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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000912057-01-504042.txt : 20010319
<SEC-HEADER>0000912057-01-504042.hdr.sgml : 20010319
ACCESSION NUMBER: 0000912057-01-504042
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 12
CONFORMED PERIOD OF REPORT: 20001231
FILED AS OF DATE: 20010316
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: WELLS FARGO & CO/MN
CENTRAL INDEX KEY: 0000072971
STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021]
IRS NUMBER: 410449260
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT:
SEC FILE NUMBER: 001-02979
FILM NUMBER: 1570235
BUSINESS ADDRESS:
STREET 1: 420 MONTGOMERY ST
STREET 2: SIXTH & MARQUETTE
CITY: SAN FRANCISCO
STATE: CA
ZIP: 94163
BUSINESS PHONE: 6126671234
MAIL ADDRESS:
STREET 1: NORWEST CENTER
STREET 2: SIXTH & MARQUETTE
CITY: MINNEAPOLIS
STATE: MN
ZIP: 55479
FORMER COMPANY:
FORMER CONFORMED NAME: NORWEST CORP
DATE OF NAME CHANGE: 19920703
FORMER COMPANY:
FORMER CONFORMED NAME: NORTHWEST BANCORPORATION
DATE OF NAME CHANGE: 19830516
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>a2040410z10-k.txt
<DESCRIPTION>10-K
<TEXT>
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2000 Commission File Number 001-2979
WELLS FARGO & COMPANY
(Exact name of registrant as specified in its charter)
Delaware No. 41-0449260
(State of incorporation) (I.R.S. Employer
Identification No.)
420 Montgomery Street, San Francisco, California 94163
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: 1-800-411-4932
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ---------------------
<S> <C>
Common Stock, par value $1-2/3 New York Stock Exchange
Chicago Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Chicago Stock Exchange
6 3/4% Convertible Subordinated Debentures Due 2003 New York Stock Exchange
Adjustable Rate Cumulative Preferred Stock, Series B New York Stock Exchange
No securities are registered pursuant to Section 12(g) of the Act.
</TABLE>
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. [ ]
As of February 28, 2001, 1,715,970,357 shares of common stock were
outstanding having an aggregate market value, based on a closing price of
$49.64 per share, of $85,181 million. At that date, the aggregate market
value of common stock held by non-affiliates was approximately $83,297
million.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 2000 Annual Report to Stockholders - Incorporated into Parts I,
II and IV. Portions of the Proxy Statement for the 2001 Annual Meeting of
Stockholders - Incorporated into Part III.
<PAGE>
FORM 10-K CROSS-REFERENCE INDEX
<TABLE>
<CAPTION>
PAGE(S)
---------------------------------------------------
FORM Annual Proxy
10-K Report (1) Statement (2)
----- ------- ---------
<S> <C> <C> <C>
PART I
Item 1. Business
Description of Business 2-9 33-98 -
Statistical Disclosure:
Distribution of Assets, Liabilities and
Stockholders' Equity; Interest Rates
and Interest Differential 10 40-43 -
Investment Portfolio -- 45, 56, 63 -
Loan Portfolio 11-12 45-47, 57, 64-66 -
Summary of Loan Loss Experience 13-15 47, 57, 65-66 -
Deposits - 48, 68 -
Return on Equity and Assets - 34-35 -
Short-Term Borrowings - 69 -
Derivative Financial Instruments - 49, 58-59, 91-93 -
Item 2. Properties 16 67 -
Item 3. Legal Proceedings - 90 -
Item 4. Submission of Matters to a Vote of
Security Holders (3) - - -
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters - 51 -
Item 6. Selected Financial Data - 36 -
Item 7. Management's Discussion and Analysis of Finan-
cial Condition and Results of Operations - 34-51 -
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk - 48-49 -
Item 8. Financial Statements and Supplementary Data - 52-98 -
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure (3) - - -
PART III
Item 10. Directors and Executive Officers of the
Registrant 17-20 - 6-9, 34
Item 11. Executive Compensation - - 13-30, 34
Item 12. Security Ownership of Certain Beneficial
Owners and Management - - 4-5
Item 13. Certain Relationships and Related Transactions - - 31-33
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 21-27 52-98 -
SIGNATURES 28 - -
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The 2000 Annual Report to Stockholders, portions of which are
incorporated by reference into this Form 10-K.
(2) The information required to be submitted in response to these items is
incorporated by reference to the Company's definitive Proxy Statement
for the 2001 Annual Meeting of Stockholders to be held on
April 24, 2001, to be filed with the Securities and Exchange Commission
pursuant to Regulation 14A.
(3) Not applicable.
1
<PAGE>
DESCRIPTION OF BUSINESS
GENERAL
Wells Fargo & Company (Parent) is a diversified financial services company
organized under the laws of Delaware and registered under the Bank Holding
Company Act (BHC Act) of 1956, as amended, and registered as a financial holding
company under the Gramm-Leach-Bliley Act. Based on assets as of December 31,
2000, it was the fourth largest bank holding company in the United States. As a
diversified financial services organization, Wells Fargo & Company owns
subsidiaries engaged in banking and a variety of related businesses.
Subsidiaries of the Parent provide retail, commercial and corporate banking
services through banks located in Alaska, Arizona, California, Colorado, Idaho,
Illinois, Indiana, Iowa, Michigan, Minnesota, Montana, Nebraska, Nevada, New
Mexico, North Dakota, Ohio, Oregon, South Dakota, Texas, Utah, Washington,
Wisconsin and Wyoming. Additional financial services are provided to customers
by subsidiaries engaged in various businesses, principally: wholesale banking,
mortgage banking, consumer finance, equipment leasing, agricultural finance,
commercial finance, securities brokerage and investment banking, insurance
agency services, computer and data processing services, trust services,
mortgage-backed securities servicing and venture capital investment. Wells Fargo
& Company together with its subsidiaries is referred to in this report as the
Company.
On October 25, 2000, the merger involving the Company and First Security
Corporation (the FSCO Merger) was completed, with First Security Corporation
(First Security or FSCO) surviving as a wholly-owned subsidiary of the Company.
On November 2, 1998, the merger involving Norwest Corporation and the former
Wells Fargo & Company (the WFC Merger) was completed. On completion of the WFC
Merger, Norwest Corporation changed its name to Wells Fargo & Company. The FSCO
Merger and the WFC Merger were accounted for under the pooling-of-interests
method of accounting and, accordingly, the information included in this report,
including the Financial Statements and Supplementary Data, and Management's
Discussion and Analysis of Financial Condition and Results of Operations,
presents the combined results as if both mergers had been in effect for all
periods presented.
The Company has four operating segments for the purpose of management reporting:
Community Banking, Wholesale Banking, Wells Fargo Home Mortgage (formerly
Norwest Mortgage) and Wells Fargo Financial (formerly Norwest Financial).
Financial information and narrative descriptions of these operating segments are
included in the 2000 Annual Report to Stockholders, incorporated by reference
herein.
HISTORY AND GROWTH
Norwest Corporation, prior to the WFC Merger, provided banking services to
customers in 16 states and additional financial services through subsidiaries
engaged in a variety of businesses including mortgage banking and consumer
finance.
2
<PAGE>
The former Wells Fargo & Company's principal subsidiary, Wells Fargo Bank,
N.A., was the successor to the banking portion of the business founded by
Henry Wells and William G. Fargo in 1852. That business later operated the
westernmost leg of the Pony Express and ran stagecoach lines in the western
part of the United States. The California banking business was separated from
the express business in 1905, was merged in 1960 with American Trust Company,
another of the oldest banks in the Western United States, and became Wells
Fargo Bank, N.A., a national banking association, in 1968.
The former Wells Fargo & Company acquired First Interstate Bancorp in April
1996. First Interstate's assets had an approximate book value of $55 billion.
The transaction was valued at approximately $11.3 billion and was accounted for
as a purchase.
The Company expands its business, in part, by acquiring banking institutions and
other companies engaged in activities that are financial in nature. The Company
continues to explore opportunities to acquire banking institutions and other
companies. Discussions are continually being carried on related to such
acquisitions. It is not presently known whether, or on what terms, such
discussions will result in further acquisitions. Generally it is the policy of
the Company not to comment on such discussions or possible acquisitions until a
definitive acquisition agreement has been signed.
COMPETITION
The financial services industry is highly competitive. The Company's
subsidiaries compete with financial services providers, such as banks, savings
and loan associations, credit unions, finance companies, mortgage banking
companies, insurance companies, and money market and mutual fund companies. They
also face increased competition from non-banking institutions such as brokerage
houses and insurance companies, as well as from financial services subsidiaries
of commercial and manufacturing companies. Many of these competitors enjoy the
benefits of fewer regulatory constraints and lower cost structures.
Effective March 13, 2000, securities firms and insurance companies that elect to
become financial holding companies may acquire banks and other financial
institutions. This may significantly change the competitive environment in which
the Company conducts business. The financial services industry is also likely to
become more competitive as further technological advances enable more companies
to provide financial services. These technological advances may diminish the
importance of depository institutions and other financial intermediaries in the
transfer of funds between parties.
REGULATION AND SUPERVISION
The following discussion, together with Notes 3 and 22 to Financial Statements
included in the 2000 Annual Report to Stockholders, incorporated by reference
herein, sets forth the material elements of the regulatory framework applicable
to bank holding companies and their subsidiaries and provides certain specific
information relevant to the Company. This regulatory framework is to protect
depositors, federal deposit insurance funds and the banking
3
<PAGE>
system as a whole, and not to protect security holders. To the extent that
the information describes statutory and regulatory provisions, it is
qualified in its entirety by reference to those provisions. Further, such
statutes, regulations and policies are continually under review by Congress
and state legislatures, and federal and state regulatory agencies. A change
in statutes, regulations or regulatory policies applicable to the Company,
including changes in interpretation or implementation thereof, could have a
material effect on the Company's business.
Applicable laws and regulations could restrict the Company's ability to
diversify into other areas of financial services, acquire depository
institutions, and pay dividends on the Company's capital stock. They could also
require the Company to provide financial support to one or more of its
subsidiary banks, maintain capital balances in excess of those desired by
management, and pay higher deposit insurance premiums as a result of the
deterioration in the financial condition of depository institutions in general.
GENERAL
PARENT BANK HOLDING COMPANY. As a bank holding company, the Company is subject
to regulation under the BHC Act and to inspection, examination and supervision
by the Board of Governors of the Federal Reserve System (Federal Reserve Board
or FRB).
SUBSIDIARY BANKS. The Company's national subsidiary banks are subject to
regulation and examination primarily by the Office of the Comptroller of the
Currency (OCC) and secondarily by the Federal Deposit Insurance Corporation
(FDIC) and the FRB. The Company's state-chartered banks are subject to primary
federal regulation and examination by the FDIC or the FRB and, in addition, are
regulated and examined by their respective state banking departments.
NONBANK SUBSIDIARIES. Many of the Company's nonbank subsidiaries are also
subject to regulation by the FRB and other applicable federal and state
agencies. The Company's brokerage subsidiaries are regulated by the SEC, the
National Association of Securities Dealers, Inc. and state securities
regulators. The Company's insurance subsidiaries are subject to regulation by
applicable state insurance regulatory agencies. Other nonbank subsidiaries of
the Company are subject to the laws and regulations of both the federal
government and the various states in which they conduct business.
PARENT BANK HOLDING COMPANY ACTIVITIES
"FINANCIAL IN NATURE" REQUIREMENT. As a bank holding company that has elected to
become a financial holding company pursuant to the BHC Act, the Company may
affiliate with securities firms and insurance companies and engage in other
activities that are financial in nature or incidental or complementary to
activities that are financial in nature. "Financial in nature" activities
include securities underwriting, dealing and market making, sponsoring mutual
funds and investment companies, insurance underwriting and agency, merchant
banking, and activities that the FRB, in consultation with the Secretary of the
Treasury, determines from
4
<PAGE>
time to time to be financial in nature or incidental to such financial
activity or is complementary to a financial activity and does not pose a
safety and soundness risk. A bank holding company that is not also a
financial holding company is limited to engaging in banking and such other
activities as determined by the FRB to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto.
No Federal Reserve Board approval is required for the Company to acquire a
company (other than a bank holding company, bank or savings association) engaged
in activities that are financial in nature or incidental to activities that are
financial in nature, as determined by the FRB. Prior FRB approval is required
before the Company may acquire the beneficial ownership or control of more than
5% of the voting shares or substantially all of the assets of a bank holding
company, bank or savings association.
If any subsidiary bank of the Company ceases to be "well capitalized" or "well
managed" under applicable regulatory standards, the FRB may, among other
actions, order the Company to divest the subsidiary bank. Alternatively, the
Company may elect to conform its activities to those permissible for a bank
holding company that is not also a financial holding company.
If any subsidiary bank of the Company receives a rating under the Community
Reinvestment Act of 1977 of less than satisfactory, the Company will be
prohibited, until the rating is raised to satisfactory or better, from engaging
in new activities or acquiring companies other than bank holding companies,
banks or savings associations.
The Company became a financial holding company effective March 13, 2000. It
continues to maintain its status as a bank holding company for purposes of other
FRB regulations.
INTERSTATE BANKING. Under the Riegle-Neal Interstate Banking and Branching Act
(Riegle-Neal Act), a bank holding company may acquire banks in states other than
its home state, subject to any state requirement that the bank has been
organized and operating for a minimum period of time, not to exceed five years,
and the requirement that the bank holding company not control, prior to or
following the proposed acquisition, more than 10% of the total amount of
deposits of insured depository institutions nationwide or, unless the
acquisition is the bank holding company's initial entry into the state, more
than 30% of such deposits in the state (or such lesser or greater amount set by
the state).
The Riegle-Neal Act also authorizes banks to merge across state lines, thereby
creating interstate branches. States were permitted for a period of time to opt
out of the interstate merger authority provided by the Riegle-Neal Act and, by
doing so, prohibit interstate mergers in the state. The Company will be unable
to consolidate its banking operations in one state with those of another state
if either state in question has opted out of the Riegle-Neal Act. The state of
Montana has opted out until September 2001. Banks are also permitted to acquire
and to establish DE NOVO branches in other states where authorized under the
laws of those states.
REGULATORY APPROVAL. In determining whether to approve a proposed bank
acquisition, federal bank regulators will consider, among other factors, the
effect of the acquisition on competition,
5
<PAGE>
the public benefits expected to be received from the acquisition, the
projected capital ratios and levels on a post-acquisition basis, and the
acquiring institution's record of addressing the credit needs of the
communities it serves, including the needs of low and moderate income
neighborhoods, consistent with the safe and sound operation of the bank,
under the Community Reinvestment Act of 1977, as amended.
DIVIDEND RESTRICTIONS
Wells Fargo & Company is a legal entity separate and distinct from its
subsidiary banks and other subsidiaries. Its principal source of funds to pay
dividends on its common and preferred stock and principal and interest on its
debt is dividends from its subsidiaries. Various federal and state statutory
provisions and regulations limit the amount of dividends the Company's
subsidiary banks and certain other subsidiaries of the Company may pay without
regulatory approval. For information about the restrictions applicable to the
Company's subsidiary banks, see Note 3 to Financial Statements, incorporated by
reference herein.
Federal bank regulatory agencies have the authority to prohibit the Company's
subsidiary banks from engaging in unsafe or unsound practices in conducting
their businesses. The payment of dividends, depending on the financial condition
of the bank in question, could be deemed an unsafe or unsound practice. The
ability of the Company's subsidiary banks to pay dividends in the future is
currently, and could be further, influenced by bank regulatory policies and
capital guidelines.
HOLDING COMPANY STRUCTURE
TRANSFER OF FUNDS FROM SUBSIDIARY BANKS. The Company's subsidiary banks are
subject to restrictions under federal law that limit the transfer of funds or
other items of value from such subsidiaries to the Parent and its nonbank
subsidiaries (including affiliates) in so-called "covered transactions." In
general, covered transactions include loans and other extensions of credit,
investments and asset purchases, as well as other transactions involving the
transfer of value from a subsidiary bank to an affiliate or for the benefit of
an affiliate. Unless an exemption applies, covered transactions by a subsidiary
bank with a single affiliate are limited to 10% of the subsidiary bank's capital
and surplus and, with respect to all covered transactions with affiliates in the
aggregate, to 20% of the subsidiary bank's capital and surplus. Also, loans and
extensions of credit to affiliates generally are required to be secured in
specified amounts. A bank's transactions with its nonbank affiliates are also
generally required to be on arm's length terms.
SOURCE OF STRENGTH. The FRB has a policy that a bank holding company is expected
to act as a source of financial and managerial strength to each of its
subsidiary banks and, under appropriate circumstances, to commit resources to
support each such subsidiary bank. This support may be required at times when
the bank holding company may not have the resources to provide the support.
6
<PAGE>
The OCC may order the assessment of the Company if the capital of one of its
national bank subsidiaries were to become impaired. If the Company failed to pay
the assessment within three months, the OCC could order the sale of the
Company's stock in the national bank to cover the deficiency.
Capital loans by the Company to any of its subsidiary banks are subordinate
in right of payment to deposits and certain other indebtedness of the
subsidiary bank. In addition, in the event of the Company's bankruptcy, any
commitment by the Company to a federal bank regulatory agency to maintain the
capital of a subsidiary bank will be assumed by the bankruptcy trustee and
entitled to a priority of payment.
DEPOSITOR PREFERENCE. The Federal Deposit Insurance Act (FDI Act) provides that,
in the event of the "liquidation or other resolution" of an insured depository
institution, the claims of depositors of the institution (including the claims
of the FDIC as subrogee of insured depositors) and certain claims for
administrative expenses of the FDIC as a receiver will have priority over other
general unsecured claims against the institution. If an insured depository
institution fails, insured and uninsured depositors, along with the FDIC, will
have priority in payment ahead of unsecured, nondeposit creditors, including the
Company, with respect to any extensions of credit they have made to such insured
depository institution.
LIABILITY OF COMMONLY CONTROLLED INSTITUTIONS. All of the Company's banks are
insured by the FDIC. FDIC-insured depository institutions can be held liable for
any loss incurred, or reasonably expected to be incurred, by the FDIC due to the
default of an FDIC-insured depository institution controlled by the same bank
holding company, and for any assistance provided by the FDIC to an FDIC-insured
depository institution that is in danger of default and that is controlled by
the same bank holding company. "Default" means generally the appointment of a
conservator or receiver. "In danger of default" means generally the existence of
certain conditions indicating that a default is likely to occur in the absence
of regulatory assistance.
CAPITAL REQUIREMENTS
The Company is subject to risk-based capital requirements and guidelines imposed
by the FRB, which are substantially similar to the capital requirements and
guidelines imposed by the FRB, the OCC and the FDIC on depository institutions
under their jurisdictions. For information about these capital requirements and
guidelines, see Note 22 to Financial Statements, incorporated by reference
herein.
The FRB may set higher capital requirements for holding companies whose
circumstances warrant it. For example, holding companies experiencing internal
growth or making acquisitions are expected to maintain strong capital positions
substantially above the minimum supervisory levels, without significant reliance
on intangible assets. Also, the FRB considers a "tangible Tier 1 leverage ratio"
(deducting all intangibles) and other indications of capital strength in
evaluating proposals for expansion or new activities.
7
<PAGE>
FRB, FDIC and OCC rules require the Company to incorporate market and interest
rate risk components into their risk-based capital standards. Under the market
risk requirements, capital is allocated to support the amount of market risk
related to a financial institution's ongoing trading activities.
As an additional means to identify problems in the financial management of
depository institutions, the FDI Act requires federal bank regulatory
agencies to establish certain non-capital safety and soundness standards for
institutions for which they are the primary federal regulator. The standards
relate generally to operations and management, asset quality, interest rate
exposure and executive compensation. The agencies are authorized to take
action against institutions that fail to meet such standards.
The FDI Act requires federal bank regulatory agencies to take "prompt corrective
action" with respect to FDIC-insured depository institutions that do not meet
minimum capital requirements. A depository institution's treatment for purposes
of the prompt corrective action provisions will depend upon how its capital
levels compare to various capital measures and certain other factors, as
established by regulation.
DEPOSIT INSURANCE ASSESSMENTS
Through the Bank Insurance Fund (BIF), the FDIC insures the deposits of the
Company's depository institution subsidiaries up to prescribed limits for each
depositor. The amount of FDIC assessments paid by each BIF member institution is
based on its relative risk of default as measured by regulatory capital ratios
and other factors. Specifically, the assessment rate is based on the
institution's capitalization risk category and supervisory subgroup category. An
institution's capitalization risk category is based on the FDIC's determination
of whether the institution is well capitalized, adequately capitalized or less
than adequately capitalized. An institution's supervisory subgroup category is
based on the FDIC's assessment of the financial condition of the institution and
the probability that FDIC intervention or other corrective action will be
required.
The BIF assessment rate currently ranges from zero to 27 cents per $100 of
domestic deposits. The BIF assessment rate for the Company's depository
institutions currently is zero. The FDIC may increase or decrease the assessment
rate schedule on a semiannual basis. An increase in the BIF assessment rate
could have a material adverse effect on the Company's earnings, depending on the
amount of the increase. The FDIC is authorized to terminate a depository
institution's deposit insurance upon a finding by the FDIC that the
institution's financial condition is unsafe or unsound or that the institution
has engaged in unsafe or unsound practices or has violated any applicable rule,
regulation, order or condition enacted or imposed by the institution's
regulatory agency. The termination of deposit insurance for one or more of the
Company's subsidiary depository institutions could have a material adverse
effect on the Company's earnings, depending on the collective size of the
particular institutions involved.
All FDIC-insured depository institutions must pay an annual assessment to
provide funds for the payment of interest on bonds issued by the Financing
Corporation, a federal corporation
8
<PAGE>
chartered under the authority of the Federal Housing Finance Board. The bonds
(commonly referred to as FICO bonds) were issued to capitalize the Federal
Savings and Loan Insurance Corporation. FDIC-insured depository institutions
paid approximately 2.1 cents per $100 of BIF-assessable deposits in 2000. The
FDIC established the FICO assessment rate effective for the first quarter of
2001 at approximately 2.0 cents annually per $100 of BIF-assessable deposits.
FISCAL AND MONETARY POLICIES
The Company's business and earnings are affected significantly by the fiscal and
monetary policies of the federal government and its agencies. The Company is
particularly affected by the policies of the FRB, which regulates the supply of
money and credit in the United States. Among the instruments of monetary policy
available to the FRB are (a) conducting open market operations in United States
government securities, (b) changing the discount rates of borrowings of
depository institutions, (c) imposing or changing reserve requirements against
depository institutions' deposits, and (d) imposing or changing reserve
requirements against certain borrowings by banks and their affiliates. These
methods are used in varying degrees and combinations to directly affect the
availability of bank loans and deposits, as well as the interest rates charged
on loans and paid on deposits. The policies of the FRB may have a material
effect on the Company's business, results of operations and financial condition.
PRIVACY PROVISIONS OF THE GRAMM-LEACH-BLILEY ACT
Federal banking regulators, as required under the Gramm-Leach-Bliley Act (the
GLB Act), have adopted rules limiting the ability of banks and other financial
institutions to disclose nonpublic information about consumers to nonaffiliated
third parties. The rules became effective November 13, 2000, but compliance
before July 1, 2001 is optional. The rules require disclosure of privacy
policies to consumers and, in some circumstances, allow consumers to prevent
disclosure of certain personal information to nonaffiliated third parties. The
privacy provisions of the GLB Act will affect how consumer information is
transmitted through diversified financial services companies and conveyed to
outside vendors. It is not possible at this time to assess fully the impact of
the privacy provisions on the Company's business, results of operations or
financial condition.
FUTURE LEGISLATION
Various legislation, including proposals to change substantially the financial
institution regulatory system, is from time to time introduced in Congress. This
legislation may change banking statutes and the operating environment of the
Company in substantial and unpredictable ways. If enacted, this legislation
could increase or decrease the cost of doing business, limit or expand
permissible activities or affect the competitive balance among banks, savings
associations, credit unions, and other financial institutions. The Company
cannot predict whether any of this potential legislation will be enacted and, if
enacted, the effect that it, or any implementing regulations, would have on the
Company's business, results of operations or financial condition.
9
<PAGE>
ANALYSIS OF CHANGES IN NET INTEREST INCOME
The following table allocates the changes in net interest income on a
taxable-equivalent basis to changes in either average balances or average
rates for both interest-earning assets and interest-bearing liabilities.
Because of the numerous simultaneous volume and rate changes during any
period, it is not possible to precisely allocate such changes between volume
and rate. For this table, changes that are not solely due to either volume or
rate are allocated to these categories in proportion to the percentage
changes in average volume and average rate.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
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2000 OVER 1999 1999 over 1998
--------------------------- ---------------------------
(in millions) VOLUME RATE TOTAL Volume Rate Total
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in interest income:
Federal funds sold and securities
purchased under resale agreements $ 40 $ 17 $ 57 $ (5) $ (8) $ (13)
Debt securities available for sale:
Securities of U.S. Treasury and federal agencies (173) 35 (138) 16 (21) (5)
Securities of U.S. states and political subdivisions (2) (4) (6) 24 (4) 20
Mortgage-backed securities:
Federal agencies 187 117 304 263 (40) 223
Private collateralized mortgage obligations (114) 31 (83) 63 2 65
Other securities 46 6 52 113 (9) 104
Mortgages held for sale (213) 111 (102) (74) 17 (57)
Loans held for sale (18) 59 41 21 (20) 1
Loans:
Commercial 588 305 893 271 (70) 201
Real estate 1-4 family first mortgage 241 23 264 (43) (19) (62)
Other real estate mortgage 330 48 378 117 (120) (3)
Real estate construction 167 25 192 94 (6) 88
Consumer:
Real estate 1-4 family junior lien mortgage 377 57 434 96 (52) 44
Credit card 26 47 73 (91) (74) (165)
Other revolving credit and monthly payment 271 36 307 (51) (53) (104)
Lease financing 74 (13) 61 142 (23) 119
Foreign 14 8 22 42 -- 42
Other (2) 39 37 9 (28) (19)
------ ----- ------ ------ ----- -----
Total increase (decrease) in interest income 1,839 947 2,786 1,007 (528) 479
------ ----- ------ ------ ----- -----
Increase (decrease) in interest expense:
Deposits:
Interest-bearing checking 3 30 33 1 (11) (10)
Market rate and other savings 64 323 387 104 (197) (93)
Savings certificates 1 153 154 (92) (132) (224)
Other time deposits 25 32 57 (31) (23) (54)
Deposits in foreign offices 260 31 291 34 (1) 33
Short-term borrowings 319 312 631 233 (69) 164
Long-term debt 276 210 486 318 (79) 239
Guaranteed preferred beneficial interests
in Company's subordinated debentures -- 2 2 (18) (4) (22)
------ ----- ------ ------ ----- -----
Total increase (decrease) in interest expense 948 1,093 2,041 549 (516) 33
------ ----- ------ ------ ----- -----
Increase (decrease) in net interest income
on a taxable-equivalent basis $ 891 $ (146) $ 745 $ 458 $ (12) $ 446
====== ====== ====== ====== ===== =====
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
LOAN PORTFOLIO
The following table presents the remaining contractual principal maturities of
selected loan categories at December 31, 2000 and a summary of the major
categories of loans outstanding at the end of the last five years. At December
31, 2000, the Company did not have loan concentrations that exceeded 10% of
total loans, except as shown below.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 2000
- ------------------------------------------------------------------------------------------
OVER ONE YEAR
THROUGH FIVE YEARS OVER FIVE YEARS
------------------ ---------------
FLOATING FLOATING
OR OR December 31,
ONE YEAR FIXED ADJUSTABLE FIXED ADJUSTABLE --------------------------------------
(in millions) OR LESS RATE RATE RATE RATE TOTAL 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Selected loan maturities:
Commercial $24,515 $ 4,198 $18,602 $ 1,217 $ 1,986 $ 50,518 $ 41,671 $ 38,218 $ 34,368 $ 33,047
Real estate 1-4 family
first mortgage 7,458 1,171 110 6,696 3,029 18,464 13,506 12,613 15,220 17,186
Other real estate mortgage 4,377 9,099 935 4,780 4,781 23,972 20,899 18,033 17,587 17,552
Real estate construction 4,062 594 2,536 190 333 7,715 6,067 4,529 3,941 3,807
Foreign 1,234 12 312 2 64 1,624 1,600 1,528 1,155 1,154
------- ------- ------- ------- ------- -------- ------- ------- ------- --------
Total selected loan
maturities $41,646 $15,074 $22,495 $12,885 $10,193 102,293 83,743 74,921 72,271 72,746
======= ======= ======= ======= ======= -------- ------- ------- ------- --------
Other loan categories:
Consumer:
Real estate 1-4 family
junior lien mortgage 18,218 12,949 11,135 10,622 10,854
Credit card 6,616 5,805 6,119 6,989 7,341
Other revolving credit and
monthly payment 23,974 20,617 19,441 20,255 19,615
-------- ------- ------- ------- --------
Total consumer 48,808 39,371 36,695 37,866 37,810
Lease financing 10,023 9,890 8,046 6,298 4,563
-------- ------- ------- ------- --------
Total loans $161,124 $133,004 $119,662 $116,435 $115,119
======== ======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The table at the top of the following page summarizes other real estate
mortgage loans by state and property type. The table at the bottom of the
following page summarizes real estate construction loans by state and project
type.
11
<PAGE>
REAL ESTATE MORTGAGE LOANS BY STATE AND PROPERTY TYPE
(excluding 1-4 family first mortgages)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
December 31, 2000
-----------------------------------------------------------------------------------------------------------
Other Non-
California Texas Minnesota Colorado States (2) All States accruals
-------------- ------------- ------------ -------------- -------------- -------------- as a %
Total Non- Total Non- Total Non- Total Non- Total Non- Total Non- of total
(in millions) loans accrual loans accrual loans accrual loans accrual loans accrual loans accrual by type
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Office buildings $2,649 $ 1 $ 490 $ 1 $ 106 $-- $194 $-- $ 2,175 $ 6 $ 5,614 $ 8 --%
Retail buildings 1,530 18 363 5 276 3 238 1 1,900 4 4,307 31 1
Industrial 2,005 11 305 7 299 2 197 -- 1,222 5 4,028 25 1
Hotels/motels 352 -- 320 2 58 3 63 -- 1,438 1 2,231 6 --
Apartments 694 1 210 -- 102 -- 83 -- 835 15 1,924 16 1
Institutional 215 2 23 -- -- -- 12 -- 185 -- 435 2 --
Agricultural 344 2 72 1 110 5 25 -- 621 4 1,172 12 1
Land 338 -- 163 1 46 -- 47 1 396 -- 990 2 --
1-4 family
structures (1) 2 -- 7 -- 3 -- 8 -- 102 -- 122 -- --
Other 1,268 2 216 2 146 1 117 1 1,402 5 3,149 11 --
------ ---- ------ ----- ------ --- ----- --- ------- --- ------- ---
Total by state $9,397 $ 37 $2,169 $ 19 $1,146 $14 $984 $ 3 $10,276 $40 $23,972 $113 --%
====== ==== ====== ===== ====== === ==== === ======= === ======= ==== ===
% of total loans 39% 9% 5% 4% 43% 100%
====== ====== ====== ==== ======= =======
Nonaccruals as a %
of total by state --% 1% 1% --% --%
==== ===== === === ===
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents loans to real estate developers secured by 1-4 family
residential developments.
(2) Consists of 46 states; no state had loans in excess of $976 million at
December 31, 2000.
<PAGE>
REAL ESTATE CONSTRUCTION LOANS BY STATE AND PROPERTY TYPE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
December 31, 2000
---------------------------------------------------------------------------------------------------------
Other Non-
California Nevada Texas Colorado States (2) All States accruals
-------------- ------------- ------------- -------------- -------------- ------------ as a %
Total Non- Total Non- Total Non- Total Non- Total Non- Total Non- of total
(in millions) loans accrual loans accrual loans accrual loans accrual loans accrual loans accrual by type
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Retail buildings $ 199 $-- $ 48 $-- $ 32 $-- $ 30 $-- $ 453 $-- $ 762 $-- --%
1-4 family:
Land 104 -- 14 -- 15 -- 19 -- 84 -- 236 -- --
Structures 356 -- 148 2 171 -- 197 -- 985 19 1,857 21 1
Land (excluding
1-4 family) 332 -- 106 -- 58 1 71 -- 462 -- 1,029 1 --
Apartments 124 -- 108 25 20 -- 32 -- 210 -- 494 25 5
Office buildings 424 -- 19 -- 63 -- 121 -- 490 2 1,117 2 --
Industrial 266 -- 22 -- 57 -- 54 1 224 -- 623 1 --
Hotels/motels 57 -- 39 -- 8 -- 1 -- 112 -- 217 -- --
Institutional 35 -- -- -- 8 -- -- -- 38 -- 81 -- --
Agricultural 13 -- -- -- -- -- -- -- 11 -- 24 -- --
Other 257 -- 228 2 297 2 45 -- 448 3 1,275 7 1
------ --- ---- --- ---- --- ---- --- ------ --- ------ ---
Total by state $2,167 $-- $732 $29 $729 $ 3 $570 $ 1 $3,517 $24 $7,715 $57 1%
====== === ==== === ==== === ==== === ====== === ====== === ==
% of total loans 28% 10% 9% 7% 46% 100%
====== ==== ==== ==== ====== ======
Nonaccruals as a %
of total by state --% 4% --% --% 1%
=== === == === ===
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Consists of 41 states; no state had loans in excess of $517 million at
December 31, 2000.
12
<PAGE>
CHANGES IN THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
(in millions) 2000 1999 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, BEGINNING OF YEAR $ 3,344 $ 3,307 $ 3,220 $ 3,202 $ 2,846
Allowances related to business combinations, net 265 48 148 172 874
Provision for loan losses 1,329 1,104 1,617 1,203 541
Loan charge-offs:
Commercial (429) (395) (271) (369) (206)
Real estate 1-4 family first mortgage (16) (14) (29) (28) (25)
Other real estate mortgage (32) (28) (54) (27) (51)
Real estate construction (8) (2) (3) (5) (14)
Consumer:
Real estate 1-4 family junior lien mortgage (34) (33) (31) (37) (38)
Credit card (367) (403) (549) (593) (500)
Other revolving credit and monthly payment (623) (585) (1,069) (672) (530)
------- ------- ------- ------- -------
Total consumer (1,024) (1,021) (1,649) (1,302) (1,068)
Lease financing (52) (38) (49) (49) (36)
Foreign (86) (90) (84) (37) (35)
------- ------- ------- ------- -------
Total loan charge-offs (1,647) (1,588) (2,139) (1,817) (1,435)
------- ------- ------- ------- -------
Loan recoveries:
Commercial 98 90 87 110 96
Real estate 1-4 family first mortgage 4 6 12 10 13
Other real estate mortgage 13 38 79 63 57
Real estate construction 4 5 4 12 13
Consumer:
Real estate 1-4 family junior lien mortgage 14 15 7 10 10
Credit card 39 49 59 64 52
Other revolving credit and monthly payment 213 243 187 166 117
------- ------- ------- ------- -------
Total consumer 266 307 253 240 179
Lease financing 13 12 12 15 9
Foreign 30 15 14 10 9
------- ------- ------- ------- -------
Total loan recoveries 428 473 461 460 376
------- ------- ------- ------- -------
Total net loan charge-offs (1,219) (1,115) (1,678) (1,357) (1,059)
------- ------- ------- ------- -------
BALANCE, END OF YEAR $ 3,719 $ 3,344 $ 3,307 $ 3,220 $ 3,202
======= ======= ======= ======= =======
Total net loan charge-offs as a percentage of
average total loans .84% .90% 1.44% 1.19% .99%
======= ======= ======= ======= =======
Allowance as a percentage of total loans 2.31% 2.51% 2.76% 2.77% 2.78%
======= ======= ======= ======= =======
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
The SEC requires the Company to present the ratio of the allowance for loan
losses to total nonaccrual loans. This ratio was 311% and 462% at December 31,
2000 and 1999, respectively. This ratio may fluctuate significantly from period
to period due to such factors as the mix of loan types in the portfolio, the
prospects of borrowers and the value and marketability of collateral as well as,
for the nonaccrual portfolio taken as a whole, wide variances from period to
period in terms of delinquency and relationship of book to contractual principal
balance. Classification of a loan as nonaccrual does not necessarily indicate
that the principal of a loan is uncollectible in whole or in part. Consequently,
the ratio of the allowance for loan losses to nonaccrual loans, taken alone and
without taking into account numerous additional factors, is not a reliable
indicator of the adequacy of the allowance for loan losses. Indicators of the
credit quality of the Company's loan portfolio and the method of determining the
allowance for loan losses are discussed below and in greater detail in the 2000
Annual Report to Stockholders, incorporated by reference herein.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
The table below provides a breakdown of the allowance for loan losses by loan
category.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
December 31,
- ---------------------------------------------------------------------------------------------------------------------------------
(in millions) 2000 1999 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial $ 798 $ 655 $ 664 $ 603 $ 519
Real estate 1-4 family first mortgage 55 64 58 71 59
Other real estate mortgage 220 220 238 284 347
Real estate construction 69 58 62 51 63
Consumer:
Credit card 394 349 356 483 452
Other consumer 556 428 588 575 485
------ ------ ------ ------ -----
Total consumer 950 777 944 1,058 937
Lease financing 67 71 66 67 55
Foreign 95 62 79 43 34
------ ------ ------ ------ -----
Total allocated 2,254 1,907 2,111 2,177 2,014
Unallocated component of
the allowance (1) 1,465 1,437 1,196 1,043 1,188
------ ------ ------ ------ -----
Total $3,719 $3,344 $3,307 $3,220 $3,202
====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
----------------- ----------------- ----------------- ----------------- ----------------
ALLOC. LOAN Alloc. Loan Alloc. Loan Alloc. Loan Alloc. Loan
ALLOW. CATGRY allow. catgry allow. catgry allow. catgry allow. catgry
AS % AS % as % as % as % as % as % as % as % as %
OF LOAN OF TOTAL of loan of total of loan of total of loan of total of loan of total
CATGRY LOANS catry loans catgry loans catgry loans catgry loans
------ -------- ------- -------- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial 1.58% 31% 1.57% 31% 1.74% 32% 1.75% 30% 1.57% 29%
Real estate 1-4 family first mortgage .30 12 .47 10 .46 11 .47 13 .34 15
Other real estate mortgage .92 15 1.05 16 1.32 15 1.61 15 1.98 15
Real estate construction .90 5 .96 5 1.37 4 1.29 3 1.66 3
Consumer:
Credit card 5.96 4 6.01 4 5.82 5 6.91 6 6.15 6
Other consumer 1.32 26 1.28 26 1.92 25 1.86 27 1.59 27
--- --- --- --- ---
Total consumer 1.95 30 1.97 30 2.57 30 2.79 33 2.48 33
Lease financing .67 6 .72 7 .82 7 1.06 5 1.21 4
Foreign 5.89 1 3.88 1 5.17 1 3.72 1 2.95 1
--- --- --- --- ---
Total allocated 1.40 100% 1.43 100% 1.76 100% 1.87 100% 1.75 100%
=== === === === ===
Unallocated component of
the allowance (1) .91 1.08 1.00 .90 1.03
---- ---- ---- ---- ----
Total 2.31% 2.51% 2.76% 2.77% 2.78%
==== ==== ==== ==== ====
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) This amount and any unabsorbed portion of the allocated allowance are also
available for any of the above listed loan categories.
14
<PAGE>
See Note 5 to Financial Statements in the 2000 Annual Report, incorporated by
reference herein, for the description of the process used by the Company to
determine the adequacy and the components (allocated and unallocated) of the
allowance for loan losses.
At December 31, 2000, the allowance for loan losses was $3,719 million, or 2.31%
of total loans, compared with $3,344 million, or 2.51%, at December 31, 1999.
During 2000, net provision for loan losses exceeded the charge-offs by $110
million. The addition of $265 million of allowances related to business
combinations in 2000 accounted for the majority of the increase of $375 million
in the reserve, year over year. The components of the allowance, allocated and
unallocated, are shown in the table on the previous page. The allocated
component increased to $2,254 million from $1,907 million, while the unallocated
component grew to $1,465 million from $1,437 million, as of December 31, 2000
and 1999, respectively. At December 31, 2000, the unallocated portion of the
allowance amounted to 39% of the total allowance, compared with 43% at December
31, 1999.
The $347 million increase in the allocated component of the allowance was
entirely due to growth in the loan portfolio. Analyzing the movements in the
allocated reserve strictly from a loan volume perspective indicates that, had
the ratio of allocated reserves to loans outstanding remained flat with the 1999
ratio of 1.43%, allocated reserves would have increased by approximately $395
million, as loans outstanding grew by $28 billion during the year. However, due
to a shift in portfolio composition, the higher volume increased the allocated
reserve by only $366 million, as relatively higher-risk foreign loans grew at a
slower pace than other, lower-risk portfolio segments.
Lower allocated allowance to loans outstanding ratios in the residential
mortgage and other real estate mortgage portfolios were substantially offset by
higher allocated allowance to loans outstanding ratios in the other consumer and
foreign loan portfolios. On a net basis, marginally lower allocated reserve
ratios resulted in a reduction of roughly $19 million in allocated reserves,
primarily a reflection of modestly lower projected loss rates in the loan
portfolio.
There were no material changes in estimation methods and assumptions for the
allowance that took place during 2000.
The Company considers the allowance for loan losses of $3,719 million adequate
to cover losses inherent in loans, loan commitments, and standby and other
letters of credit at December 31, 2000.
The foregoing discussion contains forward-looking statements about the adequacy
of the Company's reserves for loan losses. These forward-looking statements are
inherently subject to risks and uncertainties. A number of factors--many of
which are beyond the Company's control--could cause actual losses to be more
than estimated losses. For a discussion of some of the other factors that could
cause actual losses to be more than estimated losses, see "Factors That May
Affect Future Results" in the "Financial Review" section of the 2000 Annual
Report to Stockholders, incorporated by reference herein.
15
<PAGE>
PROPERTIES
The Company owns its headquarters building in San Francisco as well as Wells
Fargo Centers in Phoenix, Arizona and Portland, Oregon. In addition, the Company
leases office space for data processing support and various administrative
departments in major locations in Alaska, Arizona, California, Colorado,
Minnesota, Oregon, Texas, and Utah.
As of December 31, 2000, the Company provides banking, mortgage and consumer
finance through about 5,400 stores under various types of ownership and
leasehold agreements. Wells Fargo Home Mortgage (WFHM) owns its headquarters in
Des Moines, Iowa and servicing centers located in Minneapolis, Minnesota;
Springfield, Ohio; and Riverside, California. In addition, WFHM leases servicing
centers in Minneapolis, Minnesota; Phoenix, Arizona; Charlotte, North Carolina;
and Springfield, Illinois, operations centers in Frederick, Maryland and St.
Louis, Missouri and all mortgage production offices nationwide. Wells Fargo
Financial owns its headquarters in Des Moines, Iowa, and leases all branch
locations.
The Company is also a joint venture partner in two office buildings in downtown
Los Angeles, California.
For further information with respect to premises and equipment and commitments
under noncancelable leases for premises and equipment, refer to Note 6 to
Financial Statements, incorporated by reference herein.
16
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
YEARS WITH
NAME AND COMPANY OR
COMPANY POSITION POSITIONS HELD DURING THE PAST FIVE YEARS AGE PREDECESSORS
- ----------------- ----------------------------------------- --- ------------
<S> <C> <C> <C>
John A. Berg Group Executive Vice President (North Central Banking Group) 55 25
Group Executive (November 2000 to Present); Group Executive Vice President (Central
Vice President (North Banking) (November 1998 to November 2000); Senior Vice President and
Central Banking Group) Regional Group Head of former Norwest (March 1998 to November 1998);
Regional President (Greater Minnesota/La Crosse Region) (January 1990
to March 1998)
Leslie S. Biller Vice Chairman and Chief Operating Officer (November 1998 to Present); 53 13
Vice Chairman and Chief President and Chief Operating Officer of former Norwest (February
Operating Officer 1997 to November 1998); Executive Vice President (South Central
Community Banking) (July 1990 to February 1997)
Patricia R. Callahan Executive Vice President (Human Resources) (November 1998 to 47 23
Executive Vice President Present); Executive Vice President of former Wells Fargo (Personnel)
(Human Resources) (September 1998 to November 1998); Executive Vice President
(Wholesale Banking) (July 1997 to September 1998); Executive Vice
President (Personnel) (March 1993 to July 1997)
James R. Campbell Group Executive Vice President (Minnesota Banking and Investments 58 36
Group Executive Group) (November 2000 to Present); Group Executive Vice President
Vice President (Minnesota (Minnesota Banking) (November 1998 to November 2000); Executive Vice
Banking and Investments President (North Central Banking) of former Norwest (August 1997 to
Group) November 1998); Executive Vice President (Commercial Banking
Services, Specialized Lending and Nebraska) (January 1996 to August
1997)
Teresa A. Dial Group Executive Vice President (January 2001 to Present); Group 51 28
Group Executive Executive Vice President (California, Business Banking, Telephone
Vice President Banking, Distribution Strategies, Insurance, Diversified Products
Group, Education Finance) (November 1998 to January
2001); Vice Chair (Consumer and Business Banking)
of former Wells Fargo (March 1996 to November
1998); Group Executive Vice President (Business
Banking) (September 1991 to March 1996)
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
YEARS WITH
NAME AND COMPANY OR
COMPANY POSITION POSITIONS HELD DURING THE PAST FIVE YEARS AGE PREDECESSORS
- ----------------- ----------------------------------------- --- ------------
<S> <C> <C> <C>
C. Webb Edwards Executive Vice President (Technology and Operations Group) (November 53 16
Executive Vice President 1998 to Present); Executive Vice President of the former Norwest
(Technology and Operations (April 1995 to November 1998); and President and Chief Executive
Group) Officer of Wells Fargo Services Company (formerly known as Norwest
Services, Inc. and Norwest Technical Services, Inc.) (May 1995 to
Present)
David A. Hoyt Group Executive Vice President (Wholesale Banking Group) (November 45 19
Group Executive 1998 to Present); Vice Chair (Real Estate, Capital Markets,
Vice President (Wholesale International) of former Wells Fargo (May 1997 to November 1998);
Banking Group) Executive Vice President (Capital Markets, Special Loans) (September
1994 to May 1997)
Michael R. James Group Executive Vice President (Business Banking and Consumer Lending 49 27
Group Executive Vice Group) (July 2000 to Present); Executive Vice President of Wells
President (Business Banking Fargo Bank, N.A. (Business Banking Group Head) (July 1997 to July
and Consumer Lending Group) 2000); Executive Vice President (Business Banking Group Division
Manager) (June 1992 to July 1997)
Ross J. Kari Executive Vice President and Chief Financial Officer (January 2000 to 42 18
Executive Vice President Present); Executive Vice President and Deputy Chief Financial Officer
and Chief Financial Officer (November 1998 to January 2000); Chief Financial Officer of former
Wells Fargo (May 1998 to November 1998); Executive Vice President
(Group Head of Finance) (March 1997 to May 1998); Executive Vice
President and General Auditor (September 1995 to March 1997)
Richard M. Kovacevich President and Chief Executive Officer (November 1998 to Present); 57 15
President and Chief Chairman and Chief Executive Officer of former Norwest (February 1997
Executive Officer to November 1998); Chairman, President and Chief Executive Officer
(May 1995 to January 1997)
Ely L. Licht Executive Vice President and Chief Credit Officer (November 1998 to 53 17
Executive Vice President Present); Executive Vice President (Credit Administration) of former
(Chief Credit Officer) Wells Fargo (February 1990 to November 1998)
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
YEARS WITH
NAME AND COMPANY OR
COMPANY POSITION POSITIONS HELD DURING THE PAST FIVE YEARS AGE PREDECESSORS
- ----------------- ----------------------------------------- --- ------------
<S> <C> <C> <C>
Dennis J. Mooradian Group Executive Vice President (Private Client Services) (July 1999 53 4
Group Executive Vice to Present); Executive Vice President of Wells Fargo Bank, N.A. (May
President (Private Client 1996 to July 1999); Lehman Brothers' Global Private Client Services
Services) Division's Chief Operating Officer (April 1995 to May 1996)
Mark C. Oman Group Executive Vice President (Mortgage and Home Equity Group) 46 21
Group Executive (November 1998 to Present); Executive Vice President (Mortgage
Vice President (Mortgage Services and Iowa Community Banking) of former Norwest (February 1997
and Home Equity Group) to November 1998); and Chairman of Wells Fargo Home Mortgage, Inc.
(formerly known as Norwest Mortgage, Inc.) (February 1997 to Present);
Chief Executive Officer (August 1989 to January 2001); President
(August 1989 to February 1997)
Clyde W. Ostler Group Executive Vice President (Internet Services Group) (October 54 30
Group Executive 1999 to Present); Group Executive Vice President (Investments)
Vice President (Internet (November 1998 to October 1999); Vice Chair (Trust and Investment
Services Group) Services) of former Wells Fargo (May 1993 to November 1998)
Daniel W. Porter Group Executive Vice President (Wells Fargo Financial) and Chairman 45 1
Group Executive Vice and Chief Executive Officer of Wells Fargo Financial, Inc.
President (Wells Fargo (December 1999 to Present); various positions with GE Capital since
Financial) 1986 including Managing Director of GE Capital Europe in London
(European Transportation Group) (March 1998 to
December 1999); President of Global Consumer
Development (September 1997 to March 1998); and
President and Chief Executive Officer of Retailer
Financial Services (April 1994 to September 1997)
Les L. Quock, CPA Senior Vice President and Controller (November 1998 to Present); 47 21
Senior Vice President and Senior Vice President (Payment Systems Services Group) of former
Controller (Principal Wells Fargo (February 1997 to November 1998); Senior Vice President
Accounting Officer) (Business Banking Group Systems) (October 1996 to February 1997);
Senior Vice President (Business Loan Finance and Administration)
(November 1995 to October 1996)
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
YEARS WITH
NAME AND COMPANY OR
COMPANY POSITION POSITIONS HELD DURING THE PAST FIVE YEARS AGE PREDECESSORS
- ----------------- ----------------------------------------- --- ------------
<S> <C> <C> <C>
Stanley S. Stroup Executive Vice President and General Counsel (November 1998 to 57 17
Executive Vice President Present); Executive Vice President and General Counsel of former
and General Counsel Norwest (February 1993 to November 1998)
John G. Stumpf Group Executive Vice President (Western Banking Group) (May 2000 to 47 19
Group Executive Present); Group Executive Vice President (Southwestern Banking)
Vice President (Western (November 1998 to May 2000); Regional President (Texas) of former
Banking Group) Norwest (July 1994 to November 1998)
Carrie L. Tolstedt Group Executive Vice President (California Banking) (January 2001 to 41 11
Group Executive Vice Present); Regional President of Wells Fargo Bank, N.A. (Central
President (California California Banking) (December 1998 to January 2001); Regional Manager
Banking) of Norwest Bank Minnesota, N.A. (Greater Minnesota Community Banking)
(May 1998 to December 1998); Executive Vice
President of FirstMerit Corporation and President
and Chief Executive Officer of Citizens National
Bank and Peoples National Bank (August 1996 to May
1998); Senior Vice President (Corporate Retail) of
FirstMerit Corporation (May 1995 to August 1996)
</TABLE>
There is no family relationship among the above officers. All executive officers
serve at the pleasure of the Board of Directors.
20
<PAGE>
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements, Schedules and Exhibits:
(1) The consolidated financial statements and related notes, the
independent auditors' report thereon and supplementary data that
appear on pages 52 through 98 of the 2000 Annual Report to
Stockholders are incorporated herein by reference.
(2) Financial Statement Schedules:
All schedules are omitted, because they are either not applicable
or the required information is shown in the consolidated financial
statements or the notes thereto.
(3) Exhibits:
The Company's SEC file number is 001-2979. On and before November
2, 1998, the Company filed documents with the SEC under the name
Norwest Corporation. The former Wells Fargo & Company filed
documents under SEC file number 001-6214. First Security
Corporation filed documents under SEC file number 001-6906.
<TABLE>
<CAPTION>
Exhibit
number Description
------ -----------
<S> <C>
3(a) Restated Certificate of Incorporation, incorporated by
reference to Exhibit 3(b) to the Company's Current
Report on Form 8-K dated June 28, 1993. Certificates of
Amendment of Certificate of Incorporation, incorporated
by reference to Exhibit 3 to the Company's Current
Report on Form 8-K dated July 3, 1995 (authorizing
preference stock), and Exhibits 3(b) and 3(c) to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998 (changing the Company's name
and increasing authorized common and preferred stock,
respectively)
(b) Certificate of Change of Location of Registered Office
and Change of Registered Agent, incorporated by
reference to Exhibit 3(b) to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1999
(c) Certificate of Designations for the Company's ESOP
Cumulative Convertible Preferred Stock, incorporated by
reference to Exhibit 4 to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1994
(d) Certificate of Designations for the Company's 1995 ESOP
Cumulative Convertible Preferred Stock, incorporated by
reference to Exhibit 4 to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1995
21
<PAGE>
<S> <C>
3(e) Certificate Eliminating the Certificate of Designations
for the Company's Cumulative Convertible Preferred
Stock, Series B, incorporated by reference to Exhibit
3(a) to the Company's Current Report on Form 8-K dated
November 1, 1995
(f) Certificate Eliminating the Certificate of Designations
for the Company's 10.24% Cumulative Preferred Stock,
incorporated by reference to Exhibit 3 to the Company's
Current Report on Form 8-K dated February 20, 1996
(g) Certificate of Designations for the Company's 1996 ESOP
Cumulative Convertible Preferred Stock, incorporated by
reference to Exhibit 3 to the Company's Current Report
on Form 8-K dated February 26, 1996
(h) Certificate of Designations for the Company's 1997 ESOP
Cumulative Convertible Preferred Stock, incorporated by
reference to Exhibit 3 to the Company's Current Report
on Form 8-K dated April 14, 1997
(i) Certificate of Designations for the Company's 1998 ESOP
Cumulative Convertible Preferred Stock, incorporated by
reference to Exhibit 3 to the Company's Current Report
on Form 8-K dated April 20, 1998
(j) Certificate of Designations for the Company's Adjustable
Cumulative Preferred Stock, Series B, incorporated by
reference to Exhibit 3(j) to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1998
(k) Certificate of Designations for the Company's
Fixed/Adjustable Rate Noncumulative Preferred Stock,
Series H, incorporated by reference to Exhibit 3(k) to
the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998
(l) Certificate of Designations for the Company's Series C
Junior Participating Preferred Stock, incorporated by
reference to Exhibit 3(l) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1998
(m) Certificate Eliminating the Certificate of Designations
for the Company's Series A Junior Participating
Preferred Stock, incorporated by reference to Exhibit
3(a) to the Company's Current Report on Form 8-K dated
April 21, 1999
(n) Certificate of Designations for the Company's 1999 ESOP
Cumulative Convertible Preferred Stock, incorporated by
reference to Exhibit 3(b) to the Company's Current
Report on Form 8-K dated April 21, 1999
(o) Certificate of Designations for the Company's 2000 ESOP
Cumulative Convertible Preferred Stock, incorporated by
reference to Exhibit 3(o) to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 2000
22
<PAGE>
<S> <C>
3(p) By-Laws, incorporated by reference to Exhibit 3(m) to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1998
4(a) See Exhibits 3(a) through 3(p)
(b) Rights Agreement, dated as of October 21, 1998, between
the Company and ChaseMellon Shareholder Services,
L.L.C., as Rights Agent, incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement on
Form 8-A dated October 21, 1998
(c) The Company agrees to furnish upon request to the
Commission a copy of each instrument defining the rights
of holders of senior and subordinated debt of the
Company.
10*(a) Long-Term Incentive Compensation Plan, as amended
effective November 23, 1999 (including Forms of Award
Term Sheet for grants of restricted share rights),
incorporated by reference to Exhibit 10(a) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1999. Amendment to Long-Term Incentive
Compensation Plan, effective November 1, 2000, filed as
paragraph (1) of Exhibit 10(ff) hereto. Forms of
Non-Qualified Stock Option and Restricted Stock
Agreements for grants subsequent to November 2, 1998,
incorporated by reference to Exhibit 10(a) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1998. Forms of Non-Qualified Stock Option
and Restricted Stock Agreements for grants prior to
November 2, 1998, incorporated by reference to Exhibit
10(a) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997
*(b) Long-Term Incentive Plan, incorporated by reference to
Exhibit A to the former Wells Fargo's Proxy Statement
filed March 14, 1994
*(c) Wells Fargo Bonus Plan
*(d) Performance-Based Compensation Policy, incorporated by
reference to Exhibit 10(d) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1999
*(e) 1990 Equity Incentive Plan, incorporated by reference to
Exhibit 10(f) to the former Wells Fargo's Annual Report
on Form 10-K for the year ended December 31, 1995
*(f) 1982 Equity Incentive Plan, incorporated by reference to
Exhibit 10(g) to the former Wells Fargo's Annual Report
on Form 10-K for the year ended December 31, 1993
*(g) Employees' Stock Deferral Plan, incorporated by
reference to Exhibit 10(c) to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1998. Amendment to Employees' Stock Deferral Plan,
effective November 1, 2000, filed as paragraph (2) of
Exhibit 10(ff) hereto
23
<PAGE>
<S> <C>
10*(h) Deferred Compensation Plan, as amended and restated
effective January 1, 2000, incorporated by reference to
Exhibit 10(h) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1999.
Amendments to Deferred Compensation Plan, effective
July 1, 2000 and November 1, 2000
*(i) 1999 Directors Stock Option Plan, incorporated by
reference to Exhibit 10(n) to the Company's Annual
Report on Form 10-K for the year ended December 31,
1998. Amendment to 1999 Directors Stock Option Plan,
effective November 1, 2000, filed as paragraph (3) of
Exhibit 10(ff) hereto
*(j) 1990 Director Option Plan for directors of the former
Wells Fargo, incorporated by reference to Exhibit 10(c)
to the former Wells Fargo's Annual Report on Form 10-K
for the year ended December 31, 1997
*(k) 1987 Director Option Plan for directors of the former
Wells Fargo, incorporated by reference to Exhibit A to
the former Wells Fargo's Proxy Statement filed March 10,
1995, and as further amended by the amendment adopted
September 16, 1997, incorporated by reference to Exhibit
10 to the former Wells Fargo's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997
*(l) First Security Corporation Comprehensive Management
Incentive Plan, incorporated by reference to Exhibit
10.1 to First Security Corporation's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1999
*(m) Deferred Compensation Plan for Non-Employee Directors of
the former Norwest, incorporated by reference to Exhibit
10(c) to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1999. Amendment to
Deferred Compensation Plan for Non-Employee Directors,
effective November 1, 2000, filed as paragraph (4) of
Exhibit 10(ff) hereto
*(n) Directors' Stock Deferral Plan for directors of the
former Norwest, incorporated by reference to Exhibit
10(d) to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1999. Amendment to
Directors' Stock Deferral Plan, effective November 1,
2000, filed as paragraph (5) of Exhibit 10(ff) hereto
*(o) Directors' Formula Stock Award Plan for directors of the
former Norwest, incorporated by reference to Exhibit
10(e) to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1999. Amendment to
Directors' Formula Stock Award Plan, effective November
1, 2000, filed as paragraph (6) of Exhibit 10(ff) hereto
*(p) Deferral Plan for Directors of the former Wells Fargo,
incorporated by reference to Exhibit 10(b) to the former
Wells Fargo's Annual Report on Form 10-K for the year
ended December 31, 1997
24
<PAGE>
<S> <C>
10*(q) 1999 Deferral Plan for Directors, incorporated by
reference to Exhibit 10(q) of the Company's Annual
Report on Form 10-K for the year ended December 31,
1999. Amendment to 1999 Deferral Plan for Directors,
effective November 1, 2000, filed as paragraph (7) of
Exhibit 10(ff) hereto
*(r) 1999 Directors Formula Stock Award Plan, incorporated by
reference to Exhibit 10(b) to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1999.
Amendment to 1999 Directors Formula Stock Award Plan,
effective November 1, 2000, filed as paragraph (8) of
Exhibit 10(ff) hereto
*(s) Supplemental 401(k) Plan, incorporated by reference to
Exhibit 10(a) to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1999. Amendment
to Supplemental 401(k) Plan, effective November 1, 2000,
filed as paragraph (9) of Exhibit 10(ff) hereto
*(t) Supplemental Cash Balance Plan, incorporated by
reference to Exhibit 10(b) to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1999
*(u) Supplemental Long Term Disability Plan, incorporated by
reference to Exhibit 10(f) to the Company's Annual
Report on Form 10-K for the year ended December 31,
1990. Amendment to Supplemental Long Term Disability
Plan, incorporated by reference to Exhibit 10(g) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1992
*(v) Agreement between the Company and Richard M. Kovacevich
dated March 18, 1991, incorporated by reference to
Exhibit 19(e) to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1991. Amendment
effective January 1, 1995, to the March 18, 1991
agreement between the Company and Richard M. Kovacevich,
incorporated by reference to Exhibit 10(c) to the
Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995
*(w) Employment Agreement, dated as of June 7, 1998, between
the Company and Paul Hazen, incorporated by reference to
Exhibit 10.01 to the Company's Registration Statement
No. 333-63247 on Form S-4 filed September 11, 1998.
Forms of Stock Option and Restricted Stock Agreements
pursuant to Employment Agreement, incorporated by
reference to Exhibit 10(cc) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1998
*(x) Amended and Restated Employment Agreement, dated as of
October 18, 2000, between the Company and Spencer F.
Eccles
*(y) Agreements between the Company and three executive
officers dated October 7, 1998, May 7, 1999 and October
25, 1999, respectively, incorporated by reference to
Exhibit 10(y) to the Company's Annual Report on Form
10-K for the year ended December 31, 1999
25
<PAGE>
<S> <C>
10*(z) Form of severance agreement between the Company and
seven executive officers, including two directors, and
agreement between the Company and Terri A. Dial,
incorporated by reference to Exhibit 10(ee) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1998. Amendment effective January 1, 1995,
to the March 11, 1991 agreement between the Company and
Richard M. Kovacevich, incorporated by reference to
Exhibit 10(b) to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1995
*(aa) Description of Supplemental Pension Arrangement for
C. Webb Edwards
*(bb) Consulting Agreement dated January 25, 1999, between the
Company and Chang-Lin Tien, incorporated by reference to
Exhibit 10(ff) to the Company's Annual Report on Form
10-K for the year ended December 31, 1998
*(cc) Description of Relocation Program for Designated
High-Cost Areas, incorporated by reference to Exhibit
10(dd) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1999
*(dd) Description of Executive Financial Planning Program,
incorporated by reference to Exhibit 10(ee) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1999
*(ee) Executive Loan Plan, incorporated by reference to
Exhibit 10(i) to the former Wells Fargo's Annual Report
on Form 10-K for the year ended December 31, 1994
*(ff) Amendments to Long-Term Incentive Compensation Plan,
Employees' Stock Deferral Plan, 1999 Directors Stock
Option Plan, Deferred Compensation Plan for Non-Employee
Directors, Directors' Stock Deferral Plan, Directors'
Formula Stock Award Plan, 1999 Deferral Plan for
Directors, 1999 Directors Formula Stock Award Plan, and
Supplemental 401(k) Plan
</TABLE>
- ------------------------
* Management contract or compensatory plan or arrangement
Stockholders may obtain a copy of any of the foregoing exhibits, upon payment of
a reasonable fee, by writing Wells Fargo & Company, Office of the Secretary,
Wells Fargo Center, N9305-173, Sixth and Marquette, Minneapolis, Minnesota
55479.
26
<PAGE>
<TABLE>
<S> <C>
12(a) Computation of Ratios of Earnings to Fixed Charges --
the ratios of earnings to fixed charges, including
interest on deposits, were 1.82, 2.07, 1.62, 1.79 and
1.76 for the years ended December 31, 2000, 1999, 1998,
1997 and 1996, respectively. The ratios of earnings to
fixed charges, excluding interest on deposits, were
2.67, 3.29, 2.51, 3.02 and 2.97 for the years ended
December 31, 2000, 1999, 1998, 1997 and 1996,
respectively.
(b) Computation of Ratios of Earnings to Fixed Charges and
Preferred Dividends -- the ratios of earnings to fixed
charges and preferred dividends, including interest on
deposits, were 1.81, 2.05, 1.60, 1.77 and 1.72 for the
years ended December 31, 2000, 1999, 1998, 1997 and
1996, respectively. The ratios of earnings to fixed
charges and preferred dividends, excluding interest on
deposits, were 2.65, 3.22, 2.45, 2.93 and 2.77 for the
years ended December 31, 2000, 1999, 1998, 1997 and
1996, respectively.
13 2000 Annual Report to Stockholders, pages 33 through 98
21 Subsidiaries of the Company
23 Consent of Independent Accountants
24 Powers of Attorney
</TABLE>
<TABLE>
<S> <C>
(b) The Company filed the following reports on Form 8-K during the fourth
quarter of 2000:
(1) October 13, 2000, under Item 7, filing as an exhibit the First
Supplemental Indenture, dated October 12, 2000, between the Company and
Citibank, N.A.
(2) October 17, 2000, under Item 5, containing the Company's financial
results for the quarter ended September 30, 2000
(3) November 30, 2000, under Item 5, filing as exhibits the Company's
Supplemental Annual Report for 1999 and Supplemental Quarterly Report
for the period ended September 30, 2000, which give retroactive effect
to the FSCO Merger
</TABLE>
STATUS OF PRIOR DOCUMENTS
The Wells Fargo & Company Annual Report on Form 10-K for the year ended December
31, 2000, at the time of filing with the Securities and Exchange Commission,
shall modify and supersede all documents filed prior to January 1, 2001 pursuant
to Sections 13, 14 and 15(d) of the Securities Exchange Act of 1934 (other than
the Current Report on Form 8-K filed October 14, 1997, containing a description
of the Company's common stock) for purposes of any offers or sales of any
securities after the date of such filing pursuant to any Registration Statement
or Prospectus filed pursuant to the Securities Act of 1933 which incorporates by
reference such Annual Report on Form 10-K.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on March 16, 2001.
WELLS FARGO & COMPANY
BY: /s/ RICHARD M. KOVACEVICH
-------------------------------------
Richard M. Kovacevich
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated.
By: /s/ ROSS J. KARI
-------------------------------------
Ross J. Kari
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
By: /s/ LES L. QUOCK
-------------------------------------
Les L. Quock
Senior Vice President and Controller
(Principal Accounting Officer)
The Directors of Wells Fargo & Company listed below have duly executed powers of
attorney empowering Philip J. Quigley to sign this document on their behalf.
<TABLE>
<S> <C>
Leslie S. Biller Richard M. Kovacevich
Michael R. Bowlin Richard D. McCormick
David A. Christensen Cynthia H. Milligan
Spencer F. Eccles Benjamin F. Montoya
Susan E. Engel Donald B. Rice
Paul Hazen Judith M. Runstad
Robert L. Joss Susan G. Swenson
Reatha Clark King Michael W. Wright
</TABLE>
By: /s/ PHILIP J. QUIGLEY
-------------------------------------
Philip J. Quigley
Director and Attorney-in-fact
March 16, 2001
28
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.C
<SEQUENCE>2
<FILENAME>a2040410zex-10_c.txt
<DESCRIPTION>EXHIBIT 10(C)
<TEXT>
<PAGE>
EXHIBIT 10(C)
WELLS FARGO BONUS PLAN
I PURPOSE
The purpose of the Wells Fargo Bonus Plan (the "Plan") is to motivate a
select group of management, supervisory and individual contributors to
achieve superior results for Wells Fargo & Company and its subsidiaries
("Wells Fargo"). The Plan is designed to provide Participants with
incentive compensation opportunities that focus on individual and team
contributions through the measurement of meaningful performance goals
that are consistent with Wells Fargo's corporate and business unit
objectives.
The Plan is effective January 1, 2000. Participants, incentive
opportunities and performance objectives shall be identified annually.
II. ELIGIBILITY
A select group of Wells Fargo management, supervisors and individual
contributors who are in a position to control or influence business
units are eligible to participate in the Plan. Eligibility for
participation is determined on a case-by-case basis. Business unit
managers are responsible for identifying Participants within their
business units prior to the beginning of the Plan Year.
The intent of the Plan is to provide incentive awards to those
Participants who are not eligible for a bonus or incentive compensation
under any other plan or written agreement with Wells Fargo. Therefore,
Plan Participants who participate in any other Wells Fargo-sponsored
incentive compensation plan will not receive an award under this Plan.
III. INCENTIVE OPPORTUNITY
A. Business unit managers, working with Human Resources, shall
establish an incentive opportunity for each Participant's
position. The incentive opportunity shall be a range (target -
threshold - maximum) stated as a percentage of the Participant's
base salary ("Opportunity Percentages"). The target-level
Opportunity Percentage should reflect the value of good,
commendable, on-plan performance. The threshold-level Opportunity
Percentage is typically set at 50% of the target Opportunity
Percentage while the maximum-level Opportunity Percentage is
typically set at 150% of the target.
B. Disqualifying Factors
For purposes of this Plan, a "Disqualifying Factor" is an event,
the occurrence of which immediately invalidates a Participant's
opportunity for an incentive award. If a Participant's incentive
opportunity is subject to a Disqualifying Factor and the event
occurs, the Participant shall have no incentive opportunity for
that particular Plan Year. Generally, Wells Fargo does not support
the use of Disqualifying Factors subject to the following
exceptions:
1
<PAGE>
1. Executive-level Participants shall typically be subject to
Disqualifying Factors that tie to Wells Fargo's annual
corporate objectives.
2. A Disqualifying Factor applicable to each Participant is that
he/she must be employed by Wells Fargo as of the last day of
the Plan Year in order to be eligible for an incentive award
under the Plan. There will be no incentive opportunity for the
Plan Year for those Participants who experience a voluntary or
involuntary termination before the last day of the Plan Year
except if the termination is a result of the Participant's
retirement, death or a qualifying event under the Wells Fargo
& Company Salary Continuation Pay Plan as set forth in Section
VII, A and C.
IV. PERFORMANCE OBJECTIVES
A Performance Objective should be established for each Participant to
be effective as of the beginning of the Plan Year. The Performance
Objective should consist of identifiable Performance Measures and
Performance Levels.
A. Performance Measures
A Performance Measure defines the action or resultant performance
expected of a Participant in a given Plan Year. Three to five
Performance Measures should be identified for each Participant to
be effective as of the beginning of the Plan Year. The business
unit manager is responsible for defining the Performance Measure.
The business unit manager is encouraged to consult with the
Participant in identifying the Performance Measure. All
Performance Measures are subject to review at higher levels of the
organization.
Performance Measures may vary from year to year, from one position
to another and/or from one Participant to another. Generally, the
Performance Measures should be indicators of the expected: overall
financial success at the Participant's level or business unit;
tactical, operating achievements which will contribute to the
overall success at the Participant's level or business unit;
and/or the major strategic milestones achieved by or on behalf of
the Participant, the Participant's business unit or Wells Fargo.
Where appropriate, the Performance Measures should support or
correspond with the financial goals expressed in the annual
business plan for the Participant's level or business unit.
B. Performance Levels
Performance Levels are the designated target, threshold and
maximum levels of performance defined as quantitative goals.
Performance Levels may be assigned based on the achievement of
some or all of the Performance Measures by the end of the Plan
Year, or they may be assigned within each Performance Measure so
that the accomplishment of some elements of the Performance
Measure qualifies for an incentive award. For example, a
Participant's target level of performance may be accomplished if
the Participant satisfies three of his/her Performance Measures by
the
2
<PAGE>
end of the Plan Year. Alternatively, Performance Levels could
be assigned within a Performance Measure so that the Participant
may earn a percentage of his/her incentive award based on the
achievement of some or all of the elements of the Performance
Measure. The business unit manager is responsible for identifying
the target, threshold and maximum Performance Levels that will be
used to calculate the Participant's incentive award. In
identifying the Performance Levels, the business unit manager is
encouraged to consult with the Participant and/or Human Resources.
All Performance Levels are subject to review at higher levels of
the organization.
1. The target Performance Level should be challenging enough to
motivate performance but not unattainable. It should reflect
good, commendable, on-plan performance.
2. The threshold Performance Level should reflect satisfactory
performance that falls short of the target Performance Level.
3. The maximum Performance Level should reflect performance that
significantly exceeds the expectations of the target
Performance Level.
C. Performance Weighting
Performance Measures may be weighted to correspond with the
Participant's accountability, strategic and tactical priorities,
and the Performance Measure's level of difficulty. The business
unit manager is encouraged to consult with the Participant to
determine the weights, but these decisions are subject to review
at higher levels of the organization.
V. INCENTIVE AWARDS
For purposes of determining a Participant's incentive award under the
Plan, the Participant's performance shall be evaluated as soon as
practicable following completion of the Plan Year. (If the Participant
is ineligible for an incentive award due to a Disqualifying Factor,
then it is not necessary to conduct any further evaluation of the
Performance Objectives.) All awards under the Plan are subject to the
following guidelines:
A. Each Performance Measure is evaluated individually following the
end of the Plan Year. The Participant's incentive award for a Plan
Year is determined by adding the values determined for each
Performance Measure taking into consideration any assigned
weighting. The incentive award should be consistent with the
overall Opportunity Percentage identified for the Participant's
position.
B. A Participant's award may be increased or decreased by up to 15%
of its value, on a discretionary basis by the manager of the
Participant's business unit.
C. Incentive awards are based on the Participant's base salary and
will be paid to the Participant by the end of March following the
end of the Plan Year.
3
<PAGE>
D. With approval from the Plan Administrator, an incentive award may
be reduced in any amount or denied for unsatisfactory performance.
An incentive award may also be denied if a Participant is
involuntarily terminated before the date that the Participant's
incentive award is paid.
VI. ADMINISTRATION
A. Plan Administrator
The Plan Administrator is the Executive Vice President and
Director of Human Resources. The Plan Administrator has full
discretionary authority to administer and interpret the Plan and
may, at any time, delegate to personnel of Wells Fargo such
responsibilities as he or she considers appropriate to facilitate
the day-to-day administration of the Plan. The Plan Administrator
also has the full discretionary authority to adjust or amend a
Participant's incentive opportunity under the Plan at any time.
B. Plan Year
Participant performance is measured and financial records are kept
on a "Plan Year" basis. The Plan Year is the 12-month period
beginning each January 1 and ending on the following December 31,
unless the Plan is modified, suspended or terminated.
C. Disputes
If a Participant has a dispute regarding his/her incentive award
under the Plan, the Participant should attempt to resolve the
dispute with the manager of his/her business unit. If this is not
successful, the Participant should prepare a written request for
review addressed to the Participant's Human Resources
representative. The request for review should include any facts
supporting the Participant's request as well as any issues or
comments the Participant deems pertinent. The Human Resources
representative will send the Participant a written response
documenting the outcome of this review in writing no later than 60
days following the date of the Participant's written request. (If
additional time is necessary, the Participant shall be notified in
writing.) The determination of this request shall be final and
conclusive upon all persons.
D. Amendment or Termination
The Board of Directors of Wells Fargo & Company (the "Company"),
and the Human Resources Committee of the Board of Directors, the
Company's President, any Vice Chairman, or the Executive Vice
President of Human Resources may amend, suspend or terminate the
Plan at any time, for any reason. No amendment, suspension or
termination of the Plan shall adversely affect a Participant's
incentive award earned under the Plan prior to the effective date
of the amendment, suspension or termination, unless otherwise
agreed to by the Participant.
4
<PAGE>
VII. MISCELLANEOUS PROVISIONS
A. Leaves of Absence
Incentive awards payable under the Plan should be pro-rated for
Participants who go on a leave of absence provided the Participant
has actively worked at least three months during the Plan Year AND
some or all of the Participant's Performance Objective has been
met. For Participants who receive notice of a qualifying event
under the Wells Fargo & Company Salary Continuation Pay Plan, the
Notice Period (as defined by that plan) should be considered in
determining whether the Participant satisfies the three-month
"actively at work" requirement. Incentive awards will be
determined following the end of the Plan Year.
B. Changes in Employment Status
1. Employees hired after the beginning of the Plan Year may be
eligible to participate in the Plan. Incentive Opportunity
Percentages and Performance Objectives should be designed
accordingly. Where Performance Objectives are impractical to
develop for a partial Plan Year, eligibility should be delayed
until the next Plan Year.
2. If, during the Plan Year, a Participant transfers to another
business unit or receives a promotion to a new position within
Wells Fargo, the Participant's incentive award should be
pro-rated provided the Participant met some or the entire
Performance Objective prior to the transfer or promotion.
Incentive awards will be determined following the end of the
Plan Year.
C. Death or Retirement
In the event of a Participant's death or retirement during the
Plan Year, the Participant's incentive award should be a pro-rata
share of the anticipated final incentive award provided the
Participant actively worked for at least three months during the
Plan Year.
D. Withholding Taxes
Wells Fargo shall deduct from all payments under the Plan an
amount necessary to satisfy federal, state or local tax
withholding requirements.
E. Not an Employment Contract
The Plan is not an employment contract and participation in the
Plan does not alter a Participant's at-will employment
relationship with Wells Fargo. Both the Participant and Wells
Fargo are free to terminate their employment relationship at any
time for any reason. No rights in the Plan may be claimed by any
person whether or not he/she is selected to participate in the
Plan. No person shall acquire any right to an accounting or to
examine the books or the affairs of Wells Fargo.
5
<PAGE>
F. Assignment
No Participant shall have any right or power to pledge or assign
any rights, privileges, or incentive awards provided for under the
Plan.
G. Unsecured Obligations
Incentive awards under the Plan are unsecured obligations of the
Company.
H. Code of Conduct
Violation of the terms or the spirit of the Plan by the
Participant and/or the Participant's supervisor, and other serious
misconduct, are grounds for disciplinary action, including
disqualification from further participation in the Plan and/or
immediate termination.
6
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.H
<SEQUENCE>3
<FILENAME>a2040410zex-10_h.txt
<DESCRIPTION>EXHIBIT 10(H)
<TEXT>
<PAGE>
EXHIBIT 10(H)
AMENDMENTS TO DEFERRED COMPENSATION PLAN
1. Compensation. Effective July 1, 2000, Section 2(D) of the
Plan is amended to read in full as follows:
(D) Compensation. Salaries, bonuses and commissions earned by the
Eligible Employee during the Deferral Year for services
rendered to the Company or the Company's subsidiaries as
determined by the Plan Administrator and payable no later than
March 31 of the following Deferral Year.
2. Amendment and Termination. Effective July 1, 2000, Section 19
of the Plan is amended by the addition of a new sentence to the end thereof to
read in full as follows:
Notwithstanding the foregoing, the President, Executive Vice
President of Human Resources and the Senior Vice President of
Compensation and Benefits, acting singly, shall have the authority to
execute a written action to amend the Plan to authorize the merger of
any nonqualified deferred compensation plan maintained by any acquired
entity into this Plan.
3. Effective November 1, 2000, Section 7(B) of the Wells Fargo &
Company Deferred Compensation Plan is amended by deleting the phrase "the
closing price per share of Common Stock reported on the consolidated tape of the
New York Stock Exchange" that appears in the third sentence of Section 7(B), and
substituting in place thereof the phrase "the New York Stock Exchange-only
closing price per share of Common Stock."
1
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.(X)
<SEQUENCE>4
<FILENAME>a2040410zex-10_x.txt
<DESCRIPTION>EXHIBIT 10(X)
<TEXT>
<PAGE>
EXHIBIT 10(X)
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
-----------------------------------------
AMENDED AND RESTATED EMPLOYMENT AGREEMENT by and between Wells
Fargo & Company, a Delaware corporation (the "Company"), and Spencer F. Eccles
(the "Executive") dated as of the 18th day of October, 2000 (the "Agreement").
WHEREAS, the Company determined that it was in the best
interests of the Company, First Security Corporation, a Delaware corporation
("First Security") and their respective shareholders to assure that the Company
and First Security would have the continued dedication of the Executive pending
the merger of the Company and First Security (the "Merger") pursuant to the
Agreement and Plan of Merger dated as of April 9, 2000 and to provide the
surviving corporation after the Merger with continuity of management. Therefore,
in order to accomplish these objectives, the Board of Directors of the Company
(the "Board") caused the Company to enter into an employment agreement between
the Executive and the Company, dated as of April 9, 2000 (the "Employment
Agreement"); and
WHEREAS, the Company and the Executive have mutually
determined their desire to amend and restate the Employment Agreement as set
forth herein.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. EFFECTIVE DATE. The "Effective Date" shall mean the
effective date of the Merger.
2. EMPLOYMENT PERIOD. The Company hereby agrees to employ the
Executive, and the Executive hereby agrees to remain in the employ of the
Company subject to the terms and conditions of this Agreement, for the period
commencing on the Effective Date and ending on the last day of the month in
which the Executive attains age 70 (the "Employment Period").
3. TERMS OF EMPLOYMENT. (a) POSITION AND DUTIES. (i) (A)
During the Employment Period, the Executive shall serve as Chairman of the
Company's Intermountain Region banking activities with such authority, duties
and responsibilities as are commensurate with such position and as may be
consistent with such position, and (B) the Executive's services shall be
performed in Salt Lake City, Utah. The Executive shall report directly to the
Chief Executive Officer of the Company. During the Employment Period, subject to
the Company's retirement policy, the Executive shall serve as a member of the
Company's Board of Directors.
(ii) During the Employment Period, and excluding any periods
of vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote reasonable attention and time to the business and affairs of
the Company consistent with past practice and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill
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speaking engagements or teach at educational institutions and (C) manage
personal investments, so long as such activities do not significantly interfere
with the performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement. It is expressly understood and agreed
that to the extent that any such activities have been conducted by the Executive
prior to the Effective Date, the continued conduct of such activities (or the
conduct of activities similar in nature and scope thereto) subsequent to the
Effective Date shall be deemed not to interfere with the performance of the
Executive's responsibilities to the Company.
(b) COMPENSATION. (i) INITIAL PAYMENT. On the Effective
Date, the Company shall make a lump sum cash payment to the Executive equal to
$1 million.
(ii) BASE SALARY. During the period commencing on the
Effective Date and ending on the date of the Company's annual stockholders'
meeting in 2002 (the "Initial Period"), the Executive shall receive an annual
base salary ("Annual Base Salary") no less than the Executive's annual base
salary as in effect immediately prior to the date hereof. During the Initial
Period, the Annual Base Salary shall be reviewed no more than 12 months after
the last salary increase awarded to the Executive prior to the Effective Date
and thereafter at least annually. Any increase in Annual Base Salary shall not
serve to limit or reduce any other obligation to the Executive under this
Agreement. Annual Base Salary shall not be reduced after any such increase and
the term Annual Base Salary as utilized in this Agreement shall refer to Annual
Base Salary as so increased. After the Initial Period until the end of the
Employment Period, the Executive shall receive an Annual Base Salary of $800,000
per annum. As used in this Agreement, the term "affiliated companies" shall
include any company controlled by, controlling or under common control with the
Company.
(iii) ANNUAL BONUS. During the Initial Period, the
Executive shall receive an annual cash bonus ("Annual Bonus") no less than the
annual bonus earned by the Executive in respect of the 1998 calendar year (the
"Minimum Bonus"). The Executive shall be entitled to a pro rata Minimum Bonus in
respect of calendar year 2002.
(iv) INCENTIVE AWARDS. On the Effective Date, the Company
shall grant the Executive an option to acquire 85,000 shares of the Company's
common stock (the "Initial Option"). The Initial Option shall vest, in three
equal installments, on the first anniversary of the Effective Date, the second
anniversary of the Effective Date, with the last installment vesting on the last
day of the Initial Period, subject to accelerated vesting as provided herein and
upon a change of control of the Company (as defined in the Company's stock
incentive plan). The Initial Option shall have an exercise price equal to the
fair market value of the stock subject thereto on the date of grant and shall
have a term of, and remain exercisable (to the extent vested) for, ten years
from the date of grant, without regard to the Executive's earlier termination of
employment. The Executive shall be granted an additional option to acquire
100,000 shares of the Company's common stock in calendar year 2001, which shall
vest on the last day of the Initial Period (the "Additional Option"). The
Additional Option shall have an exercise price equal to the fair market value of
the stock subject on the date of grant and shall have a term of, and remain
exercisable (to the extent voted) for, ten years from the date of grant, without
regard to the Executive's earlier termination of employment.
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(v) RETIREMENT BENEFITS. The Executive shall be paid an
annual retirement benefit of $1,000,000 per year commencing upon the Executive's
70th birthday and, in each case, less any benefit accrued under the Company's
qualified and non-qualified defined benefit retirement plans (the "Retirement
Benefit"). Upon the Executive's death, his current spouse, should she survive
the Executive, shall be paid an annual benefit of 50% of the Retirement Benefit
(based on the higher amount) for her life (the "Spouse Benefit"). The Executive
shall receive a special bonus equal to $1.5 million on his 70th birthday (the
"Special Bonus").
(vi) OTHER EMPLOYEE BENEFIT PLANS. During the Employment
Period, except as otherwise expressly provided herein, the Executive shall be
entitled to participate in all employee benefit, welfare and other plans,
practices, policies and programs generally applicable to senior executives of
the Company, with the express exception of the Wells Fargo & Company Salary
Continuation Pay Plan or the applicable First Security severance plan.
Notwithstanding the Executive's termination of employment for any reason, upon
the expiration of the Employment Period, the Executive shall be entitled to
receive post-retirement welfare benefits based on the greater of (A) the
benefits that the Executive would have been eligible to receive if he had
retired on the Effective Date and (B) the benefits that are provided to retired
executive officers of the Company at any time after the expiration of the
Employment Period subject to the terms of such plans as in effect from time to
time.
(vii) EXPENSES. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by the Executive in accordance with the Company's policies.
(viii) OFFICE AND SUPPORT STAFF. During the Employment
Period, the Executive shall be entitled to an office or offices of a size and
with furnishings and other appointments as provided generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies and shall be provided with secretarial and administrative
assistance on the same basis as provided to him immediately prior to the
Effective Date.
(ix) VACATION. During the Initial Period, the Executive
shall be entitled to paid vacation in accordance with the plans, policies,
programs and practices of the Company and its affiliated companies as in effect
with respect to the senior executives of the Company.
4. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment Period (pursuant
to the definition of Disability set forth below), it may give to the Executive
written notice in accordance with Section 11(b) of this Agreement of its
intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties. For
purposes of this Agreement, "Disability" shall mean the absence of the Executive
from the Executive's duties with the Company on a full-time basis for 180
consecutive business days as a result of incapacity due to mental or physical
illness or injury which is determined to be total and
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permanent by a physician selected by the Company or its insurers and acceptable
to the Executive or the Executive's legal representative.
(b) CAUSE. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean:
(i) the continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its affiliates
(other than any such failure resulting from incapacity due to physical or mental
illness or injury), after a written demand for substantial performance is
delivered to the Executive by the Board which specifically identifies the manner
in which the Board believes that the Executive has not substantially performed
the Executive's duties, or
(ii) the willful engaging by the Executive in illegal
conduct or gross misconduct which is materially and demonstrably injurious to
the Company, or
(iii) conviction of a felony or a guilty or nolo
contendere plea by the Executive with respect thereto.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or based upon the advice of counsel for the Company shall
be conclusively presumed to be done, or omitted to be done, by the Executive in
good faith and in the best interests of the Company. The cessation of employment
of the Executive shall not be deemed to be for Cause unless and until there
shall have been delivered to the Executive a copy of a resolution duly adopted
by the affirmative vote of not less than two-thirds of the entire membership of
the Board at a meeting of the Board called and held for such purpose (after
reasonable notice is provided to the Executive and the Executive is given an
opportunity, together with counsel, to be heard before the Board), finding that,
in the good faith opinion of the Board, the Executive is guilty of the conduct
described in subparagraph (i) or (ii) above, and specifying the particulars
thereof in detail.
(c) GOOD REASON. The Executive's employment may be
terminated by the Executive for Good Reason. For purposes of this Agreement,
"Good Reason" shall mean in the absence of a written consent of the Executive:
(i) the assignment of the Executive to any positions
other than the positions contemplated by the Merger Agreement and related
documents, or any other action by the Company which, in the Executive's
reasonable judgment, results in a diminution in such position, authority, duties
or responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 3(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not
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occurring in bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based
at any office or location more than 35 miles from that provided in Section
3(a)(i)(B) hereof;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this Agreement;
or
(v) any failure by the Company to comply with and satisfy
Section 10(c) of this Agreement.
For purposes of this Section 4(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive. Notwithstanding anything contained
herein to the contrary, during the period commencing on the Effective Date and
ending on the first anniversary thereof, the Executive shall not be permitted to
terminate his employment hereunder for Good Reason based on the Good Reason
event set forth in clause (i) of this Section 4(c), and any such asserted
termination shall be considered to be a termination by the Executive without
Good Reason for all purposes of this Agreement.
(d) NOTICE OF TERMINATION. Any termination by the Company
for Cause, or by the Executive for Good Reason, shall be communicated by Notice
of Termination to the other party hereto given in accordance with Section 11(b)
of this Agreement. For purposes of this Agreement, a "Notice of Termination"
means a written notice which (i) indicates the specific termination provision in
this Agreement relied upon, (ii) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated and
(iii) if the Date of Termination (as defined below) is other than the date of
receipt of such notice, specifies the termination date (which date shall be not
more than thirty days after the giving of such notice). The failure by the
Executive or the Company to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Good Reason or Cause shall not
waive any right of the Executive or the Company, respectively, hereunder or
preclude the Executive or the Company, respectively, from asserting such fact or
circumstance in enforcing the Executive's or the Company's rights hereunder.
(e) DATE OF TERMINATION. "Date of Termination" means (i) if
the Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein within 30 days of such notice, as the case may
be, (ii) if the Executive's employment is terminated by the Company other than
for Cause or Disability, the Date of Termination shall be the date on which the
Company notifies the Executive of such termination and (iii) if the Executive's
employment is terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
5. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) GOOD
REASON; OTHER THAN FOR CAUSE, DEATH OR Disability. If, during the Initial
Period, the Company shall terminate
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<PAGE>
the Executive's employment other than for Cause or Disability or the Executive
shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum
in cash within 30 days after the Date of Termination the aggregate of the
following amounts:
A. the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore paid, and (2) the
product of (x) the Minimum Bonus and (y) a fraction, the numerator of which is
the number of days in the fiscal year in which the Date of Termination occurs
through the Date of Termination, and the denominator of which is 365, in each
case to the extent not theretofore paid (the sum of the amounts described in
clauses (1) and (2), shall be hereinafter referred to as the "Accrued
Obligations"); and
B. the amount equal to the product of (1) the number of
months and portions thereof from the Date of Termination until the end of the
Initial Period, divided by twelve and (2) the sum of (x) the Executive's Annual
Base Salary and (y) the Minimum Bonus; and
(ii) for the remainder of the Employment Period, the
Company shall continue to provide medical and dental benefits to the Executive
and his then current spouse on the same basis such benefits were provided to the
Executive immediately prior to the Date of Termination (collectively "Medical
Benefits");
(iii) the Special Bonus shall become immediately payable;
and
(iv) the Initial Option and the Additional Option shall
vest immediately; and
(v) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive (or his beneficiary or
estate, as the case may be) any other amounts or benefits required to be paid or
provided or which the Executive (or his beneficiary or estate, as the case may
be) is eligible to receive under any plan, program, policy or practice or
contract or agreement of the Company and its affiliated companies through the
Date of Termination (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits").
(b) DEATH. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of (w) Accrued
Obligations, (x) the Special Bonus, (y) the Spouse Benefit and (z) the timely
payment or provision of Other Benefits. In addition, the Initial Option and the
Additional Option shall vest immediately. Accrued Obligations shall be paid to
the Executive's estate or beneficiary, as applicable, in a lump sum in cash
within 30 days of the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 5(b) shall
include death benefits as in effect on the date of the Executive's death with
respect to other senior executives of the Company and their beneficiaries.
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(c) DISABILITY. If the Executive's employment is terminated
by reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of (w) Accrued Obligations, (x) the Special Bonus, (y) the
Retirement Benefit (at a rate of $800,000 per annum until such time as the
Executive shall attain 70 years old) commencing at such time as the Executive's
benefits under the Company's tax-qualified defined benefit retirement plan
commences and (z) the timely payment or provision of Other Benefits. In
addition, the Initial Option and the Additional Option shall vest immediately.
Accrued Obligations shall be paid to the Executive in a lump sum in cash within
30 days of the Date of Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section 5(c) shall
include, and the Executive shall be entitled after the Disability Effective Date
to receive, disability and other benefits as in effect on the Disability
Effective Date with respect to other senior executives of the Company and the
continued provision of Medical Benefits to the Executive and his current spouse
for the remainder of the Employment Period.
(d) CAUSE; OTHER THAN FOR GOOD REASON. If the Executive's
employment shall be terminated for Cause or the Executive terminates his
employment without Good Reason during the Initial Period, this Agreement shall
terminate without further obligations to the Executive other than the obligation
to pay or provide to the Executive (w) his Annual Base Salary through the Date
of Termination, (x) the Retirement Benefit (at the rate of $800,000 per annum
until the Executive's 70th birthday), (y) provision of Medical Benefits to the
Executive and his current spouse for the remainder of the Employment Period, and
(z) Other Benefits, in each case to the extent theretofore unpaid, and any
unvested portion of the Initial Option shall terminate unless otherwise provided
by the Board or the applicable committee thereof.
(e) AFTER INITIAL PERIOD. If the Executive's employment
shall terminate for any reason following the Initial Period, the Company shall
provide (x) the Medical Benefits to the Executive and his current spouse for the
remainder of the Employment Period, (y) the Retirement Benefit, which until the
Executive's 70th birthday, shall be at the rate of $800,000 per annum and (z)
Other Benefits, to the extent theretofore unpaid.
6. NON-EXCLUSIVITY OF RIGHTS. Except as specifically provided,
nothing in this Agreement shall prevent or limit the Executive's continuing or
future participation in any plan, program, policy or practice provided by the
Company or any of its affiliated companies and for which the Executive may
qualify, nor, subject to Section 11(f), shall anything herein limit or otherwise
affect such rights as the Executive may have under any contract or agreement
with the Company or any of its affiliated companies. Amounts which are vested
benefits or which the Executive is otherwise entitled to receive under any plan,
policy, practice or program of or any contract or agreement with the Company or
any of its affiliated companies at or subsequent to the Date of Termination
shall be payable in accordance with such plan, policy, practice or program or
contract or agreement except as explicitly modified by this Agreement.
7. FULL SETTLEMENT. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to
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the Executive under any of the provisions of this Agreement and, such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) by the Company, the Executive or
others of the validity or enforceability of, or liability under, any provision
of this Agreement or any guarantee of performance thereof (including as a result
of any contest by the Executive about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code
of 1986, as amended (the "Code").
8. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment, award,
benefit or distribution by the Company (or any of its affiliated entities) to or
for the benefit of the Executive (whether pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 8) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any corresponding provisions of state or
local tax laws, or any interest or penalties are incurred by the Executive with
respect to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments. The payment of a Gross-Up Payment under this Section
8(a) shall not be conditioned upon the Executive's termination of employment.
Notwithstanding the foregoing provisions of this Section 8(a), if it shall be
determined that the Executive is entitled to a Gross-Up Payment, but that the
portion of the Payments that would be treated as "parachute payments" under
Section 280G of the Code does not exceed 110% of the greatest amount (the "Safe
Harbor Amount") that could be paid to the Executive such that the receipt of
Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall
be made to the Executive and the amounts payable under this Agreement shall be
reduced so that the Payments, in the aggregate, are reduced to the Safe Harbor
Amount. The reduction of the amounts payable hereunder, if applicable, shall be
made by first reducing the payments under Section 5(a)(i)(B), unless an
alternative method of reduction is elected by the Executive. For purposes of
reducing the Payments to the Safe Harbor Amount, only amounts payable under this
Agreement (and no other Payments) shall be reduced. If the reduction of the
amounts payable under this Agreement would not result in a reduction of the
Payments to the Safe Harbor Amount, no amounts payable under this Agreement
shall be reduced pursuant to this Section 8(a).
(b) Subject to the provisions of Section 8(c), all
determinations required to be made under this Section 8, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by KPMG Peat Marwick LLP or such other certified public accounting firm
reasonably acceptable to the Company as may be designated by the Executive (the
"Accounting Firm") which shall provide detailed supporting calculations both to
the Company and
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the Executive within 15 business days of the receipt of notice from the
Executive that there has been a Payment, or such earlier time as is requested by
the Company. All fees and expenses of the Accounting Firm shall be borne solely
by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8,
shall be paid by the Company to the Executive within five days of (i) the later
of the due date for the payment of any Excise Tax, and (ii) the receipt of the
Accounting Firm's determination. Any determination by the Accounting Firm shall
be binding upon the Company and the Executive. As a result of the uncertainty in
the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 8(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten business days after the Executive
is informed in writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably requested
by the Company relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 8(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings
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and conferences with the taxing authority in respect of such claim and may, at
its sole option, either direct the Executive to pay the tax claimed and sue for
a refund or contest the claim in any permissible manner, and the Executive
agrees to prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that if the Company
directs the Executive to pay such claim and sue for a refund, the Company shall
advance the amount of such payment to the Executive, on an interest-free basis
and shall indemnify and hold the Executive harmless, on an after-tax basis, from
any Excise Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and further provided that any extension of
the statute of limitations relating to payment of taxes for the taxable year of
the Executive with respect to which such contested amount is claimed to be due
is limited solely to such contested amount. Furthermore, the Company's control
of the contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Executive shall be entitled to settle
or contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 8(c), the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 8(c)) promptly pay
to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 8(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
9. CONFIDENTIAL INFORMATION. (a) The Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process, communicate or
divulge any such information, knowledge or data to anyone other than the Company
and those designated by it.
(b) In the event of a breach or threatened breach of this
Section 9, the Executive agrees that the Company shall be entitled to injunctive
relief in a court of appropriate jurisdiction to remedy any such breach or
threatened breach, the Executive acknowledges that damages would be inadequate
and insufficient. In no event shall an asserted violation of the provisions of
this Section 9 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
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10. SUCCESSORS. (a) This Agreement is personal to the
Executive and without the prior written consent of the Company shall not be
assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
11. MISCELLANEOUS. (a) This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
<TABLE>
<S> <C>
IF TO THE EXECUTIVE: The most recent address on
file for the Executive at First Security
IF TO THE COMPANY:
Attention: General Counsel
</TABLE>
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under
this Agreement such Federal, state, local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
-11-
<PAGE>
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provision of this Agreement or the failure to assert
any right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 4(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
(f) From and after the Effective Date this Agreement shall
supersede any other employment, severance or change of control agreement between
the parties with respect to the subject matter hereof, including the Change of
Control Employment Agreement between the Company and the Executive dated
February 2, 1998, except as expressly provided herein.
(g) This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
-12-
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization from its Board of Directors,
the Company has caused these presents to be executed in its name on its behalf,
all as of the day and year first above written.
/s/ SPENCER F. ECCLES
--------------------------------------
SPENCER F. ECCLES
WELLS FARGO & COMPANY
/s/ RICHARD M. KOVACEVICH
--------------------------------------
Name: Richard M. Kovacevich
Title: President and CEO
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.AA
<SEQUENCE>5
<FILENAME>a2040410zex-10_aa.txt
<DESCRIPTION>EXHIBIT 10(AA)
<TEXT>
<PAGE>
EXHIBIT 10(AA)
DESCRIPTION OF SUPPLEMENTAL PENSION ARRANGEMENT FOR C. WEBB EDWARDS
Under an agreement made in 1995 at the time he was employed by the former
Norwest Corporation, C. Webb Edwards is entitled to a supplemental annual
retirement benefit provided he remains an employee of Wells Fargo & Company
until he reaches the age of 55. To determine the amount of this benefit, the
Company first will calculate a hypothetical annual retirement benefit assuming
Mr. Edwards had been employed by the Company since July 23, 1984. The Company
will calculate this hypothetical amount under the Company's Cash Balance and
Supplemental Cash Balance Plans and, alternatively, under the Norwest
Corporation Pension and Norwest Corporation Supplemental Pension Plans, using
the greater of the two amounts as the hypothetical annual retirement benefit for
purposes of determining Mr. Edward's supplemental annual retirement benefit. The
Company then will subtract from the hypothetical annual retirement benefit (1)
the actual combined annual retirement benefit Mr. Edwards will receive under the
Company's Cash Balance and Supplemental Cash Balance Plans, and (2) the amount
by which the annuitized value of Mr. Edward's combined balances in the Company's
401(k) and Supplemental 401(k) Plans exceeds the annuitized value of a
hypothetical combined account balance under the First Interstate Bancorp 401(k)
and Supplemental 401(k) Plans. The Company will calculate the annuitized value
of Mr. Edward's combined balances in the Company's 401(k) and Supplemental
401(k) Plans using the 1983 Group Annuity Mortality table for a male of Mr.
Edward's age at retirement and seven percent interest. The Company will
calculate the annuitized value of a hypothetical combined account balance under
the First Interstate Bancorp 401(k) and Supplemental 401(k) Plans assuming that
Mr. Edwards had contributed six percent of his base salary with a 50% company
match beginning May 1, 1995 and using the 1983 Group Annuity Mortality table for
a male of Mr. Edward's age at retirement and seven percent interest.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.(FF)
<SEQUENCE>6
<FILENAME>a2040410zex-10_ff.txt
<DESCRIPTION>EXHIBIT 10(FF)
<TEXT>
<PAGE>
EXHIBIT 10(FF)
(1) AMENDMENT TO LONG-TERM INCENTIVE COMPENSATION PLAN:
RESOLVED that effective November 1, 2000, Section 2.1(g) of the
Company's Long-Term Incentive Compensation Plan is amended in its entirety to
read as follows:
(g) "Fair Market Value" as of any date means the immediately
preceding trading day's New York Stock Exchange-only closing
price of a share of Stock.
(2) AMENDMENT TO EMPLOYEES' STOCK DEFERRAL PLAN:
RESOLVED that effective November 1, 2000, the Employees' Stock Deferral
Plan is amended by deleting the phrase "the average of the high and low prices
per share of Common Stock reported on the consolidated tape of the New York
Stock Exchange" that appears in Sections 4, 5, 8 and 9, and substituting in
place thereof the phrase "the New York Stock Exchange-only closing price per
share of Common Stock ."
(3) AMENDMENT TO 1999 DIRECTORS STOCK OPTION PLAN:
RESOLVED that effective November 1, 2000, the definition of "Fair
Market Value" set forth in Section II of the Wells Fargo & Company 1999
Directors Stock Option Plan is amended in its entirety to read as follows:
Fair Market Value The New York Stock Exchange-only closing price
per share of the Common Stock for the trading day
immediately preceding the option grant date or
exercise date, as the case may be.
(4) AMENDMENT TO DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS:
RESOLVED that effective November 1, 2000, the Norwest Corporation
Deferred Compensation Plan for Non-Employee Directors is amended by deleting the
phrase "as reported on the consolidated tape of the New York Stock Exchange"
that appears in the last sentence of paragraph 5(d), in the last sentence of
paragraph 6(c) regarding payments on or after December 1, 1999, in the second to
the last sentence of paragraph 7(c), and in the last sentence of paragraph 7(e),
and substituting in place thereof the phrase "on the New York Stock Exchange
only."
1
<PAGE>
(5) AMEND DIRECTORS' STOCK DEFERRAL PLAN:
RESOLVED that effective November 1, 2000, the Norwest Corporation
Directors' Stock Deferral Plan is amended by deleting the phrase "as reported on
the consolidated tape of the New York Stock Exchange" that appears in the last
sentence of Section 4 and the fifth sentence of Section 9.b and by deleting the
phrase "reported on the consolidated tape of the New York Stock Exchange" that
appears in the last sentence of Sections 7 and 8 and the fourth sentence of
Section 9.b, and by substituting in place thereof the phrase "on the New York
Stock Exchange only."
(6) AMEND DIRECTORS' FORMULA STOCK AWARD PLAN:
RESOLVED that effective November 1, 2000, the Directors' Formula Stock
Award Plan is amended by deleting the phrase "the closing price per share of
Common Stock reported on the consolidated tape of the New York Stock Exchange"
which appears in the last sentence of Sections 7 and 8 and in the second to the
last sentence of Section 9, and substituting in place thereof the phrase "the
New York Stock Exchange-only closing price per share of Common Stock."
(7) AMEND 1999 DEFERRAL PLAN FOR DIRECTORS:
RESOLVED that effective November 1, 2000, the definition of "Fair
Market Value" set forth in Section II of the Wells Fargo & Company 1999 Deferral
Plan for Directors is amended in its entirety to read as follows:
Fair Market Value The New York Stock Exchange-only closing price per
share of the Common Stock as of the trading day
immediately preceding the transaction and/or grant
date.
(8) AMEND 1999 DIRECTORS FORMULA STOCK AWARD PLAN:
RESOLVED that effective November 1, 2000, Section 2e of the Wells Fargo
& Company 1999 Directors Formula Stock Award Plan is amended in its entirety to
read as follows:
e. VALUATION. The fair market value shall be determined using the New
York Stock Exchange-only closing price of a share of Common Stock for the
trading day immediately preceding the date as of which the determination is
made.
2
<PAGE>
(9) AMEND SUPPLEMENTAL 401(K) PLAN:
RESOLVED that effective November 1, 2000, the Wells Fargo & Company
Supplemental 401(k) Plan is amended by deleting the phrase "the closing price
per share of Company common stock reported on the consolidated tape of the New
York Stock Exchange" that appears in Sections 10(c) and 10(e), and substituting
in place thereof the phrase "the New York Stock Exchange-only closing price per
share of Company common stock."
3
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-12.(A)
<SEQUENCE>7
<FILENAME>a2040410zex-12_a.txt
<DESCRIPTION>EXHIBIT 12(A)
<TEXT>
<PAGE>
EXHIBIT 12(a)
WELLS FARGO & COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Year ended December 31,
-------------------------------------------------------------
(in millions) 2000 1999 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EARNINGS, INCLUDING INTEREST ON DEPOSITS (1):
Income before income tax expense $ 6,549 $ 6,350 $3,665 $ 4,521 $ 4,055
Fixed charges 8,022 5,943 5,935 5,736 5,301
-------- -------- ------ ------- -------
$ 14,571 $ 12,293 $9,600 $10,257 $ 9,356
======== ======== ====== ======= =======
Fixed charges (1):
Interest expense $ 7,860 $ 5,818 $5,782 $ 5,541 $ 5,104
Estimated interest component of net rental expense 162 125 153 195 197
-------- -------- ------ ------- -------
$ 8,022 $ 5,943 $5,935 $ 5,736 $ 5,301
======== ======== ====== ======= =======
Ratio of earnings to fixed charges (2) 1.82 2.07 1.62 1.79 1.76
======== ======== ====== ======= =======
EARNINGS EXCLUDING INTEREST ON DEPOSITS:
Income before income tax expense $ 6,549 $ 6,350 $3,665 $ 4,521 $ 4,055
Fixed charges 3,933 2,777 2,420 2,233 2,063
-------- -------- ------ ------- -------
$ 10,482 $ 9,127 $6,085 $ 6,754 $ 6,118
======== ======== ====== ======= =======
Fixed charges:
Interest expense $ 7,860 $ 5,818 $5,782 $ 5,541 $ 5,104
Less interest on deposits 4,089 3,166 3,515 3,503 3,238
Estimated interest component of net rental expense 162 125 153 195 197
-------- -------- ------ ------- -------
$ 3,933 $ 2,777 $2,420 $ 2,233 $ 2,063
======== ======== ====== ======= =======
Ratio of earnings to fixed charges (2) 2.67 3.29 2.51 3.02 2.97
======== ======== ====== ======= =======
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) As defined in Item 503(d) of Regulation S-K.
(2) These computations are included herein in compliance with Securities and
Exchange Commission regulations. However, management believes that fixed
charge ratios are not meaningful measures for the business of the Company
because of two factors. First, even if there were no change in net income,
the ratios would decline with an increase in the proportion of income which
is tax-exempt or, conversely, they would increase with a decrease in the
proportion of income which is tax-exempt. Second, even if there were no
change in net income, the ratios would decline if interest income and
interest expense increase by the same amount due to an increase in the
level of interest rates or, conversely, they would increase if interest
income and interest expense decrease by the same amount due to a decrease
in the level of interest rates.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-12.(B)
<SEQUENCE>8
<FILENAME>a2040410zex-12_b.txt
<DESCRIPTION>EXHIBIT 12(B)
<TEXT>
<PAGE>
EXHIBIT 12(b)
WELLS FARGO & COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
AND PREFERRED DIVIDENDS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
--------------------------------------------------------
(in millions) 2000 1999 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EARNINGS, INCLUDING INTEREST ON DEPOSITS (1):
Income before income tax expense $ 6,549 $ 6,350 $3,665 $ 4,521 $4,055
Fixed charges 8,022 5,943 5,935 5,736 5,301
------- ------- ------ ------- ------
$14,571 $12,293 $9,600 $10,257 $9,356
======= ======= ====== ======= ======
Preferred dividend requirement $ 17 $ 35 $ 35 $ 43 $ 85
Ratio of income before income tax expense to net income 1.63 1.59 1.69 1.68 1.69
------- ------- ------ ------- ------
Preferred dividends (2) $ 28 $ 56 $ 59 $ 72 $ 144
------- ------- ------ ------- ------
Fixed charges (1):
Interest expense 7,860 5,818 5,782 5,541 5,104
Estimated interest component of net rental expense 162 125 153 195 197
------- ------- ------ ------- ------
8,022 5,943 5,935 5,736 5,301
------- ------- ------ ------- ------
Fixed charges and preferred dividends $ 8,050 $ 5,999 $5,994 $ 5,808 $5,445
======= ======= ====== ======= ======
Ratio of earnings to fixed charges and preferred dividends (3) 1.81 2.05 1.60 1.77 1.72
======= ======= ====== ======= ======
EARNINGS EXCLUDING INTEREST ON DEPOSITS:
Income before income tax expense $ 6,549 $ 6,350 $3,665 $ 4,521 $4,055
Fixed charges 3,933 2,777 2,420 2,233 2,063
------- ------- ------ ------- ------
$10,482 $ 9,127 $6,085 $ 6,754 $6,118
======= ======= ====== ======= ======
Preferred dividends (2) $ 28 $ 56 $ 59 $ 72 $ 144
------- ------- ------ ------- ------
Fixed charges:
Interest expense 7,860 5,818 5,782 5,541 5,104
Less interest on deposits 4,089 3,166 3,515 3,503 3,238
Estimated interest component of net rental expense 162 125 153 195 197
------- ------- ------ ------- ------
3,933 2,777 2,420 2,233 2,063
------- ------- ------ ------- ------
Fixed charges and preferred dividends $ 3,961 $ 2,833 $2,479 $ 2,305 $2,207
======= ======= ====== ======= ======
Ratio of earnings to fixed charges and preferred dividends (3) 2.65 3.22 2.45 2.93 2.77
======= ======= ====== ======= =======
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) As defined in Item 503(d) of Regulation S-K.
(2) The preferred dividends were increased to amounts representing the pretax
earnings that would be required to cover such dividend requirements.
(3) These computations are included herein in compliance with Securities and
Exchange Commission regulations. However, management believes that fixed
charge ratios are not meaningful measures for the business of the Company
because of two factors. First, even if there was no change in net income,
the ratios would decline with an increase in the proportion of income which
is tax-exempt or, conversely, they would increase with a decrease in the
proportion of income which is tax-exempt. Second, even if there was no
change in net income, the ratios would decline if interest income and
interest expense increase by the same amount due to an increase in the
level of interest rates or, conversely, they would increase if interest
income and interest expense decrease by the same amount due to a decrease
in the level of interest rates.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>9
<FILENAME>a2040410zex-13.txt
<DESCRIPTION>EXHIBIT 13
<TEXT>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
FINANCIAL REVIEW
<S> <C>
Overview.............................................................................................. 34
Factors That May Affect Future Results................................................................ 36
Operating Segment Results............................................................................. 40
Earnings Performance.................................................................................. 40
Net Interest Income................................................................................ 40
Noninterest Income................................................................................. 43
Noninterest Expense................................................................................ 44
Earnings/Ratios Excluding Goodwill and Nonqualifying CDI........................................... 44
Balance Sheet Analysis................................................................................ 45
Securities Available for Sale...................................................................... 45
(table on page 63)
Loan Portfolio..................................................................................... 45
(table on page 64)
Nonaccrual and Restructured Loans and Other Assets................................................. 45
Allowance for Loan Losses.......................................................................... 47
(table on page 66)
Deposits........................................................................................... 48
Market Risk........................................................................................ 48
Derivative Financial Instruments................................................................... 49
Liquidity and Capital Management................................................................... 49
Comparison of 1999 to 1998............................................................................ 51
Additional Information................................................................................ 51
FINANCIAL STATEMENTS
Consolidated Statement of Income...................................................................... 52
Consolidated Balance Sheet............................................................................ 53
Consolidated Statement of Changes in Stockholders' Equity and Comprehensive Income.................... 54
Consolidated Statement of Cash Flows.................................................................. 55
Notes to Financial Statements......................................................................... 56
INDEPENDENT AUDITORS' REPORT................................................................................... 97
QUARTERLY FINANCIAL DATA....................................................................................... 98
</TABLE>
33
<PAGE>
FINANCIAL REVIEW
OVERVIEW
Wells Fargo & Company is a $272 billion diversified financial services company
providing banking, mortgage and consumer finance through stores, the Internet
and other distribution channels throughout North America, including all 50
states, and elsewhere internationally. It ranks fourth in assets at December 31,
2000 among U.S. bank holding companies. In this Annual Report, Wells Fargo &
Company and Subsidiaries is referred to as the Company and Wells Fargo & Company
alone is referred to as the Parent.
On October 25, 2000, the merger involving the Company and First Security
Corporation (the FSCO Merger) was completed, with First Security Corporation
(First Security or FSCO) surviving as a wholly owned subsidiary of the Company.
On November 2, 1998, the merger involving Norwest Corporation and the former
Wells Fargo & Company (the WFC Merger) was completed. The FSCO Merger and the
WFC Merger were accounted for under the pooling-of-interests method of
accounting and, accordingly, the information included in the financial review
presents the combined results as if the mergers had been in effect for all
periods presented.
Certain amounts in the financial review for prior years have been reclassified
to conform with the current financial statement presentation.
Net income in 2000 was $4,026 million, which included a loss of $220 million
(after tax) for First Security for the first three quarters of 2000 and First
Security related integration and conversion costs of $110 million (after tax) in
the fourth quarter, compared with $4,012 million in 1999. Diluted earnings per
common share were $2.33, compared with $2.29 in 1999, an increase of 2%.
Return on average assets (ROA) was 1.61% and return on average common equity
(ROE) was 16.31% in 2000, compared with 1.78% and 17.55%, respectively, in 1999.
Diluted earnings before the amortization of goodwill and nonqualifying core
deposit intangible ("cash" earnings) were $2.70 per share in 2000, compared with
$2.62 per share in 1999. On the same basis, ROA was 1.94% and ROE was 30.89% in
2000, compared with 2.13% and 32.85%, respectively, in 1999.
Net interest income on a taxable-equivalent basis was $10,930 million in 2000,
compared with $10,185 million a year ago. The Company's net interest margin was
5.35% for 2000, compared with 5.47% in 1999.
Noninterest income increased to $8,843 million in 2000 from $7,975 million in
1999, an increase of 11%, largely due to higher net venture capital gains,
increased trust and investment fees and service charges on deposit accounts,
primarily offset by net losses on sales of securities incurred in
restructuring the Company's securities available for sale portfolio and net
losses on sales of loans and securitizations associated with First Security
prior to the FSCO Merger.
Noninterest expense totaled $11,830 million in 2000, compared with $10,637
million in 1999, an increase of 11%. The increase was primarily due to
integration and conversion costs related to the WFC Merger, the FSCO Merger and
other acquisitions.
The provision for loan losses was $1,329 million in 2000, compared with $1,104
million in 1999. During 2000, net charge-offs were $1,219 million, or .84% of
average total loans, compared with $1,115 million, or .90%, during 1999. The
allowance for loan losses was $3,719 million, or 2.31% of total loans, at
December 31, 2000, compared with $3,344 million, or 2.51%, at December 31, 1999.
At December 31, 2000, total nonaccrual and restructured loans were $1,195
million, or .7% of total loans, compared with $728 million, or .5%, at December
31, 1999. Foreclosed assets were $128 million at December 31, 2000, compared
with $161 million at December 31, 1999.
The ratio of common stockholders' equity to total assets was 9.63% at December
31, 2000 and 9.79% at December 31, 1999. The Company's total risk-based capital
(RBC) ratio at December 31, 2000 was 10.43% and its Tier 1 RBC ratio was 7.29%,
exceeding the minimum regulatory guidelines of 8% and 4%, respectively, for bank
holding companies. The Company's RBC ratios at December 31, 1999 were 10.93% and
8.00%, respectively. The Company's leverage ratios were 6.49% and 6.76% at
December 31, 2000 and 1999, respectively, exceeding the minimum regulatory
guideline of 3% for bank holding companies.
34
<PAGE>
Recent Accounting Standards
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
No. 133 (FAS 133), ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES.
In July 1999, the FASB issued Statement No. 137, DEFERRAL OF THE EFFECTIVE DATE
OF FASB STATEMENT NO. 133, which deferred the effective date of FAS 133 to no
later than January 1, 2001 for the Company's financial statements. In June 2000,
the FASB issued Statement No. 138, ACCOUNTING FOR CERTAIN DERIVATIVE INSTRUMENTS
AND CERTAIN HEDGING ACTIVITIES, an amendment of FASB Statement No. 133. FAS 133
requires companies to record derivatives on the balance sheet at fair value.
Changes in the fair values of those derivatives would be reported in earnings or
other comprehensive income depending on the use of the derivative and whether it
qualifies for hedge accounting. The key criterion for hedge accounting is that
the hedging relationship must be highly effective in achieving offsetting
changes between the fair value of assets or liabilities or cash flows from
forecasted transactions and the hedging instrument.
The Company adopted FAS 133 on January 1, 2001. The effect on net income from
the adoption of FAS 133 was an increase of $13 million (after tax). In
accordance with the transition provisions of FAS 133, the Company recorded a
transition adjustment of $71 million, net of tax, (increase in equity) in
other comprehensive income in a manner similar to a cumulative effect of a
change in accounting principle. The transition adjustment was the initial
amount necessary to adjust the carrying values of certain derivative
instruments (that qualified as cash flow hedges) to fair value to the extent
that the related hedged transactions had not yet been recognized.
In September 2000, the FASB issued Statement No. 140 (FAS 140), ACCOUNTING FOR
THE TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF
LIABILITIES, which replaces FAS 125 (of the same title). FAS 140 revises certain
standards in the accounting for securitizations and other transfers of financial
assets and collateral, and requires some disclosures relating to securitization
transactions and collateral, but it carries over most of FAS 125's provisions.
The collateral and disclosure provisions of FAS 140 are effective for year-end
2000 financial statements. The other provisions of this Statement are effective
for transfers and servicing of financial assets and extinguishments of
liabilities occurring after March 31, 2001; the Company does not expect that the
impact of the revised provisions will have a material effect on the Company's
financial results.
Table 1
<TABLE>
<CAPTION>
RATIOS AND PER COMMON SHARE DATA
- ---------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------
($ in millions, except per share amounts) 2000 1999 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PROFITABILITY RATIOS
Net income to average total assets (ROA) 1.61% 1.78% 1.06%
Net income applicable to common stock
to average common stockholders' equity (ROE) 16.31 17.55 10.26
Net income to average stockholders' equity 16.20 17.35 10.20
EFFICIENCY RATIO (1) 60.0% 58.8% 68.2%
NET INCOME AND RATIOS EXCLUDING
GOODWILL AND NONQUALIFYING CORE DEPOSIT
INTANGIBLE (CDI) AMORTIZATION AND BALANCES
("CASH") (2)
Net income applicable to common stock $4,646 $4,551 $2,716
Earnings per common share 2.73 2.66 1.61
Diluted earnings per common share 2.70 2.62 1.59
ROA 1.94% 2.13% 1.39%
ROE 30.89 32.85 21.90
Efficiency ratio 56.5 55.2 64.3
CAPITAL RATIOS
At year end:
Common stockholders' equity to assets 9.63% 9.79% 9.76%
Stockholders' equity to assets 9.72 9.90 9.96
Risk-based capital (3)
Tier 1 capital 7.29 8.00 7.99
Total capital 10.43 10.93 10.78
Leverage (3) 6.49 6.76 6.58
Average balances:
Common stockholders' equity to assets 9.83 10.07 10.12
Stockholders' equity to assets 9.93 10.27 10.35
PER COMMON SHARE DATA
Dividend payout (4) 38.14% 33.83% 54.81%
Book value $15.29 $13.91 $12.79
Market prices (5):
High $56.38 $49.94 $43.88
Low 31.00 32.13 27.50
Year end 55.69 40.44 39.94
- ---------------------------------------------------------------------------------------------
</TABLE>
(1) The efficiency ratio is defined as noninterest expense divided by total
revenue (net interest income and noninterest income).
(2) Nonqualifying core deposit intangible (acquired after regulatory rule
changes in 1992) amortization and average balance excluded from these
calculations are, with the exception of the efficiency and ROA ratios,
net of applicable taxes. The pretax amount for the average balance of
nonqualifying CDI was $1,182 million for the year ended December 31,
2000. The after-tax amounts for the amortization and average balance of
nonqualifying CDI were $107 million and $733 million, respectively, for
the year ended December 31, 2000. Goodwill amortization and average
balance (which are not tax effected) were $530 million and $8,811
million, respectively, for the year ended December 31, 2000. See page
44 for additional information.
(3) See Note 22 to Financial Statements for additional information.
(4) Dividends declared per common share as a percentage of earnings per
common share.
(5) Based on daily prices reported on the New York Stock Exchange Composite
Transaction Reporting System.
35
<PAGE>
Table 2
<TABLE>
<CAPTION>
SIX-YEAR SUMMARY OF SELECTED FINANCIAL DATA
- ---------------------------------------------------------------------------------------------------------------------------
% CHANGE FIVE-YEAR
(in millions, 2000/ COMPOUND
except per share amounts) 2000 1999 1998 1997 1996 1995 1999 GROWTH RATE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
Net interest income $ 10,865 $ 10,116 $ 9,673 $ 9,258 $ 8,776 $ 6,427 7% 11%
Provision for loan losses 1,329 1,104 1,617 1,203 541 335 20 32
Noninterest income 8,843 7,975 6,920 6,046 5,075 3,450 11 21
Noninterest expense 11,830 10,637 11,311 9,580 9,256 6,143 11 14
Net income 4,026 4,012 2,191 2,712 2,411 2,114 -- 14
Earnings per common share $ 2.36 $ 2.32 $ 1.28 $ 1.57 $ 1.44 $ 1.68 2 7
Diluted earnings
per common share 2.33 2.29 1.26 1.55 1.42 1.64 2 7
Dividends declared
per common share .90 .785 .70 .615 .525 .45 15 15
BALANCE SHEET
(at year end)
Securities available for sale $ 38,655 $ 43,911 $ 36,660 $ 32,151 $ 33,077 $ 26,897 (12)% 8%
Loans 161,124 133,004 119,662 116,435 115,119 79,126 21 15
Allowance for loan losses 3,719 3,344 3,307 3,220 3,202 2,846 11 5
Goodwill 9,303 8,046 7,889 8,237 8,307 1,365 16 47
Assets 272,426 241,053 224,135 203,819 204,075 135,716 13 15
Core deposits 156,710 138,247 144,179 133,051 137,409 85,801 13 13
Long-term debt 32,046 26,866 22,662 18,820 18,936 17,447 19 13
Guaranteed preferred beneficial
interests in Company's
subordinated debentures 935 935 935 1,449 1,300 -- -- --
Common stockholders' equity 26,221 23,600 21,869 20,700 20,466 9,518 11 22
Stockholders' equity 26,488 23,871 22,332 21,164 21,256 10,310 11 21
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
FACTORS THAT MAY AFFECT FUTURE RESULTS
We may make forward-looking statements in this report and in other reports and
proxy statements filed with the Securities and Exchange Commission (SEC). In
addition, our senior management may make forward-looking statements orally to
analysts, investors, the media and others. Written and oral forward-looking
statements might include:
- - projections of revenues, income, earnings per share, capital expenditures,
dividends, capital structure or other financial items;
- - descriptions of plans or objectives of management for future operations,
products or services, including pending acquisitions;
- - forecasts of future economic performance; and
- - descriptions of assumptions underlying or relating to any of the foregoing.
Forward-looking statements discuss matters that are not facts and often include
"believe," "expect," "anticipate," "intend," "plan," "estimate," "will," "can,"
"would," "should," "could" or "may." You should not unduly rely on
forward-looking statements. They give our expectations about the future and are
not guarantees. Forward-looking statements speak only as of the date they are
made, and we do not undertake any obligation to update them to reflect changes
that occur after the date they are made.
There are several factors--many of which are beyond our control--that could
cause results to differ significantly from expectations. Some of these factors
are described below. Other factors, such as credit, market, operational,
liquidity, interest rate and other risks, are described elsewhere in this report
(see, for example, "Financial Review - Balance Sheet Analysis"). Factors
relating to the regulation and supervision of the holding company and its
subsidiaries are also described in our report on Form 10-K for the year ended
December 31, 2000. There are factors other than those described in this report
or in our Form 10-K that could cause results to differ from expectations. Any
factor described in this report or in our Form 10-K could by itself, or together
with one or more other factors, adversely affect our business, earnings and/or
financial condition.
36
<PAGE>
INDUSTRY FACTORS
AS A FINANCIAL SERVICES COMPANY, OUR EARNINGS ARE SIGNIFICANTLY AFFECTED BY
GENERAL BUSINESS AND ECONOMIC CONDITIONS.
Our business and earnings are sensitive to general business and economic
conditions in the United States and abroad. These conditions include short-term
and long-term interest rates, inflation, monetary supply, fluctuations in both
debt and equity capital markets, and the strength of the U.S. economy and the
local economies in which we operate. For example, an economic downturn or higher
interest rates could decrease the demand for loans and other products and
services and/or increase the number of customers who fail to repay their loans.
Higher interest rates also could increase our cost to borrow funds and increase
the rate we pay on deposits. This could more than offset, in the net interest
margin, any increase we earn on new or floating rate loans or short-term
investments. We discuss many of these business and economic conditions in more
detail elsewhere in this report.
OUR EARNINGS ALSO ARE SIGNIFICANTLY AFFECTED BY THE FISCAL AND MONETARY POLICIES
OF THE FEDERAL GOVERNMENT AND ITS AGENCIES.
The policies of the Board of Governors of the Federal Reserve System impact
us significantly. The Federal Reserve Board regulates the supply of money and
credit in the United States. Its policies directly and indirectly influence
the rate of interest paid on interest-bearing deposits and can also affect
the value of financial instruments we hold. Those policies determine to a
significant extent our cost of funds for lending and investing. Changes in
those policies are beyond our control and are hard to predict. Federal
Reserve Board policies can affect our borrowers, potentially increasing the
risk that they may fail to repay their loans. For example, a tightening of
the money supply by the Federal Reserve Board could reduce the demand for a
borrower's products and services. This could adversely affect the borrower's
earnings and ability to repay its loan.
THE FINANCIAL SERVICES INDUSTRY IS HIGHLY COMPETITIVE.
We operate in a highly competitive environment in the products and services we
offer and the markets in which we operate. The competition among financial
services companies to attract and retain customers is intense. Customer loyalty
can be easily influenced by a competitor's new products, especially offerings
that provide cost savings to the customer. Some of our competitors may be better
able to provide a wider range of products and services over a greater geographic
area.
We believe the financial services industry will become even more competitive as
a result of legislative, regulatory and technological changes and the continued
consolidation of the industry. Technology has lowered barriers to entry and made
it possible for non-banks to offer products and services traditionally provided
by banks, such as automatic transfer and automatic payment systems. Also,
investment banks and insurance companies are competing in more banking
businesses such as syndicated lending and consumer banking. Many of our
competitors have fewer regulatory constraints and lower cost structures. We
expect the consolidation of the financial services industry to result in larger,
better capitalized companies offering a wide array of financial services and
products.
The Gramm-Leach-Bliley Act (the Act) permits banks, securities firms and
insurance companies to merge by creating a new type of financial services
company called a "financial holding company." Financial holding companies can
offer virtually any type of financial service, including banking, securities
underwriting, insurance (both agency and underwriting) and merchant banking.
Under the Act, securities firms and insurance companies that elect to become a
financial holding company can acquire banks and other financial institutions.
The Act significantly changes our competitive environment.
37
<PAGE>
WE ARE HEAVILY REGULATED BY FEDERAL AND STATE AGENCIES.
The holding company, its subsidiary banks and many of its non-bank
subsidiaries are heavily regulated at the federal and state levels. This
regulation is to protect depositors, federal deposit insurance funds and the
banking system as a whole, not security holders. Congress and state
legislatures and federal and state regulatory agencies continually review
banking laws, regulations and policies for possible changes. Changes to
statutes, regulations or regulatory policies, including changes in
interpretation or implementation of statutes, regulations or policies, could
affect us in substantial and unpredictable ways including limiting the types
of financial services and products we may offer and/or increasing the ability
of non-banks to offer competing financial services and products. Also, our
failure to comply with laws, regulations or policies could result in
sanctions by regulatory agencies and damage to our reputation. For more
information, refer to Notes 3 and 22 to the Financial Statements in this
report and to the "Regulation and Supervision" section of our report on Form
10-K for the year ended December 31, 2000.
CONSUMERS MAY DECIDE NOT TO USE BANKS TO COMPLETE THEIR FINANCIAL TRANSACTIONS.
Technology and other changes are allowing parties to complete financial
transactions that historically have involved banks at one or both ends of the
transaction. For example, consumers can now pay bills and transfer funds
directly without banks. The process of eliminating banks as intermediaries,
known as "disintermediation," could result in the loss of fee income, as well as
the loss of customer deposits and income generated from those deposits.
COMPANY FACTORS
MAINTAINING OR INCREASING OUR MARKET SHARE DEPENDS ON MARKET ACCEPTANCE AND
REGULATORY APPROVAL OF NEW PRODUCTS AND SERVICES.
Our success depends, in part, on our ability to adapt our products and services
to evolving industry standards. There is increasing pressure on financial
services companies to provide products and services at lower prices. This can
reduce our net interest margin and revenues from our fee-based products and
services. In addition, the widespread adoption of new technologies, including
Internet-based services, could require us to make substantial expenditures to
modify or adapt our existing products and services. We may not successfully
introduce new products and services, achieve market acceptance of our products
and services, and/or develop and maintain loyal customers.
THE HOLDING COMPANY RELIES ON DIVIDENDS FROM ITS SUBSIDIARIES FOR MOST OF ITS
REVENUE.
The holding company is a separate and distinct legal entity from its
subsidiaries. It receives substantially all of its revenue from dividends from
its subsidiaries. These dividends are the principal source of funds to pay
dividends on the holding company's common and preferred stock and interest on
its debt. The payment of dividends by a subsidiary is subject to federal law
restrictions as well as to the laws of the subsidiary's state of incorporation.
Also, the holding company's right to participate in a distribution of assets
upon a subsidiary's liquidation or reorganization is subject to the prior claims
of the subsidiary's creditors. For more information, refer to "Regulation and
Supervision--Dividend Restrictions" and "--Holding Company Structure" in our
report on Form 10-K for the year ended December 31, 2000.
38
<PAGE>
WE HAVE BUSINESSES OTHER THAN BANKING.
We are a diversified financial services company. In addition to banking, we
provide insurance, investments, mortgages and consumer finance. Although we
believe our diversity helps mitigate the impact to the Company when downturns
affect any one segment of our industry, it also means that our earnings could
be subject to different risks and uncertainties. For example, our venture
capital earnings can be volatile and unpredictable. They depend not only on
the business success of the underlying investments but also on when the
holdings become publicly-traded and subsequent market conditions. A downturn
in the stock market--in particular the market for technology stocks--could
reduce our venture capital earnings.
The home mortgage industry is subject to special interest rate risks. Loan
origination fees and loan servicing fees account for a significant portion of
mortgage-related revenues. Changes in interest rates can impact both types of
fees. For example, all things being equal, we would expect a decline in mortgage
rates to increase the demand for mortgage loans as borrowers refinance existing
loans at lower interest rates. When portions of our servicing portfolio pay off,
however, we experience lower revenues from our servicing investments unless we
add new loans to our servicing portfolio to replace the loans that have been
paid off. Conversely, in a constant or increasing rate environment, we would
expect fewer loans to be refinanced and fewer early payoffs of our servicing
portfolio. We manage the impact of interest rate changes on the dynamic between
loan origination revenues and loan servicing revenues with derivative financial
instruments and other asset/liability management tools. How well we manage this
risk impacts our mortgage-related revenues. For more information, refer to
"Balance Sheet Analysis" later in this report.
WE HAVE AN ACTIVE ACQUISITION PROGRAM.
We regularly explore opportunities to acquire financial institutions and other
financial services providers. We cannot predict the number, size or timing of
future acquisitions. We typically do not publicly comment on a possible
acquisition or business combination until we have signed a definitive agreement
for the transaction.
Our ability to successfully complete an acquisition generally is subject to some
type of regulatory approval, and we cannot be certain when or if, or on what
terms and conditions, any required regulatory approvals will be granted. We
typically can decide not to complete a proposed acquisition or business
combination if we believe any condition under which a regulatory approval has
been granted is unreasonably burdensome to us.
Difficulty in integrating an acquired company may cause us not to realize
expected revenue increases, cost savings, increases in geographic or product
presence, and/or other projected benefits from the acquisition. Specifically,
the integration process could result in higher than expected deposit attrition
(run-off), loss of key employees, the disruption of our business or the business
of the acquired company, or otherwise adversely affect our ability to maintain
relationships with clients and employees or achieve the anticipated benefits of
the acquisition.
OUR BUSINESS COULD SUFFER IF WE FAIL TO ATTRACT AND RETAIN SKILLED PEOPLE.
Our success depends, in part, on our ability to attract and retain key people.
Competition for the best people--in particular individuals with technology
experience--is intense. We may not be able to hire people or pay them enough to
keep them.
OUR STOCK PRICE CAN BE VOLATILE.
Our stock price can fluctuate widely in response to a variety of factors
including:
- - actual or anticipated variations in our quarterly operating results;
- - new technology or services by our competitors;
- - significant acquisitions or business combinations, strategic partnerships,
joint ventures or capital commitments by or involving us or our competitors;
- - failure to integrate our acquisitions or realize anticipated benefits from our
acquisitions; or
- - changes in government regulations.
General market fluctuations, industry factors and general economic and political
conditions, such as economic slowdowns or recessions, interest rate changes,
credit loss trends or currency fluctuations, also could cause our stock price to
decrease regardless of our operating results.
39
<PAGE>
OPERATING SEGMENT RESULTS
COMMUNITY BANKING'S net income was $2,911 million in 2000, compared with $2,978
million in 1999, a decrease of 2%. Net interest income increased by $430
million, or 6%, compared with 1999. The provision for loan losses increased by
$171 million from 1999. Noninterest income was up by $718 million in 2000, or
14%, compared with 1999. The increase was due to venture capital gains,
partially offset by losses on securities available for sale due to the
restructuring of the portfolio, write-downs of auto lease residuals and net
losses on sales of loans that were incurred by First Security prior to the FSCO
Merger. Noninterest expense increased by $901 million over 1999 due to
integration charges associated with the WFC Merger, the FSCO Merger and other
acquisitions, as well as expenditures related to online banking enhancements.
The increase in tax expense relates to the accrual of deferred taxes of $36
million on undistributed earnings of a foreign subsidiary that the Company now
intends to repatriate.
WHOLESALE BANKING'S net income was $892 million in 2000, compared with $841
million in 1999, an increase of 6%. Net interest income increased $274 million,
or 20%, from 1999, due to growth in loan volumes. Commercial loan balances
increased $6 billion, or 17%, from 1999. Noninterest income increased by $32
million, or 3%, compared with 1999, predominantly due to increased institutional
trust and investment fees, foreign exchange and other fees. Noninterest expense
increased by $209 million, or 18%, compared with 1999 partially due to
integration activities and costs associated with increased sales volume.
WELLS FARGO HOME MORTGAGE (formerly Norwest Mortgage) earned $310 million in
2000, a 17% increase over the $266 million earned in 1999. Mortgage originations
were $67 billion in 2000, compared with $82 billion in 1999. The percentage of
originations attributed to mortgage loan refinancings was approximately 14% in
2000, compared with 37% in 1999. The managed servicing portfolio increased to
$453 billion at December 31, 2000 from $282 billion at December 31, 1999. During
2000, Wells Fargo Home Mortgage entered into an agreement to subservice GE
Capital Mortgage Services' $84 billion mortgage portfolio and acquired the
servicing rights to a $35 billion portion of First Union Mortgage Corporation's
servicing portfolio. The weighted average coupon of loans in the owned servicing
portfolio was 7.52% at December 31, 2000, compared with 7.33% a year earlier.
Total capitalized mortgage servicing rights were $5.6 billion, or 1.5% of the
owned servicing portfolio, at December 31, 2000. Amortization of capitalized
mortgage servicing rights was $537 million in 2000, compared with $683 million
in 1999. The decrease in amortization in 2000 compared with 1999 was due
primarily to slower prepayment activity. Combined gains on sales of mortgages
and servicing rights were $127 million in 2000, compared with $186 million in
1999.
WELLS FARGO FINANCIAL (formerly Norwest Financial) reported net income of $258
million in 2000, compared with $243 million in 1999, an increase of 6%. Net
interest income increased by 8% from 1999, due to growth in average loans. The
provision for loan losses was $328 million in 2000, compared with $288 million
in 1999, an increase of 14%. The increase was substantially due to the provision
for a credit card portfolio acquired in 2000.
EARNINGS PERFORMANCE
NET INTEREST INCOME
Net interest income is the difference between interest income (which includes
yield-related loan fees) and interest expense. Net interest income on a
taxable-equivalent basis was $10,930 million in 2000, compared with $10,185
million in 1999.
Net interest income on a taxable-equivalent basis expressed as a percentage of
average total earning assets is referred to as the net interest margin, which
represents the average net effective yield on earning assets. For 2000, the net
interest margin was 5.35%, compared with 5.47% in 1999. The decrease was mostly
due to the impact of funding strong loan growth with higher costing short- and
long-term borrowings, partially offset by improved yields within the investment
securities portfolio from the restructuring that occurred during the fourth
quarter of 1999 and the first nine months of 2000.
Table 4 presents the individual components of net interest income and the net
interest margin.
Interest income was reduced by hedging expense of $50 million in 2000, compared
with hedging income of $171 million in 1999. Interest expense included hedging
expense of $32 million in 2000, compared with hedging income of $105 million in
1999.
40
<PAGE>
NONINTEREST INCOME
Table 3 shows the major components of noninterest income.
Table 3
<TABLE>
<CAPTION>
NONINTEREST INCOME
- -------------------------------------------------------------------------------------------------------------------
% Change
Year Ended December 31, ----------------
--------------------------------------- 2000/ 1999/
(in millions) 2000 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Service charges on deposit accounts $1,704 $1,580 $1,448 8% 9%
Trust and investment fees:
Asset management and custody fees 735 784 706 (6) 11
Mutual fund and annuity sales fees 763 472 308 62 53
All other 126 110 102 15 8
------ ------ ------
Total trust and investment fees 1,624 1,366 1,116 19 22
Credit card fees 563 570 573 (1) (1)
Other fees:
Cash network fees 303 285 238 6 20
Charges and fees on loans 347 314 290 11 8
All other 621 495 461 25 7
------ ------ ------
Total other fees 1,271 1,094 989 16 11
Mortgage banking:
Origination and other closing fees 350 406 557 (14) (27)
Servicing fees, net of amortization 665 404 15 65 --
Net gains on sales of mortgage
servicing rights 159 193 227 (18) (15)
Net gains on sales of mortgages 38 117 182 (68) (36)
All other 232 287 308 (19) (7)
------ ------ ------
Total mortgage banking 1,444 1,407 1,289 3 9
Insurance 411 395 358 4 10
Net venture capital gains 1,943 1,008 113 93 792
Net (losses) gains on
securities available for sale (722) (228) 177 217 --
Income from equity investments
accounted for by the:
Cost method 170 138 151 23 (9)
Equity method 94 81 42 16 93
Net (losses) gains on sales of loans (134) 68 94 -- (28)
Net gains on dispositions of operations 23 107 100 (79) 7
All other 452 389 470 16 (17)
------ ------ ------
Total $8,843 $7,975 $6,920 11% 15%
====== ====== ====== === ===
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The increase in trust and investment fees for 2000 was due to overall growth
in mutual fund assets. The Company managed mutual funds with $69 billion of
assets at December 31, 2000, compared with $61 billion at December 31, 1999.
The Company also managed or maintained personal trust, employee benefit trust
and agency assets of approximately $432 billion and $378 billion at December
31, 2000 and 1999, respectively.
The increase in net venture capital gains was due to net gains (including
write-downs for other-than-temporary impairment of marketable and nonmarketable
securities) on various venture capital securities, including a $560 million gain
that was recognized on the Company's investment in Siara Systems, Inc. Gains
from venture capital securities are generally dependent on the timing of
holdings becoming publicly traded and subsequent market conditions, causing
venture capital gains to be unpredictable in nature.
The net losses on securities available for sale were predominantly due to the
restructuring of the portfolio during the first nine months of 2000.
"All other" noninterest income included writedowns of auto lease residuals of
about $177 million due to continued deterioration in the used auto market,
compared with $36 million in 1999. In the third quarter of 2000, the Company
obtained a residual loss insurance policy that will cover substantially all
additional declines in residual values in the forseeable future for the auto
lease portfolio as of June 30, 2000.
Net losses on sales of loans were due to sales of loans and securitizations by
First Security prior to the FSCO Merger.
41
<PAGE>
Table 4
<TABLE>
<CAPTION>
AVERAGE BALANCES, YIELDS AND RATES PAID (TAXABLE-EQUIVALENT BASIS) (1)(2)
- -----------------------------------------------------------------------------------------------------------------------------------
2000 1999
---------------------------------- ---------------------------------
INTEREST Interest
AVERAGE YIELDS/ INCOME/ Average Yields/ income/
(in millions) BALANCE RATES EXPENSE balance rates expense
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Federal funds sold and securities purchased
under resale agreements $ 2,370 6.01% $ 143 $ 1,673 5.11% $ 86
Debt securities available for sale (3):
Securities of U.S. Treasury and federal agencies 3,322 6.16 210 6,124 5.51 348
Securities of U.S. states and political subdivisions 2,080 7.74 162 2,119 8.12 168
Mortgage-backed securities:
Federal agencies 26,054 7.22 1,903 23,542 6.77 1,599
Private collateralized mortgage obligations 2,379 7.61 187 3,945 6.77 270
-------- ------- -------- -------
Total mortgage-backed securities 28,433 7.25 2,090 27,487 6.77 1,869
Other debt securities (4) 5,049 7.93 261 3,519 7.49 209
-------- ------- -------- -------
Total debt securities available for sale (4) 38,884 7.24 2,723 39,249 6.69 2,594
Mortgages held for sale (3) 10,725 7.85 849 13,559 6.96 951
Loans held for sale (3) 4,915 8.50 418 5,154 7.31 377
Loans:
Commercial 45,352 9.40 4,263 38,932 8.66 3,370
Real estate 1-4 family first mortgage 16,356 7.95 1,300 13,315 7.78 1,036
Other real estate mortgage 22,509 8.99 2,023 18,822 8.74 1,645
Real estate construction 6,934 10.02 695 5,260 9.56 503
Consumer:
Real estate 1-4 family junior lien mortgage 15,292 10.43 1,595 11,656 9.96 1,161
Credit card 5,867 14.58 856 5,686 13.77 783
Other revolving credit and monthly payment 21,824 12.06 2,631 19,561 11.88 2,324
-------- ------- -------- -------
Total consumer 42,983 11.82 5,082 36,903 11.57 4,268
Lease financing 9,822 7.66 752 8,852 7.81 691
Foreign 1,621 21.15 343 1,554 20.65 321
-------- ------- -------- -------
Total loans (5)(6) 145,577 9.93 14,458 123,638 9.57 11,834
Other 3,206 6.21 199 3,252 5.01 162
-------- ------- -------- -------
Total earning assets $205,677 9.19 18,790 $186,525 8.60 16,004
======== ------- ======== -------
FUNDING SOURCES
Deposits:
Interest-bearing checking $ 3,424 1.88 64 $ 3,120 .99 31
Market rate and other savings 63,577 2.81 1,786 60,901 2.30 1,399
Savings certificates 30,101 5.37 1,616 30,088 4.86 1,462
Other time deposits 4,438 5.69 253 3,957 4.94 196
Deposits in foreign offices 5,950 6.22 370 1,658 4.76 79
-------- ------- -------- -------
Total interest-bearing deposits 107,490 3.80 4,089 99,724 3.17 3,167
Short-term borrowings 28,222 6.23 1,758 22,559 5.00 1,127
Long-term debt 29,000 6.69 1,939 24,646 5.90 1,453
Guaranteed preferred beneficial interests in Company's
subordinated debentures 935 7.92 74 935 7.73 72
-------- ------- -------- -------
Total interest-bearing liabilities 165,647 4.75 7,860 147,864 3.94 5,819
Portion of noninterest-bearing funding sources 40,030 -- -- 38,661 -- --
-------- ------- -------- -------
Total funding sources $205,677 3.84 7,860 $186,525 3.13 5,819
======== ------- ======== -------
NET INTEREST MARGIN AND NET INTEREST INCOME ON
A TAXABLE-EQUIVALENT BASIS (7) 5.35% $10,930 5.47% $10,185
===== ======= ===== =======
NONINTEREST-EARNING ASSETS
Cash and due from banks $ 13,103 $ 12,252
Goodwill 8,811 7,983
Other 22,597 18,339
-------- --------
Total noninterest-earning assets $ 44,511 $ 38,574
======== ========
NONINTEREST-BEARING FUNDING SOURCES
Deposits $ 48,691 $45,201
Other liabilities 11,000 8,909
Preferred stockholders' equity 266 461
Common stockholders' equity 24,584 22,664
Noninterest-bearing funding sources used to
fund earning assets (40,030) (38,661)
-------- --------
Net noninterest-bearing funding sources $ 44,511 $ 38,574
======== ========
TOTAL ASSETS $250,188 $225,099
======== ========
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The average prime rate of the Company was 9.24%, 8.00%, 8.35%, 8.44%
and 8.27% for 2000, 1999, 1998, 1997 and 1996, respectively. The
average three-month London Interbank Offered Rate (LIBOR) was 6.52%,
5.42%, 5.56%, 5.74% and 5.51% for the same years, respectively.
(2) Interest rates and amounts include the effects of hedge and risk
management activities associated with the respective asset and
liability categories.
(3) Yields are based on amortized cost balances computed on a settlement
date basis.
(4) Includes certain preferred securities.
42
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ---------------------------------- ------------------------------------ ---------------------------------
Interest Interest Interest
Average Yields/ income/ Average Yields/ income/ Average Yields/ income/
balance rates expense balance rates expense balance rates expense
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1,770 5.57% $ 99 $ 1,207 5.40% $ 65 $ 1,706 5.45% $ 93
5,916 6.02 353 5,987 6.22 371 4,365 6.00 262
1,855 8.39 148 1,630 8.35 133 1,118 8.59 96
20,079 6.99 1,376 22,173 7.08 1,559 22,076 6.94 1,531
3,072 6.72 205 3,083 6.80 210 2,907 6.54 190
- -------- ------- -------- ------- -------- -------
23,151 6.95 1,581 25,256 7.05 1,769 24,983 6.89 1,721
1,570 7.94 105 1,192 5.71 71 1,594 4.89 78
- -------- ------- -------- ------- -------- -------
32,492 6.90 2,187 34,065 6.91 2,344 32,060 6.73 2,157
14,712 6.85 1,008 7,314 7.27 532 7,194 7.74 557
4,876 7.71 376 3,900 8.10 316 3,560 9.21 328
35,805 8.85 3,169 31,939 9.22 2,943 29,607 9.18 2,719
13,870 7.92 1,098 16,924 8.46 1,432 16,690 8.44 1,409
17,539 9.40 1,648 17,603 9.61 1,692 16,721 9.23 1,543
4,270 9.71 415 3,858 10.13 391 3,469 9.97 346
10,708 10.43 1,117 9,882 9.61 950 9,474 9.34 885
6,322 14.99 948 6,960 14.59 1,015 6,819 15.05 1,026
19,992 12.15 2,428 20,188 11.88 2,398 19,022 11.75 2,236
- -------- ------- -------- ------- -------- -------
37,022 12.13 4,493 37,030 11.78 4,363 35,315 11.74 4,147
7,039 8.13 572 5,467 8.32 455 3,754 8.39 315
1,353 20.65 279 1,042 20.40 212 966 20.39 197
- -------- ------- -------- ------- -------- -------
116,898 9.99 11,674 113,863 10.09 11,488 106,522 10.02 10,676
3,092 5.86 181 2,558 5.93 152 2,116 5.62 119
- -------- ------- -------- ------- -------- -------
$173,840 8.97 15,525 $162,907 9.16 14,897 $153,158 9.09 13,930
======== ------- ======== ------- ======== -------
$ 3,034 1.35 41 $ 3,491 1.72 60 $ 7,645 1.56 119
56,724 2.63 1,492 54,753 2.62 1,433 48,032 2.71 1,301
31,905 5.29 1,686 32,143 5.32 1,711 27,666 5.19 1,435
4,565 5.47 250 4,112 5.61 231 6,053 5.77 349
948 4.84 46 1,386 4.83 67 719 4.73 34
- -------- ------- -------- ------- -------- -------
97,176 3.62 3,515 95,885 3.65 3,502 90,115 3.59 3,238
17,927 5.36 963 14,038 5.36 756 12,749 5.26 671
19,294 6.29 1,214 18,335 6.40 1,173 19,029 6.25 1,190
1,160 8.12 94 1,437 7.89 113 82 7.32 6
- -------- ------- -------- ------- -------- -------
135,557 4.27 5,786 129,695 4.27 5,544 121,975 4.19 5,105
38,283 -- -- 33,212 -- -- 31,183 -- --
- -------- ------- -------- ------- -------- -------
$173,840 3.34 5,786 $162,907 3.41 5,544 $153,158 3.33 5,105
======== ------- ======== ------- ======== -------
5.63% $ 9,739 5.75% $ 9,353 5.76% $ 8,825
===== ======= ===== ======= ===== =======
$ 11,410 $ 12,297 $ 12,098
8,069 8,325 6,477
14,255 14,689 11,870
- -------- -------- --------
$ 33,734 $ 35,311 $ 30,445
======== ======== ========
$ 43,229 $ 39,903 $ 36,922
7,314 7,688 5,770
463 555 969
21,011 20,377 17,967
(38,283) (33,212) (31,183)
- -------- -------- --------
$ 33,734 $ 35,311 $ 30,445
======== ======== ========
$207,574 $198,218 $183,603
======== ======== ========
- ---------------------------------------------------------------------------------------------------
</TABLE>
(5) Interest income includes loan fees, net of deferred costs, of
approximately $205 million, $210 million, $148 million, $126 million
and $103 million in 2000, 1999, 1998, 1997 and 1996, respectively.
(6) Nonaccrual loans and related income are included in their respective
loan categories.
(7) Includes taxable-equivalent adjustments that primarily relate to income
on certain loans and securities that is exempt from federal and
applicable state income taxes. The federal statutory tax rate was 35%
for all years presented.
43
<PAGE>
NONINTEREST EXPENSE
Table 5 shows the major components of noninterest expense.
Table 5
<TABLE>
<CAPTION>
NONINTEREST EXPENSE
- -------------------------------------------------------------------------------------------------------------------
% Change
Year Ended December 31, ----------------
--------------------------------------- 2000/ 1999/
(in millions) 2000 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Salaries $ 3,652 $ 3,307 $ 3,318 10% --%
Incentive compensation 846 643 657 32 (2)
Employee benefits 989 901 807 10 12
Equipment 948 928 976 2 (5)
Net occupancy 953 813 804 17 1
Goodwill 530 459 429 15 7
Core deposit intangible:
Nonqualifying (1) 173 186 220 (7) (15)
Qualifying 13 20 27 (35) (26)
Net (gains) losses on dispositions of
premises and equipment (58) (16) 325 263 --
Contract services 536 473 353 13 34
Outside professional services 447 381 398 17 (4)
Outside data processing 343 312 293 10 6
Advertising and promotion 316 251 252 26 --
Telecommunications 303 286 269 6 6
Travel and entertainment 287 262 225 10 16
Postage 252 239 241 5 (1)
Stationery and supplies 223 191 198 17 (4)
Insurance 157 152 132 3 15
Operating losses 179 150 157 19 (4)
Security 98 95 90 3 6
All other 643 604 1,140 6 (47)
------- ------- -------
Total $11,830 $10,637 $11,311 11% (6)%
======= ======= ======= === ===
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents amortization of core deposit intangible acquired after February
1992 that is subtracted from stockholders' equity in computing regulatory
capital for bank holding companies.
The increase in salaries, incentive compensation and employee benefits was due
to an increase in active full-time equivalent staff, partially offset by the
reversal of $58 million of the remaining severance reserve associated with the
WFC Merger due to better than expected results from the Company's employee
retention program and higher than expected voluntary terminations due to a
robust job market.
EARNINGS/RATIOS EXCLUDING GOODWILL AND NONQUALIFYING CORE DEPOSIT INTANGIBLE
Table 6 reconciles reported earnings to net income excluding goodwill and
nonqualifying core deposit intangible amortization ("cash" earnings) for the
year ended December 31, 2000. Table 7 presents the calculation of the ROA, ROE
and efficiency ratios excluding goodwill and nonqualifying core deposit
intangible amortization and balances for the year ended December 31, 2000. These
calculations were specifically formulated by the Company and may not be
comparable to similarly titled measures reported by other companies. Also,
"cash" earnings are not entirely available for use by management. See the
Consolidated Statement of Cash Flows and Note 3 to Financial Statements for
other information regarding funds available for use by management.
Table 6
<TABLE>
<CAPTION>
EARNINGS EXCLUDING GOODWILL AND NONQUALIFYING CDI
- -------------------------------------------------------------------------------------------------------------------
Year ended
(in millions, except per share amounts) December 31, 2000
- -------------------------------------------------------------------------------------------------------------------
Amortization
-------------------------
Nonqualifying
Reported core deposit "Cash"
earnings Goodwill intangible earnings
<S> <C> <C> <C> <C>
Income before income tax expense $6,549 $530 $173 $7,252
Income tax expense 2,523 -- 66 2,589
------ ---- ---- ------
Net income 4,026 530 107 4,663
Preferred stock dividends 17 -- -- 17
------ ---- ---- ------
Net income applicable to common stock $4,009 $530 $107 $4,646
====== ==== === ======
Earnings per common share $ 2.36 $ 2.73
====== ======
Diluted earnings per common share $ 2.33 $ 2.70
====== ======
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Table 7
<TABLE>
<CAPTION>
RATIOS EXCLUDING GOODWILL AND NONQUALIFYING CDI
- -----------------------------------------------------------------------------------------------------------------
Year ended
(in millions) December 31, 2000
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ROA: A / (C-E-F) = 1.94%
ROE: B / (D-E-G) = 30.89%
Efficiency: (H-I) / J = 56.5%
Net income $ 4,663(A)
Net income applicable to common stock 4,646(B)
Average total assets 250,188(C)
Average common stockholders' equity 24,584(D)
Average goodwill 8,811(E)
Average pretax nonqualifying core deposit intangible 1,182(F)
Average after-tax nonqualifying core deposit intangible 733(G)
Noninterest expense 11,830(H)
Amortization expense for goodwill and nonqualifying core deposit intangible 703(I)
Net interest income plus noninterest income 19,708(J)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
44
<PAGE>
BALANCE SHEET ANALYSIS
A comparison between the year-end 2000 and 1999 balance sheets is presented
below.
SECURITIES AVAILABLE FOR SALE
Total securities available for sale averaged $38.9 billion in 2000, compared
with $39.2 billion in 1999. Total securities available for sale were $38.7
billion at December 31, 2000, a 12% decrease from $43.9 billion at December 31,
1999.
Table 8 provides the components of the estimated unrealized net gain on
securities available for sale.
Table 8
<TABLE>
<CAPTION>
ESTIMATED UNREALIZED GAINS AND LOSSES ON SECURITIES AVAILABLE FOR SALE
- -------------------------------------------------------------------------------------------------------------------
December 31,
------------------------------
(in millions) 2000 1999
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Estimated unrealized gross gains $1,620 $ 2,185
Estimated unrealized gross losses (830) (1,108)
------- -------
Estimated unrealized net gain $ 790 $ 1,077
======= =======
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The unrealized net gain of $718 million in the debt securities portion of the
securities available for sale portfolio at December 31, 2000 was attributable to
the restructuring of the portfolio during the year accompanied by a decline in
long-term interest rates throughout the year. The Company may decide to sell
certain of the securities available for sale to manage the level of earning
assets (for example, to offset loan growth that exceeds expected maturities and
prepayments of securities). (See Note 4 to Financial Statements for securities
available for sale by security type.)
The unrealized net gain on securities available for sale is reported on an
after-tax basis as a component of cumulative other comprehensive income. At
December 31, 2000, the unrealized net after-tax gain was $536 million, compared
with an unrealized net after-tax gain of $770 million at December 31, 1999.
At December 31, 2000, mortgage-backed securities, including collateralized
mortgage obligations (CMOs), were $28.2 billion, or 73% of the Company's
securities available for sale portfolio. As an indication of interest rate
risk, the Company has estimated the effect of a 200 basis point increase in
interest rates on the value of the mortgage-backed securities and the
corresponding expected remaining maturities. Based on that rate scenario,
mortgage-backed securities would decrease in fair value from $28.4 billion to
$26.1 billion and the expected remaining maturity of these securities would
increase from 7 years and 6 months to 8 years and 8 months.
LOAN PORTFOLIO
A comparative schedule of average loan balances is presented in Table 4;
year-end balances are presented in Note 5 to Financial Statements.
Loans averaged $145.6 billion in 2000, compared with $123.6 billion in 1999, an
increase of 18%. Total loans at December 31, 2000 were $161.1 billion, compared
with $133.0 billion at year-end 1999, an increase of 21%. The Company's total
unfunded loan commitments increased to $92.7 billion at December 31, 2000, from
$82.3 billion at December 31, 1999. The actual liquidity requirements or credit
risk that the Company will experience will be lower than the contractual amount
of commitments to extend credit because a significant portion of those
commitments are expected to expire without being drawn upon.
NONACCRUAL AND RESTRUCTURED LOANS AND OTHER ASSETS
Table 9, on the following page, presents comparative data for nonaccrual and
restructured loans and other assets. Management's classification of a loan as
nonaccrual or restructured does not necessarily indicate that the principal of
the loan is uncollectible in whole or in part. Table 9 excludes loans that are
contractually past due 90 days or more as to interest or principal, but are both
well-secured and in the process of collection or are real estate 1-4 family
first mortgage loans or consumer loans that are exempt under regulatory rules
from being classified as nonaccrual. This information is presented in Table 10.
Notwithstanding, real estate 1-4 family loans (first and junior liens) are
placed on nonaccrual within 120 days of becoming past due and are shown in Table
9. (Note 1 to Financial Statements describes the Company's accounting policy
relating to nonaccrual and restructured loans.)
45
<PAGE>
Table 9
<TABLE>
<CAPTION>
NONACCRUAL AND RESTRUCTURED LOANS AND OTHER ASSETS
- ------------------------------------------------------------------------------------------------------------------
December 31,
---------------------------------------------------------------
(in millions) 2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans:
Commercial (1) $ 739 $374 $302 $224 $ 295
Real estate 1-4 family first mortgage 127 144 138 177 155
Other real estate mortgage (2) 113 118 204 263 385
Real estate construction 57 11 23 32 34
Consumer:
Real estate 1-4 family junior lien mortgage 23 17 17 17 15
Other revolving credit and monthly payment 36 27 41 18 5
------ ---- ---- ---- ------
Total consumer 59 44 58 35 20
Lease financing 92 24 13 12 18
Foreign 7 9 17 -- --
------ ---- ---- ---- ------
Total nonaccrual loans (3) 1,194 724 755 743 907
Restructured loans 1 4 1 9 10
------ ---- ---- ---- ------
Nonaccrual and restructured loans 1,195 728 756 752 917
As a percentage of total loans .7% .5% .6% .6% .8%
Foreclosed assets 128 161 152 216 273
Real estate investments (4) 27 33 1 4 4
------ ---- ---- ---- ------
Total nonaccrual and restructured
loans and other assets $1,350 $922 $909 $972 $1,194
====== ==== ==== ==== ======
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes commercial agricultural loans of $44 million, $49 million, $41
million, $32 million and $31 million at December 31, 2000, 1999, 1998, 1997
and 1996, respectively.
(2) Includes agricultural loans secured by real estate of $13 million, $17
million, $12 million, $18 million and $13 million at December 31, 2000,
1999, 1998, 1997 and 1996, respectively.
(3) Of the total nonaccrual loans, $761 million, $372 million, $389 million,
$416 million and $593 million at December 31, 2000, 1999, 1998, 1997 and
1996, respectively, were considered impaired under FAS 114, ACCOUNTING BY
CREDITORS FOR IMPAIRMENT OF A LOAN.
(4) Represents the amount of real estate investments (contingent interest loans
accounted for as investments) that would be classified as nonaccrual if
such assets were recorded as loans. Real estate investments totaled $56
million, $89 million, $128 million, $172 million and $154 million at
December 31, 2000, 1999, 1998, 1997 and 1996, respectively.
The Company anticipates changes in the amount of nonaccrual loans that result
from increases in lending activity or from resolutions of loans in the
nonaccrual portfolio. The performance of any individual loan can be affected by
external factors, such as the interest rate environment or factors particular to
a borrower such as actions taken by a borrower's management. In addition, from
time to time, the Company purchases loans from other financial institutions that
may be classified as nonaccrual based on the Company's policies.
The Company generally identifies loans to be evaluated for impairment under
FASB Statement No. 114, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN,
when such loans are on nonaccrual or have been restructured. However, not all
nonaccrual loans are impaired. Generally, a loan is placed on nonaccrual
status upon becoming 90 days past due as to interest or principal (unless
both well-secured and in the process of collection), when the full timely
collection of interest or principal becomes uncertain or when a portion of
the principal balance has been charged off. Real estate 1-4 family loans
(both first liens and junior liens) are placed on nonaccrual status within
120 days of becoming past due as to interest or principal, regardless of
security. In contrast, under FAS 114, loans are considered impaired when it
is probable that the Company will be unable to collect all amounts due
according to the contractual terms of the loan agreement, including scheduled
interest payments. For a loan that has been restructured, the contractual
terms of the loan agreement refer to the contractual terms specified by the
original loan agreement, rather than the contractual terms specified by the
restructuring agreement. Consequently, not all impaired loans are necessarily
placed on nonaccrual status. That is, loans performing under restructured
terms beyond a specified performance period are classified as accruing but
may still be deemed impaired under FAS 114.
For loans covered under FAS 114, the Company makes an assessment for impairment
when and while such loans are on nonaccrual, or when the loan has been
restructured. When a loan with unique risk characteristics has been identified
as being impaired, the Company will estimate the amount of impairment using
discounted cash flows, except when the sole (remaining) source of repayment for
the loan is the operation
46
<PAGE>
or liquidation of the underlying collateral. In such cases, the current fair
value of the collateral, reduced by costs to sell, will be used in place of
discounted cash flows. Additionally, some impaired loans with commitments of
less than $1 million are aggregated for the purpose of estimating impairment
using historical loss factors as a means of measurement.
If the measurement of the impaired loan results in a value that is less than the
recorded investment in the loan (including accrued interest, net deferred loan
fees or costs and unamortized premium or discount), an impairment is recognized
by creating or adjusting an existing allocation of the allowance for loan
losses. FAS 114 does not change the timing of charge-offs of loans to reflect
the amount ultimately expected to be collected.
If interest that was due on the book balances of all nonaccrual and restructured
loans (including loans that were but are no longer on nonaccrual or were
restructured at year end) had been accrued under their original terms, $88
million of interest would have been recorded in 2000, compared with $22 million
actually recorded.
Foreclosed assets at December 31, 2000 were $128 million, compared with $161
million at December 31, 1999. Most of the foreclosed assets at December 31, 2000
have been in the portfolio three years or less.
LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING
Table 10 shows loans that are contractually past due 90 days or more as to
interest or principal, but are not included in Table 9, Nonaccrual and
Restructured Loans and Other Assets.
Table 10
<TABLE>
<CAPTION>
LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING
- -------------------------------------------------------------------------------------------------------------------
December 31,
--------------------------------------------------------
(in millions) 2000 1999 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial $ 90 $ 27 $ 33 $ 37 $ 86
Real estate 1-4 family first mortgage 66 45 42 58 55
Other real estate mortgage 24 18 18 17 68
Real estate construction 12 4 6 14 11
Consumer:
Real estate 1-4 family junior lien mortgage 27 36 65 75 55
Credit card 96 105 145 165 151
Other revolving credit and monthly payment 263 198 171 212 188
----- ---- ---- ---- -----
Total consumer 386 339 381 452 394
----- ---- ---- ---- -----
Total $578 $433 $480 $578 $614
===== ==== ==== ==== =====
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
ALLOWANCE FOR LOAN LOSSES
An analysis of the changes in the allowance for loan losses, including
charge-offs and recoveries by loan category, is presented in Note 5 to Financial
Statements. At December 31, 2000, the allowance for loan losses was $3,719
million, or 2.31% of total loans, compared with $3,344 million, or 2.51%, at
December 31, 1999 and $3,307 million, or 2.76%, at December 31, 1998. The
provision for loan losses totaled $1,329 million in 2000, $1,104 million in 1999
and $1,617 million in 1998. Net charge-offs in 2000 were $1,219 million, or .84%
of average total loans, compared with $1,115 million, or .90%, in 1999 and
$1,678 million, or 1.44%, in 1998. Loan loss recoveries were $428 million in
2000, compared with $473 million in 1999 and $461 million in 1998. Any loan that
is past due as to principal or interest and that is not both well-secured and in
the process of collection is generally charged off (to the extent that it
exceeds the fair value of any related collateral) after a predetermined period
of time that is based on loan category. Additionally, loans are charged off when
classified as a loss by either internal loan examiners or regulatory examiners.
The Company considers the allowance for loan losses of $3,719 million adequate
to cover losses inherent in loans, commitments to extend credit and standby and
other letters of credit at December 31, 2000. However, no assurance can be given
that the Company will not, in any particular period, sustain loan losses that
are sizeable in relation to the amount reserved, or that subsequent evaluations
of the loan portfolio, in light of the factors then prevailing, including
economic conditions and the ongoing examination process by the Company and its
regulators, will not require significant increases in the allowance for loan
losses. For discussion of the process by which the Company determines the
adequacy of the allowance for loan losses, see Note 5 to Financial Statements.
47
<PAGE>
DEPOSITS
Comparative detail of average deposit balances is presented in Table 4. Average
core deposits funded 58.3% and 61.9% of the Company's average total assets in
2000 and 1999, respectively. Year-end deposit balances are presented in Table
11.
Table 11
<TABLE>
<CAPTION>
DEPOSITS
- -------------------------------------------------------------------------------------------------------------------
December 31,
----------------------------------- %
(in millions) 2000 1999 Change
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Noninterest-bearing $ 55,096 $ 45,520 21%
Interest-bearing checking 3,699 3,556 4
Market rate and other savings 66,859 60,339 11
Savings certificates 31,056 28,832 8
-------- --------
Core deposits 156,710 138,247 13
Other time deposits 5,137 3,757 37
Deposits in foreign offices 7,712 3,914 97
-------- --------
Total deposits $169,559 $145,918 16%
======== ======== ==
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
MARKET RISK
Market risk is the exposure to loss resulting from changes in interest rates,
foreign currency exchange rates, commodity prices and equity prices. The primary
market risk to which the Company is exposed is interest rate risk. The majority
of the Company's interest rate risk arises from the instruments, positions and
transactions entered into for purposes other than trading. They include loans,
securities available for sale, deposit liabilities, short-term borrowings,
long-term debt and derivative financial instruments used for asset/liability
management. Interest rate risk occurs when assets and liabilities reprice at
different times as market interest rates change. For example, if fixed-rate
assets are funded with floating-rate debt, the spread between asset and
liability rates will decline or turn negative if rates increase. The Company
refers to this type of risk as "term structure risk". There is, however, another
source of interest rate risk which results from changing spreads between asset
and liability rates. The Company calls this type of risk "basis risk"; it is a
significant source of interest rate risk for the Company and is more difficult
to quantify and manage than term structure risk. Two primary components of basis
risk for the Company are (1) the spread between prime-based loans and market
rate account (MRA) savings deposits and (2) the rate paid on savings and
interest-bearing checking accounts as compared to LIBOR-based loans.
Interest rate risk is managed within an overall asset/liability framework for
the Company. The principal objectives of asset/liability management are to
manage the sensitivity of net interest spreads and net income to potential
changes in interest rates and to enhance profitability in ways that promise
sufficient reward for understood and controlled risk. Funding positions are
kept within predetermined limits designed to ensure that risk-taking is not
excessive and that liquidity is properly managed. The Company employs a
sensitivity analysis in the form of a net interest income simulation to help
characterize the market risk arising from changes in interest rates in the
other-than-trading portfolio.
The Company's net interest income simulation includes all other-than-trading
financial assets, financial liabilities, derivative financial instruments and
leases where the Company is the lessor. It captures the dynamic nature of the
balance sheet by anticipating probable balance sheet and off-balance sheet
strategies and volumes under different interest rate scenarios over the course
of a one-year period. This simulation measures both the term structure risk and
the basis risk in the Company's positions. The simulation also captures the
option characteristics of products, such as caps and floors on floating-rate
loans, the right to prepay mortgage loans without penalty and the ability of
customers to withdraw deposits on demand. These options are modeled directly in
the simulation either through the use of option pricing models, in the case of
caps and floors on loans, or through statistical analysis of historical customer
behavior, in the case of mortgage loan prepayments or non-maturity deposits.
The simulation model is used to measure the impact on net income, relative to a
base case scenario, of interest rates increasing or decreasing 100 basis points
over the next 12 months. The simulation run at December 31, 2000 showing the
largest drop in net income relative to the base case scenario over the next
twelve months is a 100 basis point increase in rates that will result in a
decrease in net income of $61 million. In the simulation that was run at
December 31, 1999, the largest drop in net income relative to the base case
scenario over the next twelve months was a 100 basis point increase in rates
that was projected to result in a decrease in net income of $54 million.
The Company uses interest rate derivative financial instruments as an
asset/liability management tool to hedge mismatches in interest rate exposures
indicated by the net income simulation described above. They are used to reduce
the Company's exposure to interest rate fluctuations and provide more stable
spreads between loan yields and the rates on their funding sources. The Company
also purchases interest rate floors to protect against the loss in interest
48
<PAGE>
income on LIBOR-based loans during a declining interest rate environment.
Additionally, receive-fixed rate swaps are used to convert floating-rate loans
into fixed rates to better match the liabilities that fund the loans. The
Company also uses derivatives including floors, swaptions, futures contracts and
options on futures contracts to hedge the Company's mortgage servicing rights as
well as forwards, swaptions, futures and options on futures and forwards to
hedge the Company's 1-4 family real estate first mortgage loan commitments and
mortgage loans held for sale.
Looking toward managing interest rate risk in 2001, the Company will face risk
primarily from the possibility of rising rates. Given the Company's negative one
year gap, if rates rise, rate sensitive liabilities will rise faster than asset
yields, leading to a decline in the margin. The extent of this decline will
depend on the degree to which retail deposits change relative to market rates.
Falling rates should benefit the Company's margin, as deposit rates can be
expected to fall faster than asset yields. This would particularly be true if
short-term rates fall more than long-term rates, and the yield curve returns to
a positive slope. In the case of a large rate decline, retail deposit pricing
might reach a floor and offset some of the benefit.
As mentioned above, the Company has also partially hedged its mortgage serving
rights against a falling rate scenario, using primarily floors, futures
contracts and options on futures contracts. Based on its current and projected
balance sheet, the Company does not expect that a change in interest rates would
significantly affect its liquidity position.
The Company considers the fair values and the potential near term losses to
future earnings related to its customer accommodation derivative financial
instruments to be immaterial.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses interest rate derivative financial instruments as
asset/liability management tools to hedge the Company's exposure to interest
rate fluctuations. The Company also offers contracts to accommodate its
customers, but hedges such contracts by purchasing other financial contracts or
uses the contracts for asset/liability management. Table 12, below, reconciles
the beginning and ending notional or contractual amounts of derivative financial
instruments used for asset/liability management purposes for 2000 and shows the
expected remaining maturity at year-end 2000. For a further discussion of
derivative financial instruments, refer to Note 23 to Financial Statements.
Table 12
<TABLE>
<CAPTION>
DERIVATIVE ACTIVITIES
- ----------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 2000
-----------------------------------------------------------------------------------------
Weighted
average
expected
Amortization remaining
Beginning and Ending maturity (in
(in millions) balance Additions maturities Terminations balance yrs.-mos.)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest rate contracts:
Swaps $32,846 $ 11,108 $11,522 $ 6,615 $25,817 2-6
Futures 50,885 63,711 33,513 9,599 71,484 0-10
Floors and caps 41,142 12,863 15,850 18,016 20,139 2-11
Options 11,940 127,838 79,683 39,475 20,620 0-4
Forwards 22,528 317,253 90,385 228,004 21,392 0-1
Foreign exchange contracts:
Forwards 138 719 -- 785 72 1-0
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Net deferred losses related to interest rate futures contracts were $304 million
at December 31, 2000. Net deferred losses on terminated derivative financial
instruments were $320 million at December 31, 2000, compared with net deferred
losses of $237 million at December 31, 1999.
LIQUIDITY AND CAPITAL MANAGEMENT
The Company manages its liquidity and capital at both the parent and subsidiary
levels.
In addition to the immediately liquid resources of cash and due from banks and
federal funds sold and securities purchased under resale agreements, asset
liquidity is provided by the Company's securities available for sale portfolio.
The weighted average expected remaining maturity of the debt securities within
this portfolio was 7 years and 8 months at December 31, 2000. Of the $36.1
billion of debt securities in this portfolio at December 31, 2000, $3.8 billion,
or 11%, is expected to mature or be prepaid in 2001 and an additional $3.5
billion, or 10%, is expected to mature or be prepaid in 2002. Asset liquidity is
further enhanced by the Company's ability to securitize assets such as mortgage
loans.
Core deposits have historically provided the Company with a sizeable source of
relatively stable and low-cost funds. The Company's average core deposits and
stockholders' equity funded 68.2% and 72.2% of its average total assets in 2000
and 1999, respectively.
49
<PAGE>
The remaining funding of average total assets was mostly provided by long-term
debt, deposits in foreign offices, short-term borrowings (federal funds
purchased and securities sold under repurchase agreements, commercial paper and
other short-term borrowings) and trust preferred securities. Short-term
borrowings averaged $28.2 billion and $22.6 billion in 2000 and 1999,
respectively. Long-term debt averaged $29.0 billion and $24.6 billion in 2000
and 1999, respectively. Trust preferred securities averaged $.9 billion in 2000
and 1999.
Liquidity for the Company is also provided by interest income, deposit-raising
activities, potential disposition of readily marketable assets and through its
ability to raise funds in a variety of domestic and international money and
capital markets. The Company accesses the capital markets for long-term funding
through the issuance of registered debt, private placements and asset-based
secured funding.
In October 2000, the Parent filed a shelf registration statement with the SEC
under which the Parent may issue up to $10 billion in debt and equity
securities, excluding common stock, except for common stock issuable upon the
exercise or conversion of debt and equity securities. That registration
statement, together with the $550 million issuance authority remaining on the
Parent's registration statement filed in 1999, permits the Parent to issue an
aggregate of $10.55 billion in such debt and equity securities as of December
31, 2000. Proceeds from the issuance of the debt securities listed above were,
and with respect to any such securities issued in the future, are expected to be
used for general corporate purposes.
In April 2000, Wells Fargo Financial, Inc. (WFFI) filed a shelf registration
statement with the SEC, under which WFFI may issue up to $3 billion in senior or
subordinated debt securities. As of December 31, 2000, WFFI had $1.8 billion
remaining under the registration statement. In April 1999, WFFI filed a shelf
registration statement with the SEC, under which WFFI may issue up to $2 billion
in senior or subordinated debt securities. As of December 31, 2000, WFFI had
$150 million remaining under the registration statement. Also in 1999, a
subsidiary of WFFI filed a shelf registration statement with the Canadian
provincial securities authorities for the issuance of up to $1 billion
(Canadian) in debt securities. As of December 31, 2000, there was $465 million
(Canadian) remaining on that registration statement. In February 2001, WFFI
filed a shelf registration statement with the SEC, under which WFFI may issue up
to $4 billion in senior or subordinated debt securities.
In March and June of 2000, Wells Fargo Bank, N.A. issued $750 million in
Floating-Rate Subordinated Notes and $1.75 billion in Subordinated Notes,
respectively. In February of 2001, Wells Fargo Bank, N.A. issued $1 billion in
Subordinated Notes. These issuances were completed as private placements in
accordance with the Office of the Comptroller of the Currency (OCC) rules for
securities offerings by banks. Also in February, Wells Fargo Bank, N.A. filed
with the OCC an Offering Circular to issue from time to time up to $20 billion
in senior and subordinated notes. These issuances will be completed as private
placements.
To accommodate future growth and current business needs, the Company has a
capital expenditure program. Capital expenditures for 2001 are estimated to be
approximately $500 million for equipment for stores, relocation and remodeling
of Company facilities, routine replacement of furniture and equipment, and
servers and other networking equipment related to expansion of the Company's
Internet Services business. The Company will fund these expenditures from
various sources, including retained earnings of the Company and borrowings of
various maturities.
The Company and each of the subsidiary banks are subject to various regulatory
capital adequacy requirements administered by the Federal Reserve Board and the
Office of the Comptroller of the Currency. Risk-based capital (RBC) guidelines
establish a risk-adjusted ratio relating capital to different categories of
assets and off-balance sheet exposures. (See Note 22 to Financial Statements for
additional information.)
Since 1986, the Company has repurchased common shares in the open market under a
systematic plan to meet the common stock issuance requirements of the Company's
benefit plans and for acquisitions accounted for as purchases. In February 2000,
the Board of Directors authorized the repurchase of up to 81 million additional
shares of the Company's outstanding common stock. In September 2000, the Board
of Directors authorized an amendment reducing the February 2000 repurchase
authorization to a total of 30 million shares. As of December 31, 2000, the
total remaining common stock repurchase authority was approximately 5.5 million
shares.
50
<PAGE>
COMPARISON OF 1999 TO 1998
Net income in 1999 was $4,012 million, compared with $2,191 million in 1998, an
increase of 83%. Diluted earnings per common share were $2.29 in 1999, compared
with $1.26 in 1998, an increase of 82%. ROA was 1.78% and ROE was 17.55% in
1999, compared with 1.06% and 10.26%, respectively, in 1998.
Diluted earnings before the amortization of goodwill and CDI ("cash" earnings)
were $2.62 per share in 1999, compared with $1.59 in 1998. On the same basis,
ROA was 2.13% and ROE was 32.85% in 1999, compared with 1.39% and 21.90%,
respectively, in 1998.
Net interest income on a taxable-equivalent basis was $10,185 million in 1999,
compared with $9,739 million in 1998. The Company's net interest margin was
5.47% for 1999, compared with 5.63% in 1998. The decrease in the net interest
margin for 1999 was primarily due to higher balances of lower yielding
investment securities and lower yields on loans.
Noninterest income in 1999 was $7,975 million, compared with $6,920 million in
1998, an increase of 15%. The increase was primarily due to higher net venture
capital gains, partly offset by losses on sales of investment securities.
Noninterest expense in 1999 was $10,637 million, compared with $11,311 million
in 1998. The decrease was primarily due to charges incurred in 1998 related to
the WFC Merger.
The provision for loan losses was $1,104 million in 1999, compared with $1,617
million in 1998. Net charge-offs in 1999 were $1,115 million, or .90% of average
total loans, compared with $1,678 million, or 1.44%, in 1998. The allowance for
loan losses was 2.51% of total loans at December 31, 1999, compared with 2.76%
at December 31, 1998.
Total nonaccrual and restructured loans were $728 million, or .5% of total
loans, at December 31, 1999, compared with $756 million, or .6%, at December 31,
1998. Foreclosed assets were $161 million at December 31, 1999, compared with
$152 million at December 31, 1998.
ADDITIONAL INFORMATION
Common stock of the Company is traded on the New York Stock Exchange and the
Chicago Stock Exchange. The high, low and end-of-period annual and quarterly
prices of the Company's common stock as reported on the New York Stock Exchange
Composite Transaction Reporting System are presented in the graphs. The number
of holders of record of the Company's common stock was 99,260 as of January 31,
2001.
PRICE RANGE OF COMMON STOCK--ANNUAL ($)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1998 1999 2000
-------------------------------
<S> <C> <C> <C>
High $43.88 $49.94 $56.38
Low 27.50 32.13 31.00
End of period 39.94 40.44 55.69
</TABLE>
PRICE RANGE OF COMMON STOCK--QUARTERLY ($)
<TABLE>
<CAPTION>
1999 2000
------------------------------------------ ------------------------------------------
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
------------------------------------------ ------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High $40.44 $44.88 $45.31 $49.94 $43.75 $47.75 $47.13 $56.38
Low 32.13 34.38 36.44 38.38 31.00 37.31 38.73 39.63
End of period 35.06 42.75 39.63 40.44 40.75 38.75 45.94 55.69
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
51
<PAGE>
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Year ended December 31,
--------------------------------------
(in millions, except per share amounts) 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Securities available for sale $ 2,671 $ 2,533 $ 2,133
Mortgages held for sale 849 951 1,008
Loans held for sale 418 377 376
Loans 14,446 11,823 11,660
Other interest income 341 250 278
-------- -------- --------
Total interest income 18,725 15,934 15,455
-------- -------- --------
INTEREST EXPENSE
Deposits 4,089 3,166 3,515
Short-term borrowings 1,758 1,127 961
Long-term debt 1,939 1,452 1,213
Guaranteed preferred beneficial interests in Company's
subordinated debentures 74 73 93
-------- -------- --------
Total interest expense 7,860 5,818 5,782
-------- -------- --------
NET INTEREST INCOME 10,865 10,116 9,673
Provision for loan losses 1,329 1,104 1,617
-------- -------- --------
Net interest income after provision for loan losses 9,536 9,012 8,056
-------- -------- --------
NONINTEREST INCOME
Service charges on deposit accounts 1,704 1,580 1,448
Trust and investment fees 1,624 1,366 1,116
Credit card fees 563 570 573
Other fees 1,271 1,094 989
Mortgage banking 1,444 1,407 1,289
Insurance 411 395 358
Net venture capital gains 1,943 1,008 113
Net (losses) gains on securities available for sale (722) (228) 177
Other 605 783 857
-------- -------- --------
Total noninterest income 8,843 7,975 6,920
-------- -------- --------
NONINTEREST EXPENSE
Salaries 3,652 3,307 3,318
Incentive compensation 846 643 657
Employee benefits 989 901 807
Equipment 948 928 976
Net occupancy 953 813 804
Goodwill 530 459 429
Core deposit intangible 186 206 247
Net (gains) losses on dispositions of premises and equipment (58) (16) 325
Other 3,784 3,396 3,748
-------- -------- --------
Total noninterest expense 11,830 10,637 11,311
-------- -------- --------
INCOME BEFORE INCOME TAX EXPENSE 6,549 6,350 3,665
Income tax expense 2,523 2,338 1,474
-------- -------- --------
NET INCOME $ 4,026 $ 4,012 $ 2,191
======== ======== ========
NET INCOME APPLICABLE TO COMMON STOCK $ 4,009 $ 3,977 $ 2,156
======== ======== ========
EARNINGS PER COMMON SHARE $ 2.36 $ 2.32 $ 1.28
======== ======== ========
DILUTED EARNINGS PER COMMON SHARE $ 2.33 $ 2.29 $ 1.26
======== ======== ========
DIVIDENDS DECLARED PER COMMON SHARE $ .90 $ .785 $ .70
======== ======== ========
Average common shares outstanding 1,699.5 1,714.0 1,688.1
======== ======== ========
Diluted average common shares outstanding 1,718.4 1,735.4 1,710.6
======== ======== ========
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
52
<PAGE>
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
December 31,
-----------------------------------
(in millions, except shares) 2000 1999
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 16,978 $ 14,118
Federal funds sold and securities purchased
under resale agreements 1,598 1,722
Securities available for sale 38,655 43,911
Mortgages held for sale 11,812 12,678
Loans held for sale 4,539 5,043
Loans 161,124 133,004
Allowance for loan losses 3,719 3,344
-------- --------
Net loans 157,405 129,660
-------- --------
Mortgage servicing rights 5,609 4,652
Premises and equipment, net 3,415 3,372
Core deposit intangible 1,183 1,299
Goodwill 9,303 8,046
Interest receivable and other assets 21,929 16,552
-------- --------
Total assets $272,426 $241,053
======== ========
LIABILITIES
Noninterest-bearing deposits $ 55,096 $ 45,520
Interest-bearing deposits 114,463 100,398
-------- --------
Total deposits 169,559 145,918
Short-term borrowings 28,989 31,727
Accrued expenses and other liabilities 14,409 11,736
Long-term debt 32,046 26,866
Guaranteed preferred beneficial interests in Company's
subordinated debentures 935 935
STOCKHOLDERS' EQUITY
Preferred stock 385 344
Unearned ESOP shares (118) (73)
-------- --------
Total preferred stock 267 271
Common stock - $1 2/3 par value, authorized
4,000,000,000 shares; issued 1,736,381,025 shares
and 1,736,259,632 shares 2,894 2,894
Additional paid-in capital 9,337 9,213
Retained earnings 14,541 12,565
Cumulative other comprehensive income 524 760
Notes receivable from ESOP -- (1)
Treasury stock - 21,735,182 shares and 39,840,269 shares (1,075) (1,831)
-------- --------
Total stockholders' equity 26,488 23,871
-------- --------
Total liabilities and stockholders' equity $272,426 $241,053
======== ========
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
53
<PAGE>
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Unearned Additional
Number of Preferred ESOP Common paid-in Retained
(in millions, except shares) shares stock shares stock capital earnings
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1997 $ 544 $ (80) $2,828 $8,365 $9,358
------- ------- ------- ------- --------
Comprehensive income
Net income-1998 2,191
Other comprehensive income, net of tax:
Translation adjustments
Net unrealized gains (losses) on securities
available for sale arising during the year
Reclassification of net (gains) losses on
securities available for sale included
in net income
Total comprehensive income
Common stock issued 40,124,541 51 946 (191)
Common stock issued for acquisitions 18,099,205 25 71 11
Common stock repurchased 34,300,254 (22) (407)
Preferred stock issued to ESOP 35 (37) 2
Preferred stock released to ESOP 33 (1)
Preferred stock (31,161) converted to common shares 803,903 (32) 3
Preferred stock dividends (35)
Common stock dividends (1,078)
Cash payments received on
notes receivable from ESOP 2
Change in Rabbi trust assets
(classified as treasury stock)
------- ------- ------- ------- --------
Net change 3 (4) 54 616 898
------- ------- ------- ------- --------
BALANCE DECEMBER 31, 1998 547 (84) 2,882 8,981 10,256
------- ------- ------- ------- --------
Comprehensive income
Net income-1999 4,012
Other comprehensive income, net of tax:
Translation adjustments
Net unrealized gains (losses) on securities
available for sale arising during the year
Reclassification of net (gains) losses on
securities available for sale included
in net income
Total comprehensive income
Common stock issued 21,793,709 1 119 (269)
Common stock issued for acquisitions 11,059,131 11 113 2
Common stock repurchased 48,974,800
Preferred stock redeemed (191)
Preferred stock issued to ESOP 75 (80) 5
Preferred stock released to ESOP 91 (5)
Preferred stock (86,358) converted to common shares 2,200,716 (87)
Preferred stock dividends (35)
Common stock dividends (1,401)
Cash payments received on
notes receivable from ESOP
Change in Rabbi trust assets
(classified as treasury stock)
------- ------- ------- ------- --------
Net change (203) 11 12 232 2,309
------- ------- ------- ------- --------
BALANCE DECEMBER 31, 1999 344 (73) 2,894 9,213 12,565
------- ------- ------- ------- --------
Comprehensive income
Net income-2000 4,026
Other comprehensive income, net of tax:
Translation adjustments
Net unrealized gains (losses) on securities
available for sale arising during the year
Reclassification of net (gains) losses on
securities available for sale included
in net income
Total comprehensive income
Common stock issued 17,614,859 1 295 (458)
Common stock issued for acquisitions 75,554,229 (185) (6)
Common stock repurchased 78,573,812 (1) (42)
Stock appreciation rights 48
Preferred stock repurchased (1)
Preferred stock issued to ESOP 170 (181) 11
Preferred stock released to ESOP 136 (8)
Preferred stock (122,288) converted to
common shares 3,036,660 (128) 5
Preferred stock dividends (17)
Common stock dividends (1,569)
Cash payments received on
notes receivable from ESOP
Change in Rabbi trust assets
(classified as treasury stock)
------- ------- ------- ------- --------
Net change 41 (45) -- 124 1,976
------- ------- ------- ------- --------
BALANCE DECEMBER 31, 2000 $ 385 $(118) $2,894 $9,337 $14,541
======= ======= ======= ======= ========
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Notes Cumulative
receivable other Total
from Treasury comprehensive stockholders'
ESOP stock income equity
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1997 $(10) $(328) $ 487 $21,164
------- ------- ------- --------
Comprehensive income
Net income-1998 2,191
Other comprehensive income, net of tax:
Translation adjustments (4) (4)
Net unrealized gains (losses) on securities
available for sale arising during the year 119 119
Reclassification of net (gains) losses on
securities available for sale included
in net income (109) (109)
--------
Total comprehensive income 2,197
Common stock issued 320 1,126
Common stock issued for acquisitions 134 241
Common stock repurchased (829) (1,258)
Preferred stock issued to ESOP --
Preferred stock released to ESOP 32
Preferred stock (31,161) converted to common shares 29 --
Preferred stock dividends (35)
Common stock dividends (1,078)
Cash payments received on
notes receivable from ESOP 7 9
Change in Rabbi trust assets
(classified as treasury stock) (66) (66)
------- ------- ------- --------
Net change 7 (412) 6 1,168
------- ------- ------- --------
BALANCE DECEMBER 31, 1998 (3) (740) 493 22,332
------- ------- ------- --------
Comprehensive income
Net income-1999 4,012
Other comprehensive income, net of tax:
Translation adjustments 4 4
Net unrealized gains (losses) on securities
available for sale arising during the year 127 127
Reclassification of net (gains) losses on
securities available for sale included
in net income 136 136
--------
Total comprehensive income 4,279
Common stock issued 781 632
Common stock issued for acquisitions 200 326
Common stock repurchased (2,141) (2,141)
Preferred stock redeemed (191)
Preferred stock issued to ESOP --
Preferred stock released to ESOP 86
Preferred stock (86,358) converted to common shares 87 --
Preferred stock dividends (35)
Common stock dividends (1,401)
Cash payments received on
notes receivable from ESOP 2 2
Change in Rabbi trust assets
(classified as treasury stock) (18) (18)
------ ------- ------- --------
Net change 2 (1,091) 267 1,539
------ ------- ------- --------
BALANCE DECEMBER 31, 1999 (1) (1,831) 760 23,871
------ ------- ------- --------
Comprehensive income
Net income-2000 4,026
Other comprehensive income, net of tax:
Translation adjustments (2) (2)
Net unrealized gains (losses) on securities
available for sale arising during the year (144) (144)
Reclassification of net (gains) losses on
securities available for sale included
in net income (90) (90)
--------
Total comprehensive income 3,790
Common stock issued 716 554
Common stock issued for acquisitions 3,128 2,937
Common stock repurchased (3,195) (3,238)
Stock appreciation rights 48
Preferred stock repurchased (1)
Preferred stock issued to ESOP --
Preferred stock released to ESOP 128
Preferred stock (122,288) converted to
common shares 123 --
Preferred stock dividends (17)
Common stock dividends (1,569)
Cash payments received on
notes receivable from ESOP 1 1
Change in Rabbi trust assets
(classified as treasury stock) (16) (16)
------ ------- ------- --------
Net change 1 756 (236) 2,617
------ ------- ------- --------
BALANCE DECEMBER 31, 2000 $ -- $(1,075) $ 524 $26,488
====== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these statements.
54
<PAGE>
WELLS FARGO & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
---------------------------------------
(in millions) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,026 $ 4,012 $ 2,191
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 1,329 1,104 1,617
Depreciation and amortization 1,790 1,971 2,231
Securities available for sale losses (gains) 722 228 (177)
Net venture capital gains (1,943) (1,008) (113)
Net gains on sales of mortgages (38) (117) (182)
Net losses (gains) on sales of loans 134 (68) (94)
Net gains on dispositions of operations (23) (107) (100)
Net (gains) losses on dispositions of premises and equipment (58) (16) 325
Release of preferred shares to ESOP 128 86 32
Net (increase) decrease in trading assets (1,087) (462) 468
Deferred income tax expense (benefit) 873 1,611 (53)
Net increase in accrued interest receivable (230) (113) (11)
Net increase (decrease) in accrued interest payable 290 (36) (2)
Originations of mortgages held for sale (66,779) (94,988) (124,959)
Proceeds from sales of mortgages held for sale 62,873 105,159 114,930
Net increase in loans held for sale (1,498) (874) (822)
Other assets, net (2,060) (1,428) (138)
Other accrued expenses and liabilities, net 2,436 1,321 621
-------- -------- ---------
Net cash provided (used) by operating activities 885 16,275 (4,236)
-------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Securities available for sale:
Proceeds from sales 23,624 15,150 11,449
Proceeds from prepayments and maturities 6,247 8,757 12,419
Purchases (19,770) (29,917) (27,192)
Net cash acquired from (paid for) acquisitions 469 (69) (222)
Net increase in banking subsidiaries' loans
resulting from originations and collections (31,392) (11,494) (5,126)
Proceeds from sales (including participations) of banking subsidiaries' loans 11,898 3,986 2,832
Purchases (including participations) of banking subsidiaries' loans (409) (1,246) (135)
Principal collected on nonbank subsidiaries' loans 8,305 4,844 7,788
Nonbank subsidiaries' loans originated (9,300) (9,002) (8,962)
Cash proceeds from (paid for) dispositions of operations 13 (731) 484
Proceeds from sales of foreclosed assets 255 234 279
Net decrease (increase) in federal funds sold and securities
purchased under resale agreements 124 25 (492)
Net increase in mortgage servicing rights (1,460) (2,094) (913)
Other, net (4,688) (2,366) (2,956)
-------- -------- ---------
Net cash used by investing activities (16,084) (23,923) (10,747)
-------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 20,745 (4,868) 7,446
Net (decrease) increase in short-term borrowings (3,511) 11,912 2,912
Proceeds from issuance of long-term debt 15,544 13,325 9,642
Repayment of long-term debt (9,849) (8,981) (5,748)
Proceeds from issuance of common stock 422 528 1,115
Redemption of preferred stock -- (191) --
Repurchases of common stock (3,238) (2,141) (1,258)
Net decrease in notes receivable from ESOP -- 2 9
Payment of cash dividends on preferred and common stock (1,586) (1,436) (1,113)
Other, net (468) (36) 1,444
-------- -------- ---------
Net cash provided by financing activities 18,059 8,114 14,449
-------- -------- ---------
NET CHANGE IN CASH AND DUE FROM BANKS 2,860 466 (534)
Cash and due from banks at beginning of year 14,118 13,652 14,186
-------- -------- ---------
CASH AND DUE FROM BANKS AT END OF YEAR $16,978 $ 14,118 $ 13,652
======== ======== =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 8,150 $ 5,855 $ 5,784
Income taxes $ 817 $ 1,022 $ 1,350
Noncash investing and financing activities:
Transfers from mortgages held for sale to loans $ 4,813 $ 67 $ --
Transfers from loans held for sale to loans $ 1,388 $ 1,221 $ --
Transfers from loans to foreclosed assets $ 189 $ 220 $ 223
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
55
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Wells Fargo & Company and Subsidiaries (the Company) is a diversified financial
services company providing banking, mortgage and consumer finance through
stores, the Internet and other distribution channels throughout North America,
including all 50 states, and elsewhere internationally. Wells Fargo & Company
(the Parent) is a financial holding company and a bank holding company.
The accounting and reporting policies of the Company conform with generally
accepted accounting principles (GAAP) and prevailing practices within the
financial services industry. The preparation of financial statements in
conformity with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and income and expenses during the reporting period. Actual
results could differ from those estimates. Certain amounts in the financial
statements for prior years have been reclassified to conform with the current
financial statement presentation.
On October 25, 2000, the merger involving the Company and First Security
Corporation (the FSCO Merger) was completed, with First Security Corporation
(First Security or FSCO) surviving as a wholly owned subsidiary of the Company.
On November 2, 1998, the merger involving Norwest Corporation and the former
Wells Fargo & Company (the WFC Merger) was completed. The FSCO Merger and the
WFC Merger were accounted for under the pooling-of-interests method of
accounting and, accordingly, the information included in the financial
statements presents the combined results as if both mergers had been in effect
for all periods presented.
The following is a description of the significant accounting policies of the
Company.
CONSOLIDATION
The consolidated financial statements of the Company include the accounts of the
Parent, and its majority-owned subsidiaries, which are consolidated on a
line-by-line basis. Significant intercompany accounts and transactions are
eliminated in consolidation. Other subsidiaries and affiliates in which there is
at least 20% ownership are generally accounted for by the equity method; those
in which there is less than 20% ownership are generally carried at cost. These
assets that are accounted for by either the equity or cost method are included
in other assets.
SECURITIES
Securities are accounted for according to their purpose and holding period.
SECURITIES AVAILABLE FOR SALE Debt securities that may not be held until
maturity and marketable equity securities are classified as securities
available for sale and are reported at fair value, with unrealized gains and
losses, after applicable taxes, reported as a component of cumulative other
comprehensive income. The estimated fair value of a security is determined
based on current quotations, where available. Where current quotations are
not available, the estimated fair value is determined based primarily on the
present value of future cash flows, adjusted for the quality rating of the
securities, prepayment assumptions and other factors. Declines in the value
of debt securities and marketable equity securities that are considered other
than temporary are recorded in noninterest income as a loss on securities
available for sale. Realized gains and losses are recorded in noninterest
income using the identified certificate method. For certain debt securities
(for example, Government National Mortgage Association securities), the
Company anticipates prepayments of principal in the calculation of the
effective yield.
TRADING SECURITIES Securities acquired for short-term appreciation or other
trading purposes are recorded in a trading portfolio and are carried at fair
value, with unrealized gains and losses recorded in noninterest income.
NONMARKETABLE EQUITY SECURITIES Nonmarketable equity securities include the
venture capital equity securities that are not publicly traded and securities
acquired for various purposes, such as troubled debt restructurings and as a
regulatory requirement (for example, Federal Reserve Bank stock). These
securities are generally accounted for at cost and are included in other assets.
The asset value is reduced when declines in value are considered to be other
than temporary and the estimated loss is recorded in noninterest income as a
loss from equity investments along with income recognized on these assets.
MORTGAGES HELD FOR SALE
Mortgages held for sale are stated at the lower of aggregate cost or market
value. The determination of market value includes consideration of all open
positions, outstanding commitments from investors, related fees paid and related
hedging gains and losses. Gains and losses on sales of mortgages are recognized
at settlement dates and are determined by the difference between sales proceeds
and the carrying value of the mortgages. Gains and losses are recorded in
noninterest income.
LOANS HELD FOR SALE
Loans held for sale include those student loans which are classified as held for
sale because the Company does not intend to hold these loans until maturity or
sales of the loans are pending. Such loans are carried at the lower of aggregate
cost or market value. Gains and losses are recorded in noninterest income, based
on the difference between sales proceeds and carrying value.
56
<PAGE>
LOANS
Loans are reported at the principal amount outstanding, net of unearned
income. Unearned income, which includes deferred fees net of deferred direct
incremental loan origination costs, is amortized to interest income generally
over the contractual life of the loan using an interest method or the
straight-line method if it is not materially different.
NONACCRUAL LOANS Generally, loans are placed on nonaccrual status upon becoming
90 days past due as to interest or principal (unless both well-secured and in
the process of collection), when the full timely collection of interest or
principal becomes uncertain or when a portion of the principal balance has been
charged off. Real estate 1-4 family loans (both first liens and junior liens)
are placed on nonaccrual status within 120 days of becoming past due as to
interest or principal, regardless of security. Generally, consumer loans not
secured by real estate are placed on nonaccrual status only when a portion of
the principal has been charged off. Such loans are entirely charged off when
deemed uncollectible or when they reach a predetermined number of days past due
depending upon loan product, industry practice, country, terms and other
factors.
When a loan is placed on nonaccrual status, the accrued and unpaid interest
receivable is reversed and the loan is accounted for on the cash or cost
recovery method thereafter, until qualifying for return to accrual status.
Generally, a loan may be returned to accrual status when all delinquent interest
and principal become current in accordance with the terms of the loan agreement
or when the loan is both well-secured and in the process of collection and
collectibility is no longer doubtful.
IMPAIRED LOANS Loans, other than those included in large groups of
smaller-balance homogeneous loans, are considered impaired when, based on
current information and events, it is probable that the Company will be unable
to collect all amounts due according to the contractual terms of the loan
agreement, including scheduled interest payments. For a loan that has been
restructured, the contractual terms of the loan agreement refer to the
contractual terms specified by the original loan agreement, not the contractual
terms specified by the restructuring agreement.
This assessment for impairment occurs when and while such loans are on
nonaccrual, or the loan has been restructured. When a loan with unique risk
characteristics has been identified as being impaired, the amount of impairment
will be measured by the Company using discounted cash flows, except when it is
determined that the sole (remaining) source of repayment for the loan is the
operation or liquidation of the underlying collateral. In such cases, the
current fair value of the collateral, reduced by costs to sell, will be used in
place of discounted cash flows. Additionally, some impaired loans with
commitments of less than $1 million are aggregated for the purpose of measuring
impairment using historical loss factors as a means of measurement.
If the measurement of the impaired loan is less than the recorded investment in
the loan (including accrued interest, net deferred loan fees or costs and
unamortized premium or discount), an impairment is recognized by creating or
adjusting an existing allocation of the allowance for loan losses.
RESTRUCTURED LOANS In cases where a borrower experiences financial
difficulties and the Company makes certain concessionary modifications to
contractual terms, the loan is classified as a restructured (accruing) loan.
Loans restructured at a rate equal to or greater than that of a new loan with
comparable risk at the time the contract is modified may be excluded from the
impairment assessment and may cease to be considered impaired loans in the
calendar years subsequent to the restructuring if they are not impaired based
on the modified terms.
Generally, a nonaccrual loan that is restructured remains on nonaccrual for a
period of six months to demonstrate that the borrower can meet the restructured
terms. However, performance prior to the restructuring, or significant events
that coincide with the restructuring, are included in assessing whether the
borrower can meet the new terms and may result in the loan being returned to
accrual at the time of restructuring or after a shorter performance period. If
the borrower's ability to meet the revised payment schedule is uncertain, the
loan remains classified as a nonaccrual loan.
ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is a valuation allowance
for probable losses inherent in the portfolio as of the balance sheet date. The
Company's determination of the level of the allowance for loan losses rests upon
various judgments and assumptions, including general economic conditions, loan
portfolio composition, prior loan loss experience, evaluation of credit risk
related to certain individual borrowers and the Company's ongoing examination
process and that of its regulators. The Company considers the allowance for loan
losses adequate to cover losses inherent in loans, loan commitments and standby
and other letters of credit.
TRANSFERS AND SERVICING OF FINANCIAL ASSETS
A transfer of financial assets is accounted for as a sale when control is
surrendered over the assets transferred. Servicing rights and other retained
interests in the assets sold are recorded by allocating the previous recorded
investment between the asset sold and the interest retained based on their
relative fair values, if practicable to determine, at the date of transfer. Fair
values of servicing rights and other retained interests are determined using
present value of estimated future cash flows valuation techniques, incorporating
assumptions that market participants would use in their estimates of values.
The Company recognizes as assets the rights to service mortgage loans for
others, whether the servicing rights are
57
<PAGE>
acquired through purchases or retained upon sales of loan originations. For
purposes of evaluating and measuring impairment of mortgage servicing rights,
the Company stratifies its portfolio on the basis of certain risk
characteristics including loan type and note rate. Based upon current fair
values and considering derivative financial instruments used as hedges,
mortgage servicing rights are periodically assessed for impairment. Any such
indicated impairment is recognized in income, during the period in which it
occurs, in a mortgage servicing rights valuation account which is adjusted
each subsequent period to reflect any increase or decrease in the indicated
impairment. The current fair values of mortgage servicing rights and other
retained interests are determined using present value of estimated future
cash flows valuation techniques, incorporating assumptions that market
participants would use in their estimates of values. Mortgage servicing
rights are amortized over the period of estimated net servicing income and
take into account appropriate prepayment assumptions.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Capital leases are included in premises and equipment at the
capitalized amount less accumulated amortization.
Depreciation and amortization are computed primarily using the straight-line
method. Estimated useful lives range up to 40 years for buildings, 2 to 10 years
for furniture and equipment, and up to the lease term for leasehold
improvements. Capitalized leased assets are amortized on a straight-line basis
over the lives of the respective leases, which generally range from 20 to 35
years.
GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS
Goodwill, representing the excess of purchase price over the fair value of net
assets acquired, results from purchase acquisitions made by the Company.
Substantially all of the Company's goodwill is being amortized using the
straight-line method over 25 years. Core deposit intangibles are amortized on an
accelerated basis based on an estimated useful life of 10 to 15 years. Certain
identifiable intangible assets that are included in other assets are generally
amortized using an accelerated method over an original life of 10 to 15 years.
The Company reviews its intangible assets periodically for other-than-temporary
impairment. If such impairment is indicated, recoverability of the asset is
assessed based on expected undiscounted net cash flows.
INCOME TAXES
The Company files a consolidated federal income tax return. Federal income tax
is generally allocated to individual subsidiaries as if each had filed a
separate return. Combined state tax returns are filed in certain states. State
taxes are also allocated to individual subsidiaries.
Deferred income tax assets and liabilities are determined using the liability
(or balance sheet) method. Under this method, the net deferred tax asset or
liability is determined based on the tax effects of the differences between the
book and tax bases of the various balance sheet assets and liabilities and gives
current recognition to changes in tax rates and laws. Foreign taxes paid are
applied as credits to reduce federal income taxes payable.
EARNINGS PER COMMON SHARE
Earnings per common share are presented under two formats: earnings per
common share and diluted earnings per common share. Earnings per common share
are computed by dividing net income (after deducting dividends on preferred
stock) by the average number of common shares outstanding during the year.
Diluted earnings per common share are computed by dividing net income (after
deducting dividends on preferred stock) by the average number of common
shares outstanding during the year, plus the impact of those common stock
equivalents (i.e., stock options, restricted share rights and convertible
subordinated debentures) that are dilutive.
DERIVATIVE FINANCIAL INSTRUMENTS
INTEREST RATE DERIVATIVES Prior to the adoption of FASB Statement No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, and FASB Statement
No. 138, ACCOUNTING FOR CERTAIN DERIVATIVE INSTRUMENTS AND CERTAIN HEDGING
ACTIVITIES, an amendment of Statement 133, on January 1, 2001, the Company used
interest rate derivative financial instruments (e.g., futures contracts, forward
contracts, swaps, caps, floors and options) primarily to hedge mismatches in the
rate maturity of loans and their funding sources and the price risk of
interest-rate sensitive assets. Those instruments served to reduce rather than
increase the Company's exposure to movements in interest rates. At inception of
a hedge, the Company identified an individual asset or liability, or an
identifiable group of essentially similar assets or liabilities, that exposed
the Company to interest rate risk at the consolidated or enterprise level.
Interest rate derivatives were accounted for by the deferral or accrual method
only if they were designated as hedges and were expected to be and were
effective in substantially reducing the risk arising from the asset or liability
identified as exposing the Company to risk. Futures contracts had to meet
specific high correlation tests. For caps, floors and swaps that were used to
hedge mismatches between interest-bearing assets and liabilities, their notional
amount, interest rate index and life had to closely match the related terms of
the hedged asset or liability. Floors, swaps and options that hedged mortgage
servicing rights had to correlate based on certain duration and convexity
58
<PAGE>
parameters. For futures contracts, if the underlying financial instrument
differed from the hedged asset or liability, there had to be a clear economic
relationship between the prices of the two financial instruments. If periodic
assessment indicated that the derivatives no longer provided an effective hedge,
hedge accounting was discontinued; previously unrecognized hedge results and the
net settlement upon close-out or termination that offset changes in value of the
hedged asset or liability were deferred and amortized over the life of the asset
or liability with excess amounts recognized in noninterest income or noninterest
expense.
Gains and losses on futures contracts, which resulted from the daily settlement
of open positions, and on forward contracts were deferred and classified on the
balance sheet consistent with the hedge strategy. They were recognized in income
along with and when the effects of the related changes of the hedged asset or
liability were recognized. Gains and losses on options were recognized as a
component of the income reported on the hedged asset or liability. Fees
associated with these financial contracts were included on the balance sheet at
the time that the fee was paid and were classified consistent with the hedge
strategy. Those fees were fully recognized by the end of their contractual life.
If a hedged asset or liability settled before maturity of the hedging
interest rate derivatives, the derivatives were closed out or settled, or
were redesignated as hedges of other assets or liabilities. For those
contracts that were closed out or settled, previously unrecognized hedge
results and the net settlement upon close-out or termination are accounted
for as part of the gains and losses on the hedged asset or liability. If
interest rate derivatives used in an effective hedge were closed out or
terminated before the hedged item settles, previously unrecognized hedge
results and the net settlement upon close-out or termination were deferred
and amortized over the life of the hedged asset or liability. Cash flows
resulting from interest rate derivatives (including any related fees) that
were accounted for as hedges of assets and liabilities were classified in the
cash flow statement in the same category as the cash flows from the items
being hedged and were reflected in that statement when the cash receipts or
payments due under the terms of the instruments were collected, paid or
settled.
Interest rate derivatives entered into as an accommodation to customers,
interest rate derivatives used to offset the interest rate risk of those
contracts and positions taken based on the Company's market expectations or to
benefit from price differentials between financial instruments and markets were
carried at fair value with unrealized gains and losses recorded in noninterest
income. Losses were recognized currently on put options written when the fair
value of the underlying security fell below the contractual price at which the
security may have been put to the Company plus the premium received. Premiums
received on covered call options written were deferred until the option
terminates. If the fair value of the underlying asset was greater than the
contractual price at which the Company was required to sell the asset, the
option was exercised, at which time the premium was recorded as an adjustment of
the gain or loss recognized on the underlying asset. If the option expired, the
premium was recognized in other noninterest income. The fair value of interest
rate derivative financial instruments with an unrealized gain was included in
trading assets (i.e., within other assets) while the fair value of instruments
with an unrealized loss was included in other liabilities. Cash flows resulting
from instruments carried at fair value were classified in the cash flow
statement as operating cash flows and were reflected in that statement when the
cash receipts or payments due under the terms of the instruments were collected,
paid or settled.
Credit risk related to interest rate derivative financial instruments is
considered and, if material, provided for separately from the allowance for loan
losses.
FOREIGN EXCHANGE DERIVATIVES The Company enters into foreign exchange derivative
financial instruments (forward and spot contracts and options) primarily as an
accommodation to customers and offsets the related foreign exchange risk with
other foreign exchange derivatives. Those contracts are carried at fair value,
with unrealized gains and losses recorded in noninterest income. Cash flows
resulting from foreign exchange derivatives are classified in the cash flow
statement as operating cash flows and are reflected in that statement when the
cash receipts or payments due under the terms of the foreign exchange
derivatives are collected, paid or settled.
The Company also uses forward foreign exchange contracts to hedge uncertainties
in funding costs related to specific liabilities denominated in foreign
currencies. Gains and losses on those contracts are recognized in income and
classified on the balance sheet consistent with the hedged item. Cash flows
resulting from these foreign exchange derivatives (including any related fees)
are classified in the cash flow statement in the same category as the cash flows
from the item being hedged and are reflected in that statement when the cash
receipts or payments due under the terms of the instruments are collected, paid
or settled.
Credit risk related to all foreign exchange derivatives is considered and, if
material, provided for separately from the allowance for loan losses.
FOREIGN CURRENCY TRANSLATION
The accounts of the Company's foreign consumer finance subsidiaries are measured
using local currency as the functional currency. Assets and liabilities are
translated into United States dollars at period-end exchange rates, and income
and expense accounts are translated at average monthly exchange rates. Net
exchange gains or losses resulting from such translation are excluded from net
income and included as a component of cumulative other comprehensive income.
59
<PAGE>
2.
BUSINESS COMBINATIONS
The Company regularly explores opportunities to acquire financial institutions
and related businesses. Generally, management of the Company does not make a
public announcement about an acquisition opportunity until a definitive
agreement is signed.
Excluding the FSCO Merger and the WFC Merger, the table below includes
transactions completed in the years ended December 31, 2000, 1999 and 1998:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Date Assets Method of
accounting
(in millions)
<S> <C> <C> <C>
2000
First Place Financial Corporation, Farmington, New Mexico January 18 $ 733 Purchase
North County Bancorp, Escondido, California January 27 413 Purchase
Prime Bancshares, Inc., Houston, Texas January 28 1,366 Purchase
Ragen MacKenzie Group Incorporated, Seattle, Washington March 16 901 Purchase
Napa National Bancorp, Napa, California March 17 188 Purchase
Servus Financial Corporation, Herndon, Virginia March 17 168 Purchase
Michigan Financial Corporation, Marquette, Michigan March 30 975 Purchase
Bryan, Pendleton, Swats & McAllister, LLC, Nashville, Tennessee March 31 12 Purchase
Black & Company, Inc., Portland, Oregon May 1 4 Purchase
1st Choice Financial Corp., Greeley, Colorado June 13 483 Purchase
First Commerce Bancshares, Inc., Lincoln, Nebraska June 16 2,868 Purchase
National Bancorp of Alaska, Inc., Anchorage, Alaska July 14 3,518 Purchase
Charter Financial, Inc., New York, New York September 1 532 Purchase
Buffalo National Bancshares, Inc., Buffalo, Minnesota September 28 123 Purchase
Brenton Banks, Inc., Des Moines, Iowa December 1 2,191 Purchase
Paragon Capital, LLC, Needham, Massachusetts December 15 13 Purchase
Flagship Credit Corporation, Philadelphia, Pennsylvania December 21 841 Purchase of assets
-------
$15,329
=======
1999
Mid-Penn Consumer Discount Company, Philadelphia, Pennsylvania January 21 $ 11 Purchase
Century Business Credit Corporation, New York, New York February 1 342 Purchase
Van Kasper & Company, San Francisco, California February 12 20 Purchase
Metropolitan Bancshares, Inc., Aurora, Colorado February 23 64 Purchase
Mercantile Financial Enterprises, Inc., Brownsville, Texas February 26 779 Pooling of interests*
Riverton State Bank Holding Company, Riverton, Wyoming March 12 81 Purchase
Comstock Bancorp, Reno, Nevada June 1 208 Purchase
Greater Midwest Leasing Company, Minneapolis, Minnesota June 3 24 Purchase
XEON Financial Corporation, Stateline, Nevada June 14 122 Purchase
Mustang Financial Corporation, Rio Vista, Texas June 25 254 Purchase
Eastern Heights Bank, St. Paul, Minnesota July 1 453 Purchase
Goodson Insurance Agency, Denver, Colorado August 1 -- Purchase of assets
SB Insurance Company, Marshall, Minnesota October 15 -- Purchase
Allied Leasing Company, Burnsville, Minnesota November 1 17 Purchase
Eastdil Realty Company, L.L.C., New York, New York November 16 9 Purchase
Texas Bancshares, Inc., San Antonio, Texas December 16 370 Purchase
-------
$ 2,754
=======
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(continued)
60
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Date Assets Method of
accounting
(in millions)
<S> <C> <C> <C>
1998
Finvercon S.A. Compania, Financiera, Argentina January 8 $ 57 Purchase
Fidelity Bancshares, Inc., Fort Worth, Texas January 13 111 Purchase
Rio Grande Bancshares, Inc., Las Cruces, New Mexico February 2 417 Purchase
Heritage Trust Company, Grand Junction, Colorado February 20 2 Purchase
Founders Trust Company, Dallas, Texas March 2 2 Purchase
The T. Eaton Acceptance Company Limited and National Retail
Credit Services Limited, Don Mills, Ontario, Canada April 21 370 Purchase
WMC Mortgage Corporation, Woodland Hills, California April 30 5 Purchase of assets
First Bank, Katy, Texas May 22 310 Pooling of interests*
First Bank of Grants, Grants, New Mexico May 28 45 Purchase
Spring Mountain Escrow Corporation, Irvine, California May 29 1 Purchase
California State Bank, West Covina, California May 30 864 Pooling of interests*
Emjay Corporation, Milwaukee, Wisconsin June 15 6 Purchase
Six affiliated bank holding companies and related entities,
located in Minnesota, Wisconsin, New Mexico,
Arizona and Colorado, including MidAmerica July 2,23 1,317 Pooling of interests*
First Bancshares of Valley City, Inc., Valley City, North Dakota July 31 96 Purchase
Peoples Insurance Agency, Inc., Valley City, North Dakota July 31 -- Purchase
Star Bancshares, Inc., Austin, Texas August 31 582 Pooling of interests*
Freedom Trailer Leasing, Inc., Chesterfield, Missouri August 31 5 Purchase
Little Mountain Bancshares, Inc., Monticello, Minnesota September 8 82 Purchase
First National Bank of Missouri City, Missouri City, Texas October 30 91 Purchase
Franklin Bancshares, Inc., Franklin, Texas December 1 72 Purchase
Marine National Bank, Irvine, California December 21 259 Purchase
-------
$ 4,694
=======
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Pooling-of-interests transaction was not material to the Company's
consolidated financial statements; accordingly, previously reported results
were not restated.
In connection with the foregoing transactions, the Company paid cash in the
aggregate amount of $396 million, $541 million and $413 million in 2000, 1999
and 1998, respectively, and issued aggregate common shares of 75.6 million, 11.1
million and 18.1 million in 2000, 1999 and 1998, respectively.
MERGER INVOLVING THE COMPANY AND FIRST SECURITY
On October 25, 2000 the merger involving the Company and First Security
Corporation was completed. Under the terms of the FSCO Merger agreement,
stockholders of First Security received 0.355 shares of common stock of the
Company for each share of common stock owned. Each outstanding and unexercised
option granted by First Security was converted into an option to purchase common
stock of the Company based on the agreed-upon exchange ratio of 0.355.
As a condition to the FSCO Merger, the Company was required by regulatory
agencies to divest 39 stores in Idaho, New Mexico, Nevada and Utah having
aggregate deposits of approximately $1.5 billion. In the fourth quarter of 2000,
the Company entered into agreements to sell these stores. These sales are
expected to be completed in the first quarter of 2001 and the Company expects to
realize net gains of approximately $100 million.
Financial information for prior periods for the Company and First Security is
shown in the table below.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Year ended December 31,
Nine months ended ------------------------------
(in millions) September 30, 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C>
Revenue
Wells Fargo $13,683 $16,775 $15,417
First Security 620(1) 1,319 1,178
Net income (loss)
Wells Fargo $ 3,119 $ 3,747 $ 1,950
First Security (220)(1) 273 248
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Amount not previously reported
61
<PAGE>
The combined financial results of the Company include adjustments to conform the
accounting policies of the Company and First Security, including the conformance
of the postretirement transition obligation identified with the implementation
of FAS 106, Employers' Accounting for Post Retirement Benefits Other than
Pension Accounting Treatment and the conformance of the capitalization policies.
The effect of these adjustments on the Company's results was not material.
MERGER INVOLVING NORWEST AND THE FORMER WELLS FARGO
On November 2, 1998, the WFC Merger involving Norwest Corporation and the former
Wells Fargo & Company was completed. In connection with that merger, the Company
recorded approximately $600 million of restructuring charges in the fourth
quarter of 1998. The restructuring plans are evaluated on a regular basis during
the integration process. The charges included an accrual for severance-related
costs of $250 million associated with the elimination of about 5% of the
Company's positions, most of which occurred by December 31, 2000. This accrual
was determined based on the Company's existing severance plans for involuntary
terminations. In the fourth quarter of 2000, the Company reduced its estimate of
severance-related costs by $58 million due to higher retention of employees than
originally planned because of better than expected results from the Company's
employee retention program and higher than expected voluntary terminations due
to a robust job market. About 3,500 employees, representing approximately $170
million in severance benefits, had entered the severance process through
December 31, 2000. The restructuring charges also included approximately $250
million related to expected dispositions of leased and owned premises held for
remarketing or sale and $100 million of other costs associated with exiting
activities due to the WFC Merger. Most of the reserve for those costs was
utilized as of December 31, 2000 and the remaining balance at December 31, 2000
was not significant.
3.
CASH, LOAN AND DIVIDEND RESTRICTIONS
Federal Reserve Board (FRB) regulations require reserve balances on deposits to
be maintained by each of the banking subsidiaries with the Federal Reserve
Banks. The average required reserve balance was $2.0 billion and $2.1 billion in
2000 and 1999, respectively.
Federal law prevents the Company and its nonbank subsidiaries from borrowing
from its subsidiary banks unless the loans are secured by specified collateral.
Such secured loans by any subsidiary bank are generally limited to 10% of the
subsidiary bank's capital and surplus (as defined, which for this purpose
represents Tier 1 and Tier 2 capital, as calculated under the risk-based capital
guidelines, plus the balance of the allowance for loan losses excluded from Tier
2 capital) and aggregate loans to the Company and its nonbank subsidiaries are
limited to 20% of the subsidiary bank's capital and surplus. (For further
discussion of risk-based capital, see Note 22 to Financial Statements.)
The payment of dividends by subsidiary banks is subject to various federal
and state regulatory limitations. Dividends payable by a national bank
without the express approval of the Office of the Comptroller of the Currency
(OCC) are limited to that bank's retained net profits for the preceding two
calendar years plus retained net profits up to the date of any dividend
declaration in the current calendar year. Retained net profits are defined by
the OCC as net income less dividends declared during the period as determined
based on regulatory accounting principles. The Company also has
state-chartered subsidiary banks that are subject to state regulations that
limit dividends. Under those provisions, the Company's national and
state-chartered subsidiary banks could have declared dividends of $650
million and $1,571 million in 2000 and 1999, respectively, without obtaining
prior regulatory approval. In addition, the Company's non-bank subsidiaries
could have declared dividends of $1,889 million and $1,231 million at
December 31, 2000 and 1999, respectively.
62
<PAGE>
4.
SECURITIES AVAILABLE FOR SALE
The following table provides the cost and fair value for the major components of
securities available for sale carried at fair value. There were no securities
classified as held to maturity at the end of 2000 or 1999.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
December 31,
------------------------------------------------------------------------------------------
2000 1999
------------------------------------------- -----------------------------------------
ESTIMATED ESTIMATED Estimated Estimated
UNREALIZED UNREALIZED ESTIMATED unrealized unrealized Estimated
GROSS GROSS FAIR gross gross fair
(in millions) COST GAINS LOSSES VALUE Cost gains losses value
- ------------------------------------------------------------------------------ -----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities of U.S. Treasury and
federal agencies $ 2,739 $ 49 $ 5 $ 2,783 $ 6,426 $ 13 $ 348 $ 6,091
Securities of U.S. states and
political subdivisions 2,322 90 12 2,400 2,352 50 35 2,367
Mortgage-backed securities:
Federal agencies 26,304 838 147 26,995 26,239 110 477 25,872
Private collateralized
mortgage obligations (1) 1,455 43 52 1,446 3,747 12 106 3,653
------- ------ ---- ------- ------- ------ ------ -------
Total mortgage-backed
securities 27,759 881 199 28,441 29,986 122 583 29,525
Other 2,588 37 123 2,502 2,544 8 114 2,438
------- ------ ---- ------- ------- ------ ------ -------
Total debt securities 35,408 1,057 339 36,126 41,308 193 1,080 40,421
Marketable equity securities 2,457 563 491 2,529 1,526 1,992 28 3,490
------- ------ ---- ------- ------- ------ ------ -------
Total $37,865 $1,620 $830 $38,655 $42,834 $2,185 $1,108 $43,911
======= ====== ==== ======= ======= ====== ====== =======
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Substantially all private collateralized mortgage obligations are AAA-rated
bonds collateralized by 1-4 family residential first mortgages.
At December 31, 2000, the Company held no securities of any single issuer
(excluding the U.S. Treasury and federal agencies) with a book value that
exceeded 10% of stockholders' equity.
Securities pledged where the secured party has the right to sell or repledge
totaled $1.3 billion at December 31, 2000. Securities pledged where the secured
party does not have the right to sell or repledge totaled $17 billion at
December 31, 2000 and $15 billion at December 31,1999 and are primarily pledged
to secure trust and public deposits and for other purposes as required or
permitted by law. The Company has accepted collateral in the form of securities
that it has the right to sell or repledge of $1.6 billion at December 31, 2000.
The table to the right provides the components of the realized net (loss) gain
on securities from the securities available for sale portfolio. (Realized gains
on marketable equity securities from venture capital investments are reported as
net venture capital gains.)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Year ended December 31,
-------------------------------------------------
(in millions) 2000 1999 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Realized gross gains $ 334 $ 91 $217
Realized gross losses (1,056) (319) (40)
------- ----- ----
Realized net (loss) gain $ (722) $(228) $177
======= ===== ====
- ---------------------------------------------------------------------------------------------
</TABLE>
The table below provides the remaining contractual principal maturities and
yields (taxable-equivalent basis) of debt securities available for sale. The
remaining contractual principal maturities for mortgage-backed securities were
allocated assuming no prepayments. Expected remaining maturities will differ
from contractual maturities because borrowers may have the right to prepay
obligations with or without penalties.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
December 31, 2000
------------------------------------------------------------------------------------------
Remaining contractual principal maturity
-------------------------------------------------------------------------
After one year After five years
Weighted Within one year through five years through ten years After ten years
Total average --------------- ------------------ ----------------- ---------------
(in millions) Amount yield Amount Yield Amount Yield Amount Yield Amount Yield
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities of U.S. Treasury and
federal agencies $ 2,783 6.61% $ 603 6.52% $1,979 6.63% $ 170 6.68% $ 31 6.95%
Securities of U.S. states and
political subdivisions 2,400 7.45 159 7.69 462 7.44 637 7.41 1,142 7.44
Mortgage-backed securities:
Federal agencies 26,995 7.41 151 7.45 362 7.60 695 7.88 25,787 7.39
Private collateralized
mortgage obligations 1,446 9.08 6 6.94 7 8.76 453 7.86 980 9.66
------- ---- ---- ------ -------
Total mortgage-backed securities 28,441 7.49 157 7.43 369 7.62 1,148 7.87 26,767 7.48
Other 2,502 8.18 206 7.23 748 8.65 1,088 8.21 460 7.79
------- ---- ---- ------ -------
ESTIMATED FAIR VALUE
OF DEBT SECURITIES (1) $36,126 7.47% $1,125 6.94% $3,558 7.26% $3,043 7.83% $28,400 7.48%
======= ==== ====== ==== ====== ==== ====== ==== ======= ====
TOTAL COST OF DEBT SECURITIES $35,408 $1,115 $3,529 $3,041 $27,723
======= ====== ====== ====== =======
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The weighted average yield is computed using the amortized cost of debt
securities available for sale.
63
<PAGE>
5.
LOANS AND ALLOWANCE FOR LOAN LOSSES
A summary of the major categories of loans outstanding and related unfunded
commitments is shown in the following table. Unfunded commitments are defined as
all legally binding agreements to extend credit, net of all funds lent, and all
standby and commercial letters of credit issued under the terms of those
commitments. At December 31, 2000 and 1999, the commercial loan category and
related unfunded commitments did not have a concentration in any industry that
exceeded 10% of total loans and unfunded commitments. At December 31, 2000 and
1999, the real estate 1-4 family first mortgage and junior lien mortgage
categories and related unfunded commitments did not have a concentration in any
state that exceeded 10% of total loans and unfunded commitments.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
December 31,
--------------------------------------------------------------
2000 1999
----------------------------- -----------------------------
COMMITMENTS Commitments
TO EXTEND to extend
(in millions) OUTSTANDING CREDIT Outstanding credit
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $ 50,518 $48,636 $ 41,671 $43,251
Real estate 1-4 family first mortgage 18,464 7,653 13,506 2,323
Other real estate mortgage 23,972 3,134 20,899 1,438
Real estate construction 7,715 6,181 6,067 3,603
Consumer:
Real estate 1-4 family junior lien mortgage 18,218 484 12,949 5,912
Credit card 6,616 19,004 5,805 20,004
Other revolving credit and monthly payment 23,974 5,510 20,617 5,356
-------- ------- -------- -------
Total consumer 48,808 24,998 39,371 31,272
Lease financing 10,023 1,847 9,890 308
Foreign 1,624 260 1,600 115
-------- ------- -------- -------
Total loans (1) $161,124 $92,709 $133,004 $82,310
======== ======= ======== =======
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Outstanding loan balances at December 31, 2000 and 1999 are net of unearned
income, including net deferred loan fees, of $3,742 million and $3,378
million, respectively.
In the course of evaluating the credit risk presented by a customer and the
pricing that will adequately compensate the Company for assuming that risk,
management may require a certain amount of collateral support. The type of
collateral held varies, but may include accounts receivable, inventory, land,
buildings, equipment, income-producing commercial properties and residential
real estate. The Company has the same collateral policy for loans whether they
are funded immediately or on a delayed basis(commitment).
A commitment to extend credit is a legally binding agreement to lend funds to
a customer usually at a stated interest rate and for a specified purpose.
Such commitments have fixed expiration dates and generally require a fee. The
extension of a commitment gives rise to credit risk. The actual liquidity
requirements or credit risk that the Company will experience will be lower
than the contractual amount of commitments to extend credit shown in the
table above because a significant portion of those commitments are expected
to expire without being drawn upon. Certain commitments are subject to loan
agreements containing covenants regarding the financial performance of the
customer that must be met before the Company is required to fund the
commitment. The Company uses the same credit policies in making commitments
to extend credit as it does in making loans.
In addition, the Company manages the potential credit risk in commitments to
extend credit by limiting the total amount of arrangements, both by individual
customer and in the aggregate; by monitoring the size and maturity structure of
these portfolios; and by applying the same credit standards maintained for all
of its related credit activities. The credit risk associated with these
commitments is considered in management's determination of the allowance for
loan losses.
Standby letters of credit totaled $5.6 billion and $4.8 billion at December 31,
2000 and 1999, respectively. Standby letters of credit are issued on behalf of
customers in connection with contracts between the customers and third parties.
Under standby letters of credit, the Company assures that the third parties will
receive specified funds if customers fail to meet their contractual obligations.
The liquidity risk to the Company arises from its obligation to make payment in
the event of a customer's contractual default. The credit risk involved in
issuing standby letters of credit and the Company's management of that credit
risk is considered in management's determination of the allowance for loan
losses. Standby letters of credit are reported net of participations sold to
other institutions of $623 million in 2000 and $1.6 billion in 1999.
64
<PAGE>
Included in standby letters of credit are those that back financial instruments
(financial guarantees). The Company had issued or purchased participations in
financial guarantees of approximately $2.3 billion and $2.6 billion at December
31, 2000 and 1999, respectively. The Company also had commitments for commercial
and similar letters of credit of $729 million and $766 million at December 31,
2000 and 1999, respectively. Substantially all fees received from the issuance
of financial guarantees are deferred and amortized on a straight-line basis over
the term of the guarantee.
The Company has an established process to determine the adequacy of the
allowance for loan losses which assesses the risk and losses inherent in its
portfolio. This process provides an allowance consisting of two components,
allocated and unallocated. To arrive at the allocated component of the
allowance, the Company combines estimates of the allowances needed for loans
analyzed individually (including impaired loans subject to Statement of
Financial Accounting Standards No. 114 (FAS 114), ACCOUNTING BY CREDITORS FOR
IMPAIRMENT OF A LOAN) and loans analyzed on a pool basis.
The determination of allocated reserves for portfolios of larger commercial
and commercial real estate loans involves a review of individual higher-risk
transactions, focusing on the accuracy of loan grading, assessments of
specific loss content, and, in some cases, strategies for resolving problem
credits. These considerations supplement the application of loss factors
delineated by individual loan grade to the existing distribution of risk
exposures, thus framing an assessment of inherent losses across the entire
wholesale lending portfolio segment which is responsive to shifts in
portfolio risk content. The loss factors used for this analysis have been
derived from migration models which track actual portfolio movements from
problem asset loan grades to loss over a 5 to 10 year period. In the case of
pass loan grades, the loss factors are derived from analogous loss experience
in public debt markets, calibrated to the long-term average loss experience
of the Company's portfolios. The loan loss reserve allocations arrived at
through this factor methodology are adjusted by management's judgment
concerning the effect of recent economic events on portfolio performance.
In the case of more homogeneous portfolios, such as consumer loans and leases,
residential mortgage loans, and some segments of small business lending, the
determination of allocated reserves is conducted at a more aggregate, or pooled,
level. For portfolios of this nature, the risk assessment process emphasizes the
development of rigorous forecasting models, which focus on recent delinquency
and loss trends in different portfolio segments to project relevant risk metrics
over an intermediate-term horizon. Such analyses are updated frequently to
capture the most recent behavioral characteristics of the subject portfolios, as
well as any changes in management's loss mitigation or customer solicitation
strategies, in order to reduce the differences between estimated and observed
losses. A reserve which approximates one year of projected net losses is
provided as the baseline allocation for most homogeneous portfolios, to which
management will add certain adjustments to help ensure that a prudent amount of
conservatism is present in the specific assumptions underlying that forecast.
While coverage of one year's losses is often adequate (particularly for
homogeneous pools of loans and leases), the time period covered by the allowance
may vary by portfolio, based on the Company's best estimate of the inherent
losses in the entire portfolio as of the evaluation date. To mitigate the
imprecision inherent in most estimates of expected credit losses, the allocated
component of the allowance is supplemented by an unallocated component. The
unallocated component includes management's judgmental determination of the
amounts necessary for concentrations, economic uncertainties and other
subjective factors; correspondingly, the relationship of the unallocated
component to the total allowance for loan losses may fluctuate from period to
period. Although management has allocated a portion of the allowance to specific
loan categories, the adequacy of the allowance must be considered in its
entirety.
The Company's determination of the level of the allowance and,
correspondingly, the provision for loan losses rests upon various judgments
and assumptions, including general economic conditions, loan portfolio
composition, prior loan loss experience and the Company's ongoing examination
process and that of its regulators. The Company has an internal risk analysis
and review staff that continuously reviews loan quality and reports the
results of its examinations to executive management and the Board of
Directors. Such reviews also assist management in establishing the level of
the allowance. Like all national banks, subsidiary national banks continue to
be subject to examination by their primary regulator, the Office of the
Comptroller of the Currency (OCC), and some have OCC examiners in residence.
These examinations occur throughout the year and target various activities of
the subsidiary national banks, including specific segments of the loan
portfolio (for example, commercial real estate and shared national credits).
In addition to the subsidiary national banks being examined by the OCC, the
Parent and its nonbank subsidiaries are examined by the FRB.
The Company considers the allowance for loan losses of $3,719 million adequate
to cover losses inherent in loans, loan commitments and standby and other
letters of credit at December 31, 2000.
65
<PAGE>
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Year ended December 31,
---------------------------------------
(in millions) 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE, BEGINNING OF YEAR $ 3,344 $ 3,307 $ 3,220
Allowances related to business combinations, net 265 48 148
Provision for loan losses 1,329 1,104 1,617
Loan charge-offs:
Commercial (429) (395) (271)
Real estate 1-4 family first mortgage (16) (14) (29)
Other real estate mortgage (32) (28) (54)
Real estate construction (8) (2) (3)
Consumer:
Real estate 1-4 family junior lien mortgage (34) (33) (31)
Credit card (367) (403) (549)
Other revolving credit and monthly payment (623) (585) (1,069)
------- ------- -------
Total consumer (1,024) (1,021) (1,649)
Lease financing (52) (38) (49)
Foreign (86) (90) (84)
------- ------- -------
Total loan charge-offs (1,647) (1,588) (2,139)
------- ------- -------
Loan recoveries:
Commercial 98 90 87
Real estate 1-4 family first mortgage 4 6 12
Other real estate mortgage 13 38 79
Real estate construction 4 5 4
Consumer:
Real estate 1-4 family junior lien mortgage 14 15 7
Credit card 39 49 59
Other revolving credit and monthly payment 213 243 187
------- ------- -------
Total consumer 266 307 253
Lease financing 13 12 12
Foreign 30 15 14
------- ------- -------
Total loan recoveries 428 473 461
------- ------- -------
Total net loan charge-offs (1,219) (1,115) (1,678)
------- ------- --------
BALANCE, END OF YEAR $ 3,719 $ 3,344 $ 3,307
======= ======= =======
Total net loan charge-offs as a percentage of
average total loans .84% .90% 1.44%
======= ======= =======
Allowance as a percentage of total loans 2.31% 2.51% 2.76%
======= ======= =======
- --------------------------------------------------------------------------------------------------------------
</TABLE>
In accordance with FAS 114, the table below shows the recorded investment in
impaired loans categorized by the methodology used to measure impairment at
December 31, 2000 and 1999:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
December 31,
--------------------------
(in millions) 2000 1999
- -----------------------------------------------------------------------------------
<S> <C> <C>
Impairment measurement based on:
Collateral value method $174 $188
Discounted cash flow method 331 74
Historical loss factors 257 114
---- ----
Total (1) $762 $376
==== ====
- -----------------------------------------------------------------------------------
</TABLE>
(1) Includes $345 million and $210 million of impaired loans with a related
FAS 114 allowance of $74 million and $48 million at December 31, 2000 and
1999, respectively.
The average recorded investment in impaired loans during 2000, 1999 and 1998 was
$470 million, $376 million and $456 million, respectively. Total interest income
recognized on impaired loans during 2000, 1999 and 1998 was $4 million, $7
million and $13 million, respectively, which was primarily recorded using the
cash method.
The Company uses either the cash or cost recovery method to record cash receipts
on impaired loans that are on nonaccrual. Under the cash method, contractual
interest is credited to interest income when received. This method is used when
the ultimate collectibility of the total principal is not in doubt. Under the
cost recovery method, all payments received are applied to principal. This
method is used when the ultimate collectibility of the total principal is in
doubt. Loans on the cost recovery method may be changed to the cash method when
the application of the cash payments has reduced the principal balance to a
level where collection of the remaining recorded investment is no longer in
doubt.
66
<PAGE>
6.
PREMISES, EQUIPMENT, LEASE COMMITMENTS, INTEREST RECEIVABLE AND OTHER ASSETS
The following table presents comparative data for premises and equipment:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
December 31,
-----------------------------
(in millions) 2000 1999
- ------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 440 $ 409
Buildings 2,553 2,549
Furniture and equipment 2,942 2,670
Leasehold improvements 761 745
Premises leased under capital leases 75 76
------- ------
Total 6,771 6,449
Less accumulated depreciation and amortization 3,356 3,077
------- ------
Net book value $3,415 $3,372
======= ======
- ------------------------------------------------------------------------------------
</TABLE>
Depreciation and amortization expense was $560 million, $499 million and $510
million in 2000, 1999 and 1998, respectively.
The Company is obligated under a number of noncancelable operating leases for
premises (including vacant premises) and equipment with terms, including renewal
options, up to 100 years, many of which provide for periodic adjustment of
rentals based on changes in various economic indicators. The following table
shows future minimum payments under noncancelable operating leases and capital
leases, net of sublease rentals, with terms in excess of one year as of December
31, 2000:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
(in millions) Operating leases Capital leases
<S> <C> <C>
Year ended December 31,
2001 $ 351 $ 5
2002 300 4
2003 243 4
2004 194 3
2005 150 2
Thereafter 685 13
------ ---
Total minimum lease payments $1,923 31
======
Executory costs (2)
Amounts representing interest (2)
---
Present value of net minimum lease payments $27
===
- ----------------------------------------------------------------------------------------------
</TABLE>
Rental expense, net of rental income, for all operating leases was $499 million,
$418 million and $504 million in 2000, 1999 and 1998, respectively.
The components of interest receivable and other assets at December 31, 2000 and
1999 were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
December 31,
------------------------------------
(in millions) 2000 1999
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Nonmarketable equity investments $ 4,142 $ 3,525
Trading assets 3,777 2,690
Interest receivable 1,516 1,286
Government National Mortgage Association
(GNMA) pool buy-outs 1,510 1,516
Certain identifiable intangible assets 227 264
Foreclosed assets 128 161
Interest-earning deposits 95 199
Due from customers on acceptances 85 103
Other 10,449 6,808
------- -------
Total interest receivable and other assets $21,929 $16,552
======= =======
- -----------------------------------------------------------------------------------------
</TABLE>
Noninterest income from nonmarketable equity investments accounted for using the
cost method was $170 million, $138 million and $151 million in 2000, 1999 and
1998, respectively.
GNMA pool buy-outs are advances made to GNMA mortgage pools that are guaranteed
by the Federal Housing Administration or by the Department of Veterans Affairs
(collectively, "the guarantors"). These advances are made to buy out government
agency-guaranteed delinquent loans, pursuant to the Company's servicing
agreements. The Company, on behalf of the guarantors, undertakes the collection
and foreclosure process. After the foreclosure process is complete, the Company
is reimbursed for substantially all costs incurred, including the advances, by
the guarantors.
A significant portion of trading assets consists of securities, including U.S.
government agency obligations, commercial paper and U.S. Treasury Bills.
Interest income from trading assets was $98 million, $81 million and $108
million in 2000, 1999 and 1998, respectively. Noninterest income from trading
assets was $238 million, $112 million and $207 million in 2000, 1999 and 1998,
respectively.
Amortization expense for certain identifiable intangible assets included in
other assets was $42 million, $68 million and $87 million in 2000, 1999 and
1998, respectively.
A major portion of the increase in "Other" was due to an increase of $1.6
billion in receivables from security sales pending settlement.
67
<PAGE>
7.
DEPOSITS
The aggregate amount of time certificates of deposit and other time deposits
issued by domestic offices was $36,207 million and $32,589 million at December
31, 2000 and 1999, respectively. Substantially all of those deposits were
interest bearing. The contractual maturities of those deposits are shown in the
following table.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
(in millions) December 31, 2000
<S> <C>
2001 $28,475
2002 5,509
2003 1,160
2004 444
2005 379
Thereafter 240
-------
Total $36,207
=======
- -----------------------------------------------------------------------------
</TABLE>
Of the total above, the amount of time deposits with a denomination of $100,000
or more was $9,741 million and $9,909 million at December 31, 2000 and 1999,
respectively. The contractual maturities of these deposits are shown in the
following table.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
(in millions) December 31, 2000
<S> <C>
Three months or less $4,401
After three months through six months 2,009
After six months through twelve months 2,231
After twelve months 1,100
------
Total $9,741
======
- -----------------------------------------------------------------------------
</TABLE>
Time certificates of deposit and other time deposits issued by foreign offices
with a denomination of $100,000 or more represent substantially all of the
foreign deposit liabilities of $7,712 million and $3,914 million at December 31,
2000 and 1999, respectively.
Demand deposit overdrafts that have been reclassified as loan balances were $749
million and $903 million at December 31, 2000 and 1999, respectively.
68
<PAGE>
8.
SHORT-TERM BORROWINGS
The table below shows selected information for short-term borrowings. These
borrowings generally mature in less than 30 days.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
2000 1999 1998
----------------- ----------------- -----------------
(in millions) AMOUNT RATE Amount Rate Amount Rate
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31,
Commercial paper and other short-term borrowings $15,844 6.64% $17,246 6.06% $ 9,579 5.26%
Federal funds purchased and securities sold under
agreements to repurchase 13,145 5.81 14,481 4.73 10,091 4.41
-------- -------- --------
Total $28,989 6.26 $31,727 5.45 $19,670 4.82
======== ======== ========
YEAR ENDED DECEMBER 31,
AVERAGE DAILY BALANCE
Commercial paper and other short-term borrowings $14,375 6.43% $10,272 5.40% $ 7,706 5.60%
Federal funds purchased and securities sold under
agreements to repurchase 13,847 6.03 12,287 4.69 10,221 5.17
-------- -------- --------
Total $28,222 6.23 $22,559 5.00 $17,927 5.36
======== ======== ========
MAXIMUM MONTH-END BALANCE
Commercial paper and other short-term borrowings (1) $17,730 N/A $17,246 N/A $10,272 N/A
Federal funds purchased and securities sold under
agreements to repurchase (2) 16,535 N/A 15,147 N/A 13,840 N/A
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
N/A - Not applicable.
(1) Highest month-end balance in each of the last three years appeared in
January 2000, December 1999 and October 1998, respectively.
(2) Highest month-end balance in each of the last three years appeared in
August 2000, August 1999 and April 1998, respectively.
At December 31, 2000, the Company had available lines of credit totaling $3.9
billion, of which $1.9 billion was obtained through a subsidiary, Wells Fargo
Financial. The remaining $2.0 billion was in the form of a revolving credit
facility. A portion of these financing arrangements require the maintenance of
compensating balances or payment of fees, which are not material.
69
<PAGE>
9.
LONG-TERM DEBT
The following is a summary of long-term debt (reflecting unamortized debt
discounts and premiums, where applicable) owed by the Parent and its
subsidiaries:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Maturity Interest
(in millions) date rate(s) 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WELLS FARGO & COMPANY (PARENT ONLY)
SENIOR
Global Notes (1) 2002 - 2005 6.5 - 7.25% $ 3,986 $ 2,243
Global Notes 2001 - 2002 Various 1,997 747
Medium-Term Notes (1) 2001 - 2006 5.625 - 8.15% 2,095 3,993
Medium-Term Notes 2002 - 2027 6.75 - 7.75% 620 820
Floating-Rate Medium-Term Notes 2001 - 2002 Various 2,100 2,100
Floating-Rate Euro Medium-Term Notes 2001 Various 300 300
Notes 2004 6.00% 1 1
Notes (1) 2000 6.00% -- 200
Extendable Notes (2) 2005 Various 1,497 --
------- -------
Total senior debt - Parent 12,596 10,404
------- -------
SUBORDINATED
Notes (1) 2003 6.625% 199 199
Debentures 2023 6.65% 198 198
Other notes (1) 2003 6.625 - 6.75% 1 3
------- -------
Total subordinated debt - Parent 398 400
------- -------
Total long-term debt - Parent 12,994 10,804
------- -------
WFC HOLDINGS CORPORATION
SENIOR
Medium-Term Notes (1) 2001 - 2002 6.875 - 10.83% 220 221
Medium-Term Notes 2001 - 2002 9.04 - 10.9% 15 15
Notes payable by subsidiaries 48 51
Other notes and debentures 2003 8.5% 3 4
Obligations of subsidiaries under capital leases (Note 6) 11 15
------- -------
Total senior debt - WFC Holdings 297 306
------- -------
SUBORDINATED
Floating-Rate Notes (3) 2000 Various -- 118
Notes 2002 - 2003 6.125 - 8.75% 732 732
Notes (1) 2004 9.125% 135 133
Notes (1) 2006 6.875 - 7.125% 798 798
Notes (1)(4) 2008 6.25% 199 199
Medium-Term Notes (1)(4) 2001 - 2013 6.5 - 11.25% 173 177
Medium-Term Notes 2002 9.375% 30 30
------- -------
Total subordinated debt - WFC Holdings 2,067 2,187
------- -------
Total long-term debt - WFC Holdings 2,364 2,493
------- -------
WELLS FARGO FINANCIAL, INC. AND ITS SUBSIDIARIES (WFFI)
SENIOR
Notes 2001 - 2009 5.375 - 8.56% 5,068 4,511
Floating-Rate Notes 2001 - 2002 Various 1,020 571
Medium-Term Notes 2001 - 2008 5.38 - 7.47% 881 832
------- -------
Total long-term debt - WFFI $6,969 $5,914
------- -------
- ---------------------------------------------------------------------------------------------------------------------------------
(continued)
</TABLE>
70
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Maturity Interest
(in millions) date rate(s) 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FIRST SECURITY CORPORATION AND ITS SUBSIDIARIES (FSCO)
SENIOR
Medium-Term Notes 2001 - 2003 6.08 - 6.40% $ 24 $ 24
Floating-Rate Notes 2000 Various -- 200
Floating-Rate Euro Medium-Term Notes (5) 2002 Various 300 300
Floating-Rate Euro Medium-Term Notes 2003 Various 285 285
Federal Home Loan Bank (FHLB) Notes and Advances 2001 - 2020 3.0 - 8.174% 796 2,000
Notes 2003 - 2006 5.875 - 6.875% 475 475
Other notes payable (6) 2001 - 2007 5 7
------- -------
Total senior debt 1,885 3,291
------- -------
SUBORDINATED
Notes 2002 - 2005 7.0 - 7.50% 200 200
Notes 2006 Various 34 --
------- -------
Total subordinated debt 234 200
------- -------
Total long-term debt - FSCO 2,119 3,491
------- -------
WELLS FARGO BANK, N.A.
SUBORDINATED
Floating-Rate Notes (7) 2005 Various 750 --
FixFloat Notes (callable 6/15/2005) (1) 2010 7.8% through 2005, Various 996 --
Notes (1) 2010 7.55% 747 --
------- -------
Total long-term debt - WFB, N.A. 2,493 --
------- -------
OTHER CONSOLIDATED SUBSIDIARIES
SENIOR
FHLB Notes and Advances (8) 2001 - 2027 3.15 - 8.38% 367 345
Floating-Rate FHLB Advances (8) 2001 - 2011 6.596 - 6.834% 4,409 3,775
Notes 2000 12.25% -- 1
Other notes and debentures 2001 - 2015 3.00 - 12.00% 316 28
Capital lease obligations (Note 6) 15 15
------- -------
Total long-term debt - other consolidated subsidiaries 5,107 4,164
------- -------
Total consolidated long-term debt $32,046 $26,866
======= =======
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company entered into interest rate swap agreements for substantially
all of these notes, whereby the Company receives fixed-rate interest
payments approximately equal to interest on the notes and makes interest
payments based on an average three-month or six-month LIBOR rate.
(2) The extendable notes are a floating rate security with an initial maturity
of 13 months, which can be extended on a rolling basis, at the investor's
option to a final maturity of 5 years.
(3) Notes are currently redeemable in whole or in part, at par, or at any time
in the event withholding taxes are imposed by the United States.
(4) The interest rate swap agreement for these notes is callable by the
counterparty prior to the maturity of the notes.
(5) The Company entered into an interest rate swap agreement for these notes,
whereby the Company receives interest payments based on an average
three-month LIBOR rate and makes fixed-rate interest payments ranging from
5.625% to 5.65%.
(6) The notes are tied to low-income housing funding.
(7) The notes are callable on the interest payment dates at par.
(8) The maturities of the FHLB advances are determined quarterly, based on the
outstanding balance, the then current LIBOR rate, and the maximum life of
the advance. Advances maturing within the next year are expected to be
refinanced, extending the maturity of such borrowings beyond one year.
71
<PAGE>
At December 31, 2000, the principal payments, including sinking fund payments,
on long-term debt are due as noted in the following table.
<TABLE>
<CAPTION>
-----------------------------------------------------
(in millions) Parent Company
-----------------------------------------------------
<S> <C> <C>
2001 $ 3,047 $ 8,936
2002 1,750 4,053
2003 2,524 5,169
2004 1,500 2,724
2005 2,973 4,820
Thereafter 1,200 6,344
------- -------
Total $12,994 $32,046
======= =======
-----------------------------------------------------
</TABLE>
The interest rates on floating-rate notes are determined periodically by
formulas based on certain money market rates, subject, on certain notes, to
minimum or maximum interest rates.
Certain of the agreements under which debt has been issued contain provisions
that may limit the merger or sale of certain subsidiary banks and the issuance
of capital stock or convertible securities by certain subsidiary banks. The
Company was in compliance with the provisions of those borrowing agreements at
December 31, 2000.
10.
GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANY'S SUBORDINATED DEBENTURES
The Company established special purpose trusts in 1996 and 1997 for the
purpose of issuing trust preferred securities. The proceeds from such
issuances, together with the proceeds of the related issuances of common
securities of the trusts, were invested in junior subordinated deferrable
interest debentures (debentures) of holding companies (WFC Holdings and First
Security) that are now direct subsidiaries of the Parent (the holding company
subsidiaries). Concurrent with the issuance of the preferred securities by
the trusts, the holding company subsidiaries issued guarantees for the
benefit of the security holders. These trust preferred securities provide the
Company with a more cost-effective means of obtaining Tier 1 capital for
regulatory purposes than if the Company itself were to issue additional
preferred stock because the Company is allowed to deduct, for income tax
purposes, distributions to the holders of the trust preferred securities. The
sole assets of these special purpose trusts are the debentures. The holding
company subsidiaries own all of the common securities of the six trusts
detailed in the table below. The common securities and debentures, along with
the related income effects, are eliminated within the consolidated financial
statements. The preferred securities issued by the trusts rank senior to the
common securities. The obligations of the holding company subsidiaries under
the debentures, the indentures, the relevant trust agreements and the
guarantees, in the aggregate, constitute a full and unconditional guarantee
by them of the obligations of the trusts under the trust preferred securities
and rank subordinate and junior in right of payment to all of their other
liabilities. At the time of the WFC Merger, the Parent guaranteed the
obligations previously issued by the former Wells Fargo & Company.
72
<PAGE>
The trust preferred securities are subject to mandatory redemption at the
stated maturity date of the debentures, upon repayment of the debentures, or
earlier, pursuant to the terms of the Trust Agreement. The table below
summarizes the outstanding preferred securities issued by each special
purpose trust and the debentures issued by the holding company subsidiaries
to each trust as of December 31, 2000:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
(in millions) Trust preferred securities
and debentures Interest
Trust preferred securities Principal ------------------------- payable/
-------------------------- balance of Stated Annualized distribution
Trust name Issuance date Amount debentures maturity coupon rate dates (1)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Wells Fargo Capital A November 1996 $ 85 $ 94 December 1, 2026 8.13% Semi-annual -
June 1 and
December 1
Wells Fargo Capital B November 1996 153 159 December 1, 2026 7.95% Semi-annual -
June 1 and
December 1
Wells Fargo Capital C November 1996 186 194 December 1, 2026 7.73% Semi-annual -
June 1 and
December 1
Wells Fargo Capital I December 1996 212 224 December 15, 2026 7.96% Semi-annual -
June 15 and
December 15
Wells Fargo Capital II January 1997 149 155 January 30, 2027 LIBOR + .5% Quarterly -
January 30,
April 30,
July 30 and
October 30
First Security Capital I December 1996 150 150 December 15, 2026 8.41% Semi-annual -
June 15 and
December 15
-----
Total $935
=====
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) All distributions are cumulative.
On or after December 2006 for Wells Fargo Capital A, Wells Fargo Capital B,
Wells Fargo Capital C, Wells Fargo Capital I and First Security Capital I and
on or after January 2007 for Wells Fargo Capital II, each of the series of
trust preferred securities may be redeemed and the corresponding debentures
may be prepaid at the option of the Company, subject to FRB approval, at
declining redemption prices with respect to the Wells Fargo Capital
securities. Prior to December 2006 for Wells Fargo Capital A, Wells Fargo
Capital B, Wells Fargo Capital C, Wells Fargo Capital I, and First Security
Capital I and prior to January 2007 for Wells Fargo Capital II, the
securities may be redeemed at the option of the Company on the occurrence of
certain events that result in a negative tax impact, negative regulatory
impact on the trust preferred securities or negative legal or regulatory
impact on the appropriate special purpose trust which would define it as an
investment company. In addition, the Company has the right to defer payment
of interest on the debentures and, therefore, distributions on the trust
preferred securities for up to five years.
73
<PAGE>
11.
PREFERRED STOCK
The Company is authorized to issue 20,000,000 shares of preferred stock and
4,000,000 shares of preference stock, both without par value. All preferred
shares outstanding rank senior to common shares both as to dividends and
liquidation preference but have no general voting rights. No preference shares
have been issued under this authorization.
The following table is a summary of preferred stock:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Shares issued Carrying amount Dividends declared
and outstanding (in millions) (in millions)
--------------------- ----------------- Adjustable -----------------------
December 31, December 31, dividend rate Year ended December 31,
--------------------- ----------------- ---------------- ----------------------
2000 1999 2000 1999 Minimum Maximum 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Adjustable-Rate Cumulative, Series B
(Liquidation preference $50) 1,468,400 1,500,000 $ 73 $ 75 5.5% 10.5% $ 4 $ 4 $ 4
6.59%/Adjustable-Rate Noncumulative
Preferred Stock, Series H
(Liquidation preference $50) (1) 4,000,000 4,000,000 200 200 7.0 13.0 13 13 13
2000 ESOP Cumulative Convertible
(Liquidation preference $1,000) 55,273 -- 55 -- 11.50 12.50 -- -- --
1999 ESOP Cumulative Convertible
(Liquidation preference $1,000) 18,206 22,263 18 22 10.30 11.30 -- -- --
1998 ESOP Cumulative Convertible
(Liquidation preference $1,000) 7,631 8,386 8 8 10.75 11.75 -- -- --
1997 ESOP Cumulative Convertible
(Liquidation preference $1,000) 9,542 10,839 10 11 9.50 10.50 -- -- --
1996 ESOP Cumulative Convertible
(Liquidation preference $1,000) 10,211 12,011 10 12 8.50 9.50 -- -- --
1995 ESOP Cumulative Convertible
(Liquidation preference $1,000) 8,285 11,990 8 12 10.0 10.0 -- -- --
ESOP Cumulative Convertible
(Liquidation preference $1,000) 2,656 3,732 3 4 9.0 9.0 -- -- --
Unearned ESOP shares (2) -- -- (118) (73) -- -- -- -- --
$3.15 Cumulative Convertible
Preferred Stock, Series A -- 9,000 -- -- -- -- -- -- --
--------- --------- ----- ---- --- --- ---
Total 5,580,204 5,578,221 $ 267 $271 $17 $17 $17
========= ========= ===== ==== === === ===
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Annualized dividend rate is 6.59% through October 1, 2001, after which the
rate will become adjustable, subject to the minimum and maximum rates
disclosed.
(2) In accordance with the American Institute of Certified Public Accountants
(AICPA) Statement of Position 93-6, EMPLOYERS' ACCOUNTING FOR EMPLOYEE
STOCK OWNERSHIP PLANS, the Company recorded a corresponding charge to
unearned ESOP shares in connection with the issuance of the ESOP Preferred
Stock. The unearned ESOP shares are reduced as shares of the ESOP Preferred
Stock are committed to be released. For information on dividends declared,
see Note 12.
74
<PAGE>
ADJUSTABLE-RATE CUMULATIVE PREFERRED STOCK, SERIES B These shares are redeemable
at the option of the Company at $50 per share plus accrued and unpaid dividends.
Dividends are cumulative and payable quarterly on the 15th of February, May,
August and November. For each quarterly period, the dividend rate is 76% of the
highest of the three-month Treasury bill discount rate, 10-year constant
maturity Treasury security yield or 20-year constant maturity Treasury bond
yield, but limited to a minimum of 5.5% and a maximum of 10.5% per year. The
average dividend rate was 5.6% during 2000 and 5.5% in 1999 and 1998.
6.59%/ADJUSTABLE-RATE NONCUMULATIVE PREFERRED STOCK, SERIES H These shares are
redeemable at the option of the Company on or after October 1, 2001 at a price
of $50 per share plus accrued and unpaid dividends. Dividends are noncumulative
and payable on the first day of each calendar quarter at an annualized rate of
6.59% through October 1, 2001. The dividend rate after October 1, 2001 will be
equal to .44% plus the highest of the Treasury bill discount rate, the 10-year
constant maturity rate and the 30-year constant maturity rate, as determined in
advance of such dividend period, limited to a minimum of 7% and a maximum of
13%.
ESOP CUMULATIVE CONVERTIBLE PREFERRED STOCK All shares of the Company's 2000,
1999, 1998, 1997, 1996 and 1995 ESOP Cumulative Convertible Preferred Stock and
ESOP Cumulative Convertible Preferred Stock (collectively, ESOP Preferred Stock)
were issued to a trustee acting on behalf of the Wells Fargo & Company 401(k)
Plan (formerly known as the Norwest Corporation Savings Investment Plan).
Dividends on the ESOP Preferred Stock are cumulative from the date of initial
issuance and are payable quarterly at annual rates ranging from 8.50 percent to
12.50 percent, depending upon the year of issuance. Each share of ESOP Preferred
Stock released from the unallocated reserve of the Plan is converted into shares
of common stock of the Company based on the stated value of the ESOP Preferred
Stock and the then current market price of the Company's common stock. The ESOP
Preferred Stock is also convertible at the option of the holder at any time,
unless previously redeemed. The ESOP Preferred Stock may be redeemed at any
time, in whole or in part, at the option of the Company at a redemption price
per share equal to the higher of (a) $1,000 per share plus accrued and unpaid
dividends and (b) the fair market value, as defined in the Certificates of
Designation of the ESOP Preferred Stock.
75
<PAGE>
12.
COMMON STOCK AND STOCK PLANS
COMMON STOCK
The table below summarizes common stock reserved, issued and authorized as of
December 31, 2000:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Number of shares
- --------------------------------------------------------------------------------------------------------------
<S> <C>
Convertible subordinated debentures and warrants (1) 8,942,372
Acquisition contingencies 169,397
Dividend reinvestment and common stock purchase plans 3,066,921
Director plans 1,459,066
Employee stock plans 218,941,855
-------------
Total shares reserved 232,579,611
Shares issued 1,736,381,025
Shares not reserved 2,031,039,364
-------------
Total shares authorized 4,000,000,000
=============
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes warrants issued by the Company to subsidiaries in 1996 (expiring
in 2001) to purchase 8,928,172 shares of the Company's common stock at
$42.50 per share.
Each share of the Company's common stock includes one preferred share purchase
right. These rights will become exercisable only if a person or group acquires
or announces an offer to acquire 15 percent or more of the Company's common
stock. When exercisable, each right will entitle the holder to buy one
one-thousandth of a share of a new series of junior participating preferred
stock at a price of $160 for each one one-thousandth of a preferred share. In
addition, upon the occurrence of certain events, holders of the rights will be
entitled to purchase either the Company's common stock or shares in an
"acquiring entity" at one-half of the then current market value. The Company
will generally be entitled to redeem the rights at one cent per right at any
time before they become exercisable. The rights will expire on November 23,
2008, unless extended, previously redeemed or exercised. The Company has
reserved 1.7 million shares of preferred stock for issuance upon exercise of the
rights.
DIVIDEND REINVESTMENT AND COMMON STOCK PURCHASE PLANS
The Company's dividend reinvestment and common stock direct purchase plans
permit participants to purchase at fair market value shares of the Company's
common stock by reinvestment of dividends and/or optional cash payments, subject
to the terms of the plan.
DIRECTOR PLANS
Under the Company's director plans, non-employee directors receive stock as part
of their annual retainer. These plans provide for annual grants of options to
purchase common stock to each non-employee director elected or re-elected at the
annual meeting of stockholders. Options granted become exercisable after six
months and may be exercised until the tenth anniversary of the date of grant.
Compensation expense for the options is measured as the quoted market price of
the stock at the date of grant less the exercise price and is accrued over the
vesting period.
EMPLOYEE STOCK PLANS
LONG-TERM INCENTIVE PLANS The Company's stock incentive plans provide for awards
of incentive and nonqualified stock options, stock appreciation rights,
restricted shares, restricted share rights, performance awards and stock awards
without restrictions. Employee stock options can be granted with exercise prices
at or above the fair market value (as defined in the plan) of the stock at the
date of grant and with terms of up to ten years. The options generally become
fully exercisable over three years from the date of grant. Except as otherwise
permitted under the plan, upon termination of employment for reasons other than
retirement, permanent disability or death, the option period is reduced or the
options are canceled. Options also may include the right to acquire a "reload"
stock option. If an option contains the reload feature and if a participant pays
all or part of the exercise price of the option with shares of stock purchased
in the market or held by the participant for at least six months, upon exercise
of the option, the participant is granted a new option to purchase, at the fair
market value of the stock as of the date of the reload, the number of shares of
stock equal to the sum of the number of shares used in payment of the exercise
price and a number of shares with respect to related taxes. No compensation
expense was recorded for the options granted under the plans, as the exercise
price was equal to the quoted market price of the stock at the date of grant.
The total number of shares of common stock available for grant under the plans
as of December 31, 2000 was 66,691,754.
76
<PAGE>
Holders of restricted shares and restricted share rights are entitled at no
cost to the related shares of common stock generally over three to five years
after the restricted shares or restricted share rights were granted. Upon
grant of the restricted shares or restricted share rights, holders generally
are entitled to receive quarterly cash payments equal to the cash dividends
that would be paid on common stock equal to the number of restricted shares
or restricted share rights. Except in limited circumstances, restricted
shares and restricted share rights are canceled upon termination of
employment. In 2000, 1999 and 1998, 56,636, 204,868 and 371,560 restricted
shares and restricted share rights were granted, respectively, with a
weighted-average grant-date per share fair value of $40.61, $43.24 and
$37.72, respectively. As of December 31, 2000, 1999 and 1998, there were
1,450,074, 2,423,999 and 3,086,500 restricted shares and restricted share
rights outstanding, respectively. The compensation expense for the restricted
shares and restricted share rights equals the quoted market price of the
related stock at the date of grant and is accrued over the vesting period.
The total compensation expense recognized for the restricted shares and
restricted share rights was $6 million, $21 million and $9 million in 2000,
1999 and 1998, respectively.
In connection with various acquisitions and mergers since 1992, the Company
converted employee and director stock options of acquired or merged companies
into stock options to purchase the Company's common stock based on the terms of
the original stock option plan and the agreed-upon exchange ratio.
BROAD-BASED PLANS In 1996, the Company adopted the Best Practices
PARTNERSHARES-Registered Tradmark- Plan, a broad-based employee stock option
plan covering full- and part-time employees who were not participants in the
long-term incentive plans described above. The total number of shares of common
stock authorized for issuance under the plan since inception through December
31, 2000 was 67,000,000, including 10,077,400 shares available for grant.
Options granted under the PARTNERSHARES Plan have an exercise date that
generally is the earlier of five years after the date of grant or when the
quoted market price of the stock reaches a predetermined price. Those options
generally expire ten years after the date of grant. Because the exercise price
of each PARTNERSHARES grant has been equal to or higher than the quoted market
price of the Company's common stock at the date of grant, no compensation
expense is recognized.
The following table summarizes the Company's stock option activity and related
information for the three years ended December 31, 2000:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Director Plans Long-Term Incentive Plans Broad-Based Plans (5)
------------------------ ----------------------------- -------------------------
Weighted- Weighted- Weighted-
average average average
exercise exercise exercise
Number price Number price Number price
<S> <C> <C> <C> <C> <C> <C>
OPTIONS OUTSTANDING AS OF
DECEMBER 31, 1997 575,193 $15.77 66,573,661 $21.37 25,241,910 $29.21
-------- ----------- ----------
1998:
Granted 104,030 (1) 40.76 10,174,089 (2)(3) 37.53 21,295,860 (4) 37.29
Canceled -- -- (1,559,438) 27.66 (2,866,310) 31.22
Exercised (116,633) 12.71 (11,057,166) 15.31 (1,865,480) 21.40
-------- ----------- ----------
OPTIONS OUTSTANDING AS OF
DECEMBER 31, 1998 562,590 21.02 64,131,146 24.78 41,805,980 33.60
-------- ----------- ----------
1999:
Granted 38,253 (1) 42.60 17,492,150 (2)(3) 39.59 -- --
Canceled -- -- (2,198,973) 28.30 (7,836,842) 34.76
Exercised (75,745) 16.57 (12,817,198) 19.63 (1,454,838) 24.40
-------- ----------- ----------
OPTIONS OUTSTANDING AS OF
DECEMBER 31, 1999 525,098 23.24 66,607,125 29.53 32,514,300 33.72
-------- ----------- ----------
2000:
GRANTED 28,080 (1) 42.75 23,183,070 (2)(3) 35.63 23,160,800 46.50
CANCELED (5,005) 25.04 (1,896,001) 35.74 (4,827,800) 36.81
EXERCISED (115,495) 12.94 (13,906,642) 22.93 (390,695) 18.19
ACQUISITIONS -- -- 797,076 20.43 -- --
-------- ----------- ----------
OPTIONS OUTSTANDING AS OF
DECEMBER 31, 2000 432,678 $27.23 74,784,628 $32.39 50,456,605 $39.41
======== ====== =========== ====== ========== ======
Outstanding options
exercisable as of:
December 31, 1998 475,378 $17.56 38,290,197 $19.55 3,255,200 $22.05
December 31, 1999 511,225 22.06 39,582,781 24.86 1,646,500 17.64
DECEMBER 31, 2000 432,678 27.23 44,893,948 30.36 1,309,005 18.33
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The weighted-average per share fair value of options granted was $12.60,
$12.09 and $14.38 for 2000, 1999 and 1998, respectively.
(2) The weighted-average per share fair value of options granted was $10.13,
$10.16 and $8.18 for 2000, 1999 and 1998, respectively.
(3) Includes 2,029,063, 2,285,910 and 2,094,111 reload grants at December 31,
2000, 1999 and 1998, respectively.
(4) The weighted-average per share fair value of options granted was $5.42 for
1998.
(5) Activity for broad-based plans in 1999 and 1998 includes the options
related to the Employee Stock Purchase
Plan, which was discontinued in 1999. The Employee Stock Purchase Plan
allowed eligible employees of the former Wells Fargo to purchase common
stock at a price of the lower of (1) the quoted market price of the stock
at the date of grant or (2) 85% of the quoted market price at the end of
the one-year option term.
77
<PAGE>
The following table is a summary of selected information for the Company's stock
option plans described on the preceding page:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
December 31, 2000
--------------------------------------------------------
Weighted-
average Weighted-
remaining average
contractual exercise
life (in yrs.) Number price
- -------------------------------------------------------------------------------------------------------------------
<S> <S> <C> <C>
RANGE OF EXERCISE PRICES
DIRECTOR PLANS
$0.10-$7.83
Options outstanding/exercisable 1.07 37,390 $ 6.46
$7.84-$13.48
Options outstanding/exercisable 2.68 23,210 11.78
$13.49-$16.00
Options outstanding/exercisable 4.01 70,940 15.22
$16.01-$25.04
Options outstanding/exercisable 4.80 45,572 19.90
$25.05-$38.29
Options outstanding/exercisable 6.36 169,620 30.17
$38.30-$51.00
Options outstanding/exercisable 8.42 85,946 48.45
LONG-TERM INCENTIVE PLANS
$3.37-$5.06
Options outstanding/exercisable 6.64 99,394 4.35
$5.07-$7.60
Options outstanding/exercisable 1.19 646,138 7.22
$7.61-$11.41
Options outstanding 2.02 743,242 10.44
Options exercisable 2.01 741,237 10.44
$11.42-$17.13
Options outstanding 2.99 5,824,601 13.99
Options exercisable 2.94 5,659,731 13.94
$17.14-$25.71
Options outstanding 3.59 4,099,854 20.21
Options exercisable 3.73 3,804,553 20.21
$25.72-$38.58
Options outstanding 7.54 54,144,239 33.69
Options exercisable 6.34 27,566,741 32.56
$38.59-$71.30
Options outstanding 7.41 9,227,160 45.63
Options exercisable 6.42 6,376,154 46.51
BROAD-BASED PLANS
$16.56-$24.84
Options outstanding/exercisable 5.56 1,173,405 16.56
$24.85-$37.81
Options outstanding 7.26 26,629,000 34.39
Options exercisable 7.13 135,600 33.65
$37.82-$46.50
Options outstanding 9.85 22,654,200 46.50
Options exercisable N/A -- N/A
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
N/A - Not applicable
In accordance with FAS 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, the Company
has elected to continue applying the provisions of Accounting Principles Board
Opinion 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, in accounting for the
stock plans described above. Had compensation cost for those stock plans been
determined based on the (optional) fair value method established by FAS 123, the
Company's net income and earnings per common share would have been reduced to
the pro forma amounts indicated below.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Year ended December 31,
-------------------------------------
(in millions, except per common share amounts) 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income
As reported $4,026 $4,012 $2,191
Pro forma (1) 3,914 3,909 2,104
Earnings per common share
As reported $ 2.36 $ 2.32 $ 1.28
Pro forma (1) 2.29 2.26 1.23
Diluted earnings per common share
As reported $ 2.33 $ 2.29 $ 1.26
Pro forma (1) 2.27 2.23 1.21
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The pro forma amounts noted above only reflect the effects of stock-based
compensation grants made after 1995. Because stock options may be granted
each year and generally vest over three years, these pro forma amounts may
not reflect the full effect of applying the (optional) fair value method
established by FAS 123 that would be expected if all outstanding stock
option grants were accounted for under this method.
The fair value of each option grant is estimated based on the date of grant
using an option-pricing model. The following weighted-average assumptions were
used in 2000, 1999 and 1998: expected dividend yield ranging from 1.4% to 3.4%;
expected volatility ranging from 20.0% to 42.0%; risk-free interest rates
ranging from 4.4% to 7.8% and expected life ranging from 0.1 to 6.6 years.
78
<PAGE>
EMPLOYEE STOCK OWNERSHIP PLAN The Wells Fargo & Company 401(k) Plan (the
401(k) Plan) is a defined contribution employee stock ownership plan (ESOP)
under which the 401(k) Plan may borrow money to purchase the Company's common
or preferred stock. Beginning in 1994, the Company has loaned money to the
401(k) Plan which has been used to purchase shares of the Company's ESOP
Preferred Stock. As ESOP Preferred Stock is released and converted into
common shares, compensation expense is recorded equal to the current market
price of the common shares. Dividends on the common shares allocated as a
result of the release and conversion of the ESOP Preferred Stock are recorded
as a reduction of retained earnings and the shares are considered outstanding
for purposes of earnings per share computations. Dividends on the unallocated
ESOP Preferred Stock are not recorded as a reduction of retained earnings,
and the shares are not considered to be common stock equivalents for purposes
of earnings per share computations. Loan principal and interest payments are
made from the Company's contributions to the 401(k) Plan, along with
dividends paid on the ESOP Preferred Stock. With each principal and interest
payment, a portion of the ESOP Preferred Stock is released and, after
conversion of the ESOP Preferred Stock into common shares, allocated to the
401(k) Plan participants.
In 1989, the Company loaned money to the 401(k) Plan which was used to purchase
shares of the Company's common stock (the 1989 ESOP shares). The Company
accounted for the 1989 ESOP shares in accordance with AICPA Statement of
Position 76-3, ACCOUNTING PRACTICES FOR CERTAIN EMPLOYEE STOCK OWNERSHIP PLANS.
Accordingly, the Company's ESOP loan to the 401(k) Plan related to the purchase
of the 1989 ESOP shares was recorded as a reduction of stockholders' equity, and
compensation expense based on the cost of the shares was recorded as shares were
released and allocated to participants' accounts. The loan from the Company to
the 401(k) Plan was repaid in 1999. Interest income on this loan was $.1 million
in 1999 and $1 million in 1998 and was recorded as a reduction in employee
benefits expense. The 1989 ESOP shares were considered outstanding for purposes
of earnings per share computations and dividends on the shares are recorded as a
reduction to retained earnings. The Company issued Series A and B ESOP Notes in
the market place in connection with the purchase of common shares. Series B ESOP
matured April 26, 1999 and Series A matured in 1996. Total interest expense on
the Series B ESOP Notes was $.1 million in 1999 and $1 million in 1998.
Total dividends paid to the 401(k) Plan on ESOP shares were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Year ended December 31,
-------------------------------------
(in millions) 2000 1999 1998
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ESOP Preferred Stock:
Common dividends $11 $ 7 $ 6
Preferred dividends 14 11 9
1989 ESOP shares:
Common dividends 11 11 11
--- --- ---
Total $36 $29 $26
=== === ===
- ----------------------------------------------------------------------------------------------
</TABLE>
The ESOP shares as of December 31, 2000, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
December 31,
-------------------------------------------------
2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ESOP Preferred Stock:
Allocated shares (common) 13,716,692 10,784,773 8,592,898
Unreleased shares (preferred) 111,804 69,221 80,362
1989 ESOP shares:
Allocated shares 10,988,083 13,016,033 15,018,861
Unreleased shares 39,558 76,070 320,285
Fair value of unearned
ESOP shares (in millions) $ 112 $ 69 $ 80
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
79
<PAGE>
13.
EMPLOYEE BENEFITS AND OTHER EXPENSES
EMPLOYEE BENEFITS
The Company sponsors noncontributory qualified defined benefit retirement plans
including the Cash Balance Plan and the First Security Corporation Retirement
Plan. The Cash Balance plan is an active plan and it covers eligible employees
of the Company except certain subsidiaries. The FSCO Retirement Plan is an
inactive plan, which provides benefits to eligible employees of First Security.
All benefits under the FSCO Retirement Plan were frozen effective December 31,
2000.
Under the Cash Balance Plan, eligible employees' Cash Balance Plan accounts are
allocated a compensation credit based on a certain percentage of their certified
compensation. The compensation credit percentage is based on age and years of
credited service. In addition, participants are allocated at the end of each
quarter investment credits on their accumulated balances. Employees become
vested in their Cash Balance Plan accounts after completion of five years of
vesting service or attainment of age 65, if earlier. Pension benefits accrued
prior to the conversion to the Cash Balance Plan are guaranteed. In addition,
certain employees are eligible for a special transition benefit comparison.
The Company's policy is to fund the actuarially computed retirement cost
accrued for the Cash Balance Plan. Contributions are intended to provide not
only for benefits attributed to service to date but also for those expected to
be earned in the future.
The Company sponsors defined contribution retirement plans including the 401(k)
Plan and the First Security Incentive Savings Plan and Trust (the FSCO 401(k)
Plan). Under the 401(k) Plan, eligible employees who have completed one month of
service are eligible to contribute up to 18% of their pretax certified
compensation, although a lower limit may be applied to certain highly
compensated employees in order to maintain the qualified status of the 401(k)
Plan. Eligible employees who complete one year of service are eligible for
matching company contributions, which are generally a dollar for dollar match up
to 6% of an employee's certified compensation. The Company's matching
contributions are generally subject to a four-year vesting schedule.
Under the FSCO 401(k) Plan, eligible employees who were 21 or older with one
year of service were eligible to contribute up to 17% of their pretax certified
compensation, although a lower limit may be applied to certain employees in
order to maintain the qualified status of the FSCO 401(k) Plan. Eligible
employees were eligible for matching company contributions, which are generally
equal to 50% of the first 6% of an employee's certified compensation. The
Company's matching contributions were fully vested upon enrollment. The FSCO
401(k) Plan was merged into the Wells Fargo 401(k) Plan effective January 1,
2001.
The Company provides health care and life insurance benefits for certain retired
employees and reserves the right to terminate or amend any of the benefits
described above at any time.
80
<PAGE>
The following table shows the changes in the benefit obligation and the fair
value of plan assets during 2000 and 1999 and the amounts included in the
Company's Consolidated Balance Sheet as of December 31, 2000 and 1999 for the
Company's defined benefit pension and other postretirement benefit plans:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
December 31,
---------------------------------------------------
2000 1999
------------------------ -----------------------
PENSION OTHER Pension Other
(in millions) BENEFITS BENEFITS benefits benefits
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $2,503 $ 567 $2,653 $ 545
Service cost 154 16 119 25
Interest cost 186 43 143 35
Plan participants' contributions -- 6 -- 6
Amendments -- -- 14 (3)
Plan mergers 25 -- 7 --
Actuarial loss (24) (22) (323) (4)
Benefits paid (176) (32) (110) (37)
Settlement (12) -- -- --
------ ------ ------ ------
Benefit obligation at end of year $2,656 $ 578 $2,503 $ 567
====== ====== ====== ======
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year $2,867 $ 209 $2,699 $ 218
Actual return on plan assets 550 26 244 5
Plan mergers 28 -- 10 --
Employer contribution 13 27 24 17
Plan participants' contributions -- 6 -- 6
Benefits paid (176) (32) (110) (37)
Settlement (12) -- -- --
------ ------ ------ ------
Fair value of plan assets at end of year $3,270 $ 236 $2,867 $ 209
====== ====== ====== ======
Funded status $ 612 $ (336) $ 364 $ (357)
Unrecognized net actuarial gain (667) (29) (392) 1
Unrecognized net transition asset (4) 4 (6) 1
Unrecognized prior service cost 21 (2) 26 (2)
------ ------ ------ ------
Accrued benefit cost $ (38) $ (363) $ (8) $ (357)
====== ====== ====== ======
- -----------------------------------------------------------------------------------------------------
</TABLE>
The weighted-average assumptions used in calculating the amounts above were:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Year ended December 31,
--------------------------------------------------------------------------------------
2000 1999 1998
------------------------ ------------------------ -------------------------
PENSION OTHER Pension Other Pension Other
BENEFITS BENEFITS benefits benefits benefits benefits
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Discount rate 7.5% 7.5% 7.5-8.0% 7.5-8.0% 6.5-7.0% 6.5-7.0%
Expected return
on plan assets 9.0% 9.0% 9.0% 9.0% 8.5-9.0% 9.0%
Rate of compensation
increase 4.5-5.0% --% 4.5-5.0% --% 4.5-5.0% --%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table sets forth the components of net periodic benefit cost for
2000, 1999 and 1998:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Year ended December 31,
----------------------------------------------------------------
2000 1999 1998
------------------- -------------------- -------------------
PENSION OTHER Pension Other Pension Other
(in millions) BENEFITS BENEFITS benefits benefits benefits benefits
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 154 $ 16 $ 120 $ 25 $ 75 $ 19
Interest cost 186 43 144 35 161 34
Expected return on plan assets (249) (18) (200) (6) (216) (11)
Recognized net actuarial (gain) loss (1) (46) (1) (3) (8) 21 (1)
Amortization of prior service cost 2 -- 3 -- 2 --
Amortization of unrecognized transition asset (2) -- (2) -- (2) --
Settlement 4 -- -- -- -- --
------ ----- ------ ---- ------ -----
Net periodic benefit cost $ 49 $ 40 $ 62 $ 46 $ 41 $ 41
====== ===== ====== ==== ====== =====
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Net actuarial (gain) loss is generally amortized over five years.
Accounting for the postretirement health care plans uses a health care cost
trend rate to recognize the effect of expected changes in future health care
costs due to medical inflation, utilization changes, technological changes,
regulatory requirements and Medicare cost shifting. Average annual increases of
8.0% to 8.5% for HMOs and 8.5% for all other types of coverage in the per capita
cost of covered health care benefits were assumed for 2000. By 2006 and
thereafter, rates were assumed at 5.5% for HMOs and for all other types of
coverage. Increasing the assumed health care trend by one percentage point in
each year would increase the benefit obligation as of December 31, 2000 by $52
million and the aggregate of the interest cost and service cost components of
the net periodic benefit cost for 2000 by $7 million. Decreasing the assumed
health care trend by one percentage point in each year would decrease the
benefit obligation as of December 31, 2000 by $46 million and the aggregate of
the interest cost and service cost components of the net periodic benefit cost
for 2000 by $5 million.
Expenses for defined contribution retirement plans were $169 million, $155
million and $179 million in 2000, 1999 and 1998, respectively.
81
<PAGE>
OTHER EXPENSES
The table below shows expenses which exceeded 1% of total interest income and
noninterest income and which are not otherwise shown separately in the financial
statements or notes thereto.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Year ended December 31,
-----------------------------------------
(in millions) 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Contract services $536 $473 $353
Outside professional services 447 381 398
Outside data processing 343 312 293
Advertising and promotion 316 251 252
Telecommunications 303 286 269
Travel and entertainment 287 262 225
Postage 252 239 242
Donations 32 49 259
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
14.
INCOME TAXES
The following is a summary of the components of income tax expense applicable to
income before income taxes:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Year ended December 31,
-------------------------------------------
(in millions) 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $1,446 $ 628 $ 1,250
State and local 158 46 278
Foreign 46 53 (1)
------ ------ ------
1,650 727 1,527
------ ------ ------
Deferred:
Federal 783 1,416 (16)
State and local 90 195 (22)
Foreign -- -- (15)
------ ------ ------
873 1,611 (53)
------ ------ ------
Total $2,523 $2,338 $1,474
====== ====== ======
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company's tax benefit related to the exercise of employee stock options that
was recorded in stockholders' equity was $112 million, $88 million and $102
million for 2000, 1999 and 1998, respectively.
The Company had a net deferred tax liability of $3,297 million and $2,275
million at December 31, 2000 and 1999, respectively. The tax effects of
temporary differences that gave rise to significant portions of deferred tax
assets and liabilities at December 31, 2000 and 1999 are presented below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Year ended December 31,
-----------------------
(in millions) 2000 1999
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS
Allowance for loan losses $ 1,414 $ 1,377
Net tax-deferred expenses 747 788
Other 63 169
------- -------
Total deferred tax assets 2,224 2,334
------- -------
DEFERRED TAX LIABILITIES
Core deposit intangible 376 428
Leasing 1,853 1,398
Mark to market 712 800
Mortgage servicing 1,799 1,291
FAS 115 adjustment 295 366
Other 486 326
------- -------
Total deferred tax liabilities 5,521 4,609
------- -------
NET DEFERRED TAX LIABILITY $(3,297) $(2,275)
======= =======
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company has determined that a valuation reserve is not required for any of
the deferred tax assets since it is more likely than not that these assets will
be realized principally through carryback to taxable income in prior years, and
future reversals of existing taxable temporary differences, and, to a lesser
extent, future taxable income and tax planning strategies. The Company's
conclusion that it is "more likely than not" that the deferred tax assets will
be realized is based on federal taxable income in excess of $4.3 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.
82
<PAGE>
The deferred tax liability related to unrealized gains and losses on securities
available for sale had no impact on 2000, 1999 or 1998 income tax expense as
these gains and losses, net of taxes, were recorded in cumulative other
comprehensive income.
The following table is a reconciliation of the statutory federal income tax
expense and rate to the effective income tax expense and rate:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Year ended December 31,
----------------------------------------------------------------------
2000 1999 1998
-------------------- -------------------- --------------------
(in millions) AMOUNT % Amount % Amount %
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Statutory federal income tax expense and rate $2,292 35.0% $2,222 35.0% $1,283 35.0%
Change in tax rate resulting from:
State and local taxes on income, net of
federal income tax benefit 161 2.5 158 2.5 168 4.6
Amortization of goodwill not
deductible for tax return purposes 165 2.5 133 2.1 129 3.5
Tax exempt income (76) (1.2) (71) (1.1) (63) (1.7)
Other (19) (.3) (104) (1.7) (43) (1.2)
------ ----- ------ ---- ------ ----
Effective income tax expense and rate $2,523 38.5% $2,338 36.8% $1,474 40.2%
====== ==== ====== ==== ====== ====
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
15.
EARNINGS PER COMMON SHARE
The table below shows dual presentation of earnings per common share and diluted
earnings per common share and a reconciliation of the numerator and denominator
of both earnings per common share calculations.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Year ended December 31,
--------------------------------------------
(in millions, except per share amounts) 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 4,026 $ 4,012 $ 2,191
Less: Preferred stock dividends 17 35 35
-------- -------- --------
Net income applicable to common stock $ 4,009 $ 3,977 $ 2,156
======== ======== ========
EARNINGS PER COMMON SHARE
Net income applicable to common stock (numerator) $ 4,009 $ 3,977 $ 2,156
======== ======== ========
Average common shares outstanding (denominator) 1,699.5 1,714.0 1,688.1
======== ======== ========
Per share $ 2.36 $ 2.32 $ 1.28
======== ======== ========
DILUTED EARNINGS PER COMMON SHARE
Net income applicable to common stock (numerator) $ 4,009 $ 3,977 $ 2,156
======== ======== ========
Average common shares outstanding 1,699.5 1,714.0 1,688.1
Add: Stock options 17.7 19.7 20.4
Restricted share rights 1.2 1.6 2.0
Convertible preferred -- .1 .1
-------- -------- --------
Diluted average common shares outstanding
(denominator) 1,718.4 1,735.4 1,710.6
======== ======== ========
Per share $ 2.33 $ 2.29 $ 1.26
======== ======== ========
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
83
<PAGE>
16.
COMPREHENSIVE INCOME
The following table presents the components of other comprehensive income and
the related tax effect allocated to each component:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Before
tax Net of
(in millions) amount Tax effect tax
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998:
Translation adjustments $ (6) $ (2) $ (4)
----- ----- -----
Net unrealized gains on securities available for sale
arising during the year 196 77 119
Reclassification of net gains on
securities available for sale included in net income (182) (73) (109)
----- ----- -----
Net unrealized gains arising during the year 14 4 10
----- ----- -----
Other comprehensive income $ 8 $ 2 $ 6
===== ===== =====
1999:
Translation adjustments $ 6 $ 2 $ 4
----- ----- -----
Net unrealized gains on securities available for sale
arising during the year 205 78 127
Reclassification of net losses on
securities available for sale included in net income 219 83 136
----- ----- -----
Net unrealized gains arising during the year 424 161 263