition previously discussed.
Additionally, other one-time special charges were recorded in 1993 as
depreciable lives on mainframe computers were shortened, due to changing
technology, with increased depreciation recorded of $7.0 million. The
amortizable life of goodwill was capped at 15 years, the maximum life allowed by
the Office of the Comptroller of the Currency, with increased amortization
recorded of $11.3 million. A cumulative adjustment of $9.4 million was recorded
in conjunction with accelerating the amortization for other intangibles. Losses
on excess facilities of $55.5 million were recorded, based on the present value
of future lease payments or on market values of owned facilities. Other asset
write-downs amounted to $24.0 million.
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 and lease portfolio.
The effective income tax rate was 32.8 percent in 1995, up slightly from 32.2
percent in 1994. The effective tax rate was 30.3 percent in 1993. The increase
in the effective tax rate in 1994 from 1993 was primarily due to reduced
charitable contributions of appreciated assets. For more information on income
taxes, see Note 12 to the consolidated financial statements on page 57.
Consolidated Balance Sheet Analysis
Earning Assets At December 31, 1995, earning assets were $62.8 billion,
compared with $53.3 billion at December 31, 1994. This increase is primarily due
to a $1.2 billion increase in total investment securities and an $8.3 billion
increase in loans and leases, and mortgages and loans held for sale, including
$4.4 billion of loans and leases acquired in acquisitions completed during 1995.
21
Average earning assets were $59.3 billion in 1995, an increase of 18.7 percent
over 1994. This increase is primarily due to a 17.6 percent increase in average
loans and leases, a 16.5 percent increase in average total investment
securities, and a 27.9 percent increase in average mortgages held for sale due
to increases in residential mortgage fundings.
Leverage, the ratio of average assets to average total stockholders' equity, was
14.3 times during 1995, unchanged from 1994. A 20.3 percent increase in average
assets was offset by a 20.7 percent increase in average stockholders' equity.
The corporation adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," as of
January 1, 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. In November 1995,
the Financial Accounting Standards Board announced it would permit companies to
make a one-time reclassification of their investment securities in conjunction
with the issuance of a Special Report entitled "A Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt and Equity
Securities." The corporation transferred the remaining federal agency and state,
municipal and housing tax exempt securities with amortized costs of $27.4
million and $665.2 million, respectively, from held for investment to available
for sale as of December 31, 1995. Unrealized gains related to such securities
transferred amounted to $25.3 million. As of December 31, 1995 and 1994, net
unrealized gains (losses) before income taxes related to investment securities
available for sale were $510.6 million and $(559.9) million, respectively. The
improvement generally reflects overall lower interest rate levels over the prior
year and the reclassification discussed above.
In Note 18 to the consolidated financial statements on page 67 the corporation
has disclosed the estimated fair values of all on- and off-balance sheet
financial instruments and certain non-financial instruments in accordance with
Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments."
As of December 31, 1995, the fair value of net financial instruments totaled
$2.7 billion, a decrease of $0.8 billion from December 31, 1994. The decrease
was primarily due to higher borrowing levels, partially offset by growth in
loans and leases and investment securities. During the same period, the net fair
value of certain non-financial instruments increased $3.3 billion to $13.0
billion as of December 31, 1995. The fair value of the consumer finance network
increased $0.5 billion due to a lower interest rate environment and the
integration of Island Finance. The fair value of the asset-based lending
businesses increased $0.4 billion due to a greater market presence resulting
from the acquisition of The Foothill Group, Inc. The fair value of the mortgage
loan origination/wholesale network increased $1.3 billion due to higher levels
of earnings and mortgage loan originations. The fair value of non-maturity
deposits decreased $0.6 billion as lower market interest rates reduced the
benefit of these fund sources.
At December 31, 1994, the fair value of net financial instruments totaled $3.5
billion, a decrease of $0.5 billion from December 31, 1993. This decrease was
primarily due to a reduction in mortgages held for sale and higher borrowing
levels, partially offset by growth in loans and leases as well as investment
securities. During the same period, the net fair value of certain non-financial
instruments increased $2.4 billion to $9.7 billion as of December 31, 1994. The
fair value of the mortgage servicing portfolio increased $0.4 billion due to
increases in the servicing portfolio. The fair value of the consumer finance
network increased $0.1 billion and the fair value of the mortgage loan
origination/wholesale network decreased $0.2 billion due to lower mortgage loan
originations. The fair value of non-maturity deposits increased $1.4 billion due
to increased deposits.
Credit Risk Management Credit risk management includes pricing loans to cover
anticipated future credit losses, funding and servicing costs and to allow for a
profit margin. Loans and leases by type appear in Note 5 to the consolidated
financial statements on page 44. 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.
The corporation's Banking Group operates in 15 states, largely in the Midwest,
Southwest, and Rocky Mountain regions of the country. Distribution of average
loans by region in 1995 was approximately 49 percent in the north central
Midwest, 20 percent in the south central Midwest and 31 percent in the Rocky
Mountain/Southwest region. Norwest Card Services, Norwest Mortgage and Norwest
Financial operate on a nationwide basis. With respect to credit card
receivables, approximately 45 percent of the credit card portfolio is within the
15-state Norwest banking region. Approximately 56 percent of the portfolio is
accounted for by the states of Massachusetts, Minnesota, Iowa, New York,
Connecticut, Colorado, California, Illinois, Nebraska and Texas. No one state
accounts for more than 10 percent of the total credit card portfolio. Norwest
Mortgage operates in all 50 states, and is the largest retail mortgage network
in the country. Norwest Financial engages in consumer finance activities in 47
states, all 10 Canadian provinces, the Caribbean, Central America and Guam.
22
In general, the economy in regions of the U.S. where the corporation primarily
conducts operations continues to reflect growth, although consumer-related loan
delinquencies and charge-offs have increased moderately. See Provision for
Credit Losses on page 19 for a further discussion of consumer-related net
charge-offs. The average consumer installment loan made during 1995 at Norwest
Financial was approximately $2,400 while sales finance contracts purchased
averaged approximately $1,100. This compares with $2,800 and $1,000,
respectively, in 1994. The average credit card receivable balance at Norwest
Card Services was $1,200 in 1995, unchanged from a year earlier. During the
fourth quarter of 1995, $1.0 billion of credit card receivables, comprised of
approximately $750 million in balances added through national direct mail
campaigns and approximately $250 million required to be sold under a contractual
agreement, were transferred to the loans held for sale category pending their
sale. A net charge of $11.0 million was taken in the fourth quarter of 1995 on
the transfer to the held for sale category.
As of December 31, 1995 the corporation's commercial real estate portfolio of
loans to investors, developers and builders, including construction and land
development loans (development loans), was $2,475.6 million, of which $18.1
million, or 0.7 percent, were non-performing, compared with $2,082.0 million at
December 31, 1994, of which $27.9 million, or 1.3 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 commercial loans.
Development loans represent 6.8 percent of the corporation's total loan
portfolio at December 31, 1995, compared with 6.4 percent at December 31, 1994.
The total number of development loans is approximately 9,000 with an average
loan size of approximately $0.3 million. The largest development loan is $10.0
million. The industry composition of development loans consists of
office/warehouse (24 percent), retail (20 percent), residential (28 percent) and
other (28 percent).
Geographically, over 97 percent of the development loan portfolio is within the
15 state area where the corporation has its principal banking franchise.
Approximately 56 percent of the total portfolio is secured by property located
in Minnesota, Colorado, New Mexico and Texas. Within the 15 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 commercial
real estate loan losses is limited.
The corporation is not aware of any loans classified for regulatory purposes at
December 31, 1995, 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, 1995.
Allowance for Credit Losses At December 31, 1995, the allowance for credit
losses was $917.2 million, or 2.54 percent of loans and leases outstanding,
compared with $789.9 million, or 2.42 percent, at December 31, 1994. The ratio
of the allowance for credit losses to the total non-performing assets and 90-day
past due loans and leases was 307.9 percent at December 31, 1995, compared with
361.8 percent at December 31, 1994.
Although it is impossible for any lender to predict future credit losses with
complete accuracy, management monitors the allowance for credit losses with the
intent to provide for all losses that can reasonably be anticipated based on
current conditions. The corporation maintains the allowance for credit losses as
a general allowance available to cover future credit losses within the entire
loan and lease portfolio and other credit-related risks. However, management has
prepared an allocation of the allowance based on its views of risk
characteristics of the portfolio. This allocation of the allowance for credit
losses does not represent the total amount available for actual future credit
losses in any single category, nor does it prohibit future credit losses from
being absorbed by portions of the allowance allocated to other categories or by
the unallocated portion. The table on page 79 presents the allocation of the
allowance for credit losses to major categories of loans.
Non-performing Assets and Past Due Loans and Leases The table on page 24
presents data on the corporation's non-performing assets and 90-day past due
loans and leases. Generally, the accrual of interest on a loan or lease is
suspended when the credit becomes 90 days past due unless fully secured and in
the process of collection. A restructured loan is generally a loan that is
accruing interest, but on which concessions in terms have been made as a result
of deterioration in the borrower's financial condition.
Effective January 1, 1995, the corporation adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan"
and Statement of Financial Accounting Standards No. 118, "Accounting by
Creditors for Impairment of a Loan--Income Recognition and Disclosures" (FAS
114 and 118). Under the corporation's credit policies and
23
practices, all non-accrual and restructured commercial, agricultural,
construction, and commercial real estate loans meet the definition of impaired
loans under FAS 114 and 118. Impaired loans as defined by FAS 114 and 118
exclude certain consumer loans, residential real estate loans and lease
financing classified as non-accrual. Loan impairment is measured based on the
present value of expected future cash flows discounted at the loan's effective
interest rate or, as a practical expedient, at the observable market price of
the loan or the fair value of the collateral if the loan is collateral-
dependent. The adoption of FAS 114 and 118 did not have a material effect on the
corporation's financial position or results of operations.
Non-performing assets, including non-accrual, restructured and other real estate
owned, and 90-day past due loans and leases, totaled $297.9 million, or 0.4
percent of total assets, at December 31, 1995, compared with $218.3 million, or
0.4 percent of total assets, at December 31, 1994. The increase in non-
performing assets was principally due to recent bank acquisitions in Texas,
including El Paso. The reduction in primary earnings per share due to total non-
accrual and restructured loans was two cents in 1995, compared with three cents
in 1994 and 1993.
Norwest Corporation and Subsidiaries
Non-performing Assets and 90-Day Past Due Loans and Leases
In millions, except per share amounts 1995 1994 1993 1992 1991 1990
----- ----- ----- ----- ----- -----
At December 31,
- ---------------
Non-accrual loans and leases............ $166.9 128.5 195.7 257.6 355.5 396.6
Restructured loans and leases........... 2.0 1.8 10.3 5.4 18.0 18.5
------ ----- ----- ----- ----- -----
Total non-accrual and restructured
loans and leases*..................... 168.9 130.3 206.0 263.0 373.5 415.1
Other real estate owned................. 37.1 29.6 63.0 113.7 151.2 182.2
------ ----- ----- ----- ----- -----
Total non-performing assets............ 206.0 159.9 269.0 376.7 524.7 597.3
Loans and leases past due 90-days or
more**................................. 91.9 58.4 50.8 51.9 82.4 88.3
------ ----- ----- ----- ----- -----
Total non-performing assets and 90-day
past due loans and leases............. $297.9 218.3 319.8 428.6 607.1 685.6
====== ===== ===== ===== ===== =====
Interest income as originally
contracted on non-accrual and
restructured loans and leases.......... $ 15.3 15.4 19.4 26.5 41.6 51.9
Interest income recognized on
non-accrual and restructured
loans and leases....................... (3.6) (3.1) (5.5) (8.1) (14.2) (19.5)
------ ----- ----- ----- ----- -----
Reduction of interest income due to
non-accrual and restructured
loans and leases....................... $ 11.7 12.3 13.9 18.4 27.4 32.4
====== ===== ===== ===== ===== =====
Reduction in primary earnings per share
due to non-accrual
and restructured loans and leases...... $ .02 .03 .03 .04 .06 .08
*Total impaired loans included in total non-accrual and restructured loans and
leases amounted to $102.1 million and $98.6 million at December 31, 1995 and
1994, respectively.
**Excludes non-accrual and restructured loans and leases.
Other Assets At December 31, 1995, interest receivable and other assets totaled
$4.9 billion, an increase of $2.5 billion over 1994. The increase is principally
due to goodwill and other intangibles from acquisitions and increases in
capitalized mortgage servicing rights, in part from adoption of FAS 122.
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
(FAS 121) was issued in March 1995 and requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset is not
recoverable. Adoption of FAS 121 is required for fiscal years beginning after
December 15, 1995. The adoption of FAS 121 is not expected to have a material
effect on the corporation's consolidated financial statements.
24
Funding Sources
Interest-Bearing Liabilities At December 31, 1995, interest-bearing liabilities
totaled $52.6 billion, an increase of $8.4 billion over December 31, 1994. The
increase was principally due to a $4.5 billion increase in long-term debt and a
$3.3 billion increase in interest-bearing deposits.
Average interest-bearing liabilities were $49.5 billion in 1995, compared with
$40.9 billion in 1994, primarily due to a 7.8 percent increase in average
interest-bearing deposits, a 31.8 percent increase in average short-term
borrowings and a 58.7 percent increase in long-term debt. Increases in short-
term borrowings and long-term debt relate to acquisitions and increases in
residential mortgage loan fundings.
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 57 percent of the corporation's total funding
sources during 1995 and approximately 63 percent in 1994. 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 70 percent of total funding sources during 1995, compared with 76
percent in 1994.
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 four percent of the corporation's total funding sources in 1995
and 1994. There were no brokered certificates of deposit at December 31, 1995
and 1994.
Short-term Borrowings Short-term borrowings include federal funds purchased,
securities sold under agreements to repurchase, master note agreements,
privately negotiated financing agreements and commercial paper issued by the
corporation and Norwest Financial. Commercial paper is used by the corporation
to fund the short-term needs of its subsidiaries, consisting primarily of
funding of Norwest Mortgage's inventory of mortgages held for sale which are
typically held for 60 to 90 days. Norwest Financial utilized funds generated
through its own commercial paper sales program to fund approximately 26 percent
of its average earning assets in 1995, compared with 22 percent in 1994.
The commercial paper/short-term debt of the corporation and Norwest Financial,
Inc. are currently rated TBW-1 by Thomson BankWatch, P1 by Moody's, A1+ by
Standard & Poor's, Duff-1+ by Duff & Phelps and F-1+ by Fitch Investors
Services, Inc. IBCA has also rated the corporation's commercial paper/short-term
debt A1+. On average, total short-term borrowings represented approximately 13.6
percent of the corporation's total funding sources during 1995 and approximately
12.4 percent during 1994.
At December 31, 1995, the corporation had available lines of credit totaling
$2,356.6 million, including lines of credit totaling $2,056.6 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, Inc. Total long-term debt represented
approximately 18.6 percent of the corporation's consolidated average funding
sources during 1995, compared with approximately 14.0 percent in 1994. The
corporation utilizes long-term debt primarily to meet the long-term funding
requirements of its subsidiaries, with outstandings of $5,840.9 million as of
December 31, 1995, compared with $2,745.2 million as of December 31, 1994.
Further, 23 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, 1995, these banking subsidiaries had advances
outstanding totaling $3,667.7 million, an increase of $955.4 million from
December 31, 1994. Long-term debt also plays a significant role at Norwest
Financial, Inc. which utilizes this source of financing to fund approximately 55
percent of its average earning assets. At December 31, 1995, Norwest Financial,
Inc.'s long-term debt outstanding was $4,081.5 million. Note 9 to the
consolidated financial statements on page 47 presents the corporation's
outstanding consolidated long-term debt as of December 31, 1995 and 1994.
Thomson BankWatch has assigned its highest issuer rating, an A rating, to both
the corporation and Norwest Financial, Inc. The corporation's senior debt is
currently rated AA+ by Thomson BankWatch, AA by IBCA, Fitch Investors Services,
Inc. and Duff & Phelps, AA- by Standard & Poor's and Aa3 by Moody's. Norwest
Financial, Inc.'s senior debt is currently rated AA+ by Thomson BankWatch and
Fitch Investors Services, Inc., AA by Duff & Phelps, AA- by Standard & Poor's
and Aa3 by Moody's.
25
Interest Rate Sensitivity and Liquidity Management
Asset and Liability Management The goal of the asset and liability management
process is to manage the structure of the balance sheet to provide the maximum
level of net interest income while maintaining acceptable levels of interest
sensitivity risk (as defined below) and liquidity. The focal point of this
process is the corporate Asset and Liability Management Committee (ALCO). This
committee forms and monitors policies governing investments, funding sources,
off-balance sheet commitments, overall interest sensitivity risk and liquidity.
These policies form the framework for management of the asset and liability
process at the corporate and affiliate levels. The corporation's interest
sensitivity position is managed as a function of balance sheet trends, asset
opportunities and interest rate expectations, and the corporation is normally
well within policy risk limits at any given time.
Definition of Interest Sensitivity Risk Interest sensitivity risk is the risk
that future changes in interest rates will reduce net interest income or the net
market value of the corporation's balance sheet. Two basic ways of defining
interest rate risk in the financial services industry are commonly referred to
as the accounting perspective and the economic perspective. The corporation
draws upon aspects of each perspective to provide a more complete view of
interest rate risk than would be provided by either perspective alone.
The accounting perspective focuses on the risk to reported net income over a
particular time frame. Differences in the timing of interest rate repricing
(repricing or "gap" risk) and changing market rate relationships (basis risk)
determine the exposure of net income to changes in interest rates.
The economic perspective focuses on the risk to the market value of the
corporation's balance sheet, the net of which is referred to as the market value
of balance sheet equity. The sensitivity of the market value of balance sheet
equity to changes in interest rates is an indicator of the level of interest
rate risk inherent in an institution's current position and an indicator of
longer horizon earnings trends. Assessing interest rate risk from the economic
perspective focuses on the risk to net worth arising from all repricing
mismatches (gaps) across the full maturity spectrum.
Measurement of Interest Rate Risk Measurement of interest rate risk from the
accounting perspective has traditionally taken the form of the gap report, which
represents the difference between assets and liabilities that reprice in given
time periods. While providing a rough measure of rate risk, the gap report
provides only a static (i.e., point-in-time) measurement, and it does not
capture basis risk or risks that vary either asymmetrically or non-
proportionately with rate movements.
The corporation uses a simulation model as its primary method of measuring
earnings risk. The simulation model, because of its dynamic nature, can capture
the effects of future balance sheet trends, different patterns of rate
movements, and changing relationships between rates (basis risk). In addition,
it can capture the effects of embedded option risk by taking into account the
effects of interest rate caps and floors, and varying the level of prepayment
rates on assets as a function of interest rates. The simulation model is used to
determine the one and three year gap levels which correspond to the limits
within which the corporation has placed earnings at risk to interest rate
movements.
Measurement of interest rate risk from the economic perspective is accomplished
with a market valuation model. The market value of each asset and liability is
calculated by computing the present value of all cash flows generated. In each
case the cash flows are discounted by a market interest rate chosen to reflect
as closely as possible the characteristics of the given asset or liability.
Management of Interest Rate Risk In the most current simulation, net income was
forecasted using various interest rate scenarios. A most likely scenario, in
which short rates remain constant but long rates increase somewhat, was used as
the base case for comparison of other scenarios. If short rates increase 1.35
percent above the base case over the next twelve months, accompanied by a
smaller increase in long rates, the effect will be to decrease net income by
approximately $27 million relative to the base case. If short rates decrease
1.35 percent below the base case over the next twelve months, accompanied by a
lesser decrease in long rates, the effect will be to increase net income by
approximately $25 million. This analysis takes into account the effect of
derivative products that are used to hedge balance sheet instruments, as well as
the effect of interest rates on prepayment speeds of mortgages and mortgage-
backed securities. Under the rate scenarios considered, net income would not be
adversely affected by impairment of capitalized mortgage servicing rights.
The market valuation model is used to measure the sensitivity of the market
value of equity to a wide range of interest rate changes. The process of
modeling market valuation risk continues to evolve in the financial services
industry, including structuring the modeling process, defining policy limits and
interpreting the results.
26
Changes In Interest Sensitivity The table below presents the corporation's
interest sensitivity gaps for December 1995. The cumulative gap within one year
was $(3,043) million, or (4.2) percent of assets. This compares with a one year
gap of $(2,569) million, or (4.4) percent of assets, in December 1994. The
cumulative gap within three years was $(487) million, or (0.7) percent of
assets, in December 1995, compared to $243 million, or 0.4 percent of assets, in
December 1994. The relatively small changes in the gaps in percentage terms are
due to a number of offsetting changes in the balance sheet during the year.
These included an increase in the investment portfolio, as well as increases in
long-term debt and demand deposits. The effect of the current interest
sensitivity position is to make the corporation's earnings slightly vulnerable
to rising rates, while slightly benefiting from falling rates.
Norwest Corporation and Subsidiaries
Interest Rate Sensitivity
In millions, except ratios Repricing or Maturing
---------------------------------------------------
Within 6 Months 1 Year 3 Years After
6 Months - 1 Year - 3 Years -5 Years 5 Years
-------- -------- --------- -------- -------
Average Balances For December 1995
- ----------------------------------
Loans and leases...................... $15,923 3,937 6,771 4,133 5,791
Investment securities................. 2,983 2,672 2,500 1,813 6,479
Loans held for sale................... 3,217 -- -- -- --
Mortgages held for sale............... 6,653 -- -- -- --
Other earning assets.................. 1,115 -- -- -- --
Other assets.......................... -- -- -- -- 8,845
------- ------ ----- ----- ------
Total assets......................... $29,891 6,609 9,271 5,946 21,115
======= ====== ===== ===== ======
Noninterest-bearing deposits.......... $ 3,539 55 217 152 7,362
Interest-bearing deposits............. 14,170 3,896 4,222 1,156 6,801
Short-term borrowings................. 9,544 -- -- -- --
Long-term debt........................ 5,028 504 2,927 2,321 3,180
Other liabilities and equity.......... 112 -- 190 -- 7,456
------- ------ ----- ----- ------
Total liabilities and equity......... $32,393 4,455 7,556 3,629 24,799
======= ====== ===== ===== ======
Swaps and options..................... $(2,903) 208 841 575 1,279
Gap*.................................. (5,405) 2,362 2,556 2,892 (2,405)
Cumulative gap........................ (5,405) (3,043) (487) 2,405 --
Gap as a percent of total assets...... (7.5)% (4.2) (0.7) 3.3 --
*[assets - (liabilities + equity) + swaps and options] The gap includes the
effect of off-balance sheet instruments on the corporation's interest
sensitivity.
In addition to adjusting the pricing and levels of assets and liabilities, the
corporation utilizes off-balance sheet derivative financial instruments to
manage interest rate risk. The corporation primarily enters into interest rate
swaps and interest rate caps and floors as part of its overall risk management
activities. These derivative financial instruments synthetically change the
repricing or other characteristics of underlying assets and liabilities hedged.
The corporation principally utilizes interest rate swaps to hedge certain fixed-
rate debt and certain deposit liabilities and to convert these funding sources
to floating rates. Interest rate floors are principally used to hedge the
corporation's portfolio of mortgage servicing rights. The floors provide for the
receipt of payments when interest rates are below predetermined interest rate
levels. Unrealized gains on the floors are considered in determining the fair
value of mortgage servicing rights, offsetting lost future servicing revenue
related to increased levels of prepayments associated with lower interest rates.
In Notes 9 and 15 to the consolidated financial statements on pages 47 and 61,
respectively, the corporation has disclosed additional information with respect
to its use of derivative financial instruments.
The corporation's net cash flows from off-balance sheet derivative financial
instruments used to manage interest rate risk added approximately $7.1 million
to net interest income in 1995, compared with $12.3 million in 1994 and $22.6
million in 1993. This resulted in an impact on net interest margin of one basis
point in 1995, compared with two basis points in 1994 and five basis points in
1993. Based on interest rate levels at December 31, 1995, total estimated future
cash flows related to the corporation's derivative financial instruments,
including interest rate swaps and floors hedging capitalized mortgage
27
servicing rights, are expected to approximate $87 million in 1996, $54 million
in 1997, $50 million in 1998, $49 million in 1999, $24 million in 2000, and
$16 million thereafter.
Liquidity Management Liquidity management involves planning to meet funding
needs and cash flow requirements of customers and the corporation at a
reasonable cost, and is governed by policies formulated and monitored by ALCO.
Each affiliate is responsible for managing its own liquidity position within
overall guidelines, which consider the marketability of assets, the sources and
stability of funding, and the level of unfunded commitments.
The corporation has a significant liquidity reserve in its investment securities
portfolio, as approximately 83 percent of the $16.0 billion portfolio consists
of highly marketable U.S. Treasury or federal agency securities. Several other
factors provide a favorable liquidity position for the corporation compared with
most large bank holding companies, including the large amount of funding that
comes from consumer deposits, which are a more stable source of funding than
purchased funds, 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 and total capital
(Tier 1 plus Tier 2) to risk-weighted assets and leverage ratios. The primary
source of equity capital available for the affiliates is earnings, with other
forms of capital available from the corporation as needed. Earnings above levels
required to meet capital policy requirements are paid to the corporation in the
form of dividends and are used to support capital needs of other affiliates, to
pay corporate dividends or to reduce the corporation's borrowings.
Various federal and state statutes and regulations limit the amount of dividends
the subsidiary banks can pay to the corporation without regulatory approval. The
approval of the Office of the Comptroller of the Currency is required for any
dividend by a national bank if the total of all dividends declared by the bank
in any calendar year would exceed the total of its net profits, as defined by
regulation, for that year combined with its retained net profits for the
preceding two years. Under these provisions the corporation's national bank
subsidiaries could have declared, as of December 31, 1995, aggregate dividends
of at least $274.1 million without obtaining prior regulatory approval and
without reducing the capital of the respective banks below regulatory minimums.
The corporation also has several state bank subsidiaries that are subject to
state regulations limiting dividends; however, the amount of dividends payable
by the corporation's state bank subsidiaries, with or without state regulatory
approval, would represent an immaterial contribution to the corporation's
revenues. Additionally, the corporation's non-bank subsidiaries could have
declared dividends totaling $217.6 million at December 31, 1995.
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, 1995 was 8.11 percent and its total capital ratio was 10.18 percent,
compared with 9.89 percent and 12.23 percent, respectively, at December 31,
1994. The corporation's leverage ratio was 5.65 percent at December 31, 1995,
compared with 6.94 percent at December 31, 1994. These ratios compare favorably
to the regulatory minimums of 4.0 percent for the Tier 1 capital ratio, 8.0
percent for the total capital ratio, and 3.0 percent for the leverage ratio. The
decrease in capital ratios from year-end 1994 reflects intangibles arising from
purchase acquisitions completed in 1995.
Common stockholders' equity was $5,009.8 million at December 31, 1995, compared
with $3,334.4 million at December 31, 1994. The corporation's internal capital
growth rate (ICGR) in 1995 was 14.8 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 pooling of interests. As of December
31, 1995, the corporation's board of directors had authorized future purchases
of up to 6,326,000 shares of the corporation's common stock.
During 1995, the corporation repurchased 1,295,000 shares of its common stock
for issuance in conjunction with specific purchase acquisitions that were
consummated during the year or for which a definitive agreement had been
executed, but the consummation remained pending at December 31, 1995. In
addition, approximately 6,804,000 shares were repurchased during
28
1995 for benefit plans, preferred stock conversions and other ongoing needs.
During 1994, 5,668,000 shares were repurchased for acquisition purposes and
13,250,000 shares were repurchased for benefit plans and other ongoing needs.
All shares of the corporation's Cumulative Convertible Preferred Stock, Series
B, in the form of depositary shares, were called for redemption on September 1,
1995. Each depositary share, which represented one-quarter of a share of the
preferred stock, was convertible at the option of the stockholder into
approximately 2.74 shares of the corporation's common stock or redeemable at a
price of $52.10 per depositary share plus accrued dividends. During 1995,
1,141,891 preferred shares were converted into 12,531,003 shares of common stock
and 1,784 shares were redeemed.
All shares of the corporation's 10.24% Cumulative Preferred Stock, in the form
of depositary shares, were redeemed on January 2, 1996. The redemption price for
each depositary share, representing one-quarter of a share of preferred stock,
was the $25 stated value. No shares of the 10.24% Cumulative Preferred Stock
were repurchased in 1995.
On December 30, 1994, the corporation issued 980,000 shares of Cumulative
Tracking Preferred Stock, $200 stated value per share, of which 25,000 shares
were held by a subsidiary at December 31, 1995.
The corporation increased its quarterly dividend rate 14.3 percent to 24 cents
per common share on September 1, 1995. The dividend increase reflects the
corporation's continuing record of strong earnings performance and the
corporation's policy of maintaining the dividend payout ratio in a range of 30
to 35 percent. In the first quarter of 1994, the corporation increased the
quarterly cash dividend paid to common stockholders from 16.5 cents per share to
18.5 cents per share, representing a 12.1 percent increase in the quarterly
dividend rate. The corporation further increased the rate to 21 cents per common
share, or 13.5 percent, in the fourth quarter of 1994. Also during the second
quarter of 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.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," (FAS 123) was issued in October 1995 and requires that the impact
of the fair value of employee stock-based compensation plans on net income and
earnings per share be disclosed on a pro forma basis in a footnote to the
consolidated financial statements for awards granted after December 15, 1994, if
the accounting for such awards continues to be in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25). Alternatively, FAS 123 permits a company to record the fair value of
employee stock-based compensation plans as a component of compensation expense
in the statement of income as of the date of grant of awards related to such
plans. Adoption of FAS 123 is required for fiscal years beginning after December
15, 1995. The adoption of FAS 123 is not expected to have a material effect on
the corporation's consolidated financial statements.
Acquisitions
The corporation regularly explores opportunities for acquisitions of financial
institutions and related businesses. Generally, management of the corporation
does not make a public announcement about an acquisition opportunity until a
definitive agreement has been signed.
In Note 2 to the consolidated financial statements on pages 38 and 39, the
corporation has disclosed completed acquisitions for the three years ended
December 31, 1995.
At December 31, 1995, the corporation had 11 other pending acquisitions with
total assets of approximately $6.6 billion and it is anticipated that cash of
$232.5 million and approximately 19.3 million common shares will be issued upon
completion of these acquisitions. Pending acquisitions include AMFED Financial,
Inc., a $1.6 billion thrift holding company, and PriMerit Bank, a $1.8 billion
thrift, both located in Nevada, which will become the corporation's 16th
community banking state, as well as Victoria Bankshares, Inc., a $2.0 billion
bank holding company based in Victoria, Texas. These pending acquisitions,
subject to approval by regulatory agencies, are expected to be completed during
1996 and are not, either individually or in the aggregate, significant to the
financial statements of the corporation.
29
Norwest Corporation and Subsidiaries
Consolidated Balance Sheets
In millions, except shares 1995 1994
--------- --------
At December 31,
- ---------------
Assets
Cash and due from banks................................................. $ 4,320.3 3,431.2
Interest-bearing deposits with banks.................................... 29.4 41.1
Federal funds sold and resale agreements................................ 596.8 552.0
--------- --------
Total cash and cash equivalents....................................... 4,946.5 4,024.3
Trading account securities.............................................. 150.6 172.3
Investment securities (fair value $795.8 in 1995 and $1,268.7 in 1994).. 760.5 1,235.1
Investment and mortgage-backed securities available for sale............ 15,243.0 13,601.8
--------- --------
Total investment securities........................................... 16,003.5 14,836.9
Loans held for sale..................................................... 3,343.9 2,031.4
Mortgages held for sale................................................. 6,514.5 3,115.3
Loans and leases, net of unearned discount.............................. 36,153.1 32,576.0
Allowance for credit losses............................................. (917.2) (789.9)
--------- --------
Net loans and leases.................................................. 35,235.9 31,786.1
Premises and equipment, net............................................. 1,034.1 955.2
Interest receivable and other assets.................................... 4,905.4 2,394.4
--------- --------
Total assets........................................................... $72,134.4 59,315.9
========= ========
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing.................................................... $11,623.9 9,283.1
Interest-bearing....................................................... 30,404.9 27,140.9
--------- --------
Total deposits........................................................ 42,028.8 36,424.0
Short-term borrowings................................................... 8,527.2 7,850.2
Accrued expenses and other liabilities.................................. 2,589.5 2,009.0
Long-term debt.......................................................... 13,676.8 9,186.3
--------- --------
Total liabilities..................................................... 66,822.3 55,469.5
Preferred stock......................................................... 341.2 526.7
Unearned ESOP shares.................................................... (38.9) (14.7)
--------- --------
Total preferred stock................................................. 302.3 512.0
Common stock, $1 2/3 par value--authorized 500,000,000 shares:
Issued 358,332,153 and 323,084,474 shares in 1995 and 1994,
respectively........................................................... 597.2 538.5
Surplus................................................................. 734.2 578.8
Retained earnings....................................................... 3,496.3 2,950.0
Net unrealized gains (losses) on securities available for sale.......... 327.1 (360.4)
Note receivable from ESOP............................................... (13.3) (13.3)
Treasury stock--5,571,696 and 13,939,617 common shares in 1995 and
1994, respectively..................................................... (125.9) (350.9)
Foreign currency translation............................................ (5.8) (8.3)
--------- --------
Total common stockholders' equity..................................... 5,009.8 3,334.4
--------- --------
Total stockholders' equity............................................ 5,312.1 3,846.4
--------- --------
Total liabilities and stockholders' equity............................ $72,134.4 59,315.9
========= ========
See notes to consolidated financial statements.
30
Norwest Corporation and Subsidiaries
Consolidated Statements of Income
In millions, except per common share amounts 1995 1994 1993
--------- -------- -------
Years Ended December 31,
- ------------------------
Interest Income on
Loans and leases................................................................. $3,955.8 3,071.2 2,648.2
Investment securities............................................................ 83.8 71.5 126.4
Investment and mortgage-backed securities available for sale..................... 1,065.3 835.9 710.9
Loans held for sale.............................................................. 195.7 111.4 85.3
Mortgages held for sale.......................................................... 366.2 257.2 326.8
Money market investments......................................................... 35.7 21.9 19.8
Trading account securities....................................................... 14.8 24.6 28.9
-------- ------- -------
Total interest income........................................................... 5,717.3 4,393.7 3,946.3
-------- ------- -------
Interest Expense on
Deposits......................................................................... 1,156.3 863.4 852.3
Short-term borrowings............................................................ 515.8 290.3 238.1
Long-term debt................................................................... 775.9 436.4 352.5
-------- ------- -------
Total interest expense.......................................................... 2,448.0 1,590.1 1,442.9
-------- ------- -------
Net interest income.............................................................. 3,269.3 2,803.6 2,503.4
Provision for credit losses...................................................... 312.4 164.9 158.2
-------- ------- -------
Net interest income after provision for credit losses............................ 2,956.9 2,638.7 2,345.2
-------- ------- -------
Non-interest Income
Trust............................................................................ 240.7 210.3 187.2
Service charges on deposit accounts.............................................. 268.8 234.4 211.6
Mortgage banking................................................................. 532.8 581.0 472.3
Data processing.................................................................. 72.4 61.6 65.5
Credit card...................................................................... 132.8 116.5 114.3
Insurance........................................................................ 244.2 207.4 176.8
Other fees and service charges................................................... 230.3 182.3 163.3
Net investment securities gains (losses)......................................... 0.6 (0.2) 0.1
Net investment and mortgage-backed securities available for sale gains (losses).. (36.2) (79.0) 48.7
Net venture capital gains........................................................ 102.1 77.1 59.5
Other............................................................................ 76.5 46.9 85.7
-------- ------- -------
Total non-interest income....................................................... 1,865.0 1,638.3 1,585.0
-------- ------- -------
Non-interest Expenses
Salaries and benefits............................................................ 1,745.1 1,573.7 1,474.3
Net occupancy.................................................................... 254.4 227.3 189.2
Equipment rentals, depreciation and maintenance.................................. 272.7 235.4 202.0
Business development............................................................. 172.2 190.5 151.3
Communication.................................................................... 225.0 184.8 168.6
Data processing.................................................................. 136.2 113.4 108.2
FDIC assessment and regulatory examination fees.................................. 78.6 87.6 79.7
Intangible asset amortization.................................................... 124.7 77.0 74.7
Other............................................................................ 390.2 406.7 602.4
-------- ------- -------
Total non-interest expenses..................................................... 3,399.1 3,096.4 3,050.4
-------- ------- -------
Income Before Income Taxes....................................................... 1,422.8 1,180.6 879.8
Income tax expense............................................................... 466.8 380.2 266.7
-------- ------- -------
Net Income....................................................................... $ 956.0 800.4 613.1
======== ======= =======
Average Common and Common Equivalent Shares...................................... 331.7 315.1 307.7
Per Common Share
Net Income
Primary......................................................................... $ 2.76 2.45 1.89
Fully Diluted................................................................... 2.73 2.41 1.86
Dividends........................................................................ $ 0.900 0.765 0.640
See notes to consolidated financial statements.
31
Norwest Corporation and Subsidiaries
Consolidated Statements of Cash Flows
In millions 1995 1994 1993
----------- ----------- ----------
Years Ended December 31,
- ------------------------
Cash Flows From Operating Activities
Net income........................................................................ $ 956.0 800.4 613.1
Adjustments to reconcile net income to net cash flows from operating activities:
Provision for credit losses...................................................... 312.4 164.9 158.2
Depreciation and amortization.................................................... 311.8 232.2 206.4
Gains on sales of loans, securities and other assets, net........................ (96.8) (73.0) (299.2)
Release of preferred shares to ESOP.............................................. 40.0 26.6 --
Purchases of trading account securities.......................................... (90,793.2) (109,556.3) (64,057.2)
Proceeds from sales of trading account securities................................ 90,718.4 109,561.2 63,932.1
Originations of mortgages held for sale.......................................... (35,045.1) (24,905.1) (33,706.4)
Proceeds from sales of mortgages held for sale................................... 31,771.4 27,962.8 32,484.0
Originations of loans held for sale.............................................. (901.0) (1,351.7) (1,035.7)
Proceeds from sales of loans held for sale....................................... 606.8 745.1 855.4
Deferred income taxes............................................................ (70.4) 312.7 (20.0)
Interest receivable.............................................................. (94.1) (66.9) 31.0
Interest payable................................................................. 148.0 20.5 36.2
Other assets, net................................................................ (1,853.4) (540.6) 62.6
Other accrued expenses and liabilities, net...................................... 447.2 (425.0) 284.1
---------- ---------- ---------
Net cash flows from (used for) operating activities............................. (3,542.0) 2,907.8 (455.4)
---------- ---------- ---------
Cash Flows From Investing Activities
Proceeds from maturities and paydowns of:
Investment securities............................................................ 345.6 949.5 854.9
Investment and mortgage-backed securities available for sale..................... 1,924.3 2,781.4 3,120.4
Proceeds from sales and calls of:
Investment securities............................................................ 154.4 98.8 0.7
Investment and mortgage-backed securities available for sale..................... 5,742.6 3,741.6 2,351.6
Purchases of:
Investment securities............................................................ (524.8) (509.0) (657.9)
Investment and mortgage-backed securities available for sale..................... (6,159.9) (8,635.6) (4,784.4)
Net increase in banking subsidiaries' loans and leases............................ (177.3) (1,786.2) (1,253.2)
Principal collected on non-bank subsidiaries' loans and leases.................... 5,725.2 4,081.8 4,048.4
Non-bank subsidiaries' loans and leases originated................................ (6,241.7) (5,342.5) (4,523.9)
Purchases of premises and equipment............................................... (208.0) (266.0) (226.3)
Proceeds from sales of premises and equipment and other real estate owned......... 50.4 131.8 131.0
Purchases of subsidiaries, net of cash and cash equivalents acquired.............. (94.9) 124.8 2,181.8
Divestiture of branches, net of cash and cash equivalents paid.................... (4.1) (55.1) --
---------- ---------- ---------
Net cash flows from (used for) investing activities.............................. 531.8 (4,684.7) 1,243.1
---------- ---------- ---------
Cash Flows From Financing Activities
Deposits, net..................................................................... 1,488.7 (1,247.2) 310.9
Short-term borrowings, net........................................................ (1,124.0) 1,736.8 (2,896.1)
Long-term debt borrowings......................................................... 7,329.1 3,508.7 4,301.8
Repayments of long-term debt...................................................... (3,274.8) (1,270.1) (2,038.7)
Issuances of preferred stock...................................................... 20.0 170.7 --
Repurchases of preferred stock.................................................... (0.4) (8.4) (0.7)
Issuances of common stock......................................................... 65.4 49.8 55.9
Repurchases of common stock....................................................... (233.8) (482.1) (124.3)
Net decrease in notes receivable from ESOP........................................ -- 3.0 3.2
Dividends paid.................................................................... (337.8) (268.0) (219.7)
---------- ---------- ---------
Net cash flows from (used for) financing activities.............................. 3,932.4 2,193.2 (607.7)
---------- ---------- ---------
Net increase in cash and cash equivalents........................................ 922.2 416.3 180.0
Cash and cash equivalents
Beginning of year................................................................ 4,024.3 3,608.0 3,428.0
---------- ---------- ---------
End of year...................................................................... $ 4,946.5 4,024.3 3,608.0
========== ========== =========
See notes to consolidated financial statements.
32
Norwest Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
Net
Unrealized
Gains
(Losses)
In millions, except for shares on Notes
Unearned Securities Receivable Foreign
Preferred ESOP Common Retained Available from Treasury Currency
Stock Shares Stock Surplus Earnings for Sale ESOP Stock Translation Total
---------- --------- ------ -------- --------- ----------- ----------- -------- ------------ --------
Balance, December 31,
1992 as originally
reported............ $ 342.5 -- 235.5 551.8 2,008.4 -- (19.5) (45.7) (0.3) 3,072.7
Adjustments for
poolings of
interests........... 51.5 -- 29.6 134.8 80.7 -- -- 2.5 -- 299.1
------- -------- ------ ------ ------- ---------- ---------- ------ ----------- -------
Balance, December 31,
1992, restated...... 394.0 -- 265.1 686.6 2,089.1 -- (19.5) (43.2) (0.3) 3,371.8
Net income........... -- -- -- -- 613.1 -- -- -- -- 613.1
Dividends on
Common stock........ -- -- -- -- (188.5) -- -- -- -- (188.5)
Preferred stock..... -- -- -- -- (31.2) -- -- -- -- (31.2)
Stock split.......... -- -- 244.2 (244.2) -- -- -- -- -- --
Issuance of 4,787,158
common shares....... -- -- 1.6 73.8 (59.5) -- -- 66.6 -- 82.5
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)
Conversion of 320,202
preferred shares
into 1,705,410
common shares....... (13.4) -- 2.1 11.3 -- -- -- -- -- --
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............... 380.0 -- 515.4 503.3 2,433.3 -- (16.3) (51.5) (3.3) 3,760.9
Net unrealized gains
on securities
available for sale,
January 1, 1994..... -- -- -- -- -- 313.4 -- -- -- 313.4
Net income........... -- -- -- -- 800.4 -- -- -- -- 800.4
Dividends on
Common stock........ -- -- -- -- (240.2) -- -- -- -- (240.2)
Preferred stock..... -- -- -- -- (27.8) -- -- -- -- (27.8)
Issuance of 3,022,168
common shares....... -- -- -- 53.9 (74.1) -- -- 80.5 -- 60.3
Issuance of
13,985,159
common shares
for acquisitions.... -- -- 18.6 (2.3) 58.4 -- -- 73.7 -- 148.4
Repurchase of
18,918,200
common shares....... -- -- -- -- -- -- -- (482.1) -- (482.1)
Issuance of 980,000
preferred shares,
net of 125,000
shares held by
subsidiary.......... 171.0 -- -- (0.3) -- -- -- -- -- 170.7
Issuance of 40,900
preferred shares to
ESOP................ 40.9 (42.1) -- 1.2 -- -- -- -- -- --
Release of preferred
shares to ESOP...... -- 27.4 -- (0.8) -- -- -- -- -- 26.6
Conversion of
1,230,280 preferred
shares to 3,756,975
common shares....... (56.8) -- 4.5 23.8 -- -- -- 28.5 -- --
Repurchase of 192,220
preferred shares.... (8.4) -- -- -- -- -- -- -- -- (8.4)
Change in net
unrealized gains
(losses) on
securities
available for
sale............... -- -- -- -- -- (673.8) -- -- -- (673.8)
Cash payments
received on notes
receivable from
ESOP............... -- -- -- -- -- -- 3.0 -- -- 3.0
Foreign currency
translation......... -- -- -- -- -- -- -- -- (5.0) (5.0)
------- -------- ------ ------ ------- ---------- ---------- ------ ----------- -------
Balance, December
31, 1994............ 526.7 (14.7) 538.5 578.8 2,950.0 (360.4) (13.3) (350.9) (8.3) 3,846.4
Net income........... -- -- -- -- 956.0 -- -- -- -- 956.0
Dividends on
Common stock........ -- -- -- -- (296.6) -- -- -- -- (296.6)
Preferred stock..... -- -- -- -- (41.2) -- -- -- -- (41.2)
Issuance of 3,289,250
common shares....... -- -- -- 120.5 (135.6) -- -- 90.9 -- 75.8
Issuance of
34,533,245
common shares
for acquisitions.... -- -- 51.6 40.6 68.3 16.7 -- 95.4 -- 272.6
Repurchase of
8,098,650
common shares....... -- -- -- -- -- -- -- (233.8) -- (233.8)
Issuance of 63,300
preferred shares to
ESOP................ 63.3 (65.8) -- 2.5 -- -- -- -- -- --
Release of preferred
shares to ESOP...... -- 41.6 -- (1.6) -- -- -- -- -- 40.0
Conversion of
1,181,900
preferred shares
to 13,891,755
comon shares........ (268.4) -- 7.1 (6.6) (4.6) -- -- 272.5 -- --
Repurchase of 1,784
preferred shares.... (0.4) -- -- -- -- -- -- -- -- (0.4)
Sale of 100,000
preferred shares
held by subsidiary.. 20.0 -- -- -- -- -- -- -- -- 20.0
Change in net
unrealized
gains (losses)
on securities
available for
sale................ -- -- -- -- -- 670.8 -- -- -- 670.8
Foreign currency
translation......... -- -- -- -- -- -- -- -- 2.5 2.5
------- -------- ------ ------ ------- ---------- ---------- ------ ----------- -------
Balance, December
31, 1995............ $ 341.2 (38.9) 597.2 734.2 3,496.3 327.1 (13.3) (125.9) (5.8) 5,312.1
======= ======== ====== ====== ======= ========== ========== ====== =========== =======
See notes to consolidated financial statements.
33
Norwest Corporation and Subsidiaries
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Norwest Corporation (the corporation) is a diversified financial services
company which was organized in 1929 and is registered under the Bank Holding
Company Act of 1956, as amended. The corporation owns subsidiaries engaged in
banking and a variety of related businesses. The corporation provides retail,
commercial, and corporate banking services to its customers through banks
located in Arizona, Colorado, Illinois, Indiana, Iowa, Minnesota, Montana,
Nebraska, New Mexico, North Dakota, Ohio, South Dakota, Texas, Wisconsin and
Wyoming. The corporation provides additional financial services to its customers
through subsidiaries engaged in various businesses, principally mortgage
banking, consumer finance, equipment leasing, agricultural finance, commercial
finance, securities brokerage and investment banking, insurance agency services,
computer and data processing services, trust services, mortgage-backed
securities servicing and venture capital investment.
The accounting and reporting policies of the corporation and its subsidiaries
conform to generally accepted accounting principles and general practices within
the financial services industry. The more significant accounting policies are
summarized below.
Consolidation The consolidated financial statements include the accounts of the
corporation and all subsidiaries. Significant intercompany accounts and
transactions have been eliminated.
Consolidated Statements of Cash Flows For purposes of the consolidated
statements of cash flows, the corporation considers cash and due from banks,
interest-bearing deposits with banks and federal funds sold and resale
agreements to be cash equivalents.
Supplemental disclosures of cash flow information for the years ended
December 31 include:
In millions 1995 1994 1993
------- ------- -------
Interest............................................. $2,299.9 1,569.6 1,481.1
Income taxes......................................... 533.1 22.3 226.0
Transfer of loans to other real estate owned......... 28.6 69.8 69.6
See Notes 2 and 10 for certain non-cash common and preferred stock transactions.
In 1995, credit card receivables totaling $1,007.4 million were transferred to
the loans held for sale category pending their sale.
Mortgage-backed securities of $151.0 million, held for investment by First
United Bank Group, Inc. (First United), were transferred to available for sale
in 1994 to comply with the corporation's investment and interest rate risk
policies. Also during 1994, venture capital securities of $122.0 million,
originally classified as available for sale, were transferred to the held to
maturity category to comply with Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," (FAS 115).
Investment and mortgage-backed securities of $234.2 million were transferred to
available for sale in 1993. See Note 4 regarding the transfer of investment
securities to available for sale in 1995.
Securities Investment and mortgage-backed securities which the corporation
intends to hold until maturity are stated at cost, adjusted for amortization of
premiums and accretion of discounts using a method that approximates level
yield. Investment and mortgage-backed securities which the corporation intends
to hold for indefinite periods of time, including securities that management
intends to use as part of its asset/liability management strategy, or that may
be sold in response to changes in interest rates, changes in prepayment risk,
securities on which call options have been written, the need to increase
regulatory capital or similar factors, are classified as available for sale.
Effective January 1, 1994, the corporation adopted FAS 115. Accordingly,
investment and mortgage-backed securities available for sale are measured at
fair value. Net unrealized gains and losses, net of deferred taxes, on
investments and mortgage-backed securities available for sale are excluded from
earnings and reported as a separate component of stockholders' equity until
realized. The classification of securities is determined at the date of purchase
and subsequent transfers, if any, between security classifications are recorded
at fair value. Prior to the adoption of FAS 115, investment and mortgage-backed
securities available for sale were carried at the lower of aggregate cost or
market value. Additionally, investment and mortgage-backed securities were
transferred to securities available for sale at their respective carrying
values.
34
Realized gains and losses on sales of securities are computed by the specific
identification method at the time of disposition and are recorded in non-
interest income.
The corporation's venture capital subsidiaries classify equity securities that
are publicly traded as available for sale and non-publicly traded equity
securities as held to maturity.
Trading account securities are purchased with the intent to earn a profit by
trading or selling the security. These securities are stated at fair value.
Adjustments to the fair value are reported in other non-interest income.
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.
Effective January 1, 1995, the corporation adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan"
and Statement of Financial Accounting Standards No. 118, "Accounting by
Creditors for Impairment of a Loan--Income Recognition and Disclosures" (FAS 114
and 118). Under the corporation's credit policies and practices, all non-accrual
and restructured commercial, agricultural, construction, and commercial real
estate loans meet the definition of impaired loans under FAS 114 and 118.
Impaired loans as defined by FAS 114 and 118 exclude certain consumer loans,
residential real estate loans and lease financing classified as non-accrual.
Loan impairment is measured based on the present value of expected future cash
flows discounted at the loan's effective interest rate or, as a practical
expedient, at the observable market price of the loan or the fair value of the
collateral if the loan is collateral dependent. The adoption of FAS 114 and 118
did not have a material effect on the corporation's financial position or
results of operation.
Lease financing assets include aggregate lease rentals, net of related unearned
income, which includes deferred investment tax credits, and related nonrecourse
debt. Leasing income is recognized as a constant percentage of outstanding lease
financing balances over the lease terms.
Unearned discount on consumer loans is recognized by the interest method or
other methods for which results are not materially different from the interest
method.
Loan origination fees and costs incurred to extend credit are deferred and
amortized over the term of the loan and the loan commitment period as a yield
adjustment. Loan fees representing adjustments of interest rate yield are
generally deferred and amortized into interest income over the term of the loan
using the interest method. Loan commitment fees are generally deferred and
amortized into non-interest income on a straight-line basis over the commitment
period.
Allowance for Credit Losses The allowance for credit losses is based upon
management's evaluation of a number of factors, including credit loss
experience, risk analyses of loan portfolios, as well as current and expected
economic conditions.
Charge-offs are loans or portions thereof evaluated as uncollectible. Loans made
by the domestic consumer finance subsidiaries, unless fully secured by real
estate, are generally charged off when the loan is 90 days or more contractually
delinquent and no payment has been received for 90 days. Credit card receivables
are generally charged off when they become 180 days past due or sooner upon
receipt of a bankruptcy notice. Other consumer loans are charged off when
certain delinquency criteria are met unless fully secured.
Loans Held for Sale Certain credit card receivables and student loans are
classified as held for sale because the corporation does not intend to hold
these loans until maturity or sales of the loans are pending. Such loans are
carried at the lower of aggregate cost or market value by type of loan. Gains
and losses are recorded in non-interest income, based on the difference between
sales proceeds and carrying value.
Mortgages Held For Sale Mortgages held for sale are stated at the lower of
aggregate cost or market value. The determination of market value includes
consideration of all open positions, outstanding commitments from investors, and
related fees paid.
Gains and losses on sales of mortgages are recognized at settlement dates and
are determined by the difference between sales proceeds and the carrying value
of the mortgages. Gains and losses are recorded in non-interest income.
35
Mortgage Servicing Rights Effective January 1, 1995, the corporation adopted
Statement of Financial Accounting Standards No. 122, "Accounting for Mortgage
Servicing Rights, an amendment of FASB Statement No. 65" (FAS 122). Accordingly,
the corporation recognizes as separate assets the rights to service mortgage
loans for others, whether the servicing rights are acquired through purchases or
loan originations. The fair value of capitalized mortgage servicing rights is
based upon the present value of estimated future cash flows. Based upon current
fair values and considering outstanding positions of derivative financial
instruments utilized as hedges, capitalized mortgage servicing rights are
periodically assessed for impairment, which is recognized in the statement of
income during the period in which impairment occurs as an adjustment to the
corresponding valuation allowance. For purposes of performing its impairment
evaluation, the corporation stratifies its portfolio on the basis of certain
risk characteristics including loan type and note rate. Capitalized mortgage
servicing rights are amortized over the estimated remaining life of the
underlying loans and take into account appropriate prepayment assumptions. Prior
to adoption of FAS 122, the corporation only capitalized the costs related to
purchased mortgage servicing rights.
Premises and Equipment Premises and equipment are stated at cost, less
accumulated depreciation and amortization. Owned properties are depreciated on a
straight-line basis over their estimated useful lives. Capital lease assets and
leasehold improvements are amortized over lease terms on a straight-line basis.
The costs of improvements are capitalized. Maintenance and repairs, as well as
gains and losses on dispositions of premises and equipment, are included in non-
interest expenses.
Other Real Estate Owned Other real estate owned is stated at the lower of cost
or 70 percent of current appraised value, which is not materially different from
fair value minus estimated costs to sell. When a property is acquired, the
excess of the recorded investment in the property over fair value, if any, is
charged to the allowance for credit losses. Subsequent declines in the estimated
fair value, net operating results and gains or losses on disposition of the
property are included in other non-interest expenses.
Goodwill and Other Intangibles Goodwill represents the unamortized cost of
acquiring subsidiaries and other net assets in excess of the appraised value of
such net assets at the date of acquisition. Goodwill is amortized over a maximum
15-year period using the straight-line method. Other identifiable intangibles
are amortized either on an accelerated basis or straight-line, over various
periods which do not exceed 15 years.
Derivative Financial Instruments The corporation and its subsidiaries utilize a
variety of derivative financial instruments as part of an overall interest rate
risk management strategy and in conjunction with their customer service and
trading activities. Derivative financial instruments utilized include interest
rate swaps, interest rate futures, caps, floors, options and forward contracts.
Interest rate swaps are used principally as a tool to manage the interest
sensitivity of the corporation's balance sheet. These contracts represent an
exchange of interest payment streams based on an agreed-upon notional principal
amount with at least one stream based on a specified floating-rate index. The
underlying principal balances of the assets or liabilities are not affected. Net
settlement amounts are reported as adjustments to interest income or interest
expense, as appropriate.
Options are contracts which grant the purchaser, for a premium payment, the
right, but not the obligation, to either purchase or sell the underlying
financial instrument at a set price during a period or at a specified date in
the future. The writer of the option is obligated to purchase or sell the
underlying financial instrument if the purchaser chooses to exercise the option.
Premiums paid on purchased put options which qualify as hedges are deferred and
amortized over the terms of the contracts. Purchased put options are marked to
market daily with losses limited to the amount of the option fee. Losses are
recognized currently on put options sold when the market value of the underlying
security falls below the put price plus the premium received. A premium received
on a covered call option sold is deferred until the option matures. If the
market value of the related asset is greater than the option strike price, the
option will be exercised and the premium recorded as an adjustment of the gain
or loss recognized. If the option expires, the premium is recorded in other non-
interest income. Uncovered call options sold are marked to market daily with the
gain limited to the amount of the option fee.
Interest rate futures and forward contracts are commitments to either purchase
or sell a financial instrument at a specified price on an agreed-upon future
date. These contracts may be settled either in cash or by delivery of the
underlying financial instruments. Interest rate caps and floors require the
seller to pay the purchaser, at specified dates, the amount, if any, by which
the market interest rate exceeds the agreed-upon cap or falls below the agreed-
upon floor, applied to a notional principal amount. Positions which are
designated and effectively hedge specific mortgage servicing risk tranches
correlate on the basis of certain duration and convexity parameters. Realized
gains and losses on positions used in the management of specific asset and
liability positions in banking operations are deferred and amortized over the
terms of the items hedged as
36
adjustments to interest income or interest expense. Realized gains and losses on
positions used as hedges in mortgage banking operations are deferred and
considered in the calculation of market value of the mortgages available for
sale or the fair value of capitalized mortgage servicing rights. Positions which
are not hedges of specific assets, liabilities or commitments are included in
the trading account.
For a discussion of the risks associated with derivatives and the corporation's
policies used to monitor such risks refer to Note 15, Derivative Activities.
Income Taxes The corporation and its United States subsidiaries file a
consolidated federal income tax return. The effects of current or deferred taxes
are recognized as a current and deferred tax liability or asset based on current
tax laws. Accordingly, income tax expense in the consolidated statements of
income includes charges or credits to properly reflect the current and deferred
tax asset or liability. Foreign taxes paid are applied as credits to reduce
federal income taxes payable.
Foreign Currency Translation The accounts of the corporation's foreign consumer
finance subsidiaries are measured using local currency as the functional
currency. Assets and liabilities are translated into United States dollars at
period-end exchange rates, and income and expense accounts are translated at
average monthly exchange rates. Net exchange gains or losses resulting from such
translation are excluded from net income and included as a separate component of
stockholders' equity.
Earnings Per Share Income for primary and fully diluted earnings per share is
adjusted for preferred stock dividends. Primary earnings per share data is
computed based on the weighted average number of common shares outstanding and
common stock equivalents arising from the assumed exercise of outstanding stock
options. Fully diluted earnings per share data is computed by using such average
common shares and equivalents increased by the assumed conversion into common
stock of the 6 3/4 percent convertible subordinated debentures, the 12 percent
convertible notes, the Cumulative Convertible Preferred Stock, Series B, the
First United Cumulative Convertible Exchangeable Preferred Stock, Series A and
the First United Cumulative Convertible Exchangeable Preferred Stock, Series C.
Income for fully diluted earnings per share is also adjusted for interest
expense on these debentures and notes, net of the related income tax effect, and
preferred stock dividends related to the convertible preferred stock.
Weighted average numbers of common and common equivalent shares applied in
calculating earnings per share are as follows:
1995 1994 1993
----------- ----------- -----------
Primary.................. 331,679,492 315,091,891 307,726,009
Fully diluted............ 341,118,009 327,798,536 323,823,259
Change In Accounting for Postemployment Benefits Effective January 1, 1994, the
corporation adopted Statement of Financial Accounting Standards No. 112,
"Employer's Accounting for Postemployment Benefits" (FAS 112). FAS 112 requires
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. The adoption of FAS 112 did not have a material effect on
the corporation's financial position or results of operations.
37
2. Business Combinations
The corporation regularly explores opportunities for acquisitions of financial
institutions and related businesses. Generally, management of the corporation
does not make a public announcement about an acquisition opportunity until a
definitive agreement has been signed.
Transactions completed in the years ended December 31, 1995, 1994 and 1993
include:
In millions, except share amounts Common
Cash Shares
Date Assets Paid Issued Method of Accounting
------------ ---------- ---------- ----------- ----------------------
1995
Ken-Caryl Investment Company,
Littleton, Colorado (B)........................ January 5 $ 29.0 $ -- 149,774 Purchase
American Republic Bancshares, Inc.,
Belen, New Mexico (B).......................... January 6 222.0 -- 1,206,546 Purchase
Independent Bancorp of Arizona, Inc.,
Phoenix, Arizona (B)........................... February 12 1,600.0 159.7 -- Purchase
Parker Bankshares, Incorporated,
Parker, Colorado (B)........................... February 28 59.0 -- 394,995 Pooling of interests*
Directors Mortgage Loan Corporation,
Riverside, California (M)...................... March 13 270.8 -- 10,545,778 Pooling of interests*
Babbscha Company, Fridley, Minnesota (B)........ April 1 53.0 -- 275,921 Purchase
The First National Bank of Bay City,
Bay City, Texas (B)............................ April 10 146.0 -- 932,642 Purchase
Goldenbanks of Colorado, Inc.,
Golden, Colorado (B)........................... May 1 361.3 -- 2,716,629 Pooling of interests*
ITT Financial Corporation - Island Finance
business (F)................................... May 4 1,016.1 574.3 -- Purchase
New Braunfels Bancshares, Inc., New Braunfels,
Texas (B)...................................... May 10 43.1 7.0 -- Purchase
United Texas Financial Corporation,
Wichita Falls, Texas (B)....................... June 1 296.3 -- 1,515,851 Purchase
First American National Bank, Chandler,
Arizona (B).................................... June 1 39.0 -- 192,831 Pooling of interests*
First Tule Bancorp, Inc., Tulia, Texas (B)...... June 1 61.4 8.3 -- Purchase
The Ryland Group, Inc. - Mortgage-related
institutional financial services business (B).. June 30 -- 47.1 -- Purchase
Comfort Bancshares, Inc., Comfort, Texas (B).... July 10 41.1 6.2 -- Purchase
Valley-Hi Investment Company, San Antonio,
Texas (B)...................................... August 1 121.6 -- 427,998 Purchase
Dickinson Bancorporation, Inc., Dickinson,
North Dakota (B)............................... August 8 123.3 -- 541,591 Purchase
Alice Bancshares, Inc., Alice, Texas (B)........ September 15 187.6 40.2 -- Purchase
State National Bank, El Paso, Texas (B)......... October 2 1,052.3 157.0 -- Purchase
Liberty National Bank, Austin, Texas (B)........ October 16 167.1 27.3 -- Purchase
The Foothill Group, Inc., Los Angeles,
California (B)................................. October 19 905.1 -- 15,632,689 Pooling of interests*
The First National Bank in Big Spring,
Big Spring, Texas (B).......................... November 1 216.9 38.0 -- Purchase
Beacon Business Credit Corp.,
Boston, Massachusetts (B)...................... December 1 30.6 12.5 -- Purchase
-------- -------- ----------
$7,042.6 $1,077.6 34,533,245
======== ======== ==========
1994
St. Cloud National Bank & Trust Co.,
St. Cloud, Minnesota (B)....................... January 1 $ 119.0 $ -- 1,105,820 Pooling of interests*
St. Cloud Metropolitan Agency, Inc.,
St. Cloud, Minnesota (B)....................... January 6 -- -- 32,969 Purchase
First United Bank Group, Inc.,
Albuquerque, New Mexico (B).................... January 14 3,924.6 -- 17,784,916 Pooling of interests
Lindeberg Financial Corporation,
Forest Lake, Minnesota (B)..................... February 2 55.0 -- 413,599 Pooling of interests*
First National Bank of Arapahoe County,
Aurora, Colorado (B)........................... February 2 36.0 -- 260,896 Pooling of interests*
First National Bank of Lakewood,
Lakewood, Colorado (B)......................... February 2 61.0 -- 337,582 Pooling of interests*
First National Bank of Southeast Denver,
Denver, Colorado (B)........................... February 2 134.0 -- 803,439 Pooling of interests*
Community Credit Co., Minneapolis,
Minnesota (F).................................. March 15 173.0 -- 3,726,871 Pooling of interests*
38
In millions, except share amounts Common
Cash Shares
Date Assets Paid Issued Method of Accounting
------------ ---------- ---------- ----------- ----------------------
Bank of Montana System, Great Falls,
Montana (B).................................... April 15 807.0 -- 4,174,105 Pooling of interests*
D.L. Bancshares, Inc., Detroit Lakes,
Minnesota (B).................................. April 28 78.5 11.9 -- Purchase
Double Eagle Financial Corporation, Phoenix,
Arizona (M).................................... May 1 5.4 -- 307,700 Purchase
American Land Title Company of Kansas City,
Inc., Kansas City, Missouri (M)................ July 1 0.5 -- 166,666 Purchase
La Porte Bancorp., Hammond, Indiana (B)......... September 15 137.7 -- 564,553 Purchase
Copper Bancshares, Inc., Silver City,
New Mexico (B)................................. October 2 98.4 -- 524,920 Purchase
Bank of Scottsdale, Scottsdale, Arizona (B)..... October 21 92.8 13.6 -- Purchase
Texas National Bankshares, Inc.,
Midland, Texas (B)............................. December 2 187.8 24.5 -- Purchase
First National Bank of Kerrville,
Kerrville, Texas (B)........................... December 9 205.7 -- 1,225,000 Purchase
Alexandria Securities and Investment Company,
Alexandria, Minnesota (B)...................... December 9 59.3 -- 341,039 Purchase
-------- -------- ----------
$6,175.7 $ 50.0 31,770,075
======== ======== ==========
1993
Rocky Mountain Bankshares, Inc.,
Aspen, Colorado (B)............................ January 8 $ 105.0 $ -- 557,084 Purchase
Merchants & Miners Bancshares, Inc.,
Hibbing, Minnesota (B)......................... February 1 57.0 -- 343,050 Purchase
BORIS Systems, Inc., East Lansing,
Michigan (M)................................... February 1 6.0 -- 691,210 Purchase
Lincoln Financial Corporation, Fort Wayne,
Indiana (B).................................... February 9 2,100.1 -- 8,529,242 Pooling of interests
Financial Concepts Bancorp, Inc., Green Bay,
Wisconsin (B).................................. April 1 175.5 -- 847,416 Pooling of interests*
M&D Holding Company, Spring Lake Park,
Minnesota (B).................................. October 1 57.1 -- 536,084 Purchase
Ralston Bancshares, Inc., Ralston,
Nebraska (B)................................... October 7 101.1 -- 548,981 Pooling of interests*
FirstAmerican Bank, N.A., Colorado Springs,
Colorado (B)................................... October 29 47.6 4.7 -- Purchase
Winner Banshares, Inc., Winner,
South Dakota (B)............................... December 10 99.0 -- 530,737 Pooling of interests*
-------- -------- ----------
$2,748.4 $ 4.7 12,583,804
======== ======== ==========
*Pooling of interest transaction was not material to the corporation's
consolidated financial statements; accordingly, previously reported results
have not been restated.
B - Banking Group; M - Mortgage Banking; F - Norwest Financial
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.
The corporation's financial statements were restated for all periods prior to
acquisition of First United. Net income (loss) and net income (loss) per share
amounts of the corporation and First United prior to restatement for the year
ended December 31, 1993 were:
In millions, except per share amounts
The corporation
Net income........................................................ $653.6
Net income per share..............................................
Primary........................................................ 2.13
Fully diluted.................................................. 2.10
First United
Net loss*......................................................... $(40.5)
Net loss per share
Primary........................................................ (3.40)
Fully diluted.................................................. (3.40)
* First United's net loss includes the additional provision for credit losses of
$16.5 million to conform with the corporation's credit loss reserve practices
and methods and $83.2 million in charges for merger-related expenses,
including termination costs, systems and operations costs, and other asset
writedowns.
39
At December 31, 1995, the corporation had 11 other pending acquisitions with
total assets of approximately $6.6 billion, and it is anticipated that cash of
$232.5 million and approximately 19.3 million common shares will be issued upon
completion of these acquisitions. Pending acquisitions include AMFED Financial,
Inc., a $1.6 billion thrift holding company, and PriMerit Bank, a $1.8 billion
thrift, both located in Nevada, which will become the corporation's 16th
community banking state, as well as Victoria Bankshares, Inc., a $2.0 billion
bank holding company based in Victoria, Texas. These pending acquisitions,
subject to approval by regulatory agencies, are expected to be completed during
1996 and are not significant to the financial statements of the corporation,
either individually or in the aggregate.
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 $575 million and $584 million for the years ended December 31,
1995 and 1994, respectively.
4. Investment Securities
Information related to the amortized cost and fair value of investment
securities for each of the three years ended December 31, 1995 is provided in
the table below.
Amortized Cost and Fair Values of Investment Securities
1995 1994 1993
------------------------------------- ------------------------------------- -----------------------------------
Gross Gross Gross Gross Gross Gross
Amor- Unreal- Unreal- Amor- Unreal- Unreal- Amor- Unreal- Unreal-
tized ized ized Fair tized ized ized Fair tized ized ized Fair
In millions Cost Gains Losses Value Cost Gains Losses Value Cost Gains Losses Value
--------- ------- ------- -------- -------- ------- ------- -------- -------- ------- ------- --------
Held for
investment:
U.S. Treasury
and federal
agencies......... $ -- -- -- -- 27.4 -- -- 27.4 665.0 5.5 -- 670.5
State, municipal
and housing-tax
exempt.......... -- -- -- -- 712.2 17.1 (16.5) 712.8 632.9 50.1 (1.0) 682.0
Other............ 760.5 44.2 (8.9) 795.8 495.5 39.6 (6.6) 528.5 244.8 0.3 -- 245.1
Mortgage-backed
securities:
Federal
agencies...... -- -- -- -- -- -- -- -- 126.0 2.1 -- 128.1
Collateralized
mortgage
obligations... -- -- -- -- -- -- -- -- 25.0 -- -- 25.0
--------- ------ ------ -------- -------- ------ ------ -------- -------- ------ ------ --------
Total investment
securities held
for investment.. 760.5 44.2 (8.9) 795.8 1,235.1 56.7 (23.1) 1,268.7 1,693.7 58.0 (1.0) 1,750.7
--------- ------ ------ -------- -------- ------ ------ -------- -------- ------ ------ --------
Available for
sale:
Investment
securities:
U.S. Treasury
and federal
agencies........ 969.3 21.9 (5.0) 986.2 932.4 6.3 (15.4) 923.3 1,520.5 77.2 (2.8) 1,594.9
State, municipal
and housing-
tax exempt...... 793.9 40.7 (8.6) 826.0 107.1 0.3 (3.9) 103.5 96.2 3.7 (0.1) 99.8
Other............ 658.1 289.1 (5.4) 941.8 321.2 97.0 (17.4) 400.8 384.5 188.8 (7.1) 566.2
--------- ------ ------ -------- -------- ------ ------ -------- -------- ------ ------ --------
Total investment
securities
available for
sale........... 2,421.3 351.7 (19.0) 2,754.0 1,360.7 103.6 (36.7) 1,427.6 2,001.2 269.7 (10.0) 2,260.9
--------- ------ ------ -------- -------- ------ ------ -------- -------- ------ ------ --------
Mortgage-backed
securities:
Federal
agencies...... 12,163.2 254.9 (80.0) 12,338.1 12,635.2 19.1 (642.4) 12,011.9 8,889.1 227.5 (7.5) 9,109.1
Collateralized
mortgage
obligations... 147.9 3.2 (0.2) 150.9 165.8 0.5 (4.0) 162.3 132.5 2.7 (0.3) 134.9
--------- ------ ------ -------- -------- ------ ------ -------- -------- ------ ------ --------
Total mortgage-
backed
securities
available
for sale..... 12,311.1 258.1 (80.2) 12,489.0 12,801.0 19.6 (646.4) 12,174.2 9,021.6 230.2 (7.8) 9,244.0
--------- ------ ------ -------- -------- ------ ------ -------- -------- ------ ------ --------
Total investment
and mortgage-
backed
securities
available
for sale....... 14,732.4 609.8 (99.2) 15,243.0 14,161.7 123.2 (683.1) 13,601.8 11,022.8 499.9 (17.8) 11,504.9
--------- ------ ------ -------- -------- ------ ------ -------- -------- ------ ------ --------
Total investment
securities...... $15,492.9 654.0 (108.1) 16,038.8 15,396.8 179.9 (706.2) 14,870.5 12,716.5 557.9 (18.8) 13,255.6
========= ====== ====== ======== ======== ====== ====== ======== ======== ====== ====== ========
40
The carrying and fair values of investment securities by maturity at December 31
were:
1995 1994
------------------- ------------------
Carrying Fair Carrying Fair
In millions Value Value Value Value
--------- -------- -------- --------
Held for investment:
In one year or less.................... $ -- -- 62.0 62.3
After one year through five years...... 262.9 298.2 359.1 396.2
After five years through ten years..... -- -- 142.4 146.9
After ten years........................ 497.6 497.6 671.6 663.3
--------- -------- -------- --------
Total investment securities held for
investment............................. 760.5 795.8 1,235.1 1,268.7
--------- -------- -------- --------
Available for sale:
Investment securities:
In one year or less.................... 746.2 746.2 338.3 338.3
After one year through five years...... 966.3 966.3 629.0 629.0
After five years through ten years..... 334.7 334.7 296.6 296.6
After ten years........................ 706.8 706.8 163.7 163.7
--------- -------- -------- --------
Total investment securities available
for sale............................. 2,754.0 2,754.0 1,427.6 1,427.6
--------- -------- -------- --------
Mortgage-backed securities:
In one year or less.................... 53.5 53.5 30.1 30.1
After one year through five years...... 271.1 271.1 223.2 223.2
After five years through ten years..... 320.6 320.6 309.3 309.3
After ten years........................ 11,843.8 11,843.8 11,611.6 11,611.6
--------- -------- -------- --------
Total mortgage-backed securities
available for sale................... 12,489.0 12,489.0 12,174.2 12,174.2
--------- -------- -------- --------
Total investment and mortgage-backed
securities available for sale.......... 15,243.0 15,243.0 13,601.8 13,601.8
--------- -------- -------- --------
Total investment securities............. $16,003.5 16,038.8 14,836.9 14,870.5
========= ======== ======== ========
In November 1995, the Financial Accounting Standards Board announced it would
permit companies to make a one-time reclassification of their investment
securities in conjunction with the issuance of a Special Report entitled "A
Guide to Implementation of Statement 115 on Accounting for Certain Investments
in Debt and Equity Securities." The corporation transferred the remaining
federal agency and state, municipal and housing tax exempt securities with
amortized costs of $27.4 million and $665.2 million, respectively, from held for
investment to available for sale as of December 31, 1995. Unrealized gains
related to such securities transferred amounted to $25.3 million.
41
Interest income on investment securities for each of the three years ended
December 31 was:
In millions 1995 1994 1993
-------- ------ ------
Held for investment:
U.S. Treasury and federal agencies................. $ 1.3 1.3 44.0
State, municipal and housing-tax exempt............ 48.4 50.7 55.8
Other.............................................. 34.1 19.5 17.3
Mortgage-backed securities:
Federal agencies.................................. -- -- 8.2
Collateralized mortgage obligations............... -- -- 1.1
-------- ----- -----
Total investment securities held for investment.... 83.8 71.5 126.4
-------- ----- -----
Available for sale:
Investment securities:
U.S. Treasury and federal agencies................. 73.5 93.9 101.6
State, municipal and housing-tax exempt............ 6.5 5.4 4.8
Other.............................................. 39.5 20.9 12.1
-------- ----- -----
Total investment securities available for sale... 119.5 120.2 118.5
-------- ----- -----
Mortgage-backed securities:
Federal agencies.................................. 934.1 707.3 561.3
Collateralized mortgage obligations............... 11.7 8.4 31.1
-------- ----- -----
Total mortgage-backed securities available
for sale........................................ 945.8 715.7 592.4
-------- ----- -----
Total investment and mortgage-backed securities
available for sale................................ 1,065.3 835.9 710.9
-------- ----- -----
Total investment securities........................ $1,149.1 907.4 837.3
======== ===== =====
Investment securities (including securities available for sale) carried at
$5,610.7 million and $5,333.9 million were pledged to secure public or trust
deposits or for other purposes at December 31, 1995 and 1994, respectively.
42
Total gross realized gains and gross realized losses from the sale of investment
securities for each of the three years ended December 31 were:
In millions 1995 1994 1993
------ ------ ------
Held for investment:
Investment securities:
Gross realized gains............................. $ 0.7 0.9 0.1
Gross realized losses............................ (0.1) (1.1) --
------ ----- -----
Net realized gains (losses) on investment
securities held for investment.................... $ 0.6 (0.2) 0.1
====== ===== =====
Available for sale:
Investment securities:
Gross realized gains............................. $ 14.8 28.3 24.4
Gross realized losses............................ (21.3) (75.9) (3.4)
------ ----- -----
Net realized gains (losses)...................... (6.5) (47.6) 21.0
------ ----- -----
Mortgage-backed securities:
Gross realized gains............................. 50.5 17.1 35.6
Gross realized losses............................ (80.2) (48.5) (7.9)
------ ----- -----
Net realized gains (losses)...................... (29.7) (31.4) 27.7
------ ----- -----
Net realized gains (losses) on investment and
mortgage-backed securities available for sale..... $(36.2) (79.0) 48.7
====== ===== =====
Venture capital securities:
Gross realized gains............................. $129.3 85.4 73.2
Gross realized losses............................ (27.2) (8.3) (13.7)
------ ----- -----
Net venture capital realized gains................. $102.1 77.1 59.5
====== ===== =====
Certain investment securities with a total amortized cost of $97.0 million,
$102.6 million and $29.5 million were sold during 1995, 1994 and 1993,
respectively, by the corporation principally because such securities were called
by the issuers prior to maturity, or in certain cases due to significant
deterioration in the creditworthiness of the related issuers.
43
5. Loans and Leases
The carrying values of loans and leases at December 31 were:
In millions 1995 1994
----------- ----------
Commercial, financial and industrial.................. $ 9,327.3 7,434.4
Agricultural.......................................... 1,090.8 956.0
Real estate
Secured by 1-4 family residential properties........ 8,592.9 8,959.2
Secured by development properties................... 2,024.0 1,513.8
Secured by construction and land development........ 742.0 568.1
Secured by owner-occupied properties................ 2,149.9 2,075.8
Consumer.............................................. 10,520.7 8,304.9
Credit card........................................... 1,666.1 2,511.0
Lease financing....................................... 815.7 764.5
Foreign
Consumer............................................ 705.2 486.1
Commercial.......................................... 196.1 129.8
--------- --------
Total loans and leases............................ 37,830.7 33,703.6
Unearned discount..................................... (1,677.6) (1,127.6)
--------- --------
Total loans and leases, net of
unearned discount................................. $36,153.1 32,576.0
========= ========
Changes in the allowance for credit losses were:
In millions 1995 1994 1993
-------- -------- --------
Balance at beginning of year................. $ 789.9 789.2 773.1
Allowances related to assets
acquired, net.............................. 119.1 29.0 36.2
Provision for credit losses................. 312.4 164.9 158.2
Credit losses............................... (421.2) (314.8) (310.3)
Recoveries.................................. 117.0 121.6 132.0
------- ------ ------
Net credit losses.......................... (304.2) (193.2) (178.3)
------- ------ ------
Balance at end of year....................... $ 917.2 789.9 789.2
======= ====== ======
Total non-performing assets and 90-day past due loans and leases at
December 31 were:
In millions 1995 1994
-------- -------
Impaired loans
Non-accrual.................................. $100.1 96.8
Restructured................................. 2.0 1.8
------ -----
Total impaired loans........................ 102.1 98.6
Other non-accrual loans and leases............ 66.8 31.7
------ -----
Total non-accrual and restructured
loans and leases............................ 168.9 130.3
Other real estate owned....................... 37.1 29.6
------ -----
Total non-performing assets.................. 206.0 159.9
Loans and leases past due 90 days or more*.... 91.9 58.4
------ -----
Total non-performing assets and
90-day past due loans and leases............ $297.9 218.3
====== =====
*Excludes non-accrual and restructured loans and leases.
The average balances of impaired loans for the years ended December 31, 1995 and
1994 were $88.1 million and $121.7 million, respectively. The allowance for
credit losses related to impaired loans at December 31, 1995 and 1994 was $43.3
million and $31.6 million, respectively. Impaired loans of $2.7 million and $4.6
million were not subject to a related
44
allowance for credit losses at December 31, 1995 and 1994, respectively, because
of the net realizable value of loan collateral, guarantees and other factors.
The effect of non-accrual and restructured loans on interest income for each of
the three years ended December 31 was:
In millions 1995 1994 1993
------- ------ ------
Interest income
As originally contracted.................. $15.3 15.4 19.4
As recognized............................. (3.6) (3.1) (5.5)
----- ---- ----
Reduction of interest income............. $11.7 12.3 13.9
===== ==== ====
There were no material commitments to lend additional funds to customers whose
loans were classified as non-accrual or restructured at December 31, 1995.
Leveraged lease financing amounted to $140.9 million and $136.9 million at
December 31, 1995 and 1994, respectively. Deferred income taxes related to
leveraged leases amounted to $111.2 million and $103.4 million at the same
dates, respectively.
Loans and leases totaling $4,325.2 million and $4,263.7 million were pledged to
secure Federal Home Loan Bank (FHLB) advances at December 31, 1995 and 1994,
respectively.
Loans to executive officers and directors (and their associates) of the
corporation and its significant subsidiaries, made in the ordinary course of
business, were not material at December 31, 1995 and 1994.
Loans held for sale at December 31, 1995 totaled $3,343.9 million, consisting of
$2,336.5 million in student loans and $1,007.4 million in credit card
receivables. Loans held for sale at December 31, 1994 consisted of $2,031.4
million in student loans.
During the fourth quarter of 1995, $1.0 billion of credit card receivables,
comprised of approximately $750 million in balances added through national
direct mail campaigns and approximately $250 million required to be sold under a
contractual agreement, were transferred to the loans held for sale category
pending their sale. A net charge of $11.0 million was taken in the fourth
quarter of 1995 on the transfer to the held for sale category.
6. Premises and Equipment
The carrying value of premises and equipment at December 31 was:
In millions 1995 1994
--------- -------
Owned
Land.............................................. $ 124.3 106.8
Premises and improvements......................... 798.8 719.1
Furniture, fixtures and equipment................. 1,137.3 1,005.3
--------- -------
Total........................................... 2,060.4 1,831.2
--------- -------
Capitalized leases
Premises.......................................... 20.1 20.1
Equipment......................................... 4.5 16.5
--------- -------
Total........................................... 24.6 36.6
--------- -------
Total premises and equipment...................... 2,085.0 1,867.8
Less accumulated depreciation and amortization.... (1,050.9) (912.6)
--------- -------
Premises and equipment, net....................... $ 1,034.1 955.2
========= =======
45
7. 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, 1995, the corporation had available lines of credit totaling
$2,356.6 million, including $2,056.6 million at a subsidiary, Norwest Financial.
These financing arrangements require the maintenance of compensating balances or
payment of fees, which are not material.
At December 31, 1995, the corporation had commercial paper placement agreements
totaling $300.0 million (included in the $2,356.6 million reported in the
preceding paragraph).
Short-Term Borrowings
1995 1994 1993
---------------- ---------------- ----------------
In millions, except rates Amount Rate Amount Rate Amount Rate
-------- ------ -------- ------ -------- ------
At December 31,
Commercial paper.................................. $3,129.2 5.77% $2,544.9 5.87% $2,711.6 3.56%
Federal funds purchased and securities sold under
agreements to repurchase......................... 3,563.6 5.10 4,252.5 5.79 2,202.8 2.72
Other............................................. 1,834.4 5.88 1,052.8 5.68 1,082.4 3.23
-------- -------- --------
Total........................................... $8,527.2 5.52 $7,850.2 5.81 $5,996.8 3.19
======== ======== ========
For the year ended December 31,
Average daily balance
Commercial paper.................................. $3,364.3 6.01% $2,672.1 4.42% $2,675.0 3.37%
Federal funds purchased and securities sold under
agreements to repurchase......................... 3,854.9 5.78 2,966.7 4.34 3,509.0 3.01
Other............................................. 1,518.4 5.97 989.7 4.38 1,127.0 3.83
-------- -------- --------
Total............................................ $8,737.6 5.90 $6,628.5 4.38 $7,311.0 3.27
======== ======== ========
Maximum month-end balance
Commercial paper.................................. $4,981.0 NA $2,949.3 NA $3,084.6 NA
Federal funds purchased and securities sold under
agreements to repurchase......................... 5,670.6 NA 4,252.5 NA 4,729.7 NA
Other............................................. 2,321.1 NA 1,341.6 NA 1,590.2 NA
NA--Not applicable.
8. Certificates of Deposit Over $100,000
The corporation had certificates of deposit over $100,000 of $2,504.6 million
and $2,050.7 million at December 31, 1995 and 1994, respectively. Interest
expense on certificates of deposit over $100,000 was $139.9 million, $69.4
million and $90.2 million for the years ended December 31, 1995, 1994 and 1993,
respectively. There were no brokered certificates of deposit at December 31,
1995 and 1994.
46
9. Long-term Debt
Long-term debt at December 31 consisted of:
In millions 1995 1994
--------- -------
Norwest Corporation (parent company only)
Medium-Term Notes, Series A, 4.80% to 5.74%, due 1996 to 1998............. $ 57.5 60.3
Floating Rate Medium-Term Notes, Series B, due 1995....................... -- 200.0
Medium-Term Notes, Series C, 4.34% to 5.14%, due 1996 to 1998............. 23.4 44.6
Floating Rate Medium-Term Notes, Series C, due 1996 to 1998............... 180.4 255.4
Medium-Term Notes, Series D, 7.125% to 8.15%, due 1999 to 2001............ 375.0 375.0
Floating Rate Medium-Term Notes, Series D, due 1996 to 1999............... 600.0 600.0
Medium-Term Notes, Series E, 7.70% to 8.67%, due 1996 to 2002............. 750.0 --
Floating Rate Medium-Term Notes, Series E, due 1997 to 1998............... 250.0 200.0
Medium-Term Notes, Series F, 6.50% to 7.68%, due 2000 to 2005............. 1,000.0 --
Medium-Term Notes, Series G, 5.75% to 6.375%, due 1998 to 2005............ 1,050.0 --
Floating Rate Medium-Term Notes, Series G, due 1998....................... 25.0 --
Senior Notes, 11.22% due 1995............................................. -- 10.0
5.75% Senior Notes, due 1998.............................................. 100.0 100.0
6% Senior Notes, due 2000................................................. 200.0 200.0
Senior Debt, 7.816% due 1996.............................................. 150.0 150.0
6.003% Senior Note, due 1997.............................................. 200.0 --
Floating Rate Senior Note, due 1996....................................... 330.0 --
ESOP Series A Notes, 8.42% due 1996....................................... 31.0 31.0
ESOP Series B Notes, 8.52% due 1999....................................... 13.3 13.3
9 1/4% Subordinated Capital Notes, due 1997............................... 100.0 100.0
6 5/8% Subordinated Notes, due 2003....................................... 200.0 200.0
6 3/4% Convertible Subordinated Debentures, due 2003...................... 0.1 0.2
6.65% Subordinated Debentures, due 2023................................... 200.0 200.0
Other notes............................................................... 5.2 5.4
--------- -------
Total.................................................................... 5,840.9 2,745.2
--------- -------
Norwest Financial, Inc. and its subsidiaries
Senior Notes, 5.125% to 8.875%, due 1996 to 2007.......................... 3,864.5 2,797.6
Senior Subordinated Notes, 4.85% to 8.78%, due 1996 to 1997.............. 217.0 295.0
--------- -------
Total.................................................................... 4,081.5 3,092.6
--------- -------
Other consolidated subsidiaries
FHLB Notes and Advances, 3.15% to 8.38%, due 1997 through 2024............ 465.0 268.5
Floating Rate FHLB Advances, due 1996 through 2000........................ 3,202.7 2,443.8
Floating Rate Student Loan Marketing Association Advances, due 1995....... -- 500.0
12.25% Senior Notes, due 1998 to 2000..................................... 3.3 76.0
Senior Subordinated Notes, 7.34% to 10.13%, due 1997 to 1998.............. -- 5.8
Floating Rate Senior Note, due 1997....................................... 20.0 --
Other notes and debentures, due 1996 through 2005......................... 44.9 35.3
Mortgages payable......................................................... 0.5 0.4
Capital lease obligations................................................. 18.0 18.7
--------- -------
Total.................................................................... 3,754.4 3,348.5
--------- -------
Consolidated long-term debt.............................................. $13,676.8 9,186.3
========= =======
Notes and debentures of the corporation and Norwest Financial, Inc. and its
subsidiaries are unsecured.
During 1995, the corporation issued $2.875 billion of Medium-Term Notes. This
included $800 million of Medium-Term Notes, Series E, $1 billion of Medium-Term
Notes, Series F, and $1.075 billion of Medium-Term Notes, Series G.
The Medium-Term Notes, Series G, have maturities ranging from September 1998 to
December 2005, and consist of $1.050 billion of fixed rate notes and $25 million
of floating rate notes. The fixed rate Medium-Term Notes, Series G, bear
interest at rates ranging from 5.75 percent to 6.375 percent and the floating
rate Medium-Term Notes, Series G, reset periodically at an interest rate of
three-month LIBOR plus eight basis points. The corporation has entered into
interest rate swap agreements to exchange the fixed interest rate on $600
million of the fixed rate Medium-Term Notes, Series G, for floating interest
rates. The $600 million of Medium-Term Notes, Series G, combined with the
interest rate swap agreements provide the corporation with $200 million of funds
at an effective rate of three-month LIBOR less 11 basis points, $200 million of
funds at an effective rate of three-month LIBOR less four basis points, and $200
million of funds at an effective rate of three-month LIBOR plus two basis
points.
47
The Medium-Term Notes, Series F, have maturities ranging from April 2000 to June
2005. All of the Series F notes are fixed rate notes, and bear interest at rates
ranging from 6.50 percent to 7.68 percent. The corporation has entered into
interest rate swap agreements to exchange the fixed interest rate on $700
million of the fixed rate Medium-Term Notes, Series F, for floating interest
rates. The $700 million of Medium-Term Notes, Series F, combined with the
interest rate swap agreements provide the corporation with $200 million of funds
at an effective rate of three-month LIBOR less 103 basis points, $100 million of
funds at an effective rate of three-month LIBOR plus seven basis points, $200
million of funds at an effective rate of three-month LIBOR plus 17 basis points
and $200 million of funds at an effective rate of three-month LIBOR less 21
basis points.
The Medium-Term Notes, Series E, have maturities ranging from December 1996 to
March 2002, and consist of $750 million of fixed rate notes and $250 million of
floating rate notes. The fixed rate Medium-Term Notes, Series E, bear interest
at rates ranging from 7.70 percent to 8.67 percent. The rates on the floating
rate notes reset periodically at interest rates ranging from three-month LIBOR
plus five basis points to three-month LIBOR plus 10 basis points. The
corporation has entered into interest rate swap agreements to exchange the fixed
interest rate on $425 million of the fixed rate Medium-Term Notes, Series E, for
floating interest rates. The $425 million of Medium-Term Notes, Series E,
combined with the interest rate swap agreements provide the corporation with
$225 million of funds at an effective rate of three-month LIBOR plus five basis
points, and $200 million of funds at an effective rate of three-month LIBOR.
The corporation has $600 million in floating rate Medium-Term Notes, Series D.
The rates reset periodically at interest rates ranging from one-month LIBOR to
three-month LIBOR plus five basis points. The corporation has $375 million in
fixed rate Medium-Term Notes, Series D, bearing interest at rates ranging from
7.125 percent to 8.15 percent, maturing from August 1999 to November 2001. The
corporation has entered into interest rate swap agreements to exchange the fixed
interest rate on the fixed rate Medium-Term Notes, Series D, for floating
interest rates. The $375 million of Medium-Term Notes, Series D, combined with
the interest rate swap agreements provide the corporation with $100 million of
funds at an effective rate of three-month LIBOR less 83 basis points, $50
million of funds at an effective rate of one-month LIBOR less 104 basis points,
$25 million of funds at an effective rate of one-month LIBOR less 70 basis
points, $100 million of funds at an effective rate of three-month LIBOR less 40
basis points, and $100 million of funds at an effective rate of three-month
LIBOR less four basis points.
The corporation has $180.4 million in floating rate Medium-Term Notes, Series C.
The rates reset periodically at interest rates ranging from three-month LIBOR
plus five basis points to three-month LIBOR plus 15 basis points.
The corporation has entered into $55 million of interest rate swap agreements on
$55 million of Medium-Term Notes, Series A, to exchange the fixed rate interest
for a floating rate. The Medium-Term Notes, Series A, combined with the interest
rate swap agreements provide the corporation with $55 million of funds at an
effective rate of three-month LIBOR plus two basis points. In addition, the
corporation has entered into $20 million of interest rate swap agreements to
exchange the fixed rate interest on $20 million of Medium-Term Notes, Series C,
for a floating rate. The fixed rate Medium-Term Notes, Series C, combined with
the interest rate swap agreements provide the corporation with $20 million of
funds at an effective rate of three-month LIBOR plus five basis points.
The Medium-Term Notes represent senior, unsubordinated debt and rank equally
with all other unsecured and unsubordinated debt of the corporation.
The full principal amount of the Series A ESOP Notes is due April 26, 1996. The
Series B ESOP Notes require payments of $4.4 million on April 25, 1997 and 1998,
with the balance due April 26, 1999.
During 1995, the corporation issued $530 million in senior debt. The corporation
issued a $200 million fixed rate note, bearing interest at 6.003 percent and
maturing September 26, 1997. The corporation issued a $330 million floating rate
note on which the interest rate resets periodically at a rate of one-month LIBOR
and which matures October 29, 1996.
The $150 million senior debt bears interest at a fixed rate of 7.816 percent and
matures December 13, 1996. The note represents senior unsubordinated debt of the
corporation and ranks equally with present and future unsecured and
unsubordinated debt of the corporation. Payment of principal may be accelerated
only in the case of a default in the payment of interest for a period of thirty
days or 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 on
any other note of the corporation or in the lack of performance of any covenant
of the corporation. The corporation has entered into an interest rate swap
agreement to exchange the fixed interest rate for a floating rate. The senior
debt combined with the interest rate swap agreement provides the corporation
with funds at an effective rate of three-month LIBOR less 14 basis points.
48
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 corporation or cash at the bondholder's election if
the corporation determines that the debt no longer constitutes primary capital
or ceases to be treated as primary capital by the regulatory authorities. The
corporation is required to sell or issue common stock, preferred stock or any
other capital securities, as determined by the regulatory authorities, and
dedicate the proceeds to the retirement or redemption of the principal amount of
these subordinated capital notes. Proceeds of equity offerings have been
designated to redeem the full amount of the subordinated debentures.
The 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 combined with the interest rate swap agreements provide the corporation
with $50 million of funds at an effective rate of six-month LIBOR plus 13 basis
points.
The 6 5/8 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 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 of 68 basis points in
1996, 34 basis points in 1997 and thereafter without a premium.
The 6.65 percent Subordinated Debentures due 2023 are unsecured and subordinated
to all present and future senior debt of the corporation. There is no right of
acceleration in the case of a default in the payment of principal or interest or
in the lack of performance of any covenant of the corporation. Payment of
principal may be accelerated only in the case of bankruptcy of the corporation.
During 1995, Norwest Financial, Inc. and subsidiaries issued a total of $1.2
billion of senior notes bearing interest at rates ranging from 6.23 percent to
8.38 percent and due dates ranging from April 1997 to December 2007.
The floating rate FHLB advances bear interest at rates ranging from LIBOR less
17 basis points to LIBOR less seven basis points, the one-month LIBOR less 15
basis points to the one-month LIBOR less two basis points, and the three-month
LIBOR less 15 basis points to the three-month LIBOR. 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, 1995, the maturity dates
range from 1996 to 2000. The floating rate senior note due March 1997 bears
interest at three-month LIBOR less three basis points.
Mortgages payable consist of notes secured by deeds of trust on premises and
certain other real estate owned with a net book value of $0.5 million at
December 31, 1995. Interest rates on the mortgages payable range up to 12.00
percent with maturities through the year 1998.
Maturities of long-term debt at December 31, 1995 were:
Parent
In millions Consolidated Company Only
------------ ------------
1996...................................... $ 4,063.6 1,259.9
1997...................................... 1,794.8 905.3
1998...................................... 1,929.5 743.2
1999...................................... 979.0 480.1
2000...................................... 1,591.4 825.6
Thereafter................................ 3,318.5 1,626.8
--------- -------
Total.................................... $13,676.8 5,840.9
========= =======
49
10. Stockholders' Equity
Preferred and Preference Stock The corporation is authorized to issue 5,000,000
shares of preferred stock without par value and 4,000,000 shares of preference
stock, without par value. Shares of preferred stock and preference stock have
such powers, preferences and rights as may be determined by the corporation's
board of directors, provided that each share of preference stock will not be
entitled to more than one vote per share. No shares of preference stock are
currently outstanding. A summary of the corporation's preferred stock at
December 31 is presented below.
Annual
In millions, except share and per share amounts Dividend Amount
Shares Outstanding Rate Outstanding
---------------------- --------- ---------------
1995 1994 1995 1995 1994
--------- --------- --------- ------ ------
10.24% Cumulative, $100 stated value........................ 1,127,125 1,127,125 10.24% $112.7 112.7
Cumulative Tracking, $200 stated value...................... 980,000 980,000 9.30% 196.0 196.0
Cumulative Convertible, Series B, $200 stated value......... -- 1,143,675 7.00% -- 228.7
ESOP Cumulative Convertible, $1,000 stated value............ 12,984 14,265 9.00% 13.0 14.3
1995 ESOP Cumulative Convertible, $1,000 stated value....... 24,572 -- 10.00% 24.5 --
Less: Cumulative Tracking shares held by a subsidiary....... (25,000) (125,000) (5.0) (25.0)
--------- --------- ------ -----
2,119,681 3,140,065 341.2 526.7
========= =========
Unearned ESOP shares........................................ (38.9) (14.7)
------ -----
Total preferred stock...................................... $302.3 512.0
====== =====
On March 28, 1995, the corporation issued 63,300 shares of 1995 ESOP Cumulative
Convertible Preferred Stock, $1,000 stated value per share (1995 ESOP Preferred
Stock). On March 31, 1994, the corporation issued 40,900 shares of ESOP
Cumulative Convertible Preferred Stock, $1,000 stated value per share. All
shares of the 1995 ESOP Preferred Stock and the ESOP Cumulative Convertible
Preferred Stock (collectively, ESOP Preferred Stock) were issued to a trustee
acting on behalf of the Norwest Corporation Savings Investment Plan and Master
Savings Trust (the Plan). Dividends are cumulative from the date of initial
issuance and are payable quarterly at an annual rate of 10.00 percent for the
1995 ESOP Preferred Stock and 9.00 percent for the ESOP Cumulative Convertible
Preferred Stock. Each share of ESOP Preferred Stock released from the
unallocated reserve of the Plan is convertible into shares of common stock of
the corporation based on the stated value of the ESOP Preferred Stock and the
then current market price of the corporation's common stock. During 1995 and
1994, 40,009 shares and 26,635 shares of ESOP Preferred Stock were converted
into 1,360,749 shares and 1,094,593 shares of common stock of the corporation,
respectively. The ESOP Preferred Stock is also convertible at the option of the
holder at any time, unless previously redeemed. The ESOP Preferred Stock is
redeemable at any time, in whole or in part, at the option of the corporation at
a redemption price per share equal to the higher of (a) $1,000 per share plus
accrued and unpaid dividends and (b) the fair market value, as defined in the
Certificates of Designations of the ESOP Preferred Stock.
In accordance with the American Institute of Certified Public Accountants
(AICPA) Statement of Position 93-6, "Employers' Accounting for Employee Stock
Ownership Plans," the corporation recorded a corresponding charge to unearned
ESOP shares in connection with the issuance of the ESOP Preferred Stock. The
unearned ESOP shares are reduced as shares of the ESOP Preferred Stock are
committed to be released.
On December 30, 1994, the corporation issued 980,000 shares of Cumulative
Tracking Preferred Stock, $200 stated value per share, of which 25,000 shares
and 125,000 shares were held by a subsidiary at December 31, 1995 and 1994,
respectively. Dividends on shares of Cumulative Tracking Preferred Stock are
cumulative from the date of issue and are payable quarterly. The initial
dividend rate is 9.30 percent per annum. The dividend rate is reset on January
1, 2000, and on January 1 of each fifth year thereafter. The reset rate is the
greater of the 5-, 10-, 30-year Treasury rate or three-month LIBOR plus 250
basis points. At the time of initial issuance of the shares of Cumulative
Tracking Preferred Stock, the holders thereof became assignees of the
corporation's beneficial interest in an equivalent number of Class A preferred
limited liability company interests of Residential Home Mortgage, L.L.C., a
subsidiary of the corporation. Holders of shares of Cumulative Tracking
Preferred Stock are entitled to receive, in addition to the dividends, certain
additional cash distributions that are based on the results of operations of the
limited liability company. The shares of Cumulative Tracking Preferred Stock may
be redeemed after December 31, 1999, at the option of the corporation. The
shares of Cumulative Tracking Preferred Stock rank on a parity, both as to
payment of dividends and the distribution of assets upon liquidation, with the
corporation's ESOP Preferred Stock and 10.24% Cumulative Preferred Stock. The
Cumulative Tracking Preferred Stock ranks prior, both as to payment of dividends
and the distribution of assets upon
50
liquidation, to common stock and, if any, the corporation's junior participating
preferred stock. At December 31, 1995, there were two holders of record of the
Cumulative Tracking Preferred Stock.
The corporation had outstanding 1,127,125 shares of 10.24% Cumulative Preferred
Stock, $100 stated value per share, in the form of 4,508,500 depositary shares,
each of which represented ownership of one-quarter of a share of such preferred
stock. Dividends were cumulative from the date of issue and were payable
quarterly at 10.24% per annum. On January 2, 1996, all of the outstanding shares
of the 10.24% Cumulative Preferred Stock and related depositary shares were
redeemed at the $100 stated value. During 1994, the corporation repurchased
4,125 shares of 10.24% Cumulative Preferred Stock.
All shares of the corporation's Cumulative Convertible Preferred Stock, Series
B, $200 stated value per share, in the form of depositary shares, were called
for redemption on September 1, 1995. Each depositary share, which represented
one-quarter of a share of such preferred stock, was convertible at the option of
the stockholder into approximately 2.74 shares of the corporation's common stock
or redeemable at a price of $52.10 per depositary share plus accrued dividends.
Dividends were cumulative from the date of issue and had been payable quarterly
at a rate of 7.00 percent per annum. During 1995, 1,141,891 shares of Cumulative
Convertible Preferred Stock, Series B, were converted into 12,531,003 shares of
common stock of the corporation and 1,784 of such preferred shares were
redeemed. During 1994, 75 shares of Cumulative Convertible Preferred Stock,
Series B, were converted into 823 shares of common stock of the corporation.
In conjunction with the acquisition of First United in 1994, $30.2 million of
preferred stock of First United was converted into common stock of the
corporation.
Common Stock 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 issued 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.
In 1995, 1994 and 1993, holders of $135 thousand, $25 thousand and $6.9 million,
respectively, of convertible subordinated debentures and the 12 percent
convertible notes exchanged such debt for 27,000 shares, 5,000 shares and
695,016 shares, respectively, of the corporation's common stock. At December 31,
1995, there were six holders of record of the convertible subordinated
debentures.
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:
1995 1994
---------- ----------
Stock incentive plans......................................................... 22,284,062 23,638,647
Convertible subordinated debentures and warrants*............................. 13,518,588 8,045,500
Dividend reinvestment......................................................... 155,872 632,777
Invest Norwest Program........................................................ 1,471,126 622,610
Savings Investment Plans and Executive Incentive Compensation Plan............ 6,581,393 3,121,951
Cumulative Convertible Preferred Stock, Series B.............................. -- 12,619,203
Directors' Formula Stock Award and Stock Deferral Plans....................... 347,101 371,691
Employees' deferral plans..................................................... 1,038,214 1,125,165
---------- ----------
Total....................................................................... 45,396,356 50,177,544
========== ==========
*Includes warrants issued by the corporation to subsidiaries to purchase shares
of the corporation's common stock as follows: 5,500,088 shares at $75.00 per
share in 1995 and 8,000,000 shares at $70.00 per share in 1994.
51
Each share of the corporation's common stock includes one preferred share
purchase right. These rights will become exercisable only if a person or group
acquires or announces an offer to acquire 25 percent or more of the
corporation's common stock. This triggering percentage may be reduced to no less
than 15 percent by the Board prior to the time the rights become exercisable.
When exercisable, each right will entitle the holder to buy one four-hundredth
of a share of a new series of junior participating preferred stock at a price of
$175 for each one one-hundredth of a preferred share. In addition, upon the
occurrence of certain events, holders of the rights will be entitled to purchase
either the corporation's common stock or shares in an "acquiring entity" at
one-half of the then current market value. The corporation will generally be
entitled to redeem the rights at one-quarter cent per right at any time before
they become exercisable. The rights will expire on November 23, 1998, unless
extended, previously redeemed or exercised. The corporation has reserved 1.25
million shares of preferred stock for issuance upon exercise of the rights.
11. Employee Benefit and Stock Incentive Plans
Savings Investment Plans Under the Savings Investment Plan (SIP), each eligible
employee may contribute on a before-tax basis up to 12 percent of his or her
certified earnings, and the contributions will be matched 100 percent by the
corporation up to six percent of the employee's certified earnings. However,
beginning January 1, 1995, SIP participants who are also eligible to participate
in the Employees' Deferred Compensation Plan may only contribute up to six
percent of certified earnings. The corporation's matching contributions vest 25
percent per year of eligibility. All of the corporation's matching contributions
are invested in the corporation's common stock. The employee's contributions are
invested in a 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, are credited to an account for
the participant. Contribution expense for the plans amounted to $37.5 million,
$30.4 million and $22.4 million in 1995, 1994 and 1993, respectively.
The corporation's SIP contains Employee Stock Ownership Plan (ESOP) provisions
under which the SIP may borrow money to purchase the corporation's common or
preferred stock. In 1995 and 1994, the corporation loaned money to the SIP which
was used to purchase shares of the corporation's ESOP Preferred Stock. As ESOP
Preferred Stock is released and converted into common shares, compensation
expense is recorded equal to the current market price of the common shares.
Dividends on the common shares allocated as a result of the release and
conversion of the ESOP Preferred Stock are recorded as a reduction of retained
earnings and the shares are considered outstanding for purposes of earnings per
share computations. Dividends on the unallocated ESOP Preferred Stock are not
recorded as a reduction of retained earnings, and the shares are not considered
to be common stock equivalents for purposes of earnings per share computations.
Each quarter, the corporation makes contributions to the SIP which, along with
dividends paid on the ESOP Preferred Stock, are used to make loan principal and
interest payments. With each principal and interest payment, a portion of the
ESOP Preferred Stock is released and, after conversion of the ESOP Preferred
Stock into common shares, allocated to participating employees.
In 1989, the corporation loaned money to the SIP which was used to purchase
shares of the corporation's common stock (the 1989 ESOP shares). The corporation
accounts for the 1989 ESOP shares in accordance with AICPA Statement of Position
76-3. Accordingly, the corporation's ESOP loans to the SIP related to the
purchase of the 1989 ESOP shares are recorded as a reduction of stockholders'
equity, and compensation expense based on the cost of the shares is recorded as
shares are released and allocated to participants' accounts. The 1989 ESOP
shares are considered outstanding for purposes of earnings per share
computations and dividends on the shares are recorded as a reduction to retained
earnings. The loans from the corporation to the SIP are repayable in monthly
installments through April 26, 1999, with interest at 8.45 percent. Interest
income on these loans was $1.1 million, $1.2 million and $1.6 million in 1995,
1994 and 1993, respectively, and is included as a reduction in salaries and
benefits expense. Total interest expense on the Series A and B ESOP Notes was
$3.7 million, $3.7 million and $3.8 million in 1995, 1994 and 1993,
respectively.
52
Total dividends paid to the SIP on ESOP shares were as follows:
In millions 1995 1994 1993
----- ----- -----
ESOP Preferred Stock:
Common dividends....................... $ 1.5 0.3 --
Preferred dividends.................... 3.5 1.7 --
1989 ESOP shares:
Common dividends....................... 7.7 6.8 5.7
----- ----- -----
Total................................... $12.7 8.8 5.7
===== ===== =====
The ESOP shares as of December 31 were as follows:
In millions, except shares 1995 1994
---------- ---------
ESOP Preferred Stock:
Allocated shares (common).............. 2,305,807 1,074,106
Unreleased shares (preferred).......... 37,556 14,265
1989 ESOP shares:
Allocated shares....................... 7,108,304 7,409,973
Unreleased shares...................... 1,249,799 1,341,736
Fair value of unearned ESOP shares...... $ 37.6 14.3
Norwest Financial Services, Inc. has a thrift and profit sharing plan for its
employees in which eligible employees may contribute on an after-tax basis up to
10 percent of their salary, and the contributions will be matched 25 percent by
Norwest Financial Services, Inc. up to six percent of the employee's salary.
Norwest Financial Services, Inc. may also make a profit sharing contribution
with the amount determined by the percentage return on equity of Norwest
Financial Services, Inc. and its subsidiaries. Contribution expense for the plan
was $12.1 million, $12.3 million and $9.3 million in 1995, 1994 and 1993,
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.
53
The combined plans' funded status at December 31 is presented below.
In millions 1995 1994
------ -----
Plan assets at fair value*......................... $891.5 694.9
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including
vested benefits of $613.3 and $552.1,
respectively.................................... 666.8 598.0
Projected benefit obligation for service
rendered to date.................................. 868.1 767.9
------ -----
Plan assets (greater) less than projected
benefit obligation................................ (23.4) 73.0
Unrecognized net gain (loss) from past
experience different from that assumed and
effects of changes in assumptions................. 45.1 (50.5)
Unrecognized net asset being amortized over
approximately 17 years............................ 11.5 14.0
Unrecognized prior service cost.................... 1.7 3.7
------ -----
Accrued pension liabilities included in other
liabilities....................................... $ 34.9 40.2
====== =====
*Consists primarily of listed stocks and bonds and obligations of the U.S.
government and its agencies.
The components of net pension expense for the years ended December 31 are
presented below.
In millions 1995 1994 1993
------- ----- -----
Service cost-benefits earned during the
year................................... $ 45.4 43.5 32.3
Interest cost on projected benefit
obligation............................. 55.4 48.9 43.3
Actual return on plan assets............ (156.5) (6.0) (67.5)
Net amortization and deferral*.......... 105.6 (17.8) 49.9
------- ----- -----
Net pension expense..................... $ 49.9 68.6 58.0
======= ===== =====
*Consists primarily of the net effects of the difference between the expected
investment return and the actual investment return and the amortization of the
unrecognized net gains and losses over five years.
The corporation also has established grantor trusts to be used to satisfy in
part its non-qualified pension benefit liabilities. The market value of these
trusts was $52.0 million and $35.9 million as of December 31, 1995 and 1994,
respectively, and is not included in plan assets as presented above.
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 both 1995 and 1994. The expected long-term rate of return on assets was six
percent for 1995 and 1994.
Other Postretirement Benefits The corporation sponsors medical plans for
retired employees. Substantially all employees become eligible for these
benefits if they retire under the corporation's retirement plans. The
corporation's funding policy is to maximize the federal income tax benefits of
the contributions while maintaining adequate assets to provide for both benefits
earned to date and those expected to be earned in the future.
54
The combined plans' funded status at December 31 is presented below.
In millions 1995 1994
------ -----
Plan assets at fair value*...................... $ 91.7 64.3
Accumulated postretirement benefit obligation:
Retirees...................................... 86.5 81.6
Fully eligible active plan participants....... 13.4 12.1
Other active plan participants................ 99.4 84.6
------ -----
199.3 178.3
Plan assets less than accumulated
postretirement benefit obligation............. 107.6 114.0
Unrecognized net loss........................... (5.0) (16.4)
Unrecognized prior service cost................. (0.8) --
------ -----
Accrued postretirement benefit liabilities
included in other liabilities.................. $101.8 97.6
====== =====
*Consists primarily of life insurance policies.
The components of net periodic postretirement benefit expense for the years
ended December 31 are presented below.
In millions 1995 1994 1993
------ ---- -----
Service cost-benefits earned during the
year................................... $ 10.7 9.0 7.5
Interest cost on accumulated
postretirement benefit obligation...... 12.7 11.4 10.7
Actual return on plan assets............ (15.2) 2.7 (3.4)
Net amortization and deferral*.......... 13.6 (1.7) 6.0
------ ---- ----
Net periodic postretirement benefit
expense................................ $ 21.8 21.4 20.8
====== ==== ====
*Consists primarily of the net effects of the difference between the expected
investment return and the actual investment return and amortization of gains and
losses over five years.
For measurement purposes, a 12.0 percent annual increase in the cost of covered
health care benefits is assumed in the first year. This rate is assumed to
decrease to eight percent after 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 $27.8 million at December 31, 1995, and the service and interest
components of the net periodic cost by $4.0 million for the year. The weighted
average discount rate used in determining the accumulated postretirement benefit
obligation was seven percent in 1995 and 1994. The expected long-term rate of
return on plan assets after taxes was 3.6 percent for both 1995 and 1994.
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, 1995, 262,395 shares of restricted stock and options to acquire 15,156,815
shares of common stock were outstanding under the 1985 Plan.
55
Stock options may be granted as incentive stock options or non-qualified
options, but may not be granted at prices less than market value at the dates of
grant. Options may be exercised during a period fixed by the committee of not
more than ten years. At the discretion of the committee, a stock option grant
may include the right to acquire an Accelerated Ownership Non-Qualified Stock
Option ("AO"). If an option grant contains the AO feature and if a participant
pays all or part of the purchase price of the option with shares of the
corporation's stock held by the participant for at least six months, then upon
exercise of the option the participant is granted an AO to purchase, at the fair
market value as of the date of the AO grant, the number of shares of common
stock of the corporation equal to the sum of the number of shares used in
payment of the purchase price and a number of shares with respect to taxes.
Proceeds from stock options exercised are credited to common stock and surplus.
There are no charges or credits to expense with respect to the granting or
exercise of options since the options were issued at fair market value on their
respective dates of grant.
In connection with the 1994 acquisition of First National Bank of Kerrville
(Kerrville), the corporation assumed Kerrville's obligations under a stock
option plan. As a result of the acquisition, all options under the plan were
converted into options to acquire 181,300 shares of the corporation's common
stock, of which 89,200 options remain outstanding as of December 31, 1995.
In connection with the acquisition of First United, the corporation assumed
First United's obligations under the First United Bank Group Incentive Stock
Option Plan. Exercise prices were based on the fair market value of First
United's common stock on the date of grant. As a result of the acquisition, all
outstanding options under the plan were vested and converted into options to
acquire the corporation's common stock. At December 31, 1995, no options were
outstanding under First United's stock option plan.
In connection with the 1993 acquisition of Financial Concepts Bancorp, Inc.
(Financial Concepts), the corporation assumed Financial Concept'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. At December 31, 1995, 39,264 of such options remain outstanding.
In connection with the acquisition of Lincoln Financial Corporation (Lincoln),
the corporation assumed Lincoln's obligations under two stock option plans and a
Director's Stock Compensation Plan. Under terms of the option plans, stock
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, 1995, options to acquire
19,588 shares of common stock were outstanding under one of Lincoln's stock
option plans.
In connection with the United Banks of Colorado, Inc. (United) merger in 1992,
the corporation assumed United's obligations under two stock option plans and
the Outside Directors' Supplemental Compensation Plan. Exercise prices were
based upon the fair market value of United's common stock on the date of grant.
As a result of the merger, all options under these plans were vested and
converted into options to acquire the corporation's common stock. 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, 1995, options to acquire 15,250 shares were
outstanding under one of United's stock option plans.
56
The table below presents a summary of stock option transactions under the plans.
At December 31, 1995, options for 9,613,594 shares were exercisable under the
plans.
Stock Option Transactions
Options Option Price
----------------------------- -----------------------------------
Available Total
for Grant Outstandings Per Share In millions
------------ ------------ ---------------- -----------
December 31, 1992....................... 7,828,819 10,831,513 $ 4.4066-21.9688 $147.3
Stockholder Amendment.................. 9,000,000 -- -- --
Granted*............................... (1,391,620) 1,391,620 20.8125-28.6875 36.8
Shares Swapped......................... 835,264 -- -- --
Exercised.............................. -- (2,705,836) 4.4066-23.0625 (33.6)
Cancelled.............................. 236,518 (255,408) 6.6845-27.375 (2.6)
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....................... 16,230,153 9,361,601 4.4066-28.6875 148.7
Granted*............................... (8,301,975) 8,301,975 22.125-28.00 211.0
Shares Swapped......................... 802,038 -- -- --
Exercised.............................. -- (2,025,118) 4.4066-25.625 (27.2)
Cancelled.............................. 103,650 (103,650) 14.5313-28.00 (2.3)
Restricted Stock Awards................ (68,500) -- -- --
Acquisition of Kerrville............... -- 181,300 4.4816-9.6237 1.0
Termination of First United Plans...... (842,827) -- -- --
---------- ---------- ---------------- -------
December 31, 1994....................... 7,922,539 15,716,108 4.4816-28.6875 331.2
Granted*............................... (1,860,221) 1,860,221 23.00-34.375 55.0
Shares Swapped......................... 615,809 -- -- --
Exercised.............................. -- (1,926,576) 4.4816-31.6875 (31.0)
Cancelled.............................. 329,518 (329,636) 14.4558-32.75 (8.3)
Restricted Stock Awards................ (43,700) -- -- --
---------- ---------- ---------------- -------
December 31, 1995....................... 6,963,945 15,320,117 $ 4.4816-34.375 $346.9
========== ========== ================ ======
*Includes 589,138, 1,040,750 and 1,076,552 AO grants at December 31, 1995, 1994
and 1993, respectively.
12. Income Taxes
Components of income tax expense were:
In millions 1995 1994 1993
------ ----- -----
Current
Federal.......... $468.2 49.7 250.4
State............ 41.7 6.2 32.6
Foreign.......... 27.3 11.6 3.7
------ ----- -----
Total current... 537.2 67.5 286.7
Deferred
Federal.......... (56.5) 278.5 (32.5)
State............ (11.4) 31.1 (1.0)
Foreign.......... (2.5) 3.1 13.5
------ ----- -----
Total deferred.. (70.4) 312.7 (20.0)
------ ----- -----
Total........... $466.8 380.2 266.7
====== ===== =====
57
Income tax expense (benefit) applicable to net gains (losses) on investment
securities for the years ended December 31, 1995, 1994 and 1993 was $(18.9)
million, $(29.3) million and $18.3 million, respectively.
Income before income taxes from operations outside the United States was $56.6
million, $33.4 million, and $39.1 million for the years ended December 31, 1995,
1994 and 1993, respectively.
The net deferred tax liability (asset) included the following major temporary
differences at December 31:
In millions 1995 1994
---- ----
Deferred tax liabilities
Depreciation.............................. $ 35.5 36.2
Lease financing........................... 181.2 155.8
Mark to market............................ 79.5 286.3
Mortgage servicing........................ 234.6 71.7
FAS 115 adjustment........................ 187.5 --
Other..................................... 57.4 53.2
------- ------
Total deferred tax liabilities........... 775.7 603.2
------- ------
Deferred tax assets
Provision for credit losses............... (259.0) (225.6)
Expenses deducted when paid............... (178.2) (90.6)
FAS 115 adjustment........................ -- (199.5)
Postretirement benefits other than
pensions................................. (34.3) (34.0)
Other..................................... (117.3) (99.5)
------- ------
Total deferred tax assets................ (588.8) (649.2)
Valuation allowance......................... -- --
------- ------
Deferred tax assets, net.................. (588.8) (649.2)
------- ------
Total net deferred tax liability (asset).... $ 186.9 (46.0)
======= ======
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 $588.8 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 $2.0 billion in the carryback period, substantial
state taxable income in the carryback period, as well as a history of growth in
earnings and the prospects for continued growth.
The deferred tax asset/liability related to FAS 115 had no impact on 1995 or
1994 income tax expense as the effect of unrealized gains and losses, net of
taxes, was recorded in stockholders' equity.
A reconciliation of the federal income tax rate to effective income tax rates
follows:
1995 1994 1993
----- ----- -----
Federal income tax rate................. 35.0% 35.0 35.0
Adjusted for
State income taxes..................... 1.4 2.0 2.4
Tax-exempt income...................... (1.9) (2.4) (3.5)
Charitable contributions of
appreciated assets.................... -- (0.6) (2.5)
Other, net............................. (1.7) (1.8) (1.1)
---- ---- ----
Effective income tax rate............... 32.8% 32.2 30.3
==== ==== ====
58
13. Commitments and Contingent Liabilities
At December 31, 1995, the corporation and its subsidiaries were obligated under
noncancelable leases for premises and equipment with terms, including renewal
options, ranging from one to approximately 100 years, which provide for
increased rentals based upon increases in real estate taxes, operating costs or
selected price indices.
Rental expense (including taxes, insurance and maintenance when included in
rent, and contingent rentals), net of sublease rentals, amounted to $187.4
million, $174.1 million and $156.4 million in 1995, 1994 and 1993, 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,
1995 were:
Capital Operating
In millions Leases Leases
------- ---------
1996.................................... $ 2.4 $104.2
1997.................................... 2.2 89.5
1998.................................... 2.2 75.4
1999.................................... 2.2 66.5
2000.................................... 2.2 58.3
Thereafter.............................. 32.3 547.6
------ ------
Total minimum rental payments........... 43.5 $941.5
======
Less interest........................... (25.5)
------
Present value of net minimum rental
payments............................... $ 18.0
======
To meet the financing needs of its customers and as part of its overall risk
management strategy, the corporation is a party to financial instruments with
off-balance sheet risk. These financial instruments include commitments to
extend credit, recourse obligations, options, standby letters of credit,
interest rate futures, caps and floors and interest rate swaps and forward
contracts. These instruments involve elements of credit and interest rate risk
in addition to amounts recognized in the financial statements.
The corporation's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit, recourse obligations, and financial guarantees
written is represented by the contractual amount of those instruments. The
corporation uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments. The corporation also
uses the same credit and collateral policies in making loans which are
subsequently sold with recourse obligations as it does for loans not sold. Refer
to Note 15, Derivative Activities, for contractual or notional amounts of
derivatives held by the corporation and a discussion of risks associated with
such instruments.
A summary of the contractual amounts of these financial instruments at December
31 is as follows:
In millions 1995 1994
--------- -------
Commitments to extend credit... $8,114.9 6,862.3
Standby letters of credit*..... 1,051.9 905.6
Other letters of credit........ 349.7 422.6
*Total standby letters of credit are net of participations in standby
letters of credit sold to other institutions of $336.6 million in 1995 and
$321.4 million in 1994.
59
Commitments to extend credit generally have fixed expiration dates or other
termination clauses and usually require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
amount of collateral obtained is based on management's credit evaluation of the
counterparty. Collateral held varies, but may include cash, marketable
securities, accounts receivable, inventory, property, plant and equipment, and
income-producing commercial properties.
Standby letters of credit and financial guarantees written are conditional
commitments issued by subsidiaries of the corporation to guarantee the
performance of a customer to a third party. Outstanding standby letters of
credit at December 31, 1995 supported $541.8 million of industrial revenue
bonds, $361.9 million of supplier payment guarantees, $164.8 million of
insurance premium financing, $168.4 million of performance bonds and $151.6
million of other obligations of unaffiliated parties with maturities up to 22
years, eight years, seven years, 10 years and seven 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.
Other commitments include sales of mortgage loans prior to 1985 in non-standard,
negotiated transactions, primarily with the Federal Home Loan Mortgage
Corporation, which provide for recourse to Norwest Mortgage, Inc. The
outstanding loan balances which relate to these sales transactions amounted to
$194.7 million and $198.0 million at December 31, 1995 and 1994, respectively.
The corporation has also provided a financial guarantee related to the sale of
certain mortgage participation certificates in the event LIBOR exceeds specified
levels. The liability under the foregoing arrangements is not material.
The corporation and certain subsidiaries are defendants in various matters of
litigation generally incidental to their business. Although it is difficult to
predict the ultimate outcome of these cases, management believes, based on
discussions with counsel, that any ultimate liability will not materially affect
the consolidated financial position or results of operations of the corporation
and its subsidiaries.
14. Trading Revenues
The corporation conducts trading of debt and equity securities, money market
instruments, derivative products and foreign exchange contracts to satisfy the
investment and risk management needs of its customers and those of the
corporation. Trading activities are conducted within risk limits established and
monitored by the Asset and Liability Management Committee as further discussed
in the Interest Rate Sensitivity and Liquidity Management section of the
Financial Review. The table below provides a summary of the corporation's
trading revenues in the principal markets in which the corporation participates.
In millions 1995 1994 1993
----- ----- -----
Interest income:
Securities.................................... $11.2 13.9 12.6
Swaps and other interest rate contracts....... 3.6 10.7 16.3
----- ----- -----
Total interest income........................ 14.8 24.6 28.9
----- ----- -----
Non-interest income:
Gains on securities sold...................... 15.6 8.4 21.4
Foreign exchange trading...................... 7.8 6.5 5.4
Swaps and other interest rate contracts....... 6.0 (39.9) 14.6
Options....................................... 11.6 5.9 3.1
Debt instruments.............................. -- -- (0.2)
Futures....................................... (1.1) 1.0 (2.6)
----- ----- -----
Total non-interest income.................... 39.9 (18.1) (41.7)
----- ----- -----
Total trading revenues......................... $54.7 6.5 70.6
===== ===== =====
60
15. Derivative Activities
Derivatives are financial instruments that are used by banks, corporations,
governments, and individuals to manage the financial risks associated with their
business activities. For example, a futures contract can be used to guard
against price fluctuations and a swap can be used to change fixed interest rate
payments into floating interest rate payments. In general terms, derivative
instruments are contracts or agreements whose value can be linked to interest
rates, exchange rates, security prices, or financial indices. A derivative
financial instrument is a futures, forward, swap, or option contract or other
financial instrument with similar characteristics. The corporation uses
derivatives in both its trading and its asset and liability management
activities. The corporation's trading activities include acting as a dealer to
satisfy the investment and risk management needs of its customers and, in
addition, the corporation assumes trading positions based on market expectations
and to benefit from price differentials between financial instruments and
markets. As an end-user, the corporation uses various types of derivative
products (principally interest rate swaps and interest rate caps and floors) as
part of its overall interest rate risk management strategy.
As with on-balance sheet financial instruments such as loans and investment
securities, derivatives are subject to credit and market risk. Accordingly, the
corporation evaluates the risks associated with derivatives in much the same way
as the risks associated with on-balance sheet financial instruments. However,
unlike on-balance sheet financial instruments, where the risk of credit loss is
generally represented by the notional or principal value, the derivatives' risk
of credit loss is generally a small fraction of the notional value of the
instrument and is represented by the fair value of the derivative instrument.
For example, the notional amount for interest rate swaps does not represent the
amount at risk because the notional amount will not be exchanged. The notional
amount does, however, provide the basis for determining the contractual cash
flows, which are discounted to determine fair values of the related derivatives.
For foreign exchange forward contracts, the fair value is based on the gap
between the current forward market rate of the underlying currency and the
contractual rate.
The corporation attempts to limit its credit risk by dealing with creditworthy
counterparties, obtaining collateral where appropriate, and utilizing master
netting agreements in accordance with Financial Accounting Standards Board
Interpretation No. 39, "Offsetting of Amounts Related to Certain Contracts" as
amended by Financial Accounting Standards Board Interpretation No. 41,
"Offsetting of Amounts Related to Certain Repurchase and Reverse Repurchase
Agreements." The market risk of derivatives arises from the potential for
changes in value due to fluctuations in interest and foreign exchange rates and
in prices of debt and equity securities.
Derivative Financial Instruments Held or Issued for Trading Purposes The
following table provides the notional and fair value of the corporation's
derivatives included in its trading portfolio at December 31, 1995 and 1994, and
the average fair value of derivatives held or issued for trading purposes during
the years ended December 31, 1995 and 1994:
1995 1994
---------------------------------- --------------------------------------
Average Average
Notional Fair Daily Fair Notional Fair Daily Fair
In millions Value Value Value Value Value Value
-------- ------ ---------- -------- ------ ----------
Swaps:
In a favorable position........... $602.0 4.6 8.0 509.0 15.5 15.0
In an unfavorable position........ 504.0 (3.3) (6.0) 307.0 (17.0) (15.0)
Caps and Floors:
In a favorable position........... 231.0 1.4 2.0 255.0 4.2 10.0
In an unfavorable position........ 261.0 (1.4) (1.0) 166.0 (1.6) (1.0)
Options:
Purchased......................... -- -- -- -- -- --
Written........................... -- -- (2.0) 250.0 (4.6) (3.0)
Futures contracts:
In a favorable position........... 29.0 -- -- -- -- --
In an unfavorable position........ 35.0 -- -- -- -- --
Foreign exchange contracts:
In a favorable position........... 475.0 5.9 10.0 289.0 6.7 7.0
In an unfavorable position........ 449.0 (5.2) (10.0) 282.0 (6.1) (7.0)
Foreign exchange options:
Purchased......................... 15.0 0.2 -- 1.0 -- --
Written........................... 13.0 (0.3) -- 1.0 -- --
61
Derivative Financial Instruments Held or Issued for Purposes Other Than Trading
The corporation and its subsidiaries, as end-users, utilize various types of
derivative products (principally interest rate swaps and interest rate caps and
floors) as part of an overall interest rate risk management strategy.
The use of interest rate contracts enables the corporation to synthetically
alter the repricing characteristics of designated assets and interest-bearing
liabilities. In the following information for cash flows and maturities,
variable rates are assumed to remain constant at December 31, 1995 levels. To
the extent that rates change, both the average notional and variable interest
rate information may change. Interest rate swaps generally involve the exchange
of fixed and floating rate interest payments based on an underlying notional
amount. Generic swaps' notional amounts do not change for the life of the
contract. The current outstanding amortizing swaps' average notional amounts
change based on a remaining principal amount of a pool of mortgage-backed
securities. Generally, as rates fall the notional amounts decline more rapidly
and as rates increase notional amounts decline more slowly. Basis swaps are
contracts where the corporation receives an amount and pays an amount based on
different floating indices. Currently, interest rate floors are principally
being used by the corporation in hedging its portfolio of mortgage servicing
rights. The floors provide for the receipt of payments when interest rates are
below predetermined interest rate levels. 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 underlying
financial instrument. The table below presents the maturity and weighted average
rates for end-user derivatives by type at December 31, 1995.
Maturity
-------------------------------------------------------
Dollars in millions 1996 1997 1998 1999 2000 Thereafter Total
---- ---- ---- ---- ---- ---------- -----
Swaps:
Generic receive fixed-
Notional value......................... $ 675 250 100 466 225 1,100 2,816
Weighted average receive rate.......... 6.23% 8.18 7.88 7.92 6.33 6.61 6.89
Weighted average pay rate.............. 5.90% 5.94 5.94 5.89 5.94 5.86 5.89
Amortizing receive fixed-
Notional value......................... $ 500 1,000 75 -- -- -- 1,575
Weighted average receive rate.......... 7.50% 7.50 2.89 -- -- -- 7.28
Weighted average pay rate.............. 5.80% 5.63 6.03 -- -- -- 5.71
Generic pay fixed-
Notional value......................... $ 30 -- -- -- -- 300 330
Weighted average receive rate.......... 5.88% -- -- -- -- 5.76 5.77
Weighted average pay rate.............. 6.27% -- -- -- -- 5.89 5.92
Basis-
Notional value......................... $ 200 -- 29 -- -- -- 229
Weighted average receive rate.......... 5.91% -- 4.51 -- -- -- 5.73
Weighted average pay rate.............. 5.81% -- 3.18 -- -- -- 5.48
Interest rate caps and floors:*
Notional value......................... $ 16 -- 1,077 400 6,350 -- 7,843
------ ----- ----- ---- ----- ----- ------
Total notional value.................. $1,421 1,250 1,281 866 6,575 1,400 12,793
====== ===== ===== ==== ===== ===== ======
Total weighted average rates on swaps:
Receive rate.......................... 6.63% 7.64 5.56 7.92 6.33 6.43 6.89
====== ===== ===== ==== ===== ===== ======
Pay rate.............................. 5.86% 5.69 5.58 5.89 5.94 5.87 5.81
====== ===== ===== ==== ===== ===== ======
*Average rates are not meaningful for interest rate caps and floors.
Note: Weighted average variable rates are the actual rates as of December 31,
1995.
For the year ended December 31, 1995, end-user derivative activities decreased
interest income by $2.7 million and reduced interest expense by $9.8 million,
for a total benefit to net interest income of $7.1 million. For 1994 and 1993,
end-user derivative activities increased interest income by $7.7 million and
$13.4 million, respectively, and reduced interest expense by $4.6 million and
$9.2 million, respectively, for a total benefit to net interest income of $12.3
million and $22.6 million, respectively.
62
Activity in the notional amounts of end-user derivatives for each of the three
years ended December 31, 1995, 1994, and 1993, is summarized as follows:
Swaps
---------------------------------------------------
Interest
Generic Amortizing Generic Rate
Receive Receive Pay Total Caps/ Security Total
In millions Fixed Fixed Fixed Basis Swaps Floors Futures Options Derivatives
------- ---------- ------- ----- ----- -------- ------- -------- -----------
Balance, December 31, 1992..... $ 355 500 205 -- 1,060 2,383 1,500 -- 4,943
Additions..................... 325 -- 200 -- 525 166 2,000 -- 2,691
Amortizations and maturities.. 305 -- 105 -- 410 1,900 1,500 -- 3,810
Terminations.................. -- -- -- -- -- -- -- -- --
------ ----- --- --- ----- ----- ----- ----- ------
Balance, December 31, 1993..... 375 500 300 -- 1,175 649 2,000 -- 3,824
Additions..................... 900 1,900 30 229 3,059 400 -- -- 3,459
Amortizations and maturities.. -- 298 100 -- 398 298 -- -- 696
Terminations.................. 250 2,102 100 -- 2,452 -- 2,000 -- 4,452
------ ----- --- --- ----- ----- ----- ----- ------
Balance, December 31, 1994..... 1,025 -- 130 229 1,384 751 -- -- 2,135
Additions..................... 1,891 1,575 200 -- 3,666 7,100 -- 5,951 16,717
Amortizations and maturities.. -- -- -- -- -- 8 -- 3,670 3,678
Terminations.................. 100 -- -- -- 100 -- -- 2,281 2,381
------ ----- --- --- ----- ----- ----- ----- ------
Balance, December 31, 1995..... $2,816 1,575 330 229 4,950 7,843 -- -- 12,793
====== ===== === === ===== ===== ===== ===== ======
63
The following table provides the gross gains and gross losses not yet recognized
in the consolidated financial statements for open end-user derivatives
applicable to certain hedged assets and liabilities as of December 31, 1995 and
1994:
Balance Sheet Category
----------------------------------------------------------------------
Interest- Long-
Investment bearing Short-term term
In millions Securities Deposits Borrowings Debt Other* Total
---------- --------- ---------- ----- ------ -----
1995:
Swaps
Pay variable unrealized gains... $ -- 9.6 -- 107.9 1.5 119.0
Pay variable unrealized losses.. -- (0.6) -- (0.4) -- (1.0)
----- ---- ---- ----- ---- -----
Pay variable net............. -- 9.0 -- 107.5 1.5 118.0
----- ---- ---- ----- ---- -----
Pay fixed unrealized gains...... -- 1.3 -- -- -- 1.3
Pay fixed unrealized losses..... -- (0.9) -- -- (0.9) (1.8)
----- ---- ---- ----- ---- -----
Pay fixed net................ -- 0.4 -- -- (0.9) (0.5)
----- ---- ---- ----- ---- -----
Basis unrealized gains.......... 0.5 -- -- -- -- 0.5
----- ---- ---- ----- ---- -----
Total unrealized gains.......... 0.5 10.9 -- 107.9 1.5 120.8
Total unrealized losses......... -- (1.5) -- (0.4) (0.9) (2.8)
----- ---- ---- ----- ---- -----
Total net.................... $ 0.5 9.4 -- 107.5 0.6 118.0
===== ==== ==== ===== ==== =====
Interest rate caps/floors
Unrealized gains................ $ -- -- -- -- 86.8 86.8
Unrealized losses............... -- (0.3) (0.1) (0.3) -- (0.7)
----- ---- ---- ----- ---- -----
Total net...................... $ -- (0.3) (0.1) (0.3) 86.8 86.1
===== ==== ==== ===== ==== =====
Grand total unrealized gains..... $ 0.5 10.9 -- 107.9 88.3 207.6
Grand total unrealized losses.... -- (1.8) (0.1) (0.7) (0.9) (3.5)
----- ---- ---- ----- ---- -----
Grand total net.................. $ 0.5 9.1 (0.1) 107.2 87.4 204.1
===== ==== ==== ===== ==== =====
1994:
Swaps
Pay variable unrealized gains... $ -- -- -- 1.0 -- 1.0
Pay variable unrealized losses.. -- (18.3) -- (18.2) -- (36.5)
----- ----- ---- ----- --- -----
Pay variable net............. -- (18.3) -- (17.2) -- (35.5)
----- ----- ---- ----- --- -----
Pay fixed unrealized gains...... -- 15.3 -- -- -- 15.3
Basis unrealized losses......... (3.3) -- -- -- -- (3.3)
----- ----- ---- ----- --- -----
Total unrealized gains.......... -- 15.3 -- 1.0 -- 16.3
Total unrealized losses......... (3.3) (18.3) -- (18.2) -- (39.8)
----- ----- ---- ----- --- -----
Total net.................... $(3.3) (3.0) -- (17.2) -- (23.5)
===== ===== ==== ===== === =====
Interest rate caps/floors
Unrealized gains................ $ 1.5 -- -- 0.9 1.0 3.4
Unrealized losses............... -- -- (0.1) -- -- (0.1)
----- ----- ---- ----- --- -----
Total net...................... $ 1.5 -- (0.1) 0.9 1.0 3.3
===== ===== ==== ===== === =====
Grand total unrealized gains..... $ 1.5 15.3 -- 1.9 1.0 19.7
Grand total unrealized losses.... (3.3) (18.3) (0.1) (18.2) -- (39.9)
----- ----- ---- ----- --- -----
Grand total net.................. $(1.8) (3.0) (0.1) (16.3) 1.0 (20.2)
===== ===== ==== ===== === =====
*Includes $88.3 million in gains on interest rate floors and swaps hedging
mortgage servicing rights, and $0.9 million in losses on swaps hedging leasing
activity in 1995, and $1.0 million in gains on interest rate floors hedging
mortgage servicing rights in 1994.
64
As a result of interest rate fluctuations, off-balance sheet derivatives have
resulting unrealized appreciation or depreciation in market values as compared
with their cost. As these derivatives hedge certain assets and liabilities of
the corporation, as noted in the table on page 64, there has been offsetting
unrealized appreciation and depreciation in the assets and liabilities hedged.
Deferred gains and losses on terminated end-user derivatives were not material
at December 31, 1995 and 1994.
The corporation has entered into mandatory and standby forward contracts to
reduce interest risk on certain mortgage loans held for sale and other
commitments. The contracts provide for the delivery of securities at a specified
future date, at a specified future price or yield. At December 31, 1995 and
1994, the corporation had forward contracts totaling $11.2 billion and $4.1
billion, respectively. The contracts mature within 240 days. Gains and losses on
forward contracts are included in the determination of market value of mortgages
held for sale. The net unrealized loss on these contracts at December 31, 1995
and 1994, was $98.1 million and $2.3 million, respectively.
16. Segment Reporting
The corporation's operations include three primary business segments: banking,
mortgage banking and consumer finance. The corporation, through its subsidiary
banks, offers diversified banking services including retail, commercial and
corporate banking, equipment leasing, and trust services; and through their
affiliates offer insurance, securities brokerage, investment banking and venture
capital investment. Mortgage banking activities include the origination and
purchase of residential mortgage loans for sale to various investors as well as
providing servicing of mortgage loans for others. Norwest Financial (including
Norwest Financial Services, Inc. and Island Finance) provides consumer finance
services, including direct installment loans to individuals, purchase of sales
finance contracts, private label and lease accounts receivable financing, and
other related products and services.
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
--------- -------------- --------
1995:
Banking............ $5,008.9 602.2 53,479.4
Mortgage Banking... 1,015.8 104.9 10,089.3
Norwest Financial.. 1,557.6 248.9 8,565.7
-------- ----- --------
Total............. $7,582.3 956.0 72,134.4
======== ===== ========
1994:
Banking............ $3,892.4 507.1 48,564.3
Mortgage Banking... 921.3 70.8 4,608.1
Norwest Financial.. 1,218.3 222.5 6,143.5
-------- ----- --------
Total............. $6,032.0 800.4 59,315.9
======== ===== ========
1993:
Banking............ $3,594.6 356.7 41,956.9
Mortgage Banking... 851.1 56.3 7,425.2
Norwest Financial.. 1,085.6 200.1 5,282.9
-------- ----- --------
Total............. $5,531.3 613.1 54,665.0
======== ===== ========
*Revenues (interest income plus non-interest income), where applicable, and
organizational earnings by business segment are impacted by intercompany
revenues and expenses, such as interest on borrowings from the parent company,
corporate service fees and allocations of federal income taxes.
65
17. 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 1995 1994 1993
------ ----- -----
Origination fees........................ $115.6 103.5 135.6
Servicing fees.......................... 211.7 190.6 56.1
Net gains on sales of servicing rights.. 81.3 130.0 61.7
Net gains (losses) on sales of mortgages (24.2) 74.5 140.5
Other mortgage fee income............... 148.4 82.4 78.4
------ ----- -----
Total mortgage banking non-interest
income................................ $532.8 581.0 472.3
====== ===== =====
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. The outstanding balances of serviced loans were
$107.4 billion, $71.5 billion and $45.7 billion at December 31, 1995, 1994 and
1993, respectively.
Changes in capitalized mortgage loan servicing rights for each of the three
years ended December 31 were:
In millions 1995 1994 1993
-------- ----- -----
Balance at beginning of year.. $ 550.3 185.2 64.0
Originations................. 233.1 -- --
Purchases.................... 552.2 478.3 169.9
Sales........................ (158.6) (65.2) (2.5)
Amortization................. (115.0) (47.4) (27.7)
Other........................ (0.5) (0.6) (18.5)
-------- ----- -----
1,061.5 550.3 185.2
Less valuation allowance..... (64.2) -- --
-------- ----- -----
Balance at end of year........ $ 997.3 550.3 185.2
======== ===== =====
The fair value of capitalized mortgage servicing rights at December 31, 1995 was
approximately $1,078.8 million, calculated using discount rates ranging from 500
to 700 basis points over the ten-year U.S. Treasury rate.
Changes in the valuation allowance for capitalized mortgage servicing rights for
the year ended December 31, 1995 were:
In millions
Balance at beginning of year $ --
Provision for capitalized mortgage
servicing rights in excess of
fair value............................. 64.2
-----
Balance at end of year.................. $64.2
=====
Excess servicing rights receivable are recorded in other assets in the
accompanying balance sheets, apart from the capitalized mortgage loan servicing
rights presented in the preceding tables. At December 31, 1995 and 1994, the
amount of excess servicing rights receivable was $229.4 million and $98.9
million, respectively. During 1995, writedowns of excess servicing rights
receivable were recorded in the amount of $6.3 million, compared to $0.5 million
in 1994 and $13.1 million in 1993.
66
18. Fair Value of Financial Instruments and Certain Non-financial Instruments
Statement of Financial Accounting Standards No. 107 "Disclosures about Fair
Value of Financial Instruments" (FAS 107) requires the disclosure of estimated
fair values of all asset, liability and off-balance sheet financial instruments.
FAS 107 also allows the disclosure of estimated fair values of non-financial
instruments. Fair value estimates under FAS 107 are determined as of a specific
point in time utilizing various assumptions and estimates. The use of
assumptions and various valuation techniques, as well as the absence of
secondary markets for certain financial instruments, will likely reduce the
comparability of fair value disclosures between financial institutions.
Fair Values of Financial Instruments
1995 1994 1993
-------------------- ------------------- -------------------
Carrying Fair Carrying Fair Carrying Fair
In millions Amount Value Amount Value Amount Value
--------- -------- -------- -------- -------- --------
Financial assets:
Cash and cash equivalents.............. $ 4,946.5 4,946.5 4,024.3 4,024.3 3,608.0 3,608.0
Trading account securities............. 150.6 150.6 172.3 172.3 279.1 279.1
Investment securities.................. 760.5 795.8 1,235.1 1,268.7 1,693.7 1,750.7
Investment securities available for
sale.................................. 2,754.0 2,754.0 1,427.6 1,427.6 2,001.2 2,260.9
Mortgage-backed securities available
for sale.............................. 12,489.0 12,489.0 12,174.2 12,174.2 9,021.6 9,244.0
Loans held for sale.................... 3,343.9 3,343.9 2,031.4 2,031.4 1,349.2 1,349.2
Mortgages held for sale................ 6,514.5 6,514.5 3,115.3 3,115.3 6,090.7 6,103.4
Loans and leases, net.................. 35,235.9 35,571.8 31,786.1 31,872.8 27,971.6 28,236.7
Interest receivable.................... 461.8 461.8 367.7 367.7 300.8 300.8
Excess servicing rights receivable..... 229.4 279.7 98.9 139.4 54.4 86.7
--------- -------- -------- -------- -------- --------
Total financial assets................ 66,886.1 67,307.6 56,432.9 56,593.7 52,370.3 53,219.5
--------- -------- -------- -------- -------- --------
Financial liabilities:
Non-maturity deposits.................. 28,270.3 28,270.3 24,475.6 24,475.6 24,066.8 24,066.8
Deposits with stated maturities........ 13,758.5 13,840.4 11,948.4 11,696.9 11,909.7 12,074.5
Short-term borrowings.................. 8,527.2 8,527.2 7,850.2 7,850.2 5,996.8 5,996.8
Long-term debt......................... 13,676.8 13,799.4 9,186.3 8,825.5 6,850.9 6,928.7
Interest payable....................... 407.0 407.0 259.0 259.0 238.4 238.4
--------- -------- -------- -------- -------- --------
Total financial liabilities........... 64,639.8 64,844.3 53,719.5 53,107.2 49,062.6 49,305.2
--------- -------- -------- -------- -------- --------
Off-balance sheet financial instruments:
Forward delivery commitments........... (98.1) (98.1) (2.3) (2.3) 28.3 28.3
Interest rate swaps.................... 1.3 119.3 (1.5) (25.0) 11.2 14.8
Futures contracts...................... -- -- -- -- 0.5 --
Interest rate caps/floors.............. 96.6 182.7 5.8 12.5 2.4 17.2
Option contracts to sell............... -- -- (4.6) (4.6) 4.2 8.1
Foreign exchange contracts and options. 0.6 0.6 0.6 0.6 (0.4) (0.4)
--------- -------- -------- -------- -------- --------
Total off-balance sheet financial
instruments.......................... 0.4 204.5 (2.0) (18.8) 46.2 68.0
--------- -------- -------- -------- -------- --------
Net financial instruments............. $ 2,246.7 2,667.8 2,711.4 3,467.7 3,353.9 3,982.3
========= ======== ======== ======== ======== ========
Financial Instruments The fair value estimates disclosed in the table are based
on existing on and off-balance sheet financial instruments and do not consider
the value of future business. Other significant assets and liabilities, which
are not considered financial assets or liabilities and for which fair values
have not been estimated, include premises and equipment, goodwill and other
intangibles, deferred taxes and other liabilities.
The following methods and assumptions are used by the corporation in estimating
its fair value disclosures for financial instruments.
67
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, Investment and Mortgage-
Backed Securities Available for Sale Fair values of these financial instruments
were estimated using quoted market prices, when available. If quoted market
prices were not available, fair value was estimated using quoted market prices
for similar assets.
Mortgages Held for Sale Fair values of mortgages held for sale are stated at
market.
Loans and Leases and Loans Held for Sale Fair values for loans and leases are
estimated based on contractual cash flows, adjusted for prepayment assumptions
and credit risk factors, discounted using the current market rate for loans and
leases. Variable rate loans, including loans held for sale, are valued at
carrying value since the loans reprice to market rates over short periods of
time. Credit card receivables are valued at carrying value since the receivables
are priced near market rates for such receivables and are short-term in life.
The fair value of the corporation's consumer finance subsidiaries' loans have
been reported at 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.
Long-Term Debt The fair value of long-term debt is the present value of the
contractual cash flows, discounted by the investor yield which considers the
corporation's credit rating.
Commitments to Extend Credit, Standby Letters of Credit and Recourse Obligations
The majority of the corporation's commitment agreements and letters of credit
contain variable interest rates and counterparty credit deterioration clauses
and therefore, the carrying value of the corporation's commitments to extend
credit and letters of credit approximates fair value. The fair value of the
corporation's recourse obligations are valued based on estimated cash flows
associated with such obligations. As any potential liabilities under such
recourse obligations are recognized on the corporation's balance sheet, the
carrying value of such recourse obligations approximates fair value.
Forward Delivery Commitments, Interest Rate Swaps, Futures Contracts, Options,
Interest Rate Caps and Floors and Foreign Exchange Contracts and Options The
fair value of forward delivery commitments, interest rate caps and floors,
swaps, options, futures contracts and foreign exchange contracts and options is
estimated, using dealer quotes, as the amount that the corporation would receive
or pay to execute a new agreement with terms identical to those remaining on the
current agreement, considering current interest rates.
Certain Non-Financial Instruments
Supplemental fair value information for certain non-financial instruments as of
December 31 is set forth in the following table and explained below.
The supplemental fair value information, combined with the total fair value of
net financial instruments from the table on page 67, is presented below for
information purposes. This combination is not necessarily indicative of the
"franchise value" or the fair value of the corporation taken as a whole.
68
In millions, except per share amounts 1995 1994 1993
--------- -------- --------
Non-financial instrument assets and
liabilities:
Premises and equipment, net............. $ 1,034.1 955.2 842.1
Other assets............................ 4,214.2 1,927.8 1,452.6
Accrued expenses and other liabilities.. (2,182.5) (1,750.0) (1,841.5)
Other values:
Non-maturity deposits................... 2,035.2 2,684.1 1,265.1
Consumer finance network................ 3,702.1 3,207.1 3,128.5
Asset-based lending businesses.......... 473.7 64.5 49.5
Credit card............................. 273.5 259.9 245.3
Banking subsidiaries' consumer loans.... 193.7 166.3 269.3
Mortgage servicing...................... 549.0 867.0 431.4
Mortgage loan origination/wholesale
network................................ 1,900.3 621.4 836.4
Trust department........................ 812.4 709.8 631.8
--------- -------- --------
Net fair value of certain non-financial
instruments............................. 13,005.7 9,713.1 7,310.5
Fair value of net financial instruments.. 2,667.8 3,467.7 3,982.3
--------- -------- --------
Stockholders' equity at the net fair
value of financial instruments and
certain non-financial instruments*
Amount................................ $15,673.5 13,180.8 11,292.8
========= ======== ========
Per common share at December 31....... $ 44.43 42.64 36.75
========= ======== ========
*Amounts do not include applicable deferred income taxes, if any.
The following methods and assumptions were used by the corporation in estimating
the fair value of certain non-financial instruments.
Non-Financial Instrument Assets and Liabilities The non-financial instrument
assets and liabilities are stated at book value, which approximates fair value.
Non-Maturity Deposits The fair value table of financial instruments does not
consider the benefit resulting from the low-cost funding provided by deposit
liabilities as compared with wholesale funding rates. The fair value of non-
maturity deposits, considering these relational benefits, would be $26,235.1
million, $21,791.5 million, and $22,801.7 million at December 31, 1995, 1994 and
1993, respectively. Such amounts are based on a discounted cash flow analysis,
assuming a constant balance over ten years and taking into account the interest
sensitivity of each deposit category.
Consumer Finance Network The supplemental fair value table includes the
estimated fair value associated with the consumer finance network which is based
on current industry price/earnings ratios for similar networks. These current
price/earnings ratios are industry averages and do not consider the higher
earnings levels and the value of the data processing business associated with
the corporation's consumer finance network.
Asset-Based Lending Businesses The supplemental fair value table includes the
estimated fair value associated with the corporation's asset-based lending
businesses which is based on current industry price/earnings ratios for similar
businesses.
Credit Card The fair value of financial instruments excludes the fair value
attributed to the expected credit card balances in future years with the holders
of such cards. The fair value of such future balances in excess of book value is
presented in the supplemental fair value table. The fair value related to future
credit card receivable balances is based on a discounted cash flow analysis,
utilizing an investor yield on similar portfolio acquisitions.
Banking Subsidiaries' Consumer Loans For purposes of the table of fair values
of financial instruments on page 67, the fair value of the banking subsidiaries'
consumer loans is based on the contractual balances and maturities of existing
loans. The fair value of such financial instruments does not consider future
loans with customers. The fair value related to such future balances is
estimated by cash flow analysis, discounted utilizing an investor yield. The
expected balances for such purposes are estimated to extend ten years at a
constant rate of replacement.
69
Mortgage Servicing The fair value of mortgage servicing represents the
estimated current value of the servicing portfolio (other than excess servicing
rights receivable included in the table of fair values of financial instruments
on page 67) in excess of book value.
Mortgage Loan Origination/Wholesale Network The supplemental fair value table
includes the fair value associated with the corporation's origination network
for mortgage loans. Such estimates are based on current industry price/earnings
ratios for similar networks.
Trust Department The fair value associated with the corporation's management of
trust assets is estimated based on current trust revenues using an industry
multiple.
19. Parent Company Financial Information
Condensed financial information for Norwest Corporation (parent company only)
follows:
Balance Sheets
In millions 1995 1994
---- ----
At December 31,
- ---------------
Assets
Interest-bearing deposits with
subsidiary banks....................... $ 174.7 69.1
Advances to non-bank subsidiaries....... 4,548.9 2,452.4
Capital notes and term loans of
subsidiaries
Banks................................. 474.6 470.1
Non-banks............................. 1,680.7 643.0
--------- -------
Total capital notes and term loans
of subsidiaries..................... 2,155.3 1,113.1
--------- -------
Investments in subsidiaries
Banks................................. 3,849.9 2,964.0
Non-banks............................. 1,793.2 1,144.3
--------- -------
Total investments in subsidiaries.... 5,643.1 4,108.3
Investment securities................... -- 154.6
Investment securities available for sale 992.9 237.4
Other assets............................ 424.1 309.4
--------- -------
Total assets......................... $13,939.0 8,444.3
========= =======
Liabilities and Stockholders' Equity
Short-term borrowings................... $ 2,238.1 1,548.2
Accrued expenses and other liabilities.. 493.3 277.9
Long-term debt with non-affiliates...... 5,840.9 2,745.2
Stockholders' equity.................... 5,366.7 3,873.0
--------- -------
Total liabilities and stockholders'
equity.............................. $13,939.0 8,444.3
========= =======
70
Statements of Income
In millions 1995 1994 1993
-------- ------- -----
Years Ended December 31
- -----------------------
Income
Dividends from subsidiaries
Banks.................................. $ 981.7 680.6 402.0
Non-banks.............................. 268.0 170.1 215.7
-------- ------- -----
Total dividends from subsidiaries..... 1,249.7 850.7 617.7
Interest from subsidiaries.............. 332.6 142.2 91.2
Service fees from subsidiaries.......... 78.2 66.2 58.0
Other income............................ 77.6 45.3 38.2
-------- ------- -----
Total income.......................... 1,738.1 1,104.4 805.1
-------- ------- -----
Expenses
Interest to subsidiaries................ 10.6 0.7 1.5
Other interest.......................... 409.2 202.6 140.0
Other expenses.......................... 150.2 128.3 113.0
-------- ------- -----
Total expenses........................ 570.0 331.6 254.5
-------- ------- -----
Income before income taxes and equity
in undistributed earnings of
subsidiaries.......................... 1,168.1 772.8 550.6
Income tax benefit...................... 27.2 34.2 24.4
-------- ------- -----
Income before equity in
undistributed earnings of subsidiaries. 1,195.3 807.0 575.0
Equity in undistributed earnings of
subsidiaries........................... (239.3) (6.6) 38.1
-------- ------- -----
Net income.............................. $ 956.0 800.4 613.1
======== ======= =====
Federal law prevents the corporation from borrowing from its subsidiary banks
unless the loans are secured by specified assets. Such secured loans by any
subsidiary bank are generally limited to 10 percent of the subsidiary bank's
capital and surplus and aggregate loans to the corporation and its non-bank
subsidiaries are limited to 20 percent of the subsidiary bank's capital and
surplus.
The payment of dividends to the corporation by subsidiary banks is subject to
various federal and state regulatory limitations. A national bank must obtain
the approval of the Comptroller of the Currency if the total of all dividends
declared in any calendar year exceeds that bank's net profits for that year
combined with its retained net profits for the preceding two calendar years.
Under this formula, at December 31, 1995, the corporation's national bank
subsidiaries could have declared $274.1 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
$217.6 million.
71
Statements of Cash Flows
In millions 1995 1994 1993
--------- -------- --------
Years Ended December 31,
- ----------------------------------------
Cash Flows From Operating Activities
Net income.............................. $ 956.0 800.4 613.1
Adjustments to reconcile net
income to net cash flows from
operating activities:
Equity in undistributed earnings of
subsidiaries........................... 239.3 6.6 (38.1)
Depreciation and amortization........... 20.0 17.0 12.2
Release of preferred shares to ESOP..... 40.0 26.6 --
Other assets, net....................... (146.8) (169.3) (3.7)
Accrued expenses and other liabilities,
net.................................... 205.4 97.0 32.1
--------- -------- --------
Net cash flows from operating
activities............................. 1,313.9 778.3 615.6
--------- -------- --------
Cash Flows From Investing Activities
Advances to non-bank subsidiaries, net.. (2,096.5) (138.6) (762.5)
Investment securities, net.............. -- (63.2) (63.5)
Investment securities available for
sale, net.............................. (551.2) 6.7 14.5
Principal collected on capital notes
and term loans of subsidiaries......... 296.8 140.4 23.3
Capital notes and term loans made to
subsidiaries........................... (1,318.5) (517.4) (218.2)
Investments in subsidiaries, net........ (865.9) (455.6) (354.4)
--------- -------- --------
Net cash flows used for investing
activities............................. (4,535.3) (1,027.7) (1,360.8)
--------- -------- --------
Cash Flows From Financing Activities
Short-term borrowings, net.............. 689.9 (545.9) 84.3
Taxes receivable from affiliates, net... -- -- 4.7
Proceeds from issuance of long-term
debt with non-affiliates............... 3,405.0 1,325.0 1,263.2
Repayment of long-term debt with
non-affiliates......................... (309.4) (107.6) (312.4)
Issuances of common stock............... 65.4 49.8 55.9
Repurchases of common stock............. (186.8) (482.1) (124.3)
Issuance of stock warrants to
subsidiaries........................... 1.1 1.6 --
Issuance of preferred stock............. -- 195.7 --
Repurchases of preferred stock.......... (0.4) (8.4) (0.7)
Net decrease in ESOP loans.............. -- 3.0 3.2
Dividends paid.......................... (337.8) (268.0) (219.7)
--------- -------- --------
Net cash flows from financing
activities............................. 3,327.0 163.1 754.2
--------- -------- --------
Net increase (decrease) in cash and
cash equivalents....................... 105.6 (86.3) 9.0
Cash and cash equivalents
Beginning of year...................... 69.1 155.4 146.4
--------- -------- --------
End of year............................ $ 174.7 69.1 155.4
========= ======== ========
72
Independent Auditors' Report
The Board of Directors and
Stockholders of Norwest Corporation
We have audited the consolidated balance sheets of Norwest Corporation and
subsidiaries as of December 31, 1995 and 1994 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, 1995. 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, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995, 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. 122, "Accounting for Mortgage
Servicing Rights, an amendment of FASB Statement No. 65," in 1995.
/s/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 17, 1996
73
Management's Report
The management of Norwest Corporation has prepared and is responsible for the
content of the financial statements included in this annual report and the
information contained in other sections of this annual report, which information
is consistent with the content of the financial statements. Management believes
that the financial statements have been prepared in conformity with generally
accepted accounting principles appropriate in the circumstances to reflect, in
all material respects, the substance of events and transactions that should be
included. In preparing the financial statements, management makes judgments and
estimates of the expected effects of events and transactions that are accounted
for or disclosed.
Management has long recognized the importance of the corporation maintaining and
reinforcing the highest possible standards of conduct in all of its actions,
including the preparation and dissemination of statements fairly presenting the
financial condition of the corporation. In this regard, it has developed a
system of internal accounting control which plays an important role in assisting
management in fulfilling its responsibilities in preparing the corporation's
financial statements. The corporation's system of internal accounting control is
designed to provide reasonable assurance that assets are safeguarded and that
transactions are executed in accordance with management's authorizations. This
system is augmented by written policies, operating procedures and accounting
manuals, plus a strong program of internal audit carried out by qualified
personnel. Management recognizes that estimates and judgments are required to
assess and balance the relative costs and expected benefits of the controls and
errors or irregularities may nevertheless occur. However, management believes
that the corporation's internal accounting control system provides reasonable
assurance that errors or irregularities that could be material to the financial
statements are prevented or would be detected on a timely basis and corrected in
the normal course of business.
The board of directors oversees these financial statements through an audit and
examination committee comprised of outside directors. The committee meets
periodically with management and internal audit to monitor the discharge by each
of its responsibilities. The independent auditors, who are engaged to express an
opinion on the financial statements, meet periodically with and have free access
to the committee or the board, without management present, to discuss internal
accounting control, auditing and financial reporting matters.
/s/ RICHARD M. KOVACEVICH
Richard M. Kovacevich
President and
Chief Executive Officer
/s/ JOHN T. THORNTON
John T. Thornton
Executive Vice President and
Chief Financial Officer
/s/ MICHAEL A. GRAF
Michael A. Graf
Senior Vice President
and Controller
January 17, 1996
74
Norwest Corporation and Subsidiaries
Six-Year Consolidated Financial Summary
In millions, except per common share
amounts and ratios 1995 1994 1993 1992 1991 1990
------------- --------- --------- ------------- ------------- --------------
Years Ended December 31,
- ----------------------------------------
Statements of Income
Interest income......................... $5,717.3 4,393.7 3,946.3 3,806.4 4,025.9 3,885.8
Interest expense........................ 2,448.0 1,590.1 1,442.9 1,610.6 2,150.3 2,320.1
-------- --------- ------- ------- ------- -------
Net interest income................... 3,269.3 2,803.6 2,503.4 2,195.8 1,875.6 1,565.7
Provision for credit losses............. 312.4 164.9 158.2 270.8 406.4 433.0
-------- --------- ------- ------- ------- -------
Net interest income after provision
for credit losses.................... 2,956.9 2,638.7 2,345.2 1,925.0 1,469.2 1,132.7
Non-interest income..................... 1,865.0 1,638.3 1,585.0 1,273.7 1,064.0 896.3
Non-interest expenses................... 3,399.1 3,096.4 3,050.4 2,553.1 2,041.5 1,744.5
-------- --------- ------- ------- ------- -------
Income before income taxes and
cumulative effect of a change
in accounting for postretirement
medical benefits....................... 1,422.8 1,180.6 879.8 645.6 491.7 284.5
Income tax expense...................... 466.8 380.2 266.7 175.6 73.4 115.1
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.............................. $ 956.0 800.4 613.1 394.0 418.3 169.4
======== ========= ======= ======= ======= =======
Per Common Share
Net income (a)
Primary............................... $ 2.76 2.45 1.89 1.19 1.33 0.59
Fully diluted......................... 2.73 2.41 1.86 1.19 1.32 0.59
Dividends declared...................... 0.900 0.765 0.640 0.540 0.470 0.423
Stockholders' equity.................... 14.20 10.79 11.00 9.88 9.29 8.19
Stock price range....................... 34 3/4-22 5/8 28 1/4-21 29-20 5/8 22 1/8-16 5/8 18 7/16-9 3/8 11 13/16-6 3/4
Selected Consolidated Balance Sheet
Data At December 31,
Assets.................................. $ 72,134 59,316 54,665 50,037 45,974 43,523
Investment securities................... 761 1,235 1,694 2,031 13,958 10,256
Investment and mortgage-backed
securities available for sale.......... 15,243 13,602 11,023 10,932 -- --
Loans, leases, and loans and mortgages
held for sale(b)....................... 46,012 37,723 36,201 31,667 26,328 26,728
Deposits................................ 42,029 36,424 35,977 31,609 31,331 30,542
Long-term debt.......................... 13,677 9,186 6,851 4,553 3,686 3,066
Stockholders' equity.................... 5,312 3,846 3,761 3,372 3,193 2,434
Ratios(c)
Per $100 of average assets
Net interest income (tax-equivalent
basis)................................. $ 4.98 5.14 4.98 4.81 4.43 4.17
Provision for credit losses............ 0.47 0.30 0.31 0.58 0.94 1.11
-------- --------- ------- ------- ------- -------
Net interest income after
provision for credit losses........... 4.51 4.84 4.67 4.23 3.49 3.06
Non-interest income.................... 2.82 2.97 3.11 2.74 2.45 2.30
Non-interest expenses.................. 5.13 5.62 5.99 5.50 4.70 4.48
-------- --------- ------- ------- ------- -------
Income before income taxes and
cumulative effect of a change in
accounting for postretirement medical
benefits.............................. 2.20 2.19 1.79 1.47 1.24 0.88
Income tax expense..................... 0.71 0.69 0.52 0.38 0.17 0.30
Less tax equivalent adjustment......... 0.05 0.05 0.07 0.08 0.11 0.15
Cumulative effect on years ended prior
to December 31, 1992 of a change in
accounting for postretirement medical
benefits, net of tax.................. -- -- -- (0.16) -- --
-------- --------- ------- ------- ------- -------
Net income(a)........................... $ 1.44 1.45 1.20 0.85 0.96 0.43
======== ========= ======= ======= ======= =======
Leverage(d)............................. 14.3x 14.3 14.2 13.2 15.3 16.8
Return on realized common equity(a)(e).. 22.3% 21.4 18.2 11.7 15.3 7.3
Return on realized total equity(a)(e)... 20.9% 20.3 17.1 11.2 14.7 7.3
Stockholders' equity to average assets.. 7.0% 7.0 7.1 7.6 6.5 6.0
Dividend payout ratio................... 32.6% 31.2 33.9 45.4 35.3 71.7
Tier 1 at December 31................... 8.11% 9.89 9.71 9.74 10.00 7.25
Tier 1 and Tier 2 at December 31........ 10.18% 12.23 12.39 12.42 13.78 11.76
Leverage ratio.......................... 5.65% 6.94 6.46 6.62 6.63 5.54
(a) Excluding the cumulative effect of a change in accounting for postretirement
medical benefits, 1992 primary net income per common share would have been
$1.44, fully diluted net income per common share would have been $1.42,
return on realized common equity would have been 14.2%, return on realized
total equity would have been 13.4%, and net income per $100 of average
assets would have been $1.01.
(b) Net of unearned discount.
(c) Based on average balances and net income for the periods.
(d) The ratio of average assets to average stockholders' equity.
(e) Realized equity excludes unrealized gains (losses) on securities available
for sale. Including net unrealized gains (losses) on securities available
for sale, return on common equity was 21.9% and return on total equity was
20.6% in 1995. Return on common equity was 22.1% and return on total equity
was 20.8% in 1994.
75
Norwest Corporation and Subsidiaries
Income Statement Data
In millions 1995 Over 1994 1994 Over 1993
---------------------------- ---------------------------
Volume Yield/Rate Total Volume Yield/Rate Total
------- ---------- ------- ------ ---------- -----
Changes in Tax-Equivalent Net Interest
Income*
- ----------------------------------------
Interest income
Loans and leases........................ $540.8 346.1 886.9 367.3 54.7 422.0
Investment securities................... 22.8 (8.7) 14.1 (64.9) 7.0 (57.9)
Investment and mortgage-backed
securities available for sale.......... 118.5 111.5 230.0 149.2 (23.7) 125.5
------ ----- ------- ----- ----- -----
Total investment securities............ 141.3 102.8 244.1 84.3 (16.7) 67.6
Money market and trading account
securities............................. 4.2 (0.4) 3.8 (9.0) 6.0 (3.0)
Loans held for sale..................... 47.6 36.7 84.3 20.0 6.1 26.1
Mortgages held for sale................. 71.7 37.3 109.0 (77.8) 8.2 (69.6)
------ ----- ------- ----- ----- -----
Total................................. 805.6 522.5 1,328.1 384.8 58.3 443.1
------ ----- ------- ----- ----- -----
Interest expense
Interest-bearing deposits............... 67.6 225.3 292.9 57.7 (46.6) 11.1
Short-term borrowings................... 92.3 133.2 225.5 (22.4) 74.6 52.2
Long-term debt.......................... 256.5 83.0 339.5 98.3 (14.4) 83.9
------ ----- ------- ----- ----- -----
Total................................. 416.4 441.5 857.9 133.6 13.6 147.2
------ ----- ------- ----- ----- -----
Net interest income..................... $389.2 81.0 470.2 251.2 44.7 295.9
====== ===== ======= ===== ===== =====
*Changes in the average balance/rate are allocated entirely to the yield/rate
changes.
Analysis of Selected Non-interest
Expenses
- ----------------------------------------
1995 % Change 1994 % Change 1993 1992 1991
-------- -------- -------- -------- -------- ------- -----
Salaries and benefits
Salaries................................ $1,430.2 13.4 % $1,260.9 4.1% $1,210.8 991.0 828.5
Benefits................................ 314.9 0.7 312.8 18.7 263.5 184.4 154.8
-------- -------- -------- ------- -----
Total................................. $1,745.1 10.9 % $1,573.7 6.7% $1,474.3 1,175.4 983.3
======== ======== ======== ======= =====
Business development
Advertising............................. $ 73.0 (26.0)% $ 98.6 35.1% $ 73.0 52.6 39.4
Other business development.............. 99.2 7.9 91.9 17.4 78.3 64.9 54.0
-------- -------- -------- ------- -----
Total................................. $ 172.2 (9.6)% $ 190.5 25.9% $ 151.3 117.5 93.4
======== ======== ======== ======= =====
Other non-interest expenses
Professional fees....................... $ 107.2 78.1% $ 60.2 --% $ 60.2 53.8 41.5
Other employment........................ 47.4 3.9 45.6 17.8 38.7 32.4 24.0
Insurance claims........................ 54.9 28.6 42.7 1.2 42.2 25.7 22.1
Charitable contributions................ 1.9 (92.3) 24.6 (66.1) 72.5 25.3 6.4
Other real estate owned, net............ 14.1 219.5 (11.8) (457.6) 3.3 7.1 31.6
Other................................... 164.7 (32.9) 245.4 (36.3) 385.5 360.6 168.7
-------- -------- -------- ------- -----
Total................................. $ 390.2 (4.1)% $ 406.7 (32.5)% $ 602.4 504.9 294.3
======== ======== ======== ======= =====
76
Norwest Corporation and Subsidiaries
Consolidated Average Balance Sheets and Related Yields and Rates*
1995 1994 1993
------------------------------------ --------------------------------- ---------------------
Interest Average Interest Average Interest
Average Income/ Yields/ Average Income/ Yields/ Average Income/
In millions, except ratios Balance Expense Rates Balance Expense Rates Balance Expense
- -------------------------- ------- -------- -------- ------- --------- -------- ------- --------
Assets
Money market investments... $ 604 $ 35.7 5.92% $ 472 $ 21.9 4.66% $ 624 $ 19.8
Trading account securities. 180 15.2 8.48 250 25.2 10.11 254 30.3
Investment securities
U.S. Treasury and federal
agencies................. 28 1.3 4.96 26 1.3 4.84 881 44.0
State, municipal
and housing-tax
exempt................... 695 71.1 10.22 680 71.6 10.53 739 79.7
Other investment
securities............... 672 34.1 5.08 412 19.5 4.74 226 17.3
Mortgage-backed securities
Federal agencies......... -- -- -- -- -- -- 159 8.2
Collateralized
mortgage obligations..... -- -- -- -- -- -- 22 1.1
Investment securities
available for sale........ 1,899 122.5 7.12 2,137 122.6 5.98 1,662 120.4
Mortgage-backed securities
available for sale........ 12,628 945.8 7.46 10,407 715.7 6.73 8,827 592.4
------- -------- ------- -------- ------- --------
Total investment
securities............... 15,922 1,174.8 7.44 13,662 930.7 6.74 12,516 863.1
Loans held for sale........ 2,232 195.7 8.77 1,563 111.4 7.13 1,266 85.3
Mortgages held for sale.... 4,804 366.2 7.62 3,757 257.2 6.85 4,932 326.8
Loans and leases (net of
unearned discount)
Commercial................ 10,754 1,003.1 9.33 9,301 749.9 8.06 8,433 648.3
Real estate............... 13,113 1,232.3 9.40 11,445 997.2 8.71 10,720 934.7
Consumer.................. 11,694 1,727.8 14.78 9,498 1,329.2 13.99 7,415 1,071.3
------- -------- ------- -------- ------- --------
Total loans and
leases.................. 35,561 3,963.2 11.14 30,244 3,076.3 10.17 26,568 2,654.3
Allowance for
credit losses............ (861) (801) (791)
------- ------- -------
Net loans and
leases.................. 34,700 29,443 25,777
------- -------- ------- -------- ------- --------
Total earning assets
(before the
allowance for
credit losses).......... 59,303 5,750.8 9.72 49,948 4,422.7 8.83 46,160 3,979.6
-------- -------- --------
Cash and due from banks.... 3,214 2,974 2,871
Other assets............... 4,597 2,952 2,647
------- ------- -------
Total assets............. $66,253 $55,073 $50,887
======= ======= =======
Liabilities and
Stockholders' Equity
Noninterest-bearing
deposits.................. $ 9,985 $ 8,704 $ 7,726
Interest-bearing deposits
Savings and NOW accounts.. 4,992 98.9 1.98 4,617 85.0 1.84 4,244 85.3
Money market accounts..... 10,595 332.9 3.14 10,487 247.4 2.36 9,106 201.1
Savings certificates...... 10,809 583.1 5.39 9,794 446.9 4.56 9,582 473.1
Certificates of
deposit and other time... 1,860 106.7 5.73 1,544 69.9 4.53 1,650 77.7
Foreign time.............. 609 34.7 5.70 328 14.2 4.34 489 15.1
------- -------- ------- -------- ------- --------
Total interest-bearing
deposits................. 28,865 1,156.3 4.01 26,770 863.4 3.23 25,071 852.3
Short-term borrowings...... 8,738 515.8 5.90 6,628 290.3 4.38 7,316 238.1
Long-term debt............. 11,918 776.0 6.51 7,508 436.4 5.82 5,871 352.6
------- -------- ------- -------- ------- --------
Total interest-bearing
liabilities............. 49,521 2,448.1 4.94 40,906 1,590.1 3.89 38,258 1,443.0
Capitalized interest
expense................... (0.1) -- (0.1)
-------- -------- --------
Net interest expense..... 2,448.0 1,590.1 1,442.9
Other liabilities.......... 2,109 1,620 1,315
Stockholders' equity....... 4,638 3,843 3,588
------- ------- -------
Total liabilities
and stockholders'
equity.................. $66,253 $55,073 $50,887
======= -------- ======= -------- ======= --------
Net Interest income
(tax-equivalent basis).... $3,302.8 $2,832.6 $2,536.7
======== ======== ========
Yield spread............... 4.78 4.94
Net interest income to
earning assets............ 5.58 5.66
Interest-bearing
liabilities to earning
assets.................... 83.50 81.90
* Interest income/expense and yields/rates are calculated on a tax-equivalent
basis utilizing a federal incremental tax rate of 35% in 1995, 1994 and
1993 and 34% in each preceding period presented.
Non-accrual loans and the related negative income effect have been included in
the calculation of average rates.
NM -- Not meaningful.
77
1992 1991 1990 Average Balance
- --------- ------------------------------- ------------------------------- ------------------------------ ------------------
Average Interest Average Interest Average Interest Average 5 Year % Change
Yields/ Average Income/ Yields/ Average Income/ Yields/ Average Income/ Yields/ Growth 1995 Over
Rates Balance Expense Rates Balance Expense Rates Balance Expense Rates Rate % 1994
- ------- ------- -------- ------- ------- -------- ------- ------- -------- ------- ------- ---------
3.18% $ 779 $ 28.9 3.71% $ 1,143 $ 76.7 6.72% $ 1,640 $ 138.3 8.43% (18.1)% 28.0%
11.90 344 23.9 6.95 157 11.6 7.39 119 10.2 8.57 8.6 (28.0)
5.00 2,132 132.1 6.20 2,199 178.6 8.13 2,211 191.6 8.66 (58.3) 7.7
10.79 917 98.1 10.70 1,028 116.0 11.29 1,142 129.6 11.35 (9.5) 2.2
7.65 434 29.6 6.81 451 36.3 8.01 670 53.3 7.95 0.1 63.1
5.16 7,183 562.7 7.83 7,993 715.3 8.95 4,592 444.7 9.68 (100.0) --
4.90 228 21.5 9.39 431 35.9 8.32 741 65.3 8.82 (100.0) --
7.25 228 17.1 7.53 -- -- -- -- -- -- NM (11.1)
6.71 2,093 164.9 7.88 -- -- -- -- -- -- NM 21.3
------- -------- ------- -------- ------- --------
6.90 13,215 1,026.0 7.76 12,102 1,082.1 8.94 9,356 884.5 9.45 11.2 16.5
6.74 345 24.2 6.99 -- -- -- -- -- -- NM 42.8
6.63 3,639 279.4 7.68 2,100 192.1 9.15 1,420 137.8 9.70 27.6 27.9
7.69 8,105 670.8 8.28 8,922 877.4 9.83 9,261 1,016.3 10.97 3.0 15.6
8.72 8,478 834.3 9.84 7,762 856.3 11.03 6,868 787.9 11.47 13.8 14.6
14.45 6,749 956.8 14.18 6,855 977.5 14.26 6,568 970.0 14.77 12.2 23.1
------- -------- ------- -------- ------- --------
9.99 23,332 2,461.9 10.55 23,539 2,711.2 11.52 22,697 2,774.2 12.22 9.4 17.6
(721) (660) (472) 12.8 7.5
------- ------- -------
22,611 22,879 22,225 9.3 17.9
------- -------- ------- -------- ------- --------
8.62 41,654 3,844.3 9.23 39,041 4,073.7 10.43 35,232 3,945.0 11.20 11.0 18.7
-------- -------- --------
2,566 2,437 2,270 7.2 8.1
2,904 2,619 1,920 19.1 55.7
------- ------- -------
$46,403 $43,437 $38,950 11.2 20.3
======= ======= =======
$ 6,225 $ 5,377 $ 4,832 15.6 14.7
2.01 3,872 107.5 2.78 3,508 150.6 4.30 3,106 152.7 4.92 10.0 8.1
2.21 8,159 205.9 2.52 7,565 370.0 4.89 6,136 377.7 6.15 11.5 1.0
4.94 10,352 603.9 5.83 10,641 764.5 7.18 8,852 706.7 7.98 4.1 10.4
4.71 1,754 94.7 5.40 2,713 186.2 6.86 3,277 270.0 8.24 (10.7) 20.5
3.09 112 3.6 3.23 200 11.2 5.60 240 19.6 8.17 20.5 85.7
------- -------- ------- -------- ------- --------
3.40 24,249 1,015.6 4.19 24,627 1,482.5 6.02 21,611 1,526.7 7.06 6.0 7.8
3.25 7,058 277.9 3.94 5,890 352.4 5.98 6,428 522.9 8.13 6.3 31.8
6.01 4,086 317.3 7.77 3,492 315.4 9.03 2,753 270.5 9.82 34.1 58.7
------- -------- ------- -------- ------- --------
3.77 35,393 1,610.8 4.55 34,009 2,150.3 6.32 30,792 2,320.1 7.54 10.0 21.1
(0.2) -- --
-------- -------- --------
1,610.6 2,150.3 2,320.1
1,276 1,206 1,002 16.0 30.2
3,509 2,845 2,324 14.8 20.7
------- ------- -------
$46,403 $43,437 $38,950 11.2 20.3
======= -------- ======= -------- ======= --------
$2,233.7 $1,923.4 $1,624.9
======== ======== ========
4.85 4.68 4.11 3.66
5.50 5.36 4.93 4.61
82.88 84.97 87.11 87.40
78
Norwest Corporation and Subsidiaries
Loan Information
In millions, except ratios 1995 1994 1993 1992 1991 1990
- -------------------------- ------- ------ ------ ------ ------ ------
Loans and Leases at December 31,
Commercial, financial and industrial.... $ 9,327 7,434 6,686 6,577 6,440 7,190
Agricultural............................ 1,091 956 938 830 814 816
Construction and land development....... 742 568 566 454 518 759
Real estate
Secured by 1-4 family residential
properties............................ 8,593 8,959 8,321 7,582 5,067 5,254
Secured by other properties............ 4,174 3,590 3,418 3,186 3,277 3,458
Consumer................................ 10,521 8,305 6,879 6,046 6,714 5,917
Credit card............................. 1,666 2,511 1,727 994 813 938
Lease financing......................... 816 765 699 627 600 521
Foreign
Consumer installment................... 652 444 425 425 -- --
Real estate secured by 1-4 family
residential properties................ 53 42 30 15 -- --
Other.................................. 196 130 93 62 61 50
------- ------ ------ ------ ------ ------
Total loans and leases................ 37,831 33,704 29,782 26,798 24,304 24,903
Unearned discount..................... (1,678) (1,128) (1,021) (1,015) (984) (936)
------- ------ ------ ------ ------ ------
Total loans and leases net of
unearned discount.................... $36,153 32,576 28,761 25,783 23,320 23,967
======= ====== ====== ====== ====== ======
Allowance for Credit Losses
Balance at beginning of year............ $ 789.9 789.2 773.1 704.3 577.0 408.6
Allowances related to assets acquired,
net.................................... 119.1 29.0 36.2 23.4 42.5 57.5
Provision for credit losses............. 312.4 164.9 158.2 270.8 406.4 433.0
Credit losses
Commercial, financial and industrial... 41.3 31.0 58.9 90.9 146.4 127.5
Agricultural........................... 2.7 4.5 2.6 4.2 3.9 2.3
Construction and land development...... 0.6 2.8 11.9 15.8 21.4 36.3
Real estate............................ 20.8 44.2 53.2 68.4 99.6 69.6
Consumer............................... 201.7 130.5 116.4 118.9 131.9 110.5
Credit card............................ 121.8 73.2 46.1 36.9 35.7 42.9
Lease financing........................ 2.6 2.3 2.2 2.6 3.8 2.6
Foreign
Consumer installment.................. 27.5 17.4 18.5 2.9 -- --
Other................................. 2.2 8.9 0.5 0.5 1.8 0.7
------- ------ ------ ------ ------ ------
Total credit losses................... 421.2 314.8 310.3 341.1 444.5 392.4
------- ------ ------ ------ ------ ------
Recoveries
Commercial, financial and industrial... 26.9 34.0 39.4 41.4 47.3 26.2
Agricultural........................... 2.6 2.5 4.0 4.9 4.0 5.1
Construction and land development...... 4.5 7.2 7.2 2.4 6.9 1.1
Real estate............................ 17.5 26.9 36.6 24.9 23.6 8.5
Consumer............................... 44.6 35.4 32.1 30.1 27.5 21.5
Credit card............................ 13.0 10.6 7.8 6.7 5.5 3.3
Lease financing........................ 2.1 0.7 0.3 0.6 0.3 0.4
Foreign
Consumer installment.................. 4.3 3.5 3.5 -- -- --
Other................................. 1.5 0.8 1.1 4.7 7.8 4.2
------- ------ ------ ------ ------ ------
Total recoveries...................... 117.0 121.6 132.0 115.7 122.9 70.3
------- ------ ------ ------ ------ ------
Net credit losses....................... 304.2 193.2 178.3 225.4 321.6 322.1
------- ------ ------ ------ ------ ------
Balance at end of year.................. $ 917.2 789.9 789.2 773.1 704.3 577.0
======= ====== ====== ====== ====== ======
Allocation of Allowance for Credit
Losses
Commercial.............................. $186.4 151.9 137.4 154.5 185.9 170.3
Consumer................................ 276.5 209.0 195.2 155.4 140.6 109.1
Real estate............................. 171.8 163.5 203.4 220.6 152.8 151.6
Foreign................................. 27.0 20.0 21.2 22.0 5.0 7.0
Unallocated............................. 255.5 245.5 232.0 220.6 220.0 139.0
------- ------ ------ ------ ------ ------
Total................................. $917.2 789.9 789.2 773.1 704.3 577.0
======= ====== ====== ====== ====== ======
Credit Quality Ratios
Net credit losses as a percent of
average loans and leases............... 0.86% 0.64 0.67 0.97 1.37 1.42
Allowance for credit losses to
Total loans and leases at year-end.... 2.54% 2.42 2.74 3.00 3.02 2.41
Net credit losses..................... 3.02x 4.09 4.43 3.43 2.19 1.79
Provision for credit losses to average
loans and leases....................... 0.88% 0.55 0.60 1.16 1.73 1.91
Earnings coverage of net credit losses.. 5.70x 6.96 5.82 3.53 2.79 2.23
79
Norwest Corporation and Subsidiaries
Other Balance Sheet Data
In millions, except ratios
Maturity of Total Investment Securities (a)
Carrying Value
--------------------------------------------------------------------------------- Total
Within 1 Year 1-5 Years 5-10 Years After 10 Years Total Market
Amount/Yield Amount/Yield Amount/Yield Amount/Yield Amount/Yield Value
------------- ------------ ------------- --------------- -------------- ---------
At December 31, 1995
- ---------------------------------------
Held for Investment
U.S. Treasury and federal agencies..... $ -- --% $ -- --% $ -- --% $ -- --% $ -- --% $ --
State, municipal and housing-tax
exempt (b)............................ -- -- -- -- -- -- -- -- -- -- --
Other.................................. -- -- 262.9 1.64 -- -- 497.6 6.00 760.5 4.49 795.8
------ -------- ------ --------- --------- ---------
Total investment securities held for
investment............................ -- -- 262.9 1.64 -- -- 497.6 6.00 760.5 4.49 795.8
------ -------- ------ --------- --------- ---------
Available for Sale
Investment securities:
U.S. Treasury and federal agencies..... 443.9 6.11 389.9 6.44 88.8 6.11 63.6 6.89 986.2 6.29 986.2
State, municipal and housing-tax
exempt (b)............................ 53.3 6.51 226.1 6.55 156.9 7.32 389.7 6.93 826.0 6.87 826.0
Other.................................. 249.0 8.39 350.3 6.14 89.0 6.47 253.5 7.77 941.8 7.17 941.8
------ -------- ------ --------- --------- ---------
Total investment securities available
for sale.............................. 746.2 6.63 966.3 6.39 334.7 6.76 706.8 7.20 2,754.0 6.72 2,754.0
------ -------- ------ --------- --------- ---------
Mortgage-backed securities:
Federal agencies....................... 45.5 7.41 262.2 6.00 314.5 7.60 11,715.9 7.62 12,338.1 7.58 12,338.1
Collateralized mortgage obligations.... 8.0 7.75 8.9 4.66 6.1 6.69 127.9 7.91 150.9 7.66 150.9
------ -------- ------ --------- --------- ---------
Total mortgage-backed securities
available for sale.................... 53.5 7.47 271.1 5.96 320.6 7.58 11,843.8 7.62 12,489.0 7.58 12,489.0
------ -------- ------ --------- --------- ---------
Total securities available for sale.... 799.7 6.69 1,237.4 6.27 655.3 7.17 12,550.6 7.60 15,243.0 7.44 15,243.0
------ -------- ------ --------- --------- ---------
Total investment securities............ $799.7 6.69 $1,500.3 5.40 $655.3 7.17 $13,048.2 7.54 $16,003.5 7.29 $16,038.8
====== ======== ====== ========= ========= =========
Maturity of Loans (c) Within 1 Year 1-5 Years After 5 Years Total
------------- --------- ------------- -------
Commercial.............................. $ 5,174 4,504 740 $10,418
Construction and land development....... 490 188 64 742
Real estate............................. 699 2,168 1,307 4,174
Foreign................................. 145 37 14 196
------- ------ ------ -------
Total................................... $ 6,508 6,897 2,125 $15,530
======= ====== ====== =======
Predetermined interest rates............ $ 2,072 3,482 1,214 $ 6,768
Floating interest rates................. 4,436 3,415 911 8,762
------- ------ ------ -------
Total................................... $ 6,508 6,897 2,125 $15,530
======= ====== ====== =======
Maturity of Time Deposits of $100,000 or more Within 3 Months 3-6 Months 6-12 Months Over 12 Months Total
--------------- ---------- ----------- -------------- -------
Certificates of deposit and other time....... $ 956 445 363 544 $ 2,308
Foreign time................................. 193 4 -- -- 197
------- ------- ------ ------ -------
Total........................................ $ 1,149 449 363 544 $ 2,505
======= ======= ====== ====== =======
Deposits at December 31, 1995 1994 1993 1992 1991
------- ------- ------ ------ -------
Noninterest-bearing deposits................. $11,624 9,283 9,054 7,382 6,551
Interest-bearing deposits
Savings and NOW accounts.................... 5,378 4,790 4,421 4,310 3,613
Money market accounts....................... 11,268 10,403 10,592 8,422 8,036
Savings certificates........................ 11,244 9,773 10,043 9,683 10,528
Certificates of deposit and other time (d).. 2,316 1,528 1,678 1,655 2,448
Foreign time (e)............................ 199 647 189 157 155
------- ------- ------ ------ -------
Total deposits............................... $42,029 36,424 35,977 31,609 31,331
======= ======= ====== ====== =======
(a) Based on contractual maturities.
(b) The yield on state, municipal and housing securities is increased by the
benefit of tax exemption, assuming a 35% federal income tax rate. For the
year ended December 31, 1995, the amount of the increases in the yields for
these securities and for total securities held for investment is 3.26% and
1.63%, respectively, and for securities available for sale is 2.38% and
0.02%, respectively.
(c) Excludes leases of $816 million and consumer and residential mortgage loans
of $21,485 million.
(d) Includes $8 million of time deposits less than $100,000 in 1995.
(e) Includes $2 million of foreign time deposits less than $100,000 in 1995.
80
Norwest Corporation and Subsidiaries
Quarterly Condensed Consolidated Financial Information
1995 Quarters 1994 Quarters
--------------------------------------------------------- ----------------------------------------------------
In millions, except
per common share
amounts and
ratios Fourth Third Second First Fourth Third Second First
------------- ------------- ------------- ------------ ------- ------------- ------------- -------------
Interest income..... $1,564.0 1,476.2 1,389.1 1,288.0 1,196.4 1,130.7 1,073.8 992.8
Interest expense.... 676.4 636.4 590.9 544.3 461.8 408.9 376.5 342.9
-------- ------- ------- ------- ------- ------- ------- -----
Net interest income. 887.6 839.8 798.2 743.7 734.6 721.8 697.3 649.9
Provision for
credit losses...... 95.9 86.5 74.7 55.3 63.3 41.6 23.7 36.3
Non-interest income. 527.7 489.4 451.3 396.6 437.9 379.4 386.9 434.1
Non-interest
expenses........... 940.3 871.9 825.9 761.0 807.8 760.5 759.0 769.1
-------- ------- ------- ------- ------- ------- ------- -----
Income before
income taxes....... 379.1 370.8 348.9 324.0 301.4 299.1 301.5 278.6
Income tax expense.. 119.4 125.6 114.6 107.2 96.5 96.1 99.5 88.1
-------- ------- ------- ------- ------- ------- ------- -----
Net income.......... $ 259.7 245.2 234.3 216.8 204.9 203.0 202.0 190.5
======== ======= ======= ======= ======= ======= ======= =====
Per Common Share
Net income
Primary............. $ 0.72 0.70 0.68 0.66 0.63 0.62 0.61 0.59
Fully diluted....... 0.72 0.69 0.67 0.65 0.62 0.61 0.60 0.58
Dividends declared.. 0.240 0.240 0.210 0.210 0.210 0.185 0.185 0.185
Stockholders'
equity............. 14.20 13.73 12.91 11.96 10.79 11.13 11.07 11.14
Stock price range... 34 3/4-29 1/4 32 3/4-26 7/8 29 3/8-25 1/8 26 1/4-22 5/8 25-21 27 1/2-24 3/4 28 1/4-23 1/8 27 3/8-22 1/4
Tax-equivalent Yields
and Rates
Money market
investments........ 6.17% 5.52 6.15 5.78 6.79 3.05 5.01 4.28
Trading account
securities......... 6.13 7.72 11.27 9.75 9.63 9.84 11.66 9.36
Investment
securities......... 7.59 7.52 7.75 7.72 7.79 8.05 8.13 9.26
Investment and
mortgage-backed
securities available
for sale........... 7.60 7.40 7.33 7.32 7.07 6.74 6.43 6.12
Total investment
securities....... 7.60 7.41 7.37 7.36 7.12 6.85 6.57 6.38
Mortgages held for
sale............... 7.47 7.29 8.19 8.11 7.89 7.32 6.67 5.89
Loans held for sale. 9.30 8.46 8.65 8.57 7.96 7.22 6.73 6.45
Loans and leases.... 11.33 11.32 11.13 10.78 10.50 10.33 10.05 9.77
Total earning
assets............ 9.80 9.76 9.81 9.49 9.27 8.97 8.67 8.37
Interest-bearing
deposits........... 4.05 4.05 4.02 3.90 3.52 3.18 3.09 3.11
Short-term
borrowings......... 5.82 5.75 6.12 6.00 5.25 4.61 4.03 3.35
Long-term debt...... 6.40 6.55 6.62 6.52 6.13 5.85 5.62 5.60
Total interest-
bearing
liabilities....... 4.97 4.97 4.99 4.84 4.34 3.92 3.69 3.57
Yield spread........ 4.83 4.79 4.82 4.65 4.93 5.05 4.98 4.80
Net interest income to
earning assets..... 5.60 5.59 5.66 5.49 5.73 5.76 5.65 5.49
Ratios*
Return on assets.... 1.42% 1.43 1.48 1.46 1.43 1.45 1.48 1.45
Leverage............ 14.16 x 14.30 13.92 14.84 15.34 14.24 14.26 13.52
Return on realized
common equity...... 22.0% 22.3 22.6 22.2 21.5 21.1 21.7 21.5
(Continued on page 82)
*Based on average balances and net income for the periods.
81
Norwest Corporation and Subsidiaries
Quarterly Condensed Consolidated Financial Information (Continued from page 81)
1995 Quarters 1994 Quarters
----------------------------------- ----------------------------------
In millions Fourth Third Second First Fourth Third Second First
-------- ------- ------- ------- ------- ------- ------- -------
Average Assets
Money market investments................ $ 677 364 408 973 351 471 562 500
Trading account securities.............. 201 212 165 141 166 198 267 371
Investment securities................... 1,460 1,437 1,384 1,296 1,169 1,191 1,130 981
Investment and mortgage-backed
securities available for sale.......... 15,572 14,622 13,909 13,989 13,011 13,206 12,518 11,415
------- ------ ------ ------ ------ ------ ------ ------
Total investment securities............. 17,032 16,059 15,293 15,285 14,180 14,397 13,648 12,396
Mortgages held for sale................. 6,757 5,923 3,657 2,824 3,157 3,399 3,873 4,622
Loans held for sale..................... 2,482 2,089 2,202 2,153 1,753 1,425 1,557 1,517
Loans and leases, net of unearned
discount............................... 37,262 36,265 35,444 33,219 31,720 30,502 29,820 28,901
------- ------ ------ ------ ------ ------ ------ ------
Total average earning assets............ 64,411 60,912 57,169 54,595 51,327 50,392 49,727 48,307
Allowance for credit losses............. (913) (869) (851) (809) (791) (798) (805) (808)
Cash and due from banks................. 3,549 3,074 3,155 3,074 3,150 2,811 2,949 2,985
Other assets............................ 5,533 5,044 4,232 3,553 3,244 2,958 2,860 2,740
------- ------ ------ ------ ------ ------ ------ ------
Total average assets.................... $72,580 68,161 63,705 60,413 56,930 55,363 54,731 53,224
======= ====== ====== ====== ====== ====== ====== ======
Average Liabilities and Stockholders'
Equity
Noninterest-bearing deposits............ $11,050 10,415 9,526 8,921 9,064 8,455 8,515 8,783
Interest-bearing deposits............... 30,371 29,021 28,272 27,767 26,545 26,747 27,019 26,770
Short-term borrowings................... 10,020 9,693 7,582 7,616 7,145 7,073 6,827 5,445
Long-term debt.......................... 13,744 12,203 11,603 10,081 8,615 7,665 7,096 6,633
Other liabilities....................... 2,271 2,062 2,145 1,957 1,850 1,536 1,437 1,655
Stockholders' equity.................... 5,124 4,767 4,577 4,071 3,711 3,887 3,837 3,938
------- ------ ------ ------ ------ ------ ------ ------
Total average liabilities and
stockholders' equity................... $72,580 68,161 63,705 60,413 56,930 55,363 54,731 53,224
======= ====== ====== ====== ====== ====== ====== ======
The financial information on pages 81 and 82 is unaudited. In the opinion of
management, all adjustments necessary (which are of a normal recurring nature)
have been included for a fair presentation of the results of operations.
82