SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-2979
NORWEST CORPORATION
A DELAWARE CORPORATION - I.R.S. NO. 41-0449260
NORWEST CENTER
SIXTH AND MARQUETTE
MINNEAPOLIS, MINNESOTA 55479
TELEPHONE (612) 667-1234
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
Common Stock ($1 2/3 par value) New York Stock Exchange
Chicago Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Chicago Stock Exchange
6 3/4% Convertible Subordinated New York Stock Exchange
Debentures Due 2003
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No securities are registered pursuant to Section 12(g) of the Act.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
On January 30, 1998, 758,022,040 shares of common stock were outstanding having an aggregate market value, based upon a closing price of $38.75 per share, of $29,373.4 million. At that date, the aggregate market value of the voting stock held by non-affiliates was in excess of $26,508.9 million.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the corporation's Notice of Annual Meeting and Proxy Statement for the annual meeting of stockholders to be held April 28, 1998, are incorporated by reference into Part III.
PART I
ITEM 1. BUSINESS
GENERAL
Norwest Corporation (the corporation) is a diversified financial services company organized under the laws of Delaware in 1929 and registered under the Bank Holding Company Act of 1956, as amended (the BHC Act). As a diversified financial services organization, the corporation owns subsidiaries engaged in banking and in a variety of related businesses. Subsidiaries of the corporation provide retail, commercial, and corporate banking services to customers through banks located in Arizona, Colorado, Illinois, Indiana, Iowa, Minnesota, Montana, Nebraska, Nevada, New Mexico, North Dakota, Ohio, South Dakota, Texas, Wisconsin and Wyoming. Additional financial services are provided to customers by subsidiaries engaged in various businesses, principally mortgage banking, consumer finance, equipment leasing, agricultural finance, commercial finance, securities brokerage and investment banking, insurance agency services, computer and data processing services, trust services, mortgage-backed securities servicing and venture capital investment.
At December 31, 1997, the corporation and its subsidiaries employed 57,036 persons, and had consolidated total assets of $88.5 billion, total deposits of $55.5 billion, and total stockholders' equity of $7.0 billion. Based on total assets at December 31, 1997, the corporation was the 11th largest bank holding company in the United States.
The corporation provides to its subsidiaries various services, including strategic planning, asset and liability management, investment administration and portfolio planning, tax planning, new product and business development, advertising, administration and internal auditing, employee benefits and payroll management. In addition, the corporation provides funds to its subsidiaries. The corporation derives substantially all its income from investments in and advances to its subsidiaries and service fees received from its subsidiaries.
The Financial Review, which begins on page 17 in the Appendix, discusses developments in the corporation's businesses during 1997 and provides financial and statistical data relative to the business and operations of the corporation. A brief description of the primary business lines of the corporation follows. Refer to Note 16 of the corporation's consolidated financial statements for financial information about the corporation's business segments.
BANKING
As of February 1, 1998, the corporation's 37 subsidiary banks, located in 16 states with 930 locations, offer diversified financial services including retail, commercial and corporate banking, equipment leasing, trust services and mortgage-backed securities servicing; and their affiliates offer insurance, securities brokerage, investment banking and venture capital investment. Investment services are provided to customers by Norwest Investment Services, Inc., a registered broker/dealer and a registered investment adviser, which operates in 18 states with 366 offices, primarily in banking locations. Norwest Insurance, Inc. and its subsidiaries operate insurance agencies in ten states with 44 offices offering commercial and personal coverages to customers. Norwest Insurance, Inc. is the 14th largest agency in the United States and the largest agency owned by a bank holding company. A subsidiary of the corporation operates one of the nation's top five crop insurance managing general agencies. There are also three insurance companies that are owned by bank affiliates and three other insurance companies that are owned directly or indirectly by the corporation that reinsure credit-related insurance products for the corporation's affiliates.
Norwest Bank Minnesota, N.A. is the largest bank in the group with total assets of $20.4 billion at December 31, 1997. Ten other banks in the group exceeded $2.0 billion in total assets: Norwest Bank Colorado, N.A. ($8.5 billion), Norwest Bank Texas, N.A. ($8.3 billion); Norwest Bank Iowa, N.A. ($5.5 billion), Norwest Bank Arizona, N.A. ($4.2 billion), Norwest Bank South Dakota, N.A. ($4.1 billion), Norwest Bank Nevada, N.A. ($3.4 billion), Norwest Bank Wyoming, N.A. ($2.9 billion), Norwest Bank Indiana, N.A. ($2.4 billion), Norwest Bank New Mexico, N.A. ($2.4 billion) and Norwest Bank Nebraska, N.A. ($2.2 billion).
Norwest Venture Capital consists of a group of five affiliated companies engaged in making and managing investments in start-up businesses, emerging growth companies, management buy-outs, acquisitions and corporate recapitalizations. During 1997, Norwest Venture Capital made new investments of $172 million. Norwest Venture Capital's investments typically range from $1,500,000 to $15,000,000; however, larger sums may be invested in a single company, sometimes through syndication with other venture capitalists. Most Norwest Venture Capital emerging growth company clients are engaged in technology-related businesses, such as computer software, telecommunications, medical products, health care delivery and industrial automation. Remaining clients are engaged in non-technology businesses, such as specialty retailing and consumer-related businesses. Financing of management buy-outs is done for a variety of businesses.
MORTGAGE BANKING
Norwest Mortgage is the largest mortgage banking enterprise in the United States in terms of both originations and servicing. Subsidiaries of the corporation originate and purchase residential first mortgage loans for sale to various investors and provide servicing of mortgage loans for others. Income is primarily earned from origination and other loan production fees, loan servicing fees, interest on mortgages held for sale, and the sale of mortgages and servicing rights. Through a network of 727 stores, Norwest Mortgage offers a wide range of FHA, VA and conventional loan programs to customers in all 50 states. Approximately 28.5 percent of the mortgages are FHA and VA mortgages guaranteed by the federal government and sold as GNMA securities. In 1997 Norwest Mortgage funded $55.3 billion of mortgages, with the average loan being approximately $124,000. This compares with $51.5 billion of fundings in 1996 and $33.9 billion in 1995. The five states with the highest originations in 1997 were: California $10.1 billion; Minnesota $3.0 billion; Texas $2.7 billion; Illinois $2.6 billion; and New Jersey $2.5 billion. The originations in these five states comprise approximately 37.9 percent of total originations in 1997. As of December 31, 1997, the mortgage servicing portfolio totaled $205.8 billion with a weighted average coupon of 7.75 percent, as compared with $179.7 billion and 7.77 percent, respectively, at December 31, 1996. The five highest states in servicing as of December 31, 1997 were: California $39.8 billion; Minnesota $11.8 billion; Texas $10.3 billion; New York $9.6 billion; and New Jersey $8.9 billion. Loans from these five states comprise approximately 39.0 percent of the total servicing portfolio at year-end 1997.
CONSUMER FINANCE
Norwest Financial consists of Norwest Financial Services, Inc. and its subsidiaries and Island Finance, a group of eight companies operating in the Caribbean and Central America. Norwest Financial provides consumer and automobile finance products and services through 1,447 stores in 48 states, Guam, Saipan, all ten Canadian provinces, the Caribbean and Latin America. Consumer finance activities include providing direct installment loans to individuals, purchasing open- or closed-end sales finance contracts, providing private label and other lease and accounts receivables services and providing other related products and services. Such products are generally repayable in monthly installments for periods of 180 months or less. Automobile finance activities generally include making loans to individuals secured by automobiles and purchasing closed-end sales finance contracts from automobile dealers. Automobile finance products are generally repayable in monthly installments for periods of 60 months or less.
At December 31, 1997, consumer finance receivables accounted for 95 percent of Norwest Financial's total receivables. Direct installment loans to individuals constitute the largest portion of the consumer finance business and, in addition, sales finance contracts are purchased from retailers. The five states with the largest consumer finance receivables are: California $696.8 million; Illinois $291.7 million; Ohio $253.9 million; Florida $237.6 million; and Texas $224.5 million. Consumer finance receivables in Puerto Rico and Canada totaled $1.4 billion and $617.8 million, respectively, at December 31, 1997. The consumer finance receivables in Puerto Rico, Canada, and the five states listed above comprise approximately 44.0 percent of total consumer finance receivables at year-end 1997. The average installment loan made during 1997 was approximately $3,000, while sales finance contracts purchased during the year averaged approximately $1,600. Comparable amounts in 1996 were $2,700 and $1,100, respectively.
Norwest Financial's insurance subsidiaries are primarily engaged in the business of providing, directly or through reinsurance arrangements, credit life and credit disability insurance as a part of Norwest Financial's consumer finance business. Property, involuntary unemployment and non-filing insurance also are sold as part of Norwest
Financial's consumer finance business, either directly or through a reinsurance arrangement with one of its insurance subsidiaries or on an agency basis.
Norwest Financial Information Services Group, Inc. (NFISG) operates an on-line, real-time information processing and communications system which connects, over leased telecommunication facilities, equipment located in branch offices to the computer center in Norwest Financial's home office. Branch employees use the computer to process loans and payments, to write checks and to perform bookkeeping functions. In addition, as of December 31, 1997, NFISG had contracts to supply information services to 26 non-affiliated finance companies. On that date, approximately 3,000 offices were being served and 6.3 million accounts were being maintained on the system.
ACQUISITIONS
The corporation expands its businesses in part by acquiring banking institutions and other companies engaged in activities closely related to banking. See Note 2 of the corporation's consolidated financial statements beginning on page 38 in the Appendix regarding acquisitions by the corporation since 1995.
The acquisition of banking institutions and other companies by the corporation is generally subject to the prior approval of the Board of Governors of the Federal Reserve System (the Federal Reserve Board) and may be subject to the prior approval of other federal and state regulatory authorities. Under the interstate banking provisions of the Reigle-Neal Interstate Banking and Branching Act of 1994 (the Reigle-Neal Act), which became effective September 29, 1995, the corporation is permitted to acquire banks in any state subject to the prior approval of the Federal Reserve Board, certain limited conditions that a state may impose and deposit concentration limits of 10 percent nationwide and 30 percent in any one state, unless the acquisition is the initial entry of a banking institution into that state. Effective June 1, 1997, under the interstate branching provisions of the Reigle-Neal Act, banking subsidiaries of the corporation were permitted to acquire directly a banking institution located in a state other than the state in which the acquiring bank is located (interstate bank merger) through merger, consolidation or purchase of assets and assumption of liabilities, unless the state in which either of the banks is located has enacted a law opting out of the interstate branching provisions of the Reigle-Neal Act. The state of Texas has opted out of the Reigle-Neal Act and the state of Montana has opted out until at least the year 2000. Interstate bank mergers are subject to the prior approval of the applicable federal and state regulatory authorities, and may be subject to certain limited conditions that a state may impose and the deposit concentration limits outlined above.
In determining whether to approve a proposed bank acquisition or merger, bank regulatory authorities consider a number of factors including the effect of the proposed acquisition on competition, the public benefits expected to be derived from the consummation of the proposed transaction, the projected capital ratios and levels on a post-acquisition basis, and the acquiring institution's record of addressing the credit needs of the communities it serves, including the needs of low and moderate income neighborhoods, consistent with the safe and sound operation of the bank, under the Community Reinvestment Act of 1977, as amended.
COMPETITION
Legislative and regulatory changes coupled with technological advances have significantly increased competition in the financial services industry. The corporation's banking and financial services subsidiaries compete with other financial services providers, such as commercial banks and financial institutions, including savings and loan associations, credit unions, finance companies, mortgage banking companies and mutual funds. In addition, the corporation's subsidiaries compete with non-banking institutions such as brokerage houses and insurance companies, as well as financial services subsidiaries of commercial and manufacturing companies. Many of these competitors are not subject to the same regulatory restrictions as banks and bank holding companies.
GOVERNMENT POLICIES, SUPERVISION AND REGULATION
GENERAL
As a bank holding company, the corporation is subject to the supervision and examination by the Federal Reserve Board under the BHC Act. The corporation's national banking subsidiaries are regulated by the Office of the Comptroller of the Currency (OCC) while its state-chartered banking subsidiaries are regulated primarily by the Federal Deposit Insurance Corporation (FDIC) or the Federal Reserve Board and applicable state banking agencies. The deposits of the corporation's banking subsidiaries are primarily insured by the Bank Insurance Fund (BIF), subjecting such subsidiaries to FDIC regulation. In addition to the impact of regulation, commercial banks are affected significantly by the actions of the Federal Reserve Board affecting the money supply and credit availability.
The corporation has other financial services subsidiaries that are subject to regulation by the Federal Reserve Board and other applicable federal and state agencies. For example, the corporation's brokerage subsidiary is subject to regulation by the Securities and Exchange Commission, the National Association of Securities Dealers, Inc. and state securities regulators. The corporation's insurance subsidiaries are subject to regulation by applicable state insurance regulatory agencies. Other non-bank subsidiaries of the corporation are subject to the laws and regulations of both the federal government and the various states in which they conduct business.
DIVIDEND RESTRICTIONS
Various federal and state statutes and regulations limit the amount of dividends the banking and other subsidiaries may pay to the corporation without regulatory approval. Refer to Note 19 of the corporation's consolidated financial statements beginning on page 67 in the Appendix for additional information.
HOLDING COMPANY STRUCTURE
The corporation is a legal entity separate and distinct from its banking and non-banking subsidiaries. Accordingly, the right of the corporation, and thus the right of the corporation's creditors, to participate in any distribution of the assets or earnings of any subsidiary, other than in its capacity as a creditor of the subsidiary, is subject to the prior payment of claims of creditors of such subsidiary. The principal sources of the corporation's revenues are dividends and fees from its subsidiaries.
The corporation's banking subsidiaries are subject to restrictions under federal law which limit the transfer of funds by the subsidiary banks to the corporation and its non-bank subsidiaries, whether in the form of loans, extensions of credit, investments or asset purchases. Such transfers by any subsidiary bank to the corporation or any non-bank subsidiary are limited in amount to 10 percent of the bank's capital and surplus and, with respect to the corporation and all non-bank subsidiaries, to an aggregate of 20 percent of the bank's capital and surplus. Further, such loans and extensions of credit are required to be secured in specified amounts.
The Federal Reserve Board has a policy to the effect that a bank holding company is expected to act as a source of financial and managerial strength to each of its subsidiary banks and to commit resources to support each subsidiary bank. This support may be required at times when the corporation may not have the resources to provide support. Any capital loans by the corporation to any of the subsidiary banks are subordinate in right of payment to deposits and to certain other indebtedness of the subsidiary bank. In addition, the Crime Control Act of 1990 provides that in the event of a bank holding company's bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a priority of payment.
A depository institution insured by the FDIC can be held liable for any loss incurred, or reasonably expected to be incurred, by the FDIC after August 9, 1989, in connection with (i) the default of a commonly controlled FDIC-insured depository institution or (ii) any assistance provided by the FDIC to a commonly controlled FDIC-insured depository institution in danger of default. "Default" is defined generally as the appointment of a conservator or receiver and "in danger of default" is defined generally as the existence of certain conditions indicating that a "default" is likely to occur in the absence of regulatory assistance.
Federal law (12 U.S.C. Section 55) permits the OCC to order the pro rata assessment of shareholders of a national bank whose capital stock has become impaired, by losses or otherwise, to relieve a deficiency in such national bank's capital stock. This statute also provides for the enforcement of any such pro rata assessment of shareholders of such national bank to cover such impairment of capital stock by sale, to the extent necessary, of the capital stock of any assessed shareholder failing to pay the assessment. Similarly, the laws of certain states provide for such assessment and sale with respect to banks chartered by such states. The corporation, as the sole stockholder of most of its subsidiary banks, is subject to such provisions.
CAPITAL REQUIREMENTS
The Federal Reserve Board, the OCC and the FDIC have adopted substantially similar risk-based and leverage capital guidelines for banking organizations. Such guidelines are intended to ensure that banking organizations have adequate capital given the risk levels of their assets and off-balance sheet commitments.
Under the Federal Reserve Board's risk-based capital guidelines for bank holding companies, the minimum ratio of total capital to risk-adjusted assets (including certain off-balance sheet items, such as stand-by letters of credit) is eight percent. At least half of the total capital is to be comprised of common stock, minority interests in subsidiaries and noncumulative perpetual preferred stock (Tier 1 capital). The remainder (Tier 2 capital) may consist of hybrid capital instruments, perpetual stock, mandatory convertible debt securities, a limited amount of subordinated debt, other preferred stock and a limited amount of the allowance for credit losses. Additionally, the risk-based capital guidelines specify that all intangibles, including core deposit intangibles, as well as mortgage servicing rights (MSRs) and purchased credit card relationships (PCCRs), be deducted from Tier 1 capital. The guidelines, however, grandfather identifiable intangible assets (other than MSRs and PCCRs) acquired on or before February 19, 1992, and permit the inclusion of readily marketable MSRs and PCCRs in Tier 1 capital to the extent that (i) MSRs and PCCRs do not exceed 50 percent of Tier 1 capital and (ii) PCCRs do not exceed 25 percent of Tier 1 capital. For such purposes, MSRs and PCCRs each are included in Tier 1 capital only up to the lesser of (a) 90 percent of their fair market value (which must be determined quarterly) and (b) 100 percent of the remaining unamortized book value of such assets. The Federal Financial Institutions Examination Council, which includes all federal banking regulators, is currently evaluating a proposal which would permit inclusion of MSRs and PCCRs up to 100 percent of Tier 1 capital, and the corporation has received permission from the Federal Reserve System to determine its capital ratios under these proposed limitations.
In addition, the Federal Reserve Board has specified minimum "leverage ratio" (the ratio of Tier 1 capital to quarterly average total assets) guidelines for bank holding companies and state member banks. These guidelines provide for a minimum leverage ratio of three percent for bank holding companies and state member banks that meet certain specified criteria, including that they have the highest regulatory rating. All other bank holding companies and state member banks are required to maintain a leverage ratio of three percent plus an additional cushion of one to two percent. The guidelines also provide that banking organizations experiencing internal growth or making acquisitions are expected to maintain strong capital positions substantially above the minimum supervisory levels, without significant reliance on intangible assets. Furthermore, the guidelines indicate that the Federal Reserve Board will continue to consider a "tangible Tier 1 leverage ratio" in evaluating proposals for expansion or new activities. The tangible Tier 1 leverage ratio is the ratio of a banking organization's Tier 1 capital, less all intangibles, to total assets, less all intangibles. Each of the corporation's banking subsidiaries is also subject to capital requirements adopted by applicable regulatory agencies which are substantially similar to the foregoing. At December 31, 1997, the corporation's Tier 1 and total capital (the sum of Tier 1 and Tier 2 capital) to risk-adjusted assets ratios were 9.09 percent and 11.01 percent, respectively, and the corporation's leverage ratio was 6.63 percent. Neither the corporation nor any subsidiary bank has been advised by the appropriate federal regulatory agency of any specific leverage ratio applicable to it.
As a result of federal law enacted in 1991 that required each federal banking agency to revise its risk-based capital standards to ensure that those standards take adequate account of interest rate risk, concentration of credit risk and the risks of nontraditional activities, each of the federal banking agencies has revised the risk-based capital guidelines described above to take into account the concentration of credit risk and risk of nontraditional activities. The Federal Reserve Board, the FDIC and the OCC adopted a rule that amended the capital standards to require
banks to include changes in interest rates as a factor to be considered in evaluating the economic value of its capital. The agencies issued for comment a joint policy statement that described the process to be used to measure and assess the exposure of a bank's net economic value to changes in interest rates. In June 1996, these agencies elected not to pursue a standardized supervisory measure and explicit capital charge for interest rate risk. In supervising interest rate risk, the agencies intend to emphasize reliance on internal measures of risk, promotion of sound risk management practices and other means to identify those institutions that appear to be taking excessive risk. The corporation does not believe these revisions to the capital guidelines will materially impact its operations.
Effective January 1, 1998, federal bank regulatory agencies require banking organizations that engage in significant trading activity to calculate a capital charge for market risk. Significant trading activity is defined to include trading activity of at least ten percent of total assets or $1 billion, whichever is smaller, calculated on a consolidated basis for bank holding companies. Trading activity is defined as the sum of a banking organization's trading assets and trading liabilities as reported in the most recent financial statements filed with the organization's primary federal bank regulator. Federal bank regulators may apply the market risk measure to other banks and bank holding companies if the agency deems necessary or appropriate for safe and sound banking practices. Each agency may exclude organizations that it supervises that otherwise meet the criteria under certain circumstances. The market risk charge will be included in the calculation of applicable risk-based capital ratios. The corporation has not historically engaged in significant trading activity, as defined.
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991
In December 1991, Congress enacted the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), which substantially revised the bank regulatory and funding provisions of the Federal Deposit Insurance Act and made revisions to several other federal banking statutes. Among other things, FDICIA requires the federal banking regulators to take "prompt corrective action" in respect of depository institutions insured by the FDIC that do not meet minimum capital requirements. FDICIA establishes five capital tiers: "well capitalized", "adequately capitalized", "undercapitalized", "significantly undercapitalized" and "critically undercapitalized".
Under applicable regulations, an FDIC-insured depository institution is defined to be well capitalized if it maintains a leverage ratio of at least five percent, a risk-adjusted Tier 1 capital ratio of at least six percent and a risk-adjusted total capital ratio of at least 10 percent, and is not subject to a directive, order or written agreement to meet and maintain specific capital levels. An insured depository institution is defined to be adequately capitalized if it meets all of its minimum capital requirements as described above. An insured depository institution will be considered undercapitalized if it fails to meet any minimum required measure, significantly undercapitalized if it has a risk-adjusted total capital ratio of less than six percent, risk- adjusted Tier 1 capital ratio of less than three percent or a leverage ratio of less than three percent, and critically undercapitalized if it fails to maintain a level of tangible equity equal to at least two percent of total assets. An insured depository institution may be deemed to be in a capitalization category that is lower than is indicated by its actual capital position if it receives an unsatisfactory examination rating. As of December 31, 1997, all of the corporation's banking subsidiaries were classified as well capitalized.
FDICIA generally prohibits a depository institution from making any capital distribution (including payment of a dividend) or paying any management fee to its holding company if the depository institution would thereafter be undercapitalized. Undercapitalized depository institutions are subject to a wide range of limitations on operations and activities, including growth limitations, and are required to submit a capital restoration plan. The federal banking agencies may not accept a capital plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution's capital. In addition, for a capital restoration plan to be acceptable, the depository institution's parent holding company must guarantee that the institution will comply with such capital restoration plan. The aggregate liability of the parent holding company is limited to the lesser of (i) an amount equal to five percent of the depository institution's total assets at the time it became undercapitalized and (ii) the amount which is necessary (or would have been necessary) to bring the institution into compliance with all capital standards applicable with respect to such institution as of the time it fails to comply with the plan. If a depository institution fails to submit an acceptable plan, it is treated as if it were significantly undercapitalized.
Significantly undercapitalized depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets and cessation of receipt of deposits from correspondent banks. Critically undercapitalized institutions are subject to the appointment of a receiver or conservator.
FDICIA, as amended by the Reigle Community Development and Regulatory Improvement Act of 1994 enacted on August 22, 1994, directs that each federal banking agency prescribe standards, by regulation or guideline, for depository institutions relating to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, asset quality, earnings, stock valuation, and such other operational and managerial standards as the agency deems appropriate. The FDIC, in consultation with the other federal banking agencies, has adopted a final rule and guidelines with respect to internal and external audit procedures and internal controls in order to implement those provisions of FDICIA intended to facilitate the early identification of problems in financial management of depository institutions. On July 10, 1995, the federal banking agencies published the final rules implementing three of the safety and soundness standards required by FDICIA, including operational and managerial standards, asset quality and earnings standards, and compensation standards. The impact of such standards on the corporation has not been material.
FDICIA also contains a variety of other provisions that may affect the operations of the corporation, including new reporting requirements, revised regulatory standards for real estate lending, "truth in savings" provisions and the requirement that a depository institution give 90 days' notice to customers and regulatory authorities before closing any branch.
Under other regulations promulgated under FDICIA, a bank cannot accept brokered deposits (that is, deposits obtained through a person engaged in the business of placing deposits with insured depository institutions or with interest rates significantly higher than prevailing market rates) unless (i) it is well capitalized or (ii) it is adequately capitalized and receives a waiver from the FDIC. A bank that cannot receive brokered deposits also cannot offer "pass- through" insurance on certain employee benefit accounts, unless it provides certain notices to affected depositors. In addition, a bank that is adequately capitalized and that has not received a waiver from the FDIC may not pay an interest rate on any deposits in excess of 75 basis points over certain prevailing market rates. There are no such restrictions on a bank that is well capitalized. At December 31, 1997, all of the corporation's banking subsidiaries were not subject to these restrictions.
FDIC INSURANCE
The FDIC insures the deposits of the corporation's depository institution subsidiaries up to prescribed per depositor limits through the BIF, and the amount of FDIC assessments paid by each BIF member institution is based on its relative risk of default as measured by regulatory capital ratios and other factors. Specifically, the assessment rate is based on the institution's capitalization risk category and supervisory subgroup category. An institution's capitalization risk category is based on the FDIC's determination of whether the institution is well capitalized, adequately capitalized or less than adequately capitalized. An institution's supervisory subgroup is based on the FDIC's assessment of the financial condition of the institution and the probability that FDIC intervention or other corrective action will be required. Subgroup A institutions are financially sound institutions with few minor weaknesses; Subgroup B institutions are institutions that demonstrate weakness which, if not corrected, could result in significant deterioration; and Subgroup C institutions are institutions for which there is a substantial probability that the FDIC will suffer a loss in connection with the institution unless effective action is taken to correct the areas of weakness.
The BIF assessment rate currently ranges from zero to 27 cents per $100 of domestic deposits, with Subgroup A institutions assessed at a rate of zero and Subgroup C institutions assessed at a rate of 27 cents. The FDIC may increase or decrease the assessment rate schedule on a semiannual basis. An increase in the rate assessed one or more of the corporation's banking subsidiaries could have a material effect on the corporation's earnings, depending upon the amount of the increase. The FDIC is authorized to terminate a depository institution's deposit insurance upon a finding by the FDIC that the institution's financial condition is unsafe or unsound or that the institution has engaged in unsafe or unsound practices or violated any applicable rule, regulation, order or
condition enacted or imposed by the institution's regulatory agency. The termination of deposit insurance with respect to one or more of the corporation's subsidiary depository institutions could have a material adverse effect on the corporation depending on the collective size of the particular institutions involved.
Effective January 1, 1997, all FDIC-insured depository institutions are also required to pay an assessment to provide funds for payment of interest on Financing Corporation (FICO) bonds. Until December 31, 1999 or when the last savings and loan association ceases to exist, whichever occurs first, institutions will pay approximately 1.3 cents per $100 of BIF-assessable deposits.
DEPOSITOR PREFERENCE
Under the Federal Deposit Insurance Act, claims of holders of domestic deposits and certain claims of administrative expenses and employee compensation against an FDIC-insured depository institution have priority over other general unsecured claims against the institution in the "liquidation or other resolution" of the institution by a receiver.
ITEM 2. PROPERTIES
The corporation's Banking Group subsidiaries operate out of 930 banking locations, of which 593 are owned directly and 337 are leased from outside parties. Norwest Mortgage leases its headquarters in Des Moines, Iowa, 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. In addition, Norwest Mortgage owns servicing centers located in Springfield, Ohio and Riverside, California. Norwest Financial owns its headquarters in Des Moines, Iowa, and leases all consumer finance branch locations. The corporation and Norwest Bank Minnesota, N.A. lease their offices in Minneapolis, Minnesota.
The accompanying Notes 6 and 13 to the corporation's consolidated financial statements on pages 43 and 55 in the Appendix contain additional information with respect to premises and equipment and commitments under non-cancelable leases for premises and equipment.
ITEM 3. LEGAL PROCEEDINGS
The corporation and certain subsidiaries are defendants in various matters of litigation generally incidental to their businesses. Although it is difficult to predict the ultimate outcome of these cases, management believes, based on discussions with counsel, that any ultimate liability will not materially affect the consolidated financial position and results of operations of the corporation and its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The principal trading markets for the corporation's common equity are presented on the cover page of this Form 10-K. The high and low sales prices for the corporation's common stock for each quarter during the past two years and information regarding cash dividends is set forth on pages 46 through 48, 72, and 78 in the Appendix. The number of holders of record of the common stock and securities convertible into common stock of the corporation at January 30, 1998 were:
Title of Class Number of Holders -------------- ----------------- 6 3/4 % Convertible Subordinated Debentures Due 2003............... 4 Common Stock, par value $1 2/3 per share....... 47,995 |
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data begins on page 72 in the Appendix.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion and analysis is presented beginning on page 17 in the Appendix and should be read in conjunction with the related financial statements and notes thereto included under Item 8.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The discussion and analysis presented beginning on page 17 of the Appendix includes applicable disclosures pertaining to quantitative and qualitative disclosures about market risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the corporation and its subsidiaries begin on page 30 in the Appendix. The report of independent certified public accountants on the corporation's consolidated financial statements is presented on page 70 in the Appendix.
Selected quarterly financial data is presented on pages 78 and 79 in the Appendix.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required to be submitted in response to this item is omitted because a definitive proxy statement containing such information will be filed with the Securities and Exchange Commission pursuant to Regulation 14A, and such information is expressly incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required to be submitted in response to this item is omitted because a definitive proxy statement containing such information will be filed with the Securities and Exchange Commission pursuant to Regulation 14A, and such information is expressly incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required to be submitted in response to this item is omitted because a definitive proxy statement containing such information will be filed with the Securities and Exchange Commission pursuant to Regulation 14A, and such information is expressly incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required to be submitted in response to this item is omitted because a definitive proxy statement containing such information will be filed with the Securities and Exchange Commission pursuant to Regulation 14A, and such information is expressly incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS - See Item 8 above.
(2) FINANCIAL STATEMENT SCHEDULES
All schedules to the consolidated financial statements normally required by Form 10-K are omitted since they are either not applicable or the required information is shown in the financial statements or the notes thereto.
(3) MANAGEMENT CONTRACTS OR COMPENSATORY PLAN ARRANGEMENTS - See exhibits marked with an asterisk in Item 14(c) below.
(b) REPORTS ON FORM 8-K
The corporation filed a Current Report on Form 8-K, dated October 10, 1997, placing on file a description of its common stock reflecting the corporation's two-for-one stock split distributed in the form of a 100 percent stock dividend, and adjustments to the preferred share purchase rights as a result of the stock dividend. The corporation also filed amendments to its by-laws, effective September 23, 1997, to allow for the issuance and transfer of uncertificated shares of the corporation's stock.
The corporation filed a Current Report on Form 8-K, dated October 13, 1997, reporting consolidated operating results of the corporation for the quarter ended September 30, 1997.
(c) EXHIBITS
3(a). Restated Certificate of Incorporation, incorporated by reference to Exhibit 3(b) to the corporation's Current Report on Form 8-K dated June 28, 1993. Certificate of Amendment of Certificate of Incorporation of the corporation authorizing 4,000,000 shares of Preference Stock, incorporated by reference to Exhibit 3 to the corporation's Current Report on Form 8-K dated July 3, 1995. Certificate of Amendment of Certificate of Incorporation of the corporation increasing the authorized number of common shares to one billion shares, incorporated by reference to Exhibit 3 to the corporation's Current Report on Form 8-K dated June 3, 1997.
3(b). Certificate of Designations of powers, preferences and rights relating to the corporation's ESOP Cumulative Convertible Preferred Stock incorporated by reference to Exhibit 4 to the corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 1994.
3(c). Certificate of Designations of powers, preferences and rights relating to the corporation's Cumulative Tracking Preferred Stock incorporated by reference to Exhibit 3 to the corporation's Current Report on Form 8-K dated January 9, 1995.
3(d). Certificate of Designations of powers, preferences and rights relating to the corporation's 1995 ESOP Cumulative Convertible Preferred Stock incorporated by reference to Exhibit 4 to the corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995.
3(e). Certificate Eliminating the Certificate of Designations with respect to the Cumulative Convertible Preferred Stock, Series B, incorporated by reference to Exhibit 3(a) to the corporation's Current Report on Form 8-K dated November 1, 1995.
3(f). Certificate Eliminating the Certificate of Designations with respect to the 10.24% Cumulative Preferred Stock incorporated by reference to Exhibit 3 to the corporation's Current Report on Form 8-K dated February 20, 1996.
3(g). Certificate of Designations of powers, preferences and rights relating to the corporation's 1996 ESOP Cumulative Convertible Preferred Stock incorporated by reference to Exhibit 3 to the corporation's Current Report on Form 8-K dated February 26, 1996.
3(h). Certificate of Designations of powers, preferences and rights relating to the corporation's 1997 ESOP Cumulative Convertible Preferred Stock incorporated by reference to Exhibit 3 to the corporation's Current Report on Form 8-K dated April 14, 1997.
3(i). By-Laws, incorporated by reference to Exhibit 3 to the corporation's Current Report on Form 8-K dated October 10, 1997.
4(a). See 3(a) through 3(i) of this Item.
4(b). Rights Agreement, dated as of November 22, 1988, between the corporation and Citibank, N.A. incorporated by reference to Exhibit 1 to the corporation's Form 8-A, dated December 6, 1988, and Certificate of Adjustment pursuant to Section 12 of the Rights Agreement incorporated by reference to Exhibit 5 to the corporation's Form 8-A/A dated October 14, 1997.
4(c). Copies of instruments with respect to long-term debt will be furnished to the Commission upon request.
*10(a). Long-Term Incentive Compensation Plan (including Form of Non- Qualified Stock Option Agreement and Form of Restricted Stock Agreement) /(1)/
*10(b). Employees' Stock Deferral Plan /(1)/
*10(c). Employees' Deferred Compensation Plan /(1)/
*10(d). Elective Deferred Compensation Plan for Mortgage Banking Executives incorporated by reference to Exhibit 10(c) to the corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997.
*10(e). Performance Deferral Award Plan for Mortgage Banking Executives incorporated by reference to Exhibit 10(b) to the corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997.
*10(f). Executive Incentive Compensation Plan incorporated by reference to Exhibit 19(a) to the corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1988. Amendment to Executive Incentive Compensation Plan incorporated by reference to Exhibit 19(b) to the corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1989.
*10(g). Performance-Based Compensation Policy for Covered Executive Officers incorporated by reference to Exhibit 10(a) to the corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994.
*10(h). Supplemental Savings Investment Plan /(1)/
*10(i). Supplemental Pension Plan
*10(j). Supplemental Long Term Disability Plan incorporated by reference to Exhibit 10(f) to the corporation's Annual Report on Form 10-K for the year ended December 31, 1990. Amendment to Supplemental Long Term Disability Plan incorporated by reference to Exhibit 10(g) to the corporation's Annual Report on Form 10-K for the year ended December 31, 1992.
*10(k). Executive Financial Counseling Plan incorporated by reference to Exhibit 10(f) to the corporation's Annual Report on Form 10-K for the year ended December 31, 1987.
*10(l). Deferred Compensation Plan for Non-Employee Directors incorporated by reference to Exhibit 10(i) to the corporation's Annual Report on Form 10-K for the year ended December 31, 1995.
*10(m). Directors' Stock Deferral Plan /(1)/
*10(n). Directors' Formula Stock Award Plan /(1)/
*10(o). Retirement Plan for Non-Employee Directors incorporated by reference to Exhibit 10(j) to the corporation's Annual Report on Form 10-K for the year ended December 31, 1996.
*10(p). Agreement between the corporation and Lloyd P. Johnson dated March 11, 1991, incorporated by reference to Exhibit 19(c) to the corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 1991.
*10(q). Agreement between the corporation and Richard M. Kovacevich dated March 18, 1991, incorporated by reference to Exhibit 19(e) to the corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 1991. Amendment effective January 1, 1995, to the March 18, 1991 agreement between the corporation and Richard M. Kovacevich, incorporated by reference to Exhibit 10(c) to the corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995.
*10(r). Form of agreement between the corporation and 13 executive officers, including two directors, incorporated by reference to Exhibit 19(f) to the corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 1991. Amendment effective January 1, 1995, to the March 11, 1991 agreement between the corporation and Richard M. Kovacevich incorporated by reference to Exhibit 10(b) to the corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995.
11. Computation of Earnings Per Share.
12(a). Computation of Ratio of Earnings to Fixed Charges.
12(b). Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends.
21. Subsidiaries of the Corporation.
23. Consent of Experts.
24. Powers of Attorney.
(1) As restated to reflect the two-for-one stock split in the form of a 100 percent stock dividend distributed on October 10, 1997.
Stockholders may obtain a copy of any Exhibit, in Item 14(c), upon payment of a reasonable fee, by writing Norwest Corporation, Office of the Secretary, Norwest Center, Sixth and Marquette, Minneapolis, Minnesota 55479-1026.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 23rd day of February, 1998.
Norwest Corporation
(Registrant)
By /s/ RICHARD M. KOVACEVICH
-------------------------
Richard M. Kovacevich
Chairman and Chief Executive Officer
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on the 23rd day of February, 1998, by the following persons on behalf of the registrant and in the capacities indicated.
By /s/ JOHN T. THORNTON
--------------------
John T. Thornton
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
By /s/ MICHAEL A. GRAF
-------------------
Michael A. Graf
Senior Vice President and Controller
(Principal Accounting Officer)
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The Directors of Norwest Corporation listed below have duly executed powers of attorney empowering Richard S. Levitt to sign this document on their behalf.
Leslie S. Biller Reatha Clark King
J. A. Blanchard III Richard M. Kovacevich
David A. Christensen Richard D. McCormick
Gerald J. Ford Cynthia H. Milligan
Pierson M. Grieve Benjamin F. Montoya
Charles M. Harper Ian M. Rolland
William A. Hodder Michael W. Wright
By /s/ RICHARD S. LEVITT
---------------------
Richard S. Levitt
Director and Attorney-in-Fact
February 23, 1998
15
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Appendix
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NORWEST CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations, Financial Statements, Report of Independent Auditors and Selected Financial Data
Forming a Part of the Annual Report on Form 10-K for the Year Ended December 31, 1997
Page
----
Financial Review........................................ 17
Financial Statements.................................... 30
Independent Auditors' Report............................ 70
Management's Report..................................... 71
Six-Year Consolidated Financial Summary................. 72
Consolidated Average Balance Sheets
and Related Yields and Rates............................ 73
Quarterly Condensed Consolidated Financial Information.. 78
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FINANCIAL REVIEW
This financial review should be read with the consolidated financial statements and accompanying notes presented on pages 30 through 69 and other information presented on pages 72 through 79.
EARNINGS PERFORMANCE
Norwest Corporation (the corporation) reported record net income of $1,351.0 million in 1997, an increase of 17.1 percent over earnings of $1,153.9 million in 1996, which were up 20.7 percent over the $956.0 million earned in 1995. Net income per diluted common share was $1.75 in 1997, compared with $1.54 in 1996 and $1.36 in 1995, an increase of 13.6 percent and 13.2 percent, respectively. Net income per common share amounts for periods prior to 1997 have been restated to reflect the two-for-one split of the corporation's common stock, effected in the form of a 100 percent stock dividend, distributed on October 10, 1997. Return on realized common equity was 22.1 percent and return on assets was 1.63 percent for 1997, compared with 21.9 percent and 1.51 percent, respectively, in 1996, and 22.3 percent and 1.44 percent, respectively, in 1995.
The 1996 results include a special pre-tax charge of $19.0 million on deposits insured by the Savings Association Insurance Fund (SAIF). This charge, based on legislation enacted by Congress to recapitalize SAIF, related to deposits of thrift institutions acquired by the corporation during 1996. Excluding the $19.0 million pre-tax charge, net operating earnings in 1996 were $1,165.7 million, or $1.55 per diluted common share. On an operating basis, return on realized common equity was 22.1 percent and return on assets was 1.52 percent for the year ended December 31, 1996.
The corporation previously included in its normal operating results a pre-tax charge of $23.5 million for savings and loan association deposits insured under SAIF which were acquired prior to 1996. Such charge was recorded in the third quarter of 1995 when the SAIF recapitalization legislation was first introduced in Congress.
Norwest Corporation and Subsidiaries
CONSOLIDATED INCOME SUMMARY
5 Year
Growth
In millions 1997 Change 1996 Change 1995 1994 1993 Rate
-------- ------ -------- ------ -------- -------- -------- -------
Interest income (tax-equivalent basis)....... $6,741.9 6.2% $6,350.5 10.4% $5,750.8 $4,422.7 $3,979.6 11.9%
Interest expense............................. 2,664.0 1.8 2,617.0 6.9 2,448.0 1,590.1 1,442.9 10.6
-------- -------- -------- -------- --------
Net interest income......................... 4,077.9 9.2 3,733.5 13.0 3,302.8 2,832.6 2,536.7 12.8
Provision for credit losses.................. 524.7 32.9 394.7 26.3 312.4 164.9 158.2 14.1
-------- -------- -------- -------- --------
Net interest income after provision
for credit losses......................... 3,553.2 6.4 3,338.8 11.7 2,990.4 2,667.7 2,378.5 12.6
Non-interest income.......................... 2,962.3 15.5 2,564.6 38.8 1,848.2 1,638.3 1,585.0 18.4
Non-interest expenses........................ 4,421.3 8.1 4,089.7 20.9 3,382.3 3,096.4 3,050.4 11.6
-------- -------- -------- -------- --------
Income before income taxes.................. 2,094.2 15.5 1,813.7 24.5 1,456.3 1,209.6 913.1 25.1
Income tax expense........................... 698.7 11.3 627.6 34.4 466.8 380.2 266.7 31.8
Tax-equivalent adjustment.................... 44.5 38.2 32.2 (3.9) 33.5 29.0 33.3 3.3
-------- -------- -------- -------- --------
Net income................................... $1,351.0 17.1% $1,153.9 20.7% $ 956.0 $ 800.4 $ 613.1 23.5%
======== ======== ======== ======== ========
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ORGANIZATIONAL EARNINGS
Banking The Banking Group reported record earnings of $957.2 million in 1997, 23.3 percent over 1996 operating earnings of $776.4 million, which increased 28.9 percent over 1995 earnings of $602.2 million. The Banking Group earnings increases in 1997 and 1996 reflect a 6.1 percent and 7.3 percent growth in tax- equivalent net interest income, respectively, primarily due to increases in average earning assets and in net interest margin. The Banking Group's provision for credit losses was $176.2 million in 1997, compared with $146.7 million and $143.0 million in 1996 and 1995, respectively. The 1997 and 1996 increases in the provision for loan losses were due to higher net charge-offs. Non-interest income in the Banking Group increased 20.4 percent from 1996 due primarily to increases in fee-based revenue including trust, insurance, and other fees and service charges, and gains on sales of securities. The Banking Group non- interest income for 1996 increased 35.8 percent from 1995 due primarily to increases in venture capital gains and gains on sale of credit card receivables. Non-interest expenses for the Banking Group in 1997 were $2,889.4 million, or a 10.3 increase from 1996. This increase is due to increased operating expenses related to acquisitions. Excluding the previously discussed SAIF
recapitalization charge, the Banking Group non-interest expenses increased 14.7 percent in 1996 from 1995 reflecting writedowns of goodwill and intangibles and additional operating expenses related to acquired companies, partially offset by reduced pension expense and FDIC insurance premiums.
The venture capital subsidiaries reported $190.9 million of net gains in 1997, compared with net gains of $256.4 million in 1996 and net gains of $102.1 million in 1995. Certain appreciated securities which comprised $8.1 million of the 1997 net venture gains were contributed to the Norwest Foundation. The contribution amount of such securities, which included the cost basis, was $8.4 million in 1997. Sales of venture capital securities generally relate to the timing of such holdings becoming publicly traded and subsequent market conditions, causing venture capital gains to be unpredictable in nature. Net unrealized appreciation in the venture capital investment portfolio was $166.2 million at December 31, 1997 and $237.7 million at December 31, 1996.
Mortgage Banking Mortgage Banking earned a record $151.0 million in 1997, a 20.8 percent increase over the $125.0 million earned in 1996, which was 19.2 percent over the $104.9 million earned in 1995. The increases were principally due to increases in mortgage loan fundings and the servicing portfolio. Fundings were a record $55.3 billion in 1997, compared with $51.5 billion in 1996 and $33.9 billion in 1995. Increases in volume were attributable in part to the acquisition of certain assets of The Prudential Home Mortgage Company, Inc. in May 1996, including $47 billion of its mortgage servicing portfolio. The percentage of fundings attributed to mortgage loan refinancings was approximately 23.0 percent in 1997, compared with 22.0 percent in 1996 and 19.6 percent in 1995. The servicing portfolio increased to $205.8 billion at December 31, 1997, compared with $179.7 billion at December 31, 1996. The weighted average coupon was 7.75 percent at December 31, 1997, compared with 7.77 percent a year earlier. Total capitalized servicing amounted to $2.8 billion or 135 basis points of the mortgage servicing portfolio at December 31, 1997. Amortization of capitalized mortgage servicing rights was $444.3 million in 1997, compared with $300.6 million in 1996 and $139.6 million in 1995. Higher levels of amortization in 1997 and 1996 reflect increased balances of capitalized servicing associated with a larger servicing portfolio and increased assumed prepayments due to a lower interest rate environment. No mortgage servicing impairment provisions were recorded in 1997 or 1996, while $64.2 million was recorded in 1995. Combined gains on sales of mortgages and servicing rights were $89.8 million in 1997, compared with $70.5 million in 1996 and $57.1 million in 1995.
Norwest Financial Norwest Financial (including Norwest Financial Services, Inc. and Island Finance) reported earnings of $242.8 million in 1997, which includes $27.3 million in non-recurring pre-tax acquisition charges related to the acquisition of Fidelity Acceptance Corporation, an automobile finance company with $1.1 billion in receivables and 150 locations in 31 states and Guam. The non-recurring charges include $16.0 million pre-tax to conform Fidelity's credit policies with those of the corporation. Excluding the special acquisition charges, Norwest Financial's operating earnings were $260.6 million, down slightly from the $264.3 million earned in 1996 due to higher levels of provisions related to higher levels of loan charge-offs. Norwest Financial's earnings for 1996 increased 6.2 percent over the $248.9 million earned in 1995 primarily due to a 16.8 percent increase in tax-equivalent net interest income related to a 14.9 percent increase in average finance receivables. Tax- equivalent net interest income rose 9.4 percent in 1997, as average finance receivables increased 10.0 percent. The 1997 and 1996 increases in tax- equivalent net interest income and average receivables reflect internal growth as well as the Fidelity Acceptance acquisition in August 1997, and the May 1995 acquisition of ITT Financial Corporation's Island Finance business, with $1 billion in receivables in Puerto Rico, the Virgin Islands and elsewhere in the Caribbean. Net interest margin decreased 17 basis points in 1997, reflecting a narrowing of the yield spread on earning assets. Net interest margin increased 22 basis points in 1996 over 1995 due to an improvement in funding costs. The overall increases in net interest income were partially offset by higher provisions for credit losses. Norwest Financial provided $330.7 million for credit losses in 1997, compared with $247.1 million in 1996 and $170.8 million in 1995. Norwest Financial's non-interest expenses increased 9.4 and 15.5 percent in 1997 and 1996, respectively, primarily due to higher operating costs of acquired companies.
Norwest Corporation and Subsidiaries
Organizational Earnings*
In millions 1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
Years Ended December 31,
-----------------------
Banking........................................................... $ 957.2 776.4 602.2 507.1 356.7
Mortgage Banking.................................................. 151.0 125.0 104.9 70.8 56.3
Norwest Financial+................................................ 242.8 264.3 248.9 222.5 200.1
-------- -------- -------- -------- --------
Consolidated operating earnings before SAIF recapitalization...... 1,351.0 1,165.7 956.0 800.4 613.1
SAIF recapitalization, net of income taxes........................ - (11.8) - - -
-------- -------- -------- -------- --------
Net income........................................................ $1,351.0 1,153.9 956.0 800.4 613.1
======== ======== ======== ======== ========
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*Earnings of the entities listed are impacted by intercompany revenues and expenses, such as interest on borrowings from the parent company, corporate service fees and allocations of federal income taxes.
+Norwest Financial had net operating earnings of $260.6 million in 1997 before a non-recurring acquisition charge of $17.8 million, net of income taxes.
CONSOLIDATED INCOME STATEMENT ANALYSIS
Net Interest Income Net interest income on a tax-equivalent basis is the difference between interest earned on assets and interest paid on liabilities, with adjustments made to present yields on tax-exempt assets as if such income were fully taxable. Changes in the mix and volume of earning assets and interest-bearing liabilities, their related yields and overall interest rates have a major impact on earnings. In 1997, tax-equivalent net interest income provided 57.9 percent of the corporation's tax-equivalent net revenues, compared with 59.3 percent in 1996 and 64.1 percent in 1995.
Total tax-equivalent net interest income was $4,077.9 million in 1997, a 9.2 percent increase over the $3,733.5 million reported in 1996. Growth in tax- equivalent net interest income over 1996 was primarily due to a 7.0 percent increase in average earning assets and an 11 basis point increase in net interest margin. The increase in average earning assets was primarily due to a 5.7 percent increase in average loans and leases and a 13.8 percent increase in average investment securities. The 1996 increase in tax-equivalent net interest income of 13.0 percent over the $3,302.8 million reported in 1995 was due to a 12.7 percent increase in average earning assets and a five basis point increase in net interest margin. Non-accrual and restructured loans reduced net interest income by $16.2 million in 1997, $17.8 million in 1996 and $11.7 million in 1995. Detailed analyses of net interest income appear on pages 73, 74 and 75 and a discussion of the corporation's asset and liability management process begins on page 25.
Net interest margin, the ratio of tax-equivalent net interest income divided by average earning assets, was 5.74 percent in 1997, 5.63 percent in 1996 and 5.58 percent in 1995. The increases in 1997 and 1996 were primarily due to improvements in funding costs, partially offset by a lower yield on average earning assets. Average loans and leases comprised 57.0 percent of average earning assets in 1997, compared with 57.7 percent in 1996 and 60.0 percent in 1995.
Provision for Credit Losses The provision for credit losses reflects management's judgment of the cost associated with credit risk inherent in the loan and lease portfolio. The consolidated provision for credit losses was $524.7 million in 1997, $394.7 million in 1996 and $312.4 million in 1995. The provision for credit losses was 1.29 percent of average loans and leases in 1997, compared with 1.02 percent in 1996 and 0.88 percent in 1995. The 1997 provision for credit losses includes $16.0 million, or 0.04 percent, of one-time provision related to the acquisition of Fidelity Acceptance Corporation. Excluding the special acquisition charge, the provision for credit losses was higher in 1997 compared with 1996 as well as in 1996 compared with 1995 due to higher net charge-offs and loan growth.
Net charge-offs were $499.7 million in 1997, $382.4 million in 1996 and $304.2 million in 1995. The net charge-off ratio, the ratio of net charge-offs as a percent of average loans and leases, was 1.23 percent in 1997, compared with 0.99 percent in 1996 and 0.86 percent in 1995. The increases in net charge-offs in 1997 and 1996 were due principally to higher levels of charge-offs in regions which have had acquisitions and higher consumer credit charge-offs. Excluding net charge-offs relating to Fidelity Acceptance, the corporation's total net charge-offs as a percent of average loans and leases was 1.15 percent.
The net charge-off ratio for Norwest Financial was 3.72 percent in 1997, compared with 3.24 percent in 1996 and 2.52 percent in 1995. Norwest Card Services' net charge-off ratio was 5.23 percent in 1997 compared with 4.23 percent in 1996 and 4.77 percent in 1995 (excluding credit card portfolios classified as held for sale in 1995). The higher consumer loan net
credit losses reflect, in part, growth in the overall portfolio, including the acquisition of Fidelity Acceptance in 1997. Fidelity Acceptance, as a subprime automobile lender, originates loans and purchases sales finance contracts secured by automobiles which generally have higher charge-off rates.
Non-interest Income Non-interest income is a significant source of the corporation's revenue, representing 42.1 percent of tax-equivalent net revenues in 1997, compared with 40.7 percent in 1996 and 35.9 percent in 1995. Consolidated non-interest income was $2,962.3 million in 1997, an increase of 15.5 percent over $2,564.6 million recorded in 1996. Non-interest income includes net investment securities gains of $37.9 million in 1997 and losses of $46.8 million in 1996. Proceeds from sales of securities in 1996 provided opportunities for the corporation to reinvest at more attractive yields. Contributing to the 1997 increase in non-interest income was growth in fee-based revenues, including trust, mortgage banking, insurance and other fees and service charges.
The increases in trust fees and service charges reflect overall increases in business activity, including acquisitions, and marketing efforts. Mortgage banking revenues increased $54.0 million from 1996 due to increased levels of origination and other closing fees resulting from higher mortgage loan funding levels. Servicing fees, essentially unchanged from 1996, are expected to increase as the servicing portfolio grows through retention of servicing and through acquisitions. Mortgage banking revenue derived from sales of servicing and future sales of servicing rights are largely dependent upon portfolio characteristics and prevailing market conditions. The increase in insurance fees is attributed to a higher volume of commissions on sales of crop and credit life insurance.
The corporation's trading revenue totaled $78.6 million in 1997, compared with $35.3 million in 1996 and $39.9 million in 1995. Trading activities are conducted within the risk limits established by the Asset and Liability Management Committee to satisfy the investment and risk management needs of customers and those of the corporation. The table in Note 14 to the consolidated financial statements on page 57 provides a summary of the corporation's trading revenues in the principal markets in which the corporation participates.
Consolidated non-interest income increased 38.8 percent in 1996 from $1,848.2 million in 1995, primarily due to higher trust fees, service charges on deposit accounts, insurance, mortgage banking revenues, net venture capital gains and gains on the disposition of credit card receivables held for sale. The increases in various fee-based services related to growth in consumer-related lending activities and other marketing initiatives.
Non-interest Expenses Consolidated non-interest expenses increased 8.1 percent in 1997 to $4,421.3 million. The change in non-interest expenses reflects increased operating expenses associated with acquisitions and certain one-time acquisition charges related to completed 1997 transactions.
Personnel expenses increased $263.8 million in 1997, primarily attributable to salaries expense. Changes in personnel expenses by business segment for 1997 included an increase of 14.8 percent for the Banking Group, an increase of 6.0 percent for Mortgage Banking, and an increase of 16.2 percent for Norwest Financial. Normalized for acquisitions, personnel expenses increased 7.6 percent for the Banking Group and 10.7 percent for Norwest Financial and remained essentially unchanged for Mortgage Banking.
Of the 1997 increases of $9.9 million in communication expenses, $13.7 million in equipment rentals, depreciation and maintenance, and $10.0 million in net occupancy expenses, the Banking Group contributed $9.8 million, $13.8 million and $10.2 million, respectively, and Norwest Financial contributed $7.3 million, $6.2 million and $5.9 million, respectively; Mortgage Banking incurred lower expenses of $7.2 million, $6.3 million and $6.1 million, respectively, in each expense category. Increases in the Banking Group and Norwest Financial are attributable in part to acquisition activity; Mortgage Banking decreases are primarily related to the consolidation of certain operations acquired from Prudential Home Mortgage.
Consolidated non-interest expenses increased 20.9 percent in 1996 to $4,089.7 million from 1995, reflecting increased operating expenses associated with acquisitions and certain one-time acquisition charges related to completed 1996 transactions, the non-recurring charge related to recapitalization of SAIF and writedowns of goodwill and other intangibles of $151.0 million before taxes, partially offset by reduced pension benefits expense of $53.2 million due to changes in pension assumptions.
Changes in personnel expenses by business segment for 1996 include an increase of 14.0 percent for the Banking Group, an increase of 37.5 percent for Mortgage Banking, and an increase of 15.9 percent for Norwest Financial. Normalized for acquisitions, personnel expenses increased 8.0 percent for the Banking Group, 23.6 percent for Mortgage Banking and 10.2 percent for Norwest Financial.
Of the 1996 increases of $60.2 million in communication expenses, $55.0 million in equipment rentals, depreciation and maintenance, and $61.9 million in net occupancy expenses, the Banking Group contributed $33.3 million, $36.9 million and $40.8 million, respectively, and Mortgage Banking contributed $20.7 million, $15.8 million and $16.1 million, respectively. In addition to the Prudential Home Mortgage acquisition, increases in Mortgage Banking reflect higher levels of origination and servicing volume.
Income Taxes The corporation's income tax planning is based upon the goal of maximizing long-term, after-tax profitability. The effective income tax rate was 34.1 percent in 1997, compared with 35.2 percent in 1996 and 32.8 percent in 1995. For more information on income taxes, see Note 12 to the consolidated financial statements on page 54.
CONSOLIDATED BALANCE SHEET ANALYSIS
Earning Assets At December 31, 1997, earning assets were $75.0 billion, compared with $68.2 billion at December 31, 1996. This increase was primarily due to a $1.8 billion increase in total investment securities, a $3.1 billion increase in loans and leases and a $2.5 billion increase in mortgages held for sale.
Average earning assets were $71.5 billion in 1997, an increase of 7.0 percent over 1996. This increase is primarily due to a 5.7 percent increase in average loans and leases and a 13.8 percent increase in average total investment securities.
Leverage, the ratio of average assets to average total stockholders' equity, was 12.7 times during 1997, compared with 13.5 times during 1996. The change from 1996 is due to a 15.6 percent increase in average stockholders' equity, partially offset by an 8.0 percent increase in average assets.
In Note 18 to the consolidated financial statements beginning on page 65, the corporation has disclosed the estimated fair values of all on- and off-balance sheet financial instruments and certain non-financial instruments in accordance with Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments." At December 31, 1997, the excess of fair value of net financial instruments over the carrying value of such instruments was $993.5 million, compared with $489.5 million at December 31, 1996.
Credit Risk Management Credit risk management includes pricing loans to cover anticipated future credit losses, funding and servicing costs and to allow for a profit margin. Loans and leases by type appear in Note 5 to the consolidated financial statements on page 42. The corporation manages exposure to credit risk through loan portfolio diversification by customer, product, industry and geography in order to minimize concentrations in any single sector. The corporation's credit risk management policies and activities as well as the geographical diversification of the corporation's Banking Group (including Norwest Card Services), Mortgage Banking, and Norwest Financial help mitigate the credit risk in their respective portfolios. The corporation's Banking Group operates in 16 states, largely in the Midwest, Southwest, and Western/Rocky Mountain regions of the country. Distribution of average loans by region in 1997 was approximately 50.1 percent in the Midwest, 28.0 percent in the Western/Rocky Mountain region and 21.9 percent in the Southwest region. Norwest Mortgage, Norwest Financial and Norwest Card Services operate on a nationwide basis. Mortgage Banking includes the largest retail mortgage origination network and the largest servicing portfolio in the United States. The five states with the highest originations in 1997 are: California, $10.1 billion; Minnesota, $3.0 billion; Texas, $2.7 billion; Illinois, $2.6 billion; and New Jersey, $2.5 billion. The originations in these five states comprise approximately 37.9 percent of total originations in 1997. The five states representing the highest level of servicing include: California, $39.8 billion; Minnesota, $11.8 billion; Texas, $10.3 billion; New York, $9.6 billion; and New Jersey, $8.9 billion. These five states comprise approximately 39.0 percent of the total servicing portfolio at December 31, 1997.
Norwest Financial engages in consumer finance activities in 48 states, all 10 Canadian provinces, the Caribbean, Central America, Saipan and Guam. The five states with the largest consumer finance receivables are: California, $696.8 million; Illinois, $291.7 million; Ohio, $253.9 million; Florida, $237.6 million; and Texas, $224.5 million. Consumer finance receivables in Puerto Rico and Canada totaled $1.4 billion and $617.8 million, respectively, at December 31, 1997. The consumer finance receivables in the five states listed above, Puerto Rico and Canada comprise approximately 44.0 percent of total consumer finance receivables at December 31, 1997.
With respect to credit card receivables, approximately 63.4 percent of the portfolio is within the corporation's 16-state banking region. Minnesota represents approximately 12.7 percent of the total outstanding credit card portfolio. No other state accounts for more than 10 percent of the portfolio.
In general, the U.S. economy continues to experience moderate growth, although consumer-related loan delinquencies and charge-offs have increased moderately over recent years. Consumer past due delinquencies at December 31 were as follows:
1997 1996 1995
---- ---- ----
Banking Group 30 days past due....................... 2.02% 2.05 1.75
Norwest Financial 60 days past due................... 3.58 3.89 3.41
Credit Card 30 days past due......................... 3.92 4.09 3.88
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See Provision for Credit Losses on page 19 for a further discussion of consumer- related net charge-offs. The average consumer installment loan made during 1997 at Norwest Financial was approximately $3,000 while sales finance contracts purchased averaged approximately $1,600. This compares with $2,700 and $1,100, respectively, in 1996. The average credit card receivable balance at Norwest Card Services was $1,428 in 1997, compared with $1,465 in 1996.
The corporation is not aware of any loans classified for regulatory purposes at December 31, 1997, that are expected to have a material impact on the corporation's future operating results, liquidity or capital resources. The corporation is not aware of any material credits about which there is serious doubt as to the ability of borrowers to comply with the loan repayment terms. There are no material commitments to lend additional funds to customers whose loans were classified as non-accrual or restructured at December 31, 1997.
Allowance for Credit Losses At December 31, 1997, the allowance for credit losses was $1,233.9 million, or 2.90 percent of loans and leases outstanding, compared with $1,040.8 million, or 2.64 percent, at December 31, 1996. The ratio of the allowance for credit losses to the total non-performing assets and 90-day past due loans and leases was 322.7 percent at December 31, 1997, compared with 335.0 percent at December 31, 1996.
Although it is impossible for any lender to predict future credit losses with complete accuracy, management monitors the allowance for credit losses with the intent to provide for all losses that can reasonably be anticipated based on current conditions. The corporation maintains the allowance for credit losses as a general allowance available to cover future credit losses within the entire loan and lease portfolio and other credit-related risks. However, management has prepared an allocation of the allowance based on its views of risk characteristics of the portfolio. This allocation of the allowance for credit losses does not represent the total amount available for actual future credit losses in any single category, nor does it prohibit future credit losses from being absorbed by portions of the allowance allocated to other categories or by the unallocated portion. The table on page 76 presents the allocation of the allowance for credit losses to major categories of loans.
Non-performing Assets and Past Due Loans and Leases The table on page 23 presents data on the corporation's non-performing assets and 90-day past due loans and leases. Generally, the accrual of interest on a loan or lease in the Banking Group is suspended when the credit becomes 90 days past due unless fully secured and in the process of collection. A restructured loan is generally a loan that is accruing interest, but on which concessions in terms have been made as a result of deterioration in the borrower's financial condition. Under the corporation's credit policies and practices, all non-accrual and restructured commercial, agricultural, construction, and commercial real estate loans are included in impaired loans. Loan impairment is measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the observable market price of the loan or the fair value of the collateral if the loan is collateral-dependent.
Non-performing assets, including non-accrual, restructured and other real estate owned, and 90-day past due loans and leases totaled $382.3 million, or 0.4 percent of total assets, at December 31, 1997, compared with $310.7 million, or 0.4 percent of total assets, at December 31, 1996. Total 90-day past due loans and leases rose $43.1 million from the end of 1996. Non-performing loans increased by $36.4 million from December 31, 1996 because of acquisitions.
Norwest Corporation and Subsidiaries
Non-performing Assets and 90-day Past Due Loans and Leases
In millions, except per share amounts 1997 1996 1995 1994 1993 1992
------ ----- ----- ----- ----- -----
At December 31,
---------------
NON-ACCRUAL LOANS AND LEASES............................................ $178.1 156.5 166.9 128.5 195.7 257.6
RESTRUCTURED LOANS AND LEASES........................................... 0.1 0.2 2.0 1.8 10.3 5.4
------ ----- ----- ----- ----- -----
Total non-accrual and restructured loans and leases*................... 178.2 156.7 168.9 130.3 206.0 263.0
OTHER REAL ESTATE OWNED................................................. 50.3 43.3 37.1 29.6 63.0 113.7
------ ----- ----- ----- ----- -----
Total non-performing assets............................................ 228.5 200.0 206.0 159.9 269.0 376.7
LOANS AND LEASES PAST DUE 90-DAYS OR MORE**............................. 153.8 110.7 91.9 58.4 50.8 51.9
------ ----- ----- ----- ----- -----
Total non-performing assets and 90-day past due loans and leases....... $382.3 310.7 297.9 218.3 319.8 428.6
====== ===== ===== ===== ===== =====
Interest income as originally contracted on non-accrual and restructured
loans and leases....................................................... $ 20.6 25.1 15.3 15.4 19.4 26.5
Interest income recognized on non-accrual and restructured
loans and leases....................................................... (4.4) (7.3) (3.6) (3.1) (5.5) (8.1)
------ ----- ----- ----- ----- -----
Reduction of interest income due to non-accrual and restructured
loans and leases....................................................... $ 16.2 17.8 11.7 12.3 13.9 18.4
====== ===== ===== ===== ===== =====
Reduction in basic earnings per share due to non-accrual
and restructured loans and leases...................................... $ .01 .02 .01 .01 .01 .02
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* Total impaired loans included in total non-accrual and restructured loans and leases amounted to $89.5 million, $94.2 million, $102.1 million and $98.6 million at December 31, 1997, 1996, 1995 and 1994, respectively. ** Excludes non-accrual and restructured loans and leases.
Mortgage Servicing Rights and Other Assets At December 31, 1997, mortgage servicing rights totaled $2.8 billion, an increase of $0.1 billion from year-end 1996. The increase in mortgage servicing rights is due to higher levels of originations. Other assets increased slightly due to the timing of receivables associated with sales of securities and increases in mortgage-related receivables.
Effective January 1, 1997, the corporation adopted Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" (FAS 125). FAS 125 sets forth the criteria for determining whether a transfer of financial assets should be accounted for as a sale or as a pledge of collateral in a secured borrowing. FAS 125 requires that after a transfer of financial assets, a company must recognize the financial and servicing assets controlled and liabilities incurred, and derecognize financial assets and liabilities in which control is surrendered or debt is extinguished. FAS 125 also eliminates the distinction between normal and excess servicing to the extent that such fees do not exceed the rate specified in the servicing contract. Application of FAS 125 for certain repurchase agreements, dollar-rolls, securities lending and similar transactions is effective for 1998. The adoption of FAS 125 has not had a material effect on the corporation's consolidated financial statements.
FUNDING SOURCES
Interest-bearing Liabilities At December 31, 1997, interest-bearing liabilities totaled $61.5 billion, an increase of $5.0 billion over December 31, 1996. The increase was principally due to a $3.4 billion increase in interest-bearing deposits and a $2.0 billion increase in short-term borrowings.
Average interest-bearing liabilities were $58.2 billion in 1997, compared with $56.0 billion in 1996, primarily due to an 11.2 percent increase in average interest-bearing deposits, partially offset by an 8.8 percent decrease in long- term debt. Increases in interest-bearing deposits are principally from acquisitions.
Core Deposits In the corporation's banking subsidiaries, demand deposits, regular savings and NOW accounts, money market checking and savings accounts and consumer savings certificates provide a stable source of low-cost funding. These funds accounted for approximately 60 percent of the corporation's total funding sources during 1997 and approximately 58 percent in 1996. This is a high level of core deposits by industry standards. In the corporation's Banking Group, where these funds are utilized, average core deposits accounted for approximately 76 percent of total funding sources during 1997, compared with 73 percent in 1996.
Purchased Deposits In addition to core deposits, purchased deposits are another source of funding for the corporation's banking subsidiaries. Purchased deposits include certificates of deposit with denominations of more than $100,000 and foreign time deposits. Purchased deposits represented approximately 5 percent and 4 percent of the corporation's total funding sources in 1997 and 1996, respectively. There were no brokered certificates of deposit at December 31, 1997 and 1996.
Short-term Borrowings Short-term borrowings include federal funds purchased, securities sold under agreements to repurchase, master note agreements, privately negotiated financing agreements and commercial paper issued by the corporation and Norwest Financial. Commercial paper is used by the corporation to fund the short-term needs of its subsidiaries, consisting primarily of funding of the inventory of mortgages held for sale which are typically held for 30 to 60 days. Norwest Financial used funds generated through its own commercial paper sales program to fund approximately 29 percent of its average earning assets in 1997, compared with 30 percent in 1996.
The commercial paper/short-term debt of the corporation and Norwest Financial, Inc. are currently rated TBW-1 by Thomson BankWatch, P-1 by Moody's, A1+ by Standard & Poor's, Duff-1+ by Duff & Phelps and F-1+ by Fitch IBCA, Inc. On average, total short-term borrowings represented approximately 10.4 percent of the corporation's total funding sources during 1997 and approximately 11.6 percent during 1996.
Long-term Debt Long-term debt represents an important funding source for the corporation and for Norwest Financial, Inc. Total long-term debt represented approximately 15.8 percent of the corporation's consolidated average funding sources during 1997, compared with approximately 18.5 percent in 1996. The corporation utilizes long-term debt primarily to meet the long-term funding requirements of its subsidiaries, and had outstandings of $5,804.9 million as of December 31, 1997, compared with $6,384.0 million as of December 31, 1996. In addition, 22 subsidiaries are members of the Federal Home Loan Bank, allowing them to receive long-term advances secured by certain loans and investment securities. As of December 31, 1997, these Banking Group subsidiaries had advances outstanding totaling $1,702.0 million, a decrease of $825.2 million from December 31, 1996. Long-term debt also plays a significant role at Norwest Financial, Inc., which uses this source of financing to fund approximately 50 percent of its average earning assets. At December 31, 1997, Norwest Financial, Inc.'s long-term debt outstanding was $5,221.4 million. Note 9 to the consolidated financial statements on page 45 presents the corporation's outstanding consolidated long-term debt as of December 31, 1997 and 1996.
Fitch IBCA, Inc. has assigned its highest individual rating of A to the corporation. Both the corporation and Norwest Financial, Inc. maintain an issuer rating of A from Thomson BankWatch. The corporation's senior debt is currently rated AA+ by Thomson BankWatch, Fitch IBCA, Inc. and Duff & Phelps, AA- by Standard & Poor's and Aa3 by Moody's. Norwest Financial, Inc.'s senior debt is currently rated AA+ by Thomson BankWatch and Fitch IBCA, Inc., AA by Duff & Phelps, AA- by Standard & Poor's and Aa3 by Moody's.
INTEREST RATE SENSITIVITY AND
LIQUIDITY MANAGEMENT
Asset and Liability Management The goal of the asset and liability management process is to manage the structure of the balance sheet to provide the maximum level of net interest income while maintaining acceptable levels of interest sensitivity risk (as defined below) and liquidity. The focal point of this process is the corporate Asset and Liability Management Committee (ALCO). This committee forms and monitors policies governing investments, funding sources, off-balance sheet commitments, overall interest sensitivity risk and liquidity. These policies form the framework for management of the asset and liability process at the corporate and affiliate levels. The corporation's interest sensitivity position is managed as a function of balance sheet trends, asset opportunities and interest rate expectations, and the corporation is normally well within policy risk limits at any given time.
Definition of Interest Sensitivity Risk Interest sensitivity risk is the risk that future changes in interest rates will reduce net interest income or the net market value of the corporation's balance sheet. Two basic ways of defining interest rate risk in the financial services industry are commonly referred to as the accounting perspective and the economic perspective. The corporation draws upon aspects of each perspective to provide a more complete view of interest rate risk than would be provided by either perspective alone.
The accounting perspective focuses on the risk to reported net income over a
particular time frame. Differences in the timing of interest rate repricing
(repricing or "gap" risk) and changing market rate relationships (basis risk)
determine the exposure of net income to changes in interest rates.
The economic perspective focuses on the risk to the market value of the corporation's balance sheet, the net of which is referred to as the market value of balance sheet equity. The sensitivity of the market value of balance sheet equity to changes in interest rates is an indicator of the level of interest rate risk inherent in an institution's current position and an indicator of longer horizon earnings trends. Assessing interest rate risk from the economic perspective focuses on the risk to net worth arising from all repricing mismatches (gaps) across the full maturity spectrum.
Measurement of Interest Rate Risk Measurement of interest rate risk from the accounting perspective has traditionally taken the form of the gap report, which represents the difference between assets and liabilities that reprice in given time periods. While providing a rough measure of rate risk, the gap report provides only a static (i.e., point-in-time) measurement, and it does not capture basis risk or risks that vary either asymmetrically or non- proportionately with rate movements.
The corporation uses a simulation model as its primary method of measuring earnings risk. The simulation model, because of its dynamic nature, can capture the effects of future balance sheet trends, different patterns of rate movements, and changing relationships between rates (basis risk). In addition, it can capture the effects of embedded option risk by taking into account the effects of interest rate caps and floors, and varying the level of prepayment rates on assets as a function of interest rates. The simulation model is used to determine the one and three year gap levels which correspond to the limits within which the corporation has placed earnings at risk to interest rate movements.
Measurement of interest rate risk from the economic perspective is accomplished with a market valuation model. The market value of each asset and liability is calculated by computing the present value of all cash flows generated. In each case the cash flows are discounted by a market interest rate chosen to reflect as closely as possible the characteristics of the given asset or liability.
Management of Interest Rate Risk As indicated above, the primary measure of interest rate risk is the simulation of net income under different future rate environments. The model was used to measure the impact on after-tax net income, relative to a base case scenario, of rates increasing or decreasing gradually 100 basis points over the next 12 months. The yield curve is assumed to flatten slightly as rates increase and to steepen as rates decrease. Embedded options are captured by including the effects of caps and floors, and by varying prepayment rates on assets as a function of interest rates. The effects of financial derivatives which are used to hedge balance sheet items are also included. Rate sensitivity of non-maturity core deposits is based on their measured historical sensitivity to market interest rates.
The resulting model simulations show that a 100 basis point increase in rates will result in a negative variance in net income of $18 million relative to the base case over the next 12 months; while a decrease of 100 basis points will result in a positive variance of $6 million. Under neither rate scenario would net income be affected by impairment of capitalized mortgage servicing rights.
CHANGES IN INTEREST SENSITIVITY The table below presents the corporation's interest sensitivity gaps for December 1997. The cumulative gap within one year was $(4,807) million, or (5.6) percent of assets. This compares with a one year gap of $(1,197) million, or (1.5) percent of assets, in December 1996. The cumulative gap within three years was $(1,411) million, or (1.6) percent of assets, in December 1997, compared to $1,025 million, or 1.3 percent of assets, in December 1996. The movement of the gaps in the negative direction was due to the addition of fixed rate investments and amortizing interest rate swaps in the first half of the year, as well as growth in loans in the consumer finance subsidiary. These changes were partly offset by growth in non-interest bearing deposits and core retail deposits, which are considered a largely non-sensitive source of funding. The effect of the current interest sensitivity position is to make the corporation's earnings slightly vulnerable to rising rates, but in a position to benefit from falling short-term rates.
Norwest Corporation and Subsidiaries
INTEREST RATE SENSITIVITY
In millions, except ratios
Repricing or Maturing
--------------------------------------------------------
Within 6 Months 1 Year 3 Years After
6 Months - 1 Year - 3 Years - 5 Years 5 Years
---------- --------- --------- --------- ---------
Average Balances For December 1997
----------------------------------
Loans and leases............................... $16,772 3,343 6,538 3,424 12,216
Investment securities.......................... 2,062 1,834 3,541 2,735 8,539
Loans held for sale............................ 3,257 -- -- -- --
Mortgages held for sale........................ 7,691 -- -- -- --
Other earning assets........................... 2,389 -- -- -- --
Other assets................................... -- 750 -- -- 10,987
---------- ---------- ---------- --------- --------
Total assets.................................. $32,171 5,927 10,079 6,159 31,742
========== ========== ========== ========= ========
Noninterest-bearing deposits................... $ 4,638 74 306 206 10,521
Interest-bearing deposits...................... 16,187 4,214 4,899 1,170 12,292
Short-term borrowings.......................... 8,608 -- -- -- --
Long-term debt................................. 2,405 799 3,129 2,262 4,008
Other liabilities and equity................... 2 -- 188 -- 10,170
---------- ---------- ---------- --------- --------
Total liabilities and equity.................. $31,840 5,087 8,522 3,638 36,991
========== ========== ========== ========= ========
Swaps and options.............................. $(6,632) 654 1,839 1,396 2,743
Gap*........................................... (6,301) 1,494 3,396 3,917 (2,506)
Cumulative gap................................. (6,301) (4,807) (1,411) 2,506 --
Gap as a percent of total assets............... (7.3)% (5.6) (1.6) 2.9 --
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*[assets - (liabilities + equity) + swaps and options] The gap includes the effect of off-balance sheet instruments on the corporation's interest sensitivity.
In addition to adjusting the pricing and levels of assets and liabilities, the corporation uses off-balance sheet derivative financial instruments to manage interest rate risk. The corporation primarily enters into interest rate swaps, interest rate caps and floors, futures contracts and options as part of its overall risk management activities. Certain of these derivative financial instruments synthetically change the repricing or other characteristics of underlying assets and liabilities hedged. The corporation principally uses interest rate swaps to hedge certain fixed-rate debt and certain deposit liabilities and to convert these funding sources to floating rates. Interest rate floors, futures contracts and options on futures contracts are principally used to hedge the corporation's portfolio of mortgage servicing rights. The floors provide for the receipt of payments when interest rates are below predetermined interest rate levels. The cash flows on the floors and futures contracts are used, as appropriate, to offset lost future servicing revenue related to increased levels of prepayments associated with lower interest rates. In Notes 1, 9 and 15 to the consolidated financial statements on pages 36, 45 and 57, respectively, the corporation has disclosed additional information with respect to its use of derivative financial instruments.
The corporation's net cash flows from off-balance sheet derivative financial instruments used to manage interest rate risk added approximately $81.9 million to net interest income in 1997, compared with $56.9 million in 1996 and $7.1 million in 1995. This resulted in an impact on net interest margin of 11 basis points in 1997, compared with nine basis points in 1996 and one basis point in 1995. Based on interest rate levels at December 31, 1997, total estimated future cash flows related to the corporation's derivative financial instruments, including interest rate swaps and floors hedging capitalized mortgage
servicing rights, are expected to approximate $207 million in 1998, $114 million in 1999, $67 million in 2000, $44 million in 2001, $17 million in 2002, and $27 million thereafter.
Liquidity Management Liquidity management involves planning to meet funding needs and cash flow requirements of customers and the corporation at a reasonable cost, and is governed by policies formulated and monitored by ALCO. Each affiliate is responsible for managing its own liquidity position within overall guidelines, which consider the marketability of assets, the sources and stability of funding, and the level of unfunded commitments.
The corporation has a significant liquidity reserve in its investment securities portfolio, as approximately 81 percent of the $18.7 billion portfolio consists of highly marketable U.S. Treasury or federal agency securities. Several other factors provide a favorable liquidity position for the corporation compared with most large bank holding companies, including the large amount of funding that comes from consumer deposits, which are a more stable source of funding than purchased funds.
Another source of asset liquidity is the ability to securitize assets such as automobile and mortgage loans. Through public offerings, affiliates of the corporation securitized $5.8 billion in mortgage loans in 1997; and $1.1 billion in automobile loans and $2.7 billion in mortgage loans in 1996.
The corporation also filed shelf registration statements in July 1996 which permit the corporation to issue up to $5 billion and $2 billion of debt securities, respectively, in domestic and international money and capital markets. As of December 31, 1997, the corporation has issued $700 million of securities under such shelf registrations.
CAPITAL MANAGEMENT
The corporation believes that a strong capital position is vital to continued profitability and to promote depositor and investor confidence. The corporation's consolidated capital levels are a result of its capital policy, which establishes guidelines for each subsidiary based on industry standards, regulatory requirements, perceived risk of the various businesses, and future growth opportunities. Pursuant to the capital policy, bank affiliates maintain capital levels above regulatory minimums for Tier 1 capital and total capital (Tier 1 plus Tier 2) to risk-weighted assets and leverage ratios. The primary source of equity capital available for the affiliates is earnings, with other forms of capital available from the corporation as needed. Earnings above levels required to meet capital policy requirements are paid to the corporation in the form of dividends and are used to support capital needs of other affiliates, to pay corporate dividends or to reduce the corporation's borrowings.
Various federal and state statutes and regulations limit the amount of dividends the subsidiary banks can pay to the corporation without regulatory approval. The approval of the Office of the Comptroller of the Currency is required for any dividend by a national bank if the total of all dividends declared by the bank in any calendar year would exceed the total of its net income for that year combined with its retained net income for the preceding two calendar years, less any required transfers to surplus or a fund for the retirement of preferred stock. The corporation also has state bank subsidiaries that are subject to state regulations limiting dividends. Under these provisions, the corporation's national bank subsidiaries and state-chartered bank subsidiaries could have declared as of December 31, 1997 aggregate dividends of at least $462.9 million without obtaining prior regulatory approval and without reducing the capital below minimum regulatory levels. Additionally, the corporation's non-bank subsidiaries could have declared dividends totaling $978.0 million at December 31, 1997.
Under the Federal Reserve Board's risk-based capital guidelines for bank holding companies, the minimum ratio of total capital to risk-adjusted assets (including certain off-balance sheet items, such as standby letters of credit) is eight percent. The minimum Tier 1 capital to risk-adjusted assets is four percent. Through implementation of its capital policies, the corporation has achieved a strong capital position. The corporation's total capital and Tier 1 capital to risk-adjusted assets ratios were 11.01 percent and 9.09 percent, respectively, at December 31, 1997, compared with 10.42 percent and 8.63 percent, respectively, at December 31, 1996. The Federal Reserve Board also requires bank holding companies to comply with minimum leverage ratio guidelines. The leverage ratio is the ratio of a bank holding company's Tier 1 capital to its total consolidated quarterly average assets, less goodwill and certain other intangible assets. The guidelines require a minimum leverage ratio of three percent for bank holding companies that meet certain specified criteria. The corporation's leverage ratio was 6.63 percent at December 31, 1997, compared with 6.15 percent at December 31, 1996.
The Federal Deposit Insurance Act requires federal bank regulatory agencies to take "prompt corrective action" with respect to FDIC-insured depository institutions that do not meet minimum capital requirements. A depository institution's treatment for purposes of the prompt corrective action provisions will depend upon how its capital levels compare to various capital measures and certain other factors, as established by regulation.
Federal bank regulatory agencies have adopted regulations that classify insured
depository institutions into one of five capital-based categories. The
regulations use the total capital ratio, the Tier 1 capital ratio and the
leverage ratio as the relevant measures of capital. A depository institution is
(a) "well capitalized" if it has a risk-adjusted total capital ratio of at least
ten percent, a Tier 1 capital ratio of at least six percent and a leverage ratio
of at least five percent and is not subject to any order or written directive to
maintain a specific capital level; (b) "adequately capitalized" if it has a
risk-adjusted total capital ratio of at least eight percent, a Tier 1 capital
ratio of at least four percent and a leverage ratio of at least four percent
(three percent in some cases) and is not well capitalized; (c)
"undercapitalized" if it has a risk-adjusted total capital ratio of less than
eight percent, a Tier 1 capital ratio of less than four percent or a leverage
ratio of less than four percent (three percent in some cases); (d)
"significantly undercapitalized" if it has a risk-adjusted total capital ratio
of less than six percent, a Tier 1 capital ratio of less than three percent or a
leverage ratio of less than three percent; and (e) "critically undercapitalized"
if its tangible equity is less than two percent of total assets. As of December
31, 1997, all of the corporation's insured depository institutions met the
criteria for well capitalized institutions as set forth above.
Common stockholders' equity was $6,834.2 million at December 31, 1997, compared with $5,875.4 million at December 31, 1996. The corporation's internal capital growth rate (ICGR) in 1997 was 13.74 percent. The ICGR represents the rate at which the corporation's average common equity grew as a result of earnings retained (net income less dividends paid).
Since 1986, the corporation has repurchased common stock in the open market in a systematic pattern to meet the common stock issuance requirements of the corporation's Savings Investment Plans, the Long-Term Incentive Compensation Plan, and other stock issuance requirements other than acquisitions accounted for as pooling of interests. In November 1997, the corporation's board of directors authorized additional purchases, upon such terms and conditions as management approves, of 11,000,000 shares of the corporation's common stock, and as of December 31, 1997, the remaining total common stock purchase authority was 7,876,000 shares.
During 1997, the corporation repurchased 3,526,000 shares of its common stock for issuance in conjunction with specific purchase acquisitions that were consummated during the year. In addition, approximately 13,102,000 shares were repurchased during 1997 for benefit plans, including shares acquired related to the vesting of options granted in 1996 under the corporation's Best Practices PartnerShares plan, and other ongoing needs. During 1996, 7,462,000 shares were repurchased for acquisition purposes and 10,475,000 shares were repurchased for benefit plans and other ongoing needs.
All shares of the corporation's 10.24% Cumulative Preferred Stock, in the form of depositary shares, were redeemed on January 2, 1996. The redemption price for each depositary share, representing one-quarter of a share of preferred stock, was the $25 stated value.
In October 1997, the board of directors approved an increase in the corporation's quarterly common stock dividend to 16 1/2 cents per share from 15 cents, representing a 10 percent increase in the quarterly dividend rate. The dividend increase reflects the corporation's continuing record of strong earnings performance and the corporation's policy of maintaining the dividend payout ratio in a range of 30 to 35 percent. The corporation also distributed a two-for-one split in the form of a 100 percent common stock dividend on October 10, 1997 to stockholders of record on October 2, 1997. In the first quarter of 1997, the corporation increased its quarterly dividend rate 11.1 percent to 15 cents per common share. In the second quarter of 1996, the corporation increased the quarterly cash dividend paid to common stockholders from 12 cents per share to 13 1/2 cents per share, representing a 12.5 percent increase in the quarterly dividend rate.
In June 1997, the FASB issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," (FAS 130) and Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (FAS 131). FAS 130 requires disclosures of the components of comprehensive income and the accumulated balance of other comprehensive income within total stockholders' equity. FAS 131 requires disclosure of selected information about operating segments including segment income, revenues and asset data. Operating segments, as defined in FAS 131, would include those components for which financial information is available and evaluated regularly by the chief operating decision maker in assessing performance and making resource allocation determinations for operating components such as those which exceed 10 percent or more of combined revenue, income or assets. The corporation will be required to adopt the provisions of FAS 130 and FAS 131 in 1998; these standards are not expected to have a material impact on the corporation's consolidated financial statements.
YEAR 2000
Management has initiated a company-wide program to prepare the corporation's systems for year 2000 compliance. The year 2000 issue relates to systems designed to use two digits rather than four to define the applicable year. The corporation has incurred charges in testing and correcting its computer systems to be year 2000 compliant which include internal staff costs as well as consulting and other expenses. The corporation estimates these costs of year 2000 compliance to range between $100 million and $125 million over the period 1997-1999. As a result of modifications to existing systems, together with conversions to new systems, management presently believes that the year 2000 issue will not pose a significant operational matter for the corporation.
ACQUISITIONS
The corporation regularly explores opportunities for acquisitions of financial institutions and related businesses. Generally, management of the corporation does not make a public announcement about an acquisition opportunity until a definitive agreement has been signed.
In Note 2 to the consolidated financial statements on pages 38 and 39, the corporation has disclosed completed acquisitions for the three years ended December 31, 1997.
At December 31, 1997, the corporation had six pending acquisitions with total assets of approximately $483.9 million, and it is anticipated that cash of $48.1 million and approximately 2.1 million common shares will be issued upon completion of these acquisitions. The pending acquisitions, subject to approval by regulatory agencies, are expected to be completed during 1998 and are not, either individually or in the aggregate, significant to the financial statements of the corporation.
Norwest Corporation and Subsidiaries
Consolidated Balance Sheets
In millions, except shares 1997 1996
--------- --------
At December 31,
---------------
ASSETS
Cash and due from banks............................................... $ 4,912.1 4,856.6
Interest-bearing deposits with banks.................................. 46.6 1,237.9
Federal funds sold and resale agreements.............................. 967.4 1,276.8
--------- --------
Total cash and cash equivalents.................................... 5,926.1 7,371.3
Trading account securities............................................ 486.9 186.5
Investment and mortgage-backed securities available for sale.......... 17,983.9 16,247.1
Investment securities (fair value $762.8 in 1997 and $745.2 in 1996).. 747.2 712.2
--------- --------
Total investment securities........................................ 18,731.1 16,959.3
Loans held for sale................................................... 3,407.0 2,827.6
Mortgages held for sale............................................... 8,848.0 6,339.0
Loans and leases, net of unearned discount............................ 42,521.6 39,381.0
Allowance for credit losses........................................... (1,233.9) (1,040.8)
--------- --------
Net loans and leases............................................... 41,287.7 38,340.2
Premises and equipment, net........................................... 1,295.5 1,200.9
Mortgage servicing rights, net........................................ 2,774.9 2,648.5
Interest receivable and other assets.................................. 5,783.0 4,302.1
--------- --------
Total assets....................................................... $88,540.2 80,175.4
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing................................................. $16,253.3 14,296.3
Interest-bearing.................................................... 39,203.8 35,833.9
--------- --------
Total deposits.................................................... 55,457.1 50,130.2
Short-term borrowings................................................ 9,557.0 7,572.6
Accrued expenses and other liabilities............................... 3,737.2 3,326.2
Long-term debt....................................................... 12,766.7 13,082.2
--------- --------
Total liabilities................................................. 81,518.0 74,111.2
Preferred stock...................................................... 267.4 249.8
Unearned ESOP shares................................................. (79.4) (61.0)
--------- --------
Total preferred stock............................................. 188.0 188.8
Common stock, $1 2/3 par value--authorized 1,000,000,000 shares:
Issued 769,113,149 and 751,067,250 shares in 1997 and 1996,
respectively....................................................... 1,281.9 625.9
Surplus.............................................................. 419.6 948.6
Retained earnings.................................................... 5,007.7 4,248.2
Net unrealized gains on securities available for sale................ 419.4 303.5
Notes receivable from ESOP........................................... (10.1) (11.1)
Treasury stock -- 10,493,685 and 13,661,838 common shares in 1997 and
1996, respectively.................................................. (274.8) (233.3)
Foreign currency translation......................................... (9.5) (6.4)
--------- --------
Total common stockholders' equity................................. 6,834.2 5,875.4
--------- --------
Total stockholders' equity........................................ 7,022.2 6,064.2
--------- --------
Total liabilities and stockholders' equity........................ $88,540.2 80,175.4
========= ========
|
See notes to consolidated financial statements.
Norwest Corporation and Subsidiaries
Consolidated Statements of Income
In millions, except per common share amounts 1997 1996 1995
-------- -------- --------
Years Ended December 31,
-----------------------
INTEREST INCOME ON
Loans and leases................................................................. $4,552.8 4,301.5 3,955.8
Investment and mortgage-backed securities available for sale..................... 1,331.1 1,170.1 1,065.3
Investment securities............................................................ 28.3 36.2 83.8
Loans held for sale.............................................................. 231.8 254.3 195.7
Mortgages held for sale.......................................................... 462.0 468.5 366.2
Money market investments......................................................... 50.6 63.0 35.7
Trading account securities....................................................... 40.8 24.7 14.8
-------- ------- -------
Total interest income.......................................................... 6,697.4 6,318.3 5,717.3
-------- ------- -------
INTEREST EXPENSE ON
Deposits......................................................................... 1,446.7 1,324.9 1,156.3
Short-term borrowings............................................................ 439.4 454.1 515.8
Long-term debt................................................................... 777.9 838.0 775.9
-------- ------- -------
Total interest expense......................................................... 2,664.0 2,617.0 2,448.0
-------- ------- -------
NET INTEREST INCOME.............................................................. 4,033.4 3,701.3 3,269.3
Provision for credit losses...................................................... 524.7 394.7 312.4
-------- ------- -------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES............................ 3,508.7 3,306.6 2,956.9
-------- ------- -------
NON-INTEREST INCOME
Trust............................................................................ 353.7 296.3 240.7
Service charges on deposit accounts.............................................. 383.0 329.5 268.8
Mortgage banking................................................................. 875.5 821.5 535.5
Data processing.................................................................. 71.0 72.5 72.4
Credit card...................................................................... 123.0 122.2 132.8
Insurance........................................................................ 330.8 279.6 224.7
Other fees and service charges................................................... 388.7 294.4 230.3
Net investment and mortgage-backed securities available for sale gains (losses).. 37.9 (46.8) (45.1)
Net investment securities gains.................................................. -- -- 0.6
Net venture capital gains........................................................ 190.9 256.4 102.1
Trading.......................................................................... 78.6 35.3 39.9
Other............................................................................ 129.2 103.7 45.5
-------- ------- -------
Total non-interest income...................................................... 2,962.3 2,564.6 1,848.2
-------- ------- -------
NON-INTEREST EXPENSES
Salaries and benefits............................................................ 2,360.9 2,097.1 1,745.1
Net occupancy.................................................................... 326.3 316.3 254.4
Equipment rentals, depreciation and maintenance.................................. 341.4 327.7 272.7
Business development............................................................. 253.9 227.9 172.2
Communication.................................................................... 295.1 285.2 225.0
Data processing.................................................................. 167.6 163.0 136.2
Intangible asset amortization.................................................... 168.9 161.5 124.7
Other............................................................................ 507.2 511.0 452.0
-------- ------- -------
Total non-interest expenses.................................................... 4,421.3 4,089.7 3,382.3
-------- ------- -------
INCOME BEFORE INCOME TAXES....................................................... 2,049.7 1,781.5 1,422.8
Income tax expense............................................................... 698.7 627.6 466.8
-------- ------- -------
NET INCOME....................................................................... $1,351.0 1,153.9 956.0
======== ======= =======
PER COMMON SHARE
NET INCOME
Basic $ 1.78 1.55 1.39
Diluted 1.75 1.54 1.36
DIVIDENDS $ 0.615 0.525 0.450
|
See notes to consolidated financial statements.
Norwest Corporation and Subsidiaries
Consolidated Statements of Cash Flows
In millions 1997 1996 1995
----------- ---------- ----------
Years Ended December 31,
-----------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income........................................................................ $ 1,351.0 1,153.9 956.0
Adjustments to reconcile net income to net cash flows from operating activities:
Provision for credit losses...................................................... 524.7 394.7 312.4
Depreciation and amortization.................................................... 853.2 681.6 311.8
Gains on sales of loans, securities and other assets, net........................ (416.0) (230.3) (96.8)
Release of preferred shares to ESOP.............................................. 34.1 37.8 40.0
Purchases of trading account securities.......................................... (84,671.2) (58,280.4) (90,793.2)
Proceeds from sales of trading account securities................................ 84,602.9 58,279.6 90,718.4
Originations of mortgages held for sale.......................................... (55,284.6) (52,691.9) (35,045.1)
Proceeds from sales of mortgages held for sale................................... 52,836.8 55,244.7 31,771.4
Originations of loans held for sale.............................................. (1,216.9) (1,305.5) (901.0)
Proceeds from sales of loans held for sale....................................... 650.5 1,867.6 606.8
Deferred income taxes............................................................ 12.1 205.8 (70.4)
Interest receivable.............................................................. (62.4) (25.7) (94.1)
Interest payable................................................................. 39.0 38.0 148.0
Other assets, net................................................................ (1,841.9) (1,336.1) (1,853.4)
Other accrued expenses and liabilities, net...................................... 205.5 245.1 447.2
---------- --------- ---------
Net cash flows from (used for) operating activities............................. (2,383.2) 4,278.9 (3,542.0)
---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities and paydowns of:
Investment securities............................................................ 0.8 106.2 345.6
Investment and mortgage-backed securities available for sale..................... 2,621.7 2,806.6 1,924.3
Proceeds from sales and calls of:
Investment securities............................................................ 85.7 138.7 154.4
Investment and mortgage-backed securities available for sale..................... 9,487.6 5,185.9 5,742.6
Purchases of:
Investment securities............................................................ (167.3) (169.1) (524.8)
Investment and mortgage-backed securities available for sale..................... (12,360.0) (7,341.4) (6,159.9)
Net change in banking subsidiaries' loans and leases.............................. (220.2) 1,751.9 (177.3)
Principal collected on non-bank subsidiaries' loans and leases.................... 8,456.7 5,503.1 5,725.2
Non-bank subsidiaries' loans and leases originated................................ (8,748.1) (6,950.4) (6,241.7)
Purchases of premises and equipment............................................... (310.6) (288.7) (208.0)
Proceeds from sales of premises and equipment and other real estate owned......... 108.2 105.7 50.4
Cash paid for acquisitions, net of cash and cash equivalents acquired............. (66.4) (2,469.0) (94.9)
Divestiture of branches, net of cash and cash equivalents paid.................... -- (14.6) (4.1)
---------- --------- ---------
Net cash flows from (used for) investing activities.............................. (1,111.9) (1,635.1) 531.8
---------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Deposits, net..................................................................... 2,349.1 2,410.7 1,488.7
Short-term borrowings, net........................................................ 1,442.5 (1,078.3) (1,124.0)
Long-term debt borrowings......................................................... 3,302.9 4,343.6 7,329.1
Repayments of long-term debt...................................................... (4,233.0) (5,109.9) (3,274.8)
Issuances of preferred stock...................................................... -- -- 20.0
Repurchases of preferred stock.................................................... -- (112.7) (0.4)
Issuances of common stock......................................................... 149.6 82.4 65.4
Repurchases of common stock....................................................... (482.7) (355.1) (233.8)
Net decrease in notes receivable from ESOP........................................ 1.0 3.7 --
Dividends paid.................................................................... (479.5) (403.4) (337.8)
---------- --------- ---------
Net cash flows from (used for) financing activities.............................. 2,049.9 (219.0) 3,932.4
---------- --------- ---------
Net increase (decrease) in cash and cash equivalents............................. (1,445.2) 2,424.8 922.2
Cash and cash equivalents
Beginning of year................................................................ 7,371.3 4,946.5 4,024.3
---------- --------- ---------
End of year...................................................................... $ 5,926.1 7,371.3 4,946.5
========== ========= =========
|
See notes to consolidated financial statements.
Norwest Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
Net
Unrealized
Gains
(Losses)
on Notes
Unearned Securities Receivable
Preferred ESOP Common Retained Available from Treasury
In millions, except shares Stock Shares Stock Surplus Earnings for Sale ESOP Stock
--------- -------- ------- ------- -------- ---------- --------- --------
BALANCE, DECEMBER 31, 1994....................... $ 526.7 (14.7) 538.5 578.8 2,950.0 (360.4) (13.3) (350.9)
Net income....................................... -- -- -- -- 956.0 -- -- --
Dividends on
Common Stock................................... -- -- -- -- (296.6) -- -- --
Preferred Stock................................ -- -- -- -- (41.2) -- -- --
Issuance of 6,578,500 common shares.............. -- -- -- 120.5 (135.6) -- -- 90.9
Issuance of 69,066,490 common shares.............
for acquisitions................................ -- -- 51.6 40.6 68.3 16.7 -- 95.4
Repurchase of 16,197,300 common shares........... -- -- -- -- -- -- -- (233.8)
Issuance of 63,300 preferred shares to ESOP...... 63.3 (65.8) -- 2.5 -- -- -- --
Release of preferred shares to ESOP.............. -- 41.6 -- (1.6) -- -- -- --
Conversion of 1,181,900 preferred shares
to 27,783,510 common shares..................... (268.4) -- 7.1 (6.6) (4.6) -- -- 272.5
Repurchase of 1,784 preferred shares............. (0.4) -- -- -- -- -- -- --
Sale of 100,000 preferred shares held --
by subsidiary................................... 20.0 -- -- -- -- -- -- --
Change in net unrealized gains (losses)
on securities available for sale................ -- -- -- -- -- 670.8 -- --
Foreign currency translation..................... -- -- -- -- -- -- -- --
------- ----- -------- ------- ------- ------ ----- ------
BALANCE, DECEMBER 31, 1995....................... 341.2 (38.9) 597.2 734.2 3,496.3 327.1 (13.3) (125.9)
Net income....................................... -- -- -- -- 1,153.9 -- -- --
Dividends on
Common stock................................... -- -- -- -- (385.6) -- -- --
Preferred stock................................ -- -- -- -- (17.8) -- -- --
Issuance of 7,490,268 common shares.............. -- -- -- 59.0 (71.2) -- -- 115.9
Issuance of 40,360,762 common shares
for acquisitions................................ -- -- 28.7 149.8 72.6 (1.6) (1.5) 98.8
Repurchase of 17,936,842 common shares........... -- -- -- -- -- -- -- (355.1)
Issuance of 59,000 preferred shares to ESOP...... 59.0 (61.3) -- 2.3 -- -- -- --
Release of preferred shares to ESOP.............. -- 39.2 -- (1.4) -- -- -- --
Conversion of 37,777 preferred shares
to 1,970,310 common shares...................... (37.7) -- -- 4.7 -- -- -- 33.0
Repurchase of 1,127,125 preferred shares......... (112.7) -- -- -- -- -- -- --
Change in net unrealized gains (losses)
on securities available for sale................ -- -- -- -- -- (22.0) -- --
Cash payments received on notes
receivable from ESOP............................ -- -- -- -- -- -- 3.7 --
Foreign currency translation..................... -- -- -- -- -- -- -- --
------- ----- -------- ------- ------- ------ ----- ------
BALANCE, DECEMBER 31, 1996....................... 249.8 (61.0) 625.9 948.6 4,248.2 303.5 (11.1) (233.3)
Net income....................................... -- -- -- -- 1,351.0 -- -- --
Dividends on
Common stock................................... -- -- -- -- (461.7) -- -- --
Preferred stock................................ -- -- -- -- (17.8) -- -- --
Stock split...................................... -- -- 635.2 (635.2) -- -- -- --
Issuance of 12,793,327 common shares............. -- -- -- 77.6 (152.1) -- -- 282.0
Issuance of 23,835,535 common shares
for acquisitions................................ -- -- 20.8 20.9 40.1 1.0 -- 132.0
Repurchase of 16,627,681 common shares........... -- -- -- 0.9 -- -- -- (483.6)
Issuance of 51,700 preferred shares to ESOP...... 51.7 (53.8) -- 2.1 -- -- -- --
Release of preferred shares to ESOP.............. -- 35.4 -- (1.3) -- -- -- --
Conversion of 34,074 preferred shares
to 1,212,871 common shares...................... (34.1) -- -- 6.0 -- -- -- 28.1
Change in net unrealized gains (losses)
on securities available for sale................ -- -- -- -- -- 114.9 -- --
Cash payments received on notes
receivable from ESOP............................ -- -- -- -- -- -- 1.0 --
Foreign currency translation..................... -- -- -- -- -- -- -- --
------- ----- -------- ------- ------- ------ ----- ------
BALANCE, DECEMBER 31, 1997....................... $ 267.4 (79.4) 1,281.9 419.6 5,007.7 419.4 (10.1) (274.8)
======= ===== ======== ======= ======= ====== ===== ======
Foreign
Currency
In millions, except shares Translation Total
----------- -----
BALANCE, DECEMBER 31, 1994....................... (8.3) 3,846.4
Net income....................................... -- 956.0
Dividends on
Common Stock................................... -- (296.6)
Preferred Stock................................ -- (41.2)
Issuance of 6,578,500 common shares.............. -- 75.8
Issuance of 69,066,490 common shares.............
for acquisitions................................ -- 272.6
Repurchase of 16,197,300 common shares........... -- (233.8)
Issuance of 63,300 preferred shares to ESOP...... -- --
Release of preferred shares to ESOP.............. -- 40.0
Conversion of 1,181,900 preferred shares
to 27,783,510 common shares..................... -- --
Repurchase of 1,784 preferred shares............. -- (0.4)
Sale of 100,000 preferred shares held
by subsidiary................................... -- 20.0
Change in net unrealized gains (losses)
on securities available for sale................ -- 670.8
Foreign currency translation..................... 2.5 2.5
---- -------
BALANCE, DECEMBER 31, 1995....................... (5.8) 5,312.1
Net income....................................... -- 1,153.9
Dividends on
Common stock................................... -- (385.6)
Preferred stock................................ -- (17.8)
Issuance of 7,490,268 common shares.............. -- 103.7
Issuance of 40,360,762 common shares
for acquisitions................................ -- 346.8
Repurchase of 17,936,842 common shares........... -- (355.1)
Issuance of 59,000 preferred shares to ESOP...... -- --
Release of preferred shares to ESOP.............. -- 37.8
Conversion of 37,777 preferred shares
to 1,970,310 common shares...................... -- --
Repurchase of 1,127,125 preferred shares......... -- (112.7)
Change in net unrealized gains (losses)
on securities available for sale................ -- (22.0)
Cash payments received on notes
receivable from ESOP............................ -- 3.7
Foreign currency translation..................... (0.6) (0.6)
---- -------
BALANCE, DECEMBER 31, 1996....................... (6.4) 6,064.2
Net income....................................... -- 1,351.0
Dividends on
Common stock................................... -- (461.7)
Preferred stock................................ -- (17.8)
Stock split...................................... -- --
Issuance of 12,793,327 common shares............. -- 207.5
Issuance of 23,835,535 common shares
for acquisitions................................ -- 214.8
Repurchase of 16,627,681 common shares........... -- (482.7)
Issuance of 51,700 preferred shares to ESOP...... -- --
Release of preferred shares to ESOP.............. -- 34.1
Conversion of 34,074 preferred shares
to 1,212,871 common shares...................... -- --
Change in net unrealized gains (losses)
on securities available for sale................ -- 114.9
Cash payments received on notes
receivable from ESOP............................ -- 1.0
Foreign currency translation..................... (3.1) (3.1)
---- -------
BALANCE, DECEMBER 31, 1997....................... (9.5) 7,022.2
==== =======
|
See notes to consolidated financial statements.
NORWEST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Norwest Corporation (the corporation) is a diversified financial services company which was organized in 1929 and is registered under the Bank Holding Company Act of 1956, as amended. The corporation owns subsidiaries engaged in banking and a variety of related businesses. The corporation provides retail, commercial, and corporate banking services to its customers through banks located in Arizona, Colorado, Illinois, Indiana, Iowa, Minnesota, Montana, Nebraska, Nevada, New Mexico, North Dakota, Ohio, South Dakota, Texas, Wisconsin and Wyoming. The corporation provides additional financial services to its customers through subsidiaries engaged in various businesses, principally mortgage banking, consumer finance, equipment leasing, agricultural finance, commercial finance, securities brokerage and investment banking, insurance agency services, computer and data processing services, trust services, mortgage-backed securities servicing and venture capital investment.
The accounting and reporting policies of the corporation and its subsidiaries conform to generally accepted accounting principles and general practices within the financial services industry. The more significant accounting policies are summarized below.
Consolidation The consolidated financial statements include the accounts of the corporation and all subsidiaries. Significant intercompany accounts and transactions have been eliminated.
Consolidated Statements of Cash Flows For purposes of the consolidated statements of cash flows, the corporation considers cash and due from banks, interest-bearing deposits with banks and federal funds sold and resale agreements to be cash equivalents.
Supplemental disclosures of cash flow information for the years ended December 31 include:
In millions 1997 1996 1995
-------- ------- -------
Interest.......................................................................... $2,625.0 2,579.0 2,299.9
Income taxes...................................................................... 527.2 43.0 533.1
Transfer of loans to other real estate owned...................................... 66.5 51.3 28.6
|
See Notes 2 and 10 for certain non-cash common and preferred stock transactions.
In 1995, credit card receivables totaling $1,007.4 million were transferred to the loans held for sale category pending their sale in 1996.
Investment Securities Investment and mortgage-backed securities which the corporation intends to hold until maturity are stated at cost, adjusted for amortization of premiums and accretion of discounts using a method that approximates level yield. Investment and mortgage-backed securities which the corporation intends to hold for indefinite periods of time, including securities that management intends to use as part of its asset/liability management strategy, or that may be sold in response to changes in interest rates, changes in prepayment risk, securities on which call options have been written, the need to increase regulatory capital or similar factors, are classified as available for sale.
Investment and mortgage-backed securities available for sale are measured at fair value. Net unrealized gains and losses, net of deferred income taxes, on investments and mortgage-backed securities available for sale are excluded from earnings and reported as a separate component of stockholders' equity until realized. The classification of investment securities is determined at the date of purchase and subsequent transfers, if any, between security classifications are recorded at fair value.
The corporation's venture capital subsidiaries classify equity securities that are publicly traded as available for sale and non-publicly traded equity securities as held for investment.
Realized gains and losses on sales of investment securities are computed by the specific identification method at the time of disposition and are recorded in non-interest income.
Trading account securities are purchased with the intent to earn a profit by trading or selling the security. These securities are stated at fair value. Adjustments to the fair value are reported in non-interest income.
Loans and Leases Loans are stated at their principal amount and interest income is recognized on an accrual basis. With the exception of certain consumer and residential real estate loans, loans and leases on which payments are past due for 90 days are placed on non-accrual status, unless such loan is in the process of collection and, in management's opinion, is fully secured. Residential real estate loans over 120 days past due are included in non-accrual while other consumer loans are generally written off when deemed uncollectible or when they reach a predetermined number of days past due depending upon loan product, country, terms and other factors. When a loan is placed on non-accrual status, uncollected interest accrued in prior years is charged against the allowance for credit losses. A loan is returned to accrual status when principal and interest are no longer past due and collectibility is no longer doubtful.
Restructured loans are those on which concessions in terms have been made as a result of deterioration in a borrower's financial condition. Interest on these loans is accrued at the new terms.
Under the corporation's credit policies and practices, impaired loans include all non-accrual and restructured commercial, agricultural, construction, and commercial real estate loans, but exclude certain consumer loans, residential real estate loans and lease financing classified as non-accrual. Loan impairment is measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the observable market price of the loan or the fair value of the collateral if the loan is collateral dependent.
Lease financing assets include aggregate lease rentals, net of related unearned income, which includes deferred investment tax credits, and related nonrecourse debt. Leasing income is recognized as a constant percentage of outstanding lease financing balances over the lease terms.
Unearned discount on consumer loans is recognized by the interest method or other methods for which results are not materially different from the interest method.
Loan origination fees and costs incurred to extend credit are deferred and amortized over the term of the loan and the loan commitment period as a yield adjustment. Loan fees representing adjustments of interest rate yield are generally deferred and amortized into interest income over the term of the loan using the interest method. Loan commitment fees are generally deferred and amortized into non-interest income on a straight-line basis over the commitment period.
Allowance for Credit Losses The allowance for credit losses is based upon management's evaluation of a number of factors, including credit loss experience, risk analyses of loan portfolios, as well as current and expected economic conditions.
Charge-offs are loans or portions thereof evaluated as uncollectible. Loans made by certain domestic consumer finance subsidiaries, unless fully secured by real estate, are generally charged off when the loan is 90 days or more contractually delinquent and no payment has been received for 90 days. Other consumer loans are generally charged off when the loan is 120 days or more contractually past due or other delinquency criteria have been met. Credit card receivables are charged off when they become 180 days past due or sooner upon receipt of a bankruptcy notice.
Loans Held for Sale Student loans are classified as held for sale because the corporation does not intend to hold these loans until maturity or sales of the loans are pending. Such loans are carried at the lower of aggregate cost or market value. Gains and losses are recorded in non-interest income, based on the difference between sales proceeds and carrying value.
Mortgages Held For Sale Mortgages held for sale are stated at the lower of aggregate cost or market value. The determination of market value includes consideration of all open positions, outstanding commitments from investors, and related fees paid.
Gains and losses on sales of mortgages are recognized at settlement dates and are determined by the difference between sales proceeds and the carrying value of the mortgages. Gains and losses are recorded in non-interest income.
Mortgage Servicing Rights The corporation recognizes as separate assets the rights to service mortgage loans for others, whether the servicing rights are acquired through purchases or loan originations. The fair value of capitalized mortgage servicing rights is based upon the present value of estimated future cash flows. Based upon current fair values and considering outstanding positions of derivative financial instruments utilized as hedges, capitalized mortgage servicing rights are periodically assessed for impairment, which is recognized in the statement of income during the period in which impairment occurs as an adjustment to the corresponding valuation allowance. For purposes of performing its impairment evaluation, the corporation stratifies its portfolio on the basis of certain risk characteristics including loan type and note rate. Capitalized mortgage servicing rights are amortized over the period of estimated net servicing income and take into account appropriate prepayment assumptions.
Effective January 1, 1997, the corporation adopted Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" (FAS 125). FAS 125 requires that after a transfer of financial assets, the corporation must recognize the financial and servicing assets controlled and liabilities incurred, and derecognize financial assets and liabilities in which control is surrendered or debt is extinguished. In such cases, servicing assets are determined based on estimated future revenues from contractually specified servicing fees and other ancillary revenues that are expected to compensate the corporation for performing the servicing. The adoption of FAS 125 has not had a material effect on the corporation's consolidated financial statements.
Premises and Equipment Premises and equipment are stated at cost, less accumulated depreciation and amortization. Owned properties are depreciated on a straight-line basis over their estimated useful lives. Capital lease assets and leasehold improvements are amortized over lease terms on a straight-line basis.
The costs of improvements are capitalized. Maintenance and repairs, as well as gains and losses on dispositions of premises and equipment, are included in non- interest expenses.
Other Real Estate Owned Other real estate owned is stated at the lower of cost or 70 percent of current appraised value (which is not materially different from fair value minus estimated costs to sell). When a property is acquired, the excess of the recorded investment in the property over fair value, if any, is charged to the allowance for credit losses. Subsequent declines in the estimated fair value, net operating results and gains or losses on disposition of the property are included in other non-interest expenses.
Goodwill and Other Intangibles Goodwill represents the unamortized cost of acquiring subsidiaries and other net assets in excess of the appraised value of such net assets at the date of acquisition. Goodwill is amortized over a maximum 15-year period using the straight-line method. Other identifiable intangibles are amortized either on an accelerated basis or straight-line, over various periods which do not exceed 15 years.
Derivative Financial Instruments The corporation and its subsidiaries use a variety of derivative financial instruments as part of an overall interest rate risk management strategy and in conjunction with their customer service and trading activities. Derivative financial instruments utilized include interest rate swaps, interest rate futures, caps, floors, options and forward contracts.
Interest rate swaps are used principally as a tool to manage the interest sensitivity of the corporation's balance sheet. These contracts represent an exchange of interest payment streams based on an agreed-upon notional principal amount with at least one stream based on a specified floating-rate index. The underlying principal balances of the assets or liabilities are not affected. Net settlement amounts are reported as adjustments to interest income or interest expense, as appropriate.
Options are contracts which grant the purchaser, for a premium payment, the right, but not the obligation, to either purchase or sell the underlying financial instrument at a set price during a period or at a specified date in the future. The writer of the option is obligated to purchase or sell the underlying financial instrument if the purchaser chooses to exercise the option. Premiums paid on purchased put options which qualify as hedges are deferred and amortized over the terms of the contracts. Purchased put options are marked to market daily with losses limited to the amount of the option fee. Losses are recognized currently on put options sold when the market value of the underlying security falls below the put price plus the premium received. A premium received on a covered call option sold is deferred until the option matures. If the market value of the related asset is greater than the option strike price, the option will be exercised and the premium recorded as an adjustment of the gain or loss recognized. If the option expires, the premium is recorded in other non- interest income. Uncovered call options sold are marked to market daily with the gain limited to the amount of the option fee.
Interest rate futures and forward contracts are commitments to either purchase or sell a financial instrument at a specified price on an agreed-upon future date. These contracts may be settled either in cash or by delivery of the underlying financial instruments. Interest rate caps and floors require the seller to pay the purchaser, at specified dates, the amount, if any, by which the market interest rate exceeds the agreed-upon cap or falls below the agreed- upon floor, applied to a notional principal amount. Positions which are designated and effectively hedge specific mortgage servicing risk tranches are correlated based on certain duration and convexity parameters. Realized gains and losses on positions used in the management of specific asset and liability positions in banking operations are deferred and amortized over the terms of the items hedged as adjustments to interest income or interest expense. Within mortgage banking operations, realized and unrealized gains and losses on positions used as hedges of mortgages held for sale are deferred and recognized upon sale of the mortgages. Realized gains and losses on positions used as hedges of capitalized mortgage servicing rights are deferred and amortized over the estimated remaining life of the hedged asset.
Derivative financial instruments which are not hedges of specific assets, liabilities or commitments are included in the trading account.
For a discussion of the risks associated with derivatives and the corporation's policies used to monitor such risks refer to Note 15, Derivative Activities.
Income Taxes The corporation and its United States subsidiaries file a consolidated federal income tax return. The effects of current or deferred taxes are recognized as a current and deferred tax liability or asset based on current tax laws. Accordingly, income tax expense in the consolidated statements of income includes charges or credits to properly reflect the current and deferred tax asset or liability. Foreign taxes paid are applied as credits to reduce federal income taxes payable.
Foreign Currency Translation The accounts of the corporation's foreign consumer finance subsidiaries are measured using local currency as the functional currency. Assets and liabilities are translated into United States dollars at period-end exchange rates, and income and expense accounts are translated at average monthly exchange rates. Net exchange gains or losses resulting from such translation are excluded from net income and included as a separate component of stockholders' equity.
Stock-Based Compensation The corporation accounts for its stock incentive plans in accordance with Accounting Principles Board Opinion No. 25 (APB Opinion No. 25) and related Interpretations. The corporation adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," (FAS 123) in 1996. The corporation has included in Note 11, Employee Benefit and Stock Incentive Plans the impact of the fair value of employee stock-based compensation plans on net income and earnings per share on a pro forma basis for awards granted since January 1, 1995, pursuant to FAS 123.
Earnings Per Share Basic earnings per share, pursuant to Statement of Financial Accounting Standards No. 128, "Earnings Per Share," (FAS 128) is determined using net income, adjusted for preferred stock dividends, and divided by weighted average common shares outstanding. Diluted earnings per share, as defined by FAS 128, is computed based on the amount of income that would be available for each common share, assuming all dilutive potential common shares were issued. Such dilutive potential common shares include stock options, the 6 3/4 percent convertible subordinated debentures and Cumulative Convertible Preferred Stock, Series B. Amounts used in the determination of basic and diluted earnings per share are shown in the table below.
In millions, except shares
1997 1996 1995
------------ ----------- -----------
Net Income...................................................... $ 1,351.0 1,153.9 956.0
Less dividends accrued on preferred stock....................... 17.8 17.8 39.9
------------ ----------- -----------
Income available to common stockholders - basic................. 1,333.2 1,136.1 916.1
Add interest expense and amortization of debt expense,
net of related taxes, on convertible subordinated debentures
and dividends accrued on convertible preferred stock.......... -- -- 10.6
------------ ----------- -----------
Income available to common stockholders - diluted............... $ 1,333.2 1,136.1 926.7
============ =========== ===========
Weighted average common shares outstanding...................... 750,058,690 731,836,430 658,363,600
Adjustments for dilutive securities:
Assumed exercise of stock options.............................. 9,986,137 7,582,902 4,995,384
Assumed conversion of preferred stock.......................... -- -- 16,760,474
Assumed conversion of convertible subordinated debentures...... 34,800 35,794 48,340
------------ ----------- -----------
Diluted common shares........................................... 760,079,627 739,455,126 680,167,798
============ =========== ===========
|
2. BUSINESS COMBINATIONS
The corporation regularly explores opportunities for acquisitions of financial institutions and related businesses. Generally, management of the corporation does not make a public announcement about an acquisition opportunity until a definitive agreement has been signed.
Transactions completed in the years ended December 31, 1997, 1996 and 1995 include:
In millions, except share amounts Common
Cash Shares Method of
Date Assets Paid Issued Accounting
---- ------ ---- ------ ----------
1997
Franklin Federal Bancorp., F.S.B., Austin, Texas (B).......... January 1 $ 621.3 $ 90.0 -- Purchase of assets
Central Bancorporation, Inc., Fort Worth, Texas (B)........... January 28 1,105.3 -- 9,399,576 Pooling of interests*
Reliable Financial Services, Inc., San Juan, Puerto Rico (F).. February 21 38.6 -- 1,753,086 Pooling of interests*
Statewide Mortgage Company, Birmingham, Alabama (B)........... February 26 27.9 -- 1,049,992 Purchase
The United Group, Inc., Charlotte, North Carolina (F)......... March 21 40.6 -- 648,348 Purchase
Farmers National Bancorp, Inc., Geneseo, Illinois (B)......... March 24 197.6 -- 1,207,198 Purchase
The First National Bankshares, Inc.,
Tucumcari, New Mexico (B)................................... June 17 90.2 -- 608,900 Purchase
Tennessee Credit Corporation, Nashville, Tennessee (F)........ July 18 13.4 3.3 -- Purchase
Western National Trust Company, National
Association, Odessa, Texas (B).............................. July 31 0.3 0.9 -- Purchase
Fidelity Acceptance Corporation, St. Louis, Missouri (F)...... August 31 1,134.5 343.6 -- Purchase
The Bank of the Southwest, National Association
Pagosa Springs, Colorado (B)................................ September 2 85.4 -- 490,790 Purchase
International Bancorporation, Inc.,
Golden Valley, Minnesota (B)................................ October 21 483.4 -- 3,601,935 Pooling of interests*
Subsidiaries of Cityside Holding, L.L.C.,
Eden Prairie, Minnesota (F)................................. October 30 104.2 42.2 -- Purchase
J.L.J. Financial Services Corporation,
Montvale, New Jersey (B).................................... October 31 26.0 6.4 -- Purchase
Myers Bancshares Inc., Dallas, Texas (B)...................... November 14 134.5 -- 613,247 Purchase
Packers Management Company, Inc.,
Omaha, Nebraska (B)......................................... November 25 162.0 -- 1,171,161 Purchase
First Valley Bank Group, Inc., Los Fresnos, Texas (B)......... December 1 519.1 -- 3,291,302 Pooling of interests*
--------- ------ ----------
$ 4,784.3 $486.4 23,835,535
========= ====== ==========
1996
The Bank of Robstown, Robstown, Texas (B)..................... January 12 $ 71.4 $ 9.5 -- Purchase
AMFED Financial, Inc., Reno, Nevada (B)....................... January 18 1,518.8 -- 12,093,272 Pooling of interests*
Irene Bancorporation, Inc., Viborg, South Dakota (B).......... January 31 39.7 7.1 -- Purchase
Canton Bancshares, Inc., Canton, Illinois (B)................. February 15 49.7 -- 558,540 Purchase
Henrietta Bancshares, Inc., Henrietta, Texas (B).............. March 12 164.0 24.4 -- Purchase
Victoria Bankshares, Inc., Victoria, Texas (B)................ April 11 1,918.7 -- 17,021,602 Pooling of interests*
The Prudential Home Mortgage Company, Inc. (M)................ May 7 3,335.6 3,335.6 -- Purchase of assets
Cardinal Credit Corporation, Lexington, Kentucky (F).......... May 13 34.2 33.6 -- Purchase of assets
Benson Financial Corporation, San Antonio, Texas (B).......... May 31 463.8 -- 4,088,070 Pooling of interests*
Regional Bank of Colorado, N.A., Rifle, Colorado (B).......... June 1 56.0 -- 709,934 Purchase
AmeriGroup, Incorporated, Minneapolis, Minnesota (B).......... June 4 155.1 -- 1,832,400 Purchase
Union Texas Bancorporation, Inc., Laredo, Texas (B)........... June 27 245.0 -- 789,958 Purchase
B & G Investment Company, San Antonio, Texas (B).............. July 3 71.2 -- 541,996 Purchase
PriMerit Bank, F.S.B., Las Vegas, Nevada (B).................. July 19 1,577.6 190.7 -- Purchase of assets
DUMAE Insurance Agency, Inc., Baltic, South Dakota (B)........ July 25 0.2 0.2 -- Purchase of assets
Aman Collection Service, Inc., Aberdeen, South Dakota (F)..... August 2 4.1 -- 1,200,000 Pooling of interests*
Rapid Finance, Inc., Jacksonville, Mississippi (F)............ August 16 28.6 28.6 -- Purchase of assets
National Business Finance, Inc., Denver, Colorado (B).........September 30 8.4 7.5 -- Purchase
American Bank Moorhead, Moorhead, Minnesota (B)............... October 1 154.7 23.9 -- Purchase
|
In millions, except share amounts Common
Cash Shares Method of
Date Assets Paid Issued Accounting
---- ------ ---- ------ ----------
1996, CONTINUED
Texas Bancorporation, Inc., Odessa, Texas (B)............. November 1 173.6 -- 1,524,990 Purchase
West Columbia National Bank, West Columbia, Texas (B)..... December 27 34.4 5.0 -- Purchase
--------- -------- ----------
$10,104.8 $3,666.1 40,360,762
========= ======== ==========
1995
Ken-Caryl Investment Company, Littleton, Colorado (B)..... January 5 $ 29.0 $ -- 299,548 Purchase
American Republic Bancshares, Inc.,
Belen, New Mexico (B).................................. January 6 222.0 -- 2,413,092 Purchase
Independent Bancorp of Arizona, Inc.,
Phoenix, Arizona (B)................................... February 12 1,600.0 159.7 -- Purchase
Parker Bankshares, Incorporated, Parker, Colorado (B)..... February 28 59.0 -- 789,990 Pooling of interests*
Directors Mortgage Loan Corporation,
Riverside, California (M).............................. March 13 270.8 -- 21,091,556 Pooling of interests*
Babbscha Company, Fridley, Minnesota (B).................. April 1 53.0 -- 551,842 Purchase
The First National Bank of Bay City, Bay City, Texas (B).. April 10 146.0 -- 1,865,284 Purchase
Goldenbanks of Colorado, Inc., Golden, Colorado (B)....... May 1 361.3 -- 5,433,258 Pooling of interests*
ITT Financial Corporation - Island Finance business (F)... May 4 1,016.1 574.3 -- Purchase
New Braunfels Bancshares, Inc., New Braunfels, Texas (B).. May 10 43.1 7.0 -- Purchase
United Texas Financial Corporation,
Wichita Falls, Texas (B)............................... June 1 296.3 -- 3,031,702 Purchase
First American National Bank, Chandler, Arizona (B)....... June 1 39.0 -- 385,662 Pooling of interests*
First Tule Bancorp, Inc., Tulia, Texas (B)................ June 1 61.4 8.3 -- Purchase
The Ryland Group, Inc. - Mortgage-related
institutional financial services business (B).......... June 30 -- 47.1 -- Purchase
Comfort Bancshares, Inc., Comfort, Texas (B).............. July 10 41.1 6.2 -- Purchase
Valley-Hi Investment Company, San Antonio, Texas (B)...... August 1 121.6 -- 855,996 Purchase
Dickinson Bancorporation, Inc.,
Dickinson, North Dakota (B)............................ August 8 123.3 -- 1,083,182 Purchase
Alice Bancshares, Inc., Alice, Texas (B).................. September 15 187.6 40.2 -- Purchase
State National Bank, El Paso, Texas (B)................... October 2 1,052.3 157.0 -- Purchase
Liberty National Bank, Austin, Texas (B).................. October 16 167.1 27.3 -- Purchase
The Foothill Group, Inc., Los Angeles, California (B)..... October 19 905.1 -- 31,265,378 Pooling of interests*
The First National Bank in Big Spring,
Big Spring, Texas (B).................................. November 1 216.9 38.0 -- Purchase
Beacon Business Credit Corp.,
Boston, Massachusetts (B).............................. December 1 30.6 12.5 -- Purchase
--------- -------- ----------
$ 7,042.6 $1,077.6 69,066,490
========= ======== ==========
|
*Pooling of interests transaction was not material to the corporation's
consolidated financial statements; accordingly, previously reported results
were not restated.
B - Banking Group; M - Mortgage Banking; F - Norwest Financial
At December 31, 1997, the corporation had six pending acquisitions with total assets of approximately $483.9 million, and it is anticipated that cash of $48.1 million and approximately 2.1 million common shares will be issued upon completion of these acquisitions. These pending acquisitions, subject to approval by regulatory agencies, are expected to be completed during 1998 and are not significant to the financial statements of the corporation, either individually or in the aggregate.
3. RESTRICTIONS ON CASH AND DUE FROM BANKS
The corporation's banking subsidiaries are required to maintain reserve balances in cash with Federal Reserve Banks. The average amount of those reserve balances was approximately $328 million and $580 million for the years ended December 31, 1997 and 1996, respectively.
4. INVESTMENT SECURITIES
Information related to the amortized cost and fair values of investment securities at December 31 is provided in the table below.
Amortized Cost and Fair Values of Investment Securities
1997 1996
---------------------------------------------------- -------------------------
Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized
Cost Gains Losses Value Cost Gains
--------- -------------- ----------- -------- --------- --------------
In millions
Investment securities available for sale:
U.S. Treasury and
federal agencies..................... $ 1,059.0 22.7 (5.3) 1,076.4 1,173.6 13.4
State, municipal and
housing-tax exempt................... 1,420.5 70.4 (2.4) 1,488.5 917.5 37.6
Other................................... 787.4 250.4 (4.1) 1,033.7 868.8 356.9
--------- ----- ----- -------- -------- -----
Total investment
securities available
for sale................................ 3,266.9 343.5 (11.8) 3,598.6 2,959.9 407.9
--------- ----- ----- -------- -------- -----
Mortgage-backed securities
available for sale:
Federal agencies....... ................ 13,812.9 326.4 (12.1) 14,127.2 12,651.0 194.4
Collateralized mortgage
obligations........... ................ 255.8 4.9 (2.6) 258.1 165.5 7.8
--------- ----- ----- -------- -------- -----
Total mortgage-backed
securities available
for sale................................ 14,068.7 331.3 (14.7) 14,385.3 12,816.5 202.2
--------- ----- ----- -------- -------- -----
Total investment and
mortgage-backed securities
available for sale....................... 17,335.6 674.8 (26.5) 17,983.9 15,776.4 610.1
Other securities held
for investment........................... 747.2 17.9 (2.3) 762.8 712.2 35.8
--------- ----- ----- -------- -------- -----
Total investment securities............... $18,082.8 692.7 (28.8) 18,746.7 16,488.6 645.9
========= ===== ===== ======== ======== =====
1996
----------------------
Gross
Unrealized Fair
Losses Value
----------------------
In millions
Investment securities available for sale:
U.S. Treasury and
federal agencies.................... (6.9) 1,180.1
State, municipal and
housing-tax exempt.................. (3.2) 951.9
Other.................................. (67.5) 1,158.2
------ --------
Total investment
securities available
for sale............................... (77.6) 3,290.2
------ --------
Mortgage-backed securities
available for sale:
Federal agencies....................... (61.2) 12,784.2
Collateralized mortgage
obligations............................ (0.6) 172.7
------ --------
Total mortgage-backed
securities available
for sale............................... (61.8) 12,956.9
------ --------
Total investment and
mortgage-backed securities
available for sale..................... (139.4) 16,247.1
Other securities held
for investment......................... (2.8) 745.2
------ --------
Total investment securities............... (142.2) 16,992.3
====== ========
|
The carrying and fair values of investment securities by maturity at December 31 were:
1997 1996
--------------------- ------------------
In millions Carrying Fair Carrying Fair
Value Value Value Value
--------- -------- -------- --------
AVAILABLE FOR SALE:
Investment securities:
In one year or less................................ $ 504.1 504.1 649.8 649.8
After one year through five years.................. 1,319.1 1,319.1 1,295.4 1,295.4
After five years through ten years................. 595.9 595.9 372.3 372.3
After ten years.................................... 1,179.5 1,179.5 972.7 972.7
--------- -------- -------- --------
Total investment securities available for sale.... 3,598.6 3,598.6 3,290.2 3,290.2
--------- -------- -------- --------
Mortgage-backed securities:
In one year or less................................ 79.7 79.7 132.8 132.8
After one year through five years.................. 340.3 340.3 409.9 409.9
After five years through ten years................. 151.3 151.3 152.0 152.0
After ten years.................................... 13,814.0 13,814.0 12,262.2 12,262.2
--------- -------- -------- --------
Total mortgage-backed securities
available for sale............................... 14,385.3 14,385.3 12,956.9 12,956.9
--------- -------- -------- --------
Total investment and mortgage-backed
securities available for sale...................... 17,983.9 17,983.9 16,247.1 16,247.1
--------- -------- -------- --------
HELD FOR INVESTMENT:
In one year or less................................ -- -- -- --
After one year through five years.................. 332.0 347.6 294.8 327.8
After five years through ten years................. -- -- -- --
After ten years.................................... 415.2 415.2 417.4 417.4
--------- -------- -------- --------
Total investment securities held for investment..... 747.2 762.8 712.2 745.2
--------- -------- -------- --------
Total investment securities......................... $18,731.1 18,746.7 16,959.3 16,992.3
========= ======== ======== ========
|
In November 1995, the Financial Accounting Standards Board announced it would permit companies to make a one-time reclassification of their investment securities in conjunction with the issuance of a Special Report entitled "A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities." The corporation transferred the remaining federal agency and state, municipal and housing tax exempt securities with amortized costs of $27.4 million and $665.2 million, respectively, from held for investment to available for sale as of December 31, 1995. Unrealized gains related to such securities transferred amounted to $25.3 million.
Investment securities (including securities available for sale) carried at $7,394.4 million and $6,515.9 million were pledged to secure public or trust deposits or for other purposes at December 31, 1997 and 1996, respectively.
Interest income on investment securities for each of the three years ended December 31 was:
In millions 1997 1996 1995
------------ ------------ ------------
Investment securities available for sale:
U.S. Treasury and federal agencies..................................... $ 149.4 79.8 73.5
State, municipal and housing-tax exempt................................ 74.6 53.5 6.5
Other.................................................................. 48.7 48.5 39.5
-------- ------- -------
Total investment securities available for sale..................... 272.7 181.8 119.5
-------- ------- -------
Mortgage-backed securities available for sale:
Federal agencies....................................................... 1,040.6 974.7 934.1
Collateralized mortgage obligations.................................... 17.8 13.6 11.7
-------- ------- -------
Total mortgage-backed securities available for sale................ 1,058.4 988.3 945.8
-------- ------- -------
Total investment and mortgage-backed securities available for sale........ 1,331.1 1,170.1 1,065.3
Other securities held for investment...................................... 28.3 36.2 83.8
-------- ------- -------
Total investment securities............................................... $1,359.4 1,206.3 1,149.1
======== ======= =======
|
Total gross realized gains and gross realized losses from the sale of investment securities for each of the three years ended December 31 were:
In millions 1997 1996 1995
------------- ------------- -------------
AVAILABLE FOR SALE:
Investment securities:
Gross realized gains................................................... $ 76.5 16.1 14.8
Gross realized losses.................................................. (55.4) (71.1) (21.3)
------ ----- -----
Net realized gains (losses)............................................ 21.1 (55.0) (6.5)
Mortgage-backed securities:
Gross realized gains................................................... 28.0 97.5 50.5
Gross realized losses.................................................. (11.2) (89.3) (89.1)
------ ----- -----
Net realized gains (losses)............................................ 16.8 8.2 (38.6)
------ ----- -----
Net realized gains (losses) on investment
and mortgage-backed securities available for sale...................... $ 37.9 (46.8) (45.1)
====== ===== =====
HELD FOR INVESTMENT:
Investment securities:
Gross realized gains................................................... $ -- -- 0.7
Gross realized losses.................................................. -- -- (0.1)
------ ----- -----
Net realized gains (losses) on
investment securities held for investment................................ $ -- -- 0.6
====== ===== =====
VENTURE CAPITAL SECURITIES:
Gross realized gains................................................... $217.4 269.3 129.3
Gross realized losses.................................................. (26.5) (12.9) (27.2)
------ ----- -----
Net venture capital realized gains........................................ $190.9 256.4 102.1
====== ===== =====
|
Certain investment securities with a total amortized cost of $100.6 million, $138.7 million and $97.0 million were sold by the corporation during 1997, 1996 and 1995, respectively, due to significant deterioration in the creditworthiness of the related issuers or called by the issuers prior to maturity.
5. LOANS AND LEASES
The carrying values of loans and leases at December 31 were:
In millions 1997 1996
----------- -----------
Commercial, financial and industrial.............................................. $10,680.2 10,204.9
Agricultural...................................................................... 1,276.2 1,107.7
Real estate
Secured by 1-4 family residential properties................................... 10,746.6 10,376.3
Secured by development properties.............................................. 2,131.4 2,104.5
Secured by construction and land development................................... 1,005.8 943.8
Secured by owner-occupied properties........................................... 2,866.1 2,644.6
Consumer.......................................................................... 12,298.0 10,431.2
Credit card....................................................................... 1,632.2 1,566.2
Lease financing................................................................... 921.2 812.4
Foreign
Consumer....................................................................... 864.0 774.9
Commercial..................................................................... 212.4 187.7
--------- --------
Total loans and leases....................................................... 44,634.1 41,154.2
Unearned discount................................................................. (2,112.5) (1,773.2)
--------- --------
Total loans and leases, net of
unearned discount........................................................... $42,521.6 39,381.0
========= ========
|
Changes in the allowance for credit losses were:
In millions 1997 1996 1995
-------- ------- ------
Balance at beginning of year........................................................... $1,040.8 917.2 789.9
Allowances related to assets
acquired, net........................................................................ 168.1 111.3 119.1
Provision for credit losses........................................................... 524.7 394.7 312.4
Credit losses......................................................................... (652.5) (511.8) (421.2)
Recoveries............................................................................ 152.8 129.4 117.0
-------- ------- ------
Net credit losses.................................................................... (499.7) (382.4) (304.2)
-------- ------- ------
Balance at end of year................................................................. $1,233.9 1,040.8 917.2
======== ======= ======
|
Total non-performing assets and 90-day past due loans and leases at December 31 were:
In millions 1997 1996
-------- -------
Impaired loans:
Non-accrual........................................................................... $ 89.4 94.0
Restructured.......................................................................... 0.1 0.2
-------- -------
Total impaired loans................................................................. 89.5 94.2
Other non-accrual loans and leases..................................................... 88.7 62.5
-------- -------
Total non-accrual and restructured
loans and leases..................................................................... 178.2 156.7
Other real estate owned................................................................ 50.3 43.3
-------- -------
Total non-performing assets........................................................... 228.5 200.0
Loans and leases past due 90 days or more*............................................. 153.8 110.7
-------- -------
Total non-performing assets and
90-day past due loans and leases..................................................... $ 382.3 310.7
======== =======
|
*Excludes non-accrual and restructured loans and leases.
The average balances of impaired loans for the years ended December 31, 1997 and 1996 were $103.4 million and $113.1 million, respectively. The allowance for credit losses related to impaired loans at December 31, 1997 and 1996 was $33.5 million and $31.4 million, respectively. Impaired loans of $1.8 million and $0.9 million were not subject to a related allowance for credit losses at December 31, 1997 and 1996, respectively, because of the net realizable value of loan collateral, guarantees and other factors.
The effect of non-accrual and restructured loans on interest income for each of the three years ended December 31 was:
In millions 1997 1996 1995
--------------- --------------- ---------------
Interest income
As originally contracted............................................. $20.6 25.1 15.3
As recognized........................................................ (4.4) (7.3) (3.6)
----- ---- ----
Reduction of interest income......................................... $16.2 17.8 11.7
===== ==== ====
|
There were no material commitments to lend additional funds to customers whose loans were classified as non-accrual or restructured at December 31, 1997.
Leveraged lease financing amounted to $167.7 million and $151.1 million at December 31, 1997 and 1996, respectively. Deferred income taxes related to leveraged leases amounted to $132.6 million and $115.5 million at the same dates, respectively.
Loans and leases totaling $4,697.3 million and $4,614.6 million were pledged to secure Federal Home Loan Bank (FHLB) advances at December 31, 1997 and 1996, respectively.
Loans to executive officers and directors (and their associates) of the corporation and its significant subsidiaries, made in the ordinary course of business, were not material at December 31, 1997 and 1996.
6. PREMISES AND EQUIPMENT
The carrying values of premises and equipment at December 31 were:
In millions 1997 1996
-------------- ---------------
OWNED
Land................................................................................ $ 165.2 151.1
Premises and improvements........................................................... 1,087.6 988.7
Furniture, fixtures and equipment................................................... 1,452.4 1,298.3
--------- --------
Total............................................................................ 2,705.2 2,438.1
--------- --------
CAPITALIZED LEASES
Premises............................................................................ 19.2 19.1
Equipment........................................................................... 2.1 2.1
--------- --------
Total............................................................................ 21.3 21.2
--------- --------
Total premises and equipment........................................................ 2,726.5 2,459.3
Less accumulated depreciation and amortization...................................... (1,431.0) (1,258.4)
--------- --------
Premises and equipment, net......................................................... $ 1,295.5 1,200.9
========= ========
|
7. CERTIFICATES OF DEPOSIT OVER $100,000
The corporation had certificates of deposit over $100,000 of $4,478.1 million and $3,457.1 million at December 31, 1997 and 1996, respectively. Interest expense on certificates of deposit over $100,000 was $227.1 million, $177.1 million and $139.9 million for the years ended December 31, 1997, 1996 and 1995, respectively. There were no brokered certificates of deposit at December 31, 1997 and 1996.
8. SHORT-TERM BORROWINGS
Information related to short-term borrowings for the three years ended December 31 is provided in the table below.
At December 31, 1997, the corporation had available lines of credit totaling $2,362.4 million, including $2,062.4 million at a subsidiary, Norwest Financial. A portion of these financing arrangements require the maintenance of compensating balances or payment of fees, which are not material.
At December 31, 1997, the corporation had commercial paper placement agreements totaling $300.0 million (included in the $2,362.4 million reported in the preceding paragraph).
Short-Term Borrowings
1997 1996 1995
---------------- --------------- ----------------
In millions, except rates Amount Rate Amount Rate Amount Rate
--------- ----- -------- ----- --------- -----
AT DECEMBER 31,
Commercial paper............................................... $4,692.0 5.68% $3,466.0 5.26% $3,129.2 5.77%
Federal funds purchased and securities sold under
agreements to repurchase.................................... 3,349.9 5.72 2,665.0 5.47 3,563.6 5.10
Other.......................................................... 1,515.1 5.96 1,441.6 5.75 1,834.4 5.88
-------- -------- --------
Total....................................................... $9,557.0 5.74 $7,572.6 5.43 $8,527.2 5.52
======== ======== ========
FOR THE YEAR ENDED DECEMBER 31,
AVERAGE DAILY BALANCE
Commercial paper............................................... $4,027.1 5.42% $4,277.5 5.37% $3,364.3 6.01%
Federal funds purchased and securities sold under
agreements to repurchase.................................... 3,045.3 4.96 2,925.0 5.03 3,854.9 5.78
Other.......................................................... 1,159.4 6.05 1,351.1 5.71 1,518.4 5.97
-------- -------- --------
Total....................................................... $8,231.8 5.34 $8,553.6 5.31 $8,737.6 5.90
======== ======== ========
MAXIMUM MONTH-END BALANCE
Commercial paper............................................... $4,695.3 NA $5,357.7 NA $4,981.0 NA
Federal funds purchased and securities sold under
agreements to repurchase.................................... 5,210.1 NA 3,366.9 NA 5,670.6 NA
Other.......................................................... 1,515.1 NA 1,760.9 NA 2,321.1 NA
|
NA--Not applicable.
9. LONG-TERM DEBT
Long-term debt at December 31 consisted of:
In millions, except rates Stated Effective
Rate(s) Rate(s) 1997 1996
------------------ ------------------ -------- --------
NORWEST CORPORATION (PARENT COMPANY ONLY)
Medium-Term Notes, Series A, due 1998 5.58% to 5.74% 5.657% to 5.819% $ 6.6 6.6
Medium-Term Notes, Series C, due 1998 4.93% to 5.14% 5.029% to 5.240% 1.5 1.5
Floating Rate Medium-Term Notes, Series C, due 1998 5.956% to 6.006% 6.069% to 6.190% 55.0 105.0
Medium-Term Notes, Series D, due 1999 to 2001 7.125% to 8.15% 5.803% to 6.023% 375.0 375.0
Floating Rate Medium-Term Notes, Series D, due 1999 5.956% 6.075% to 6.103% 200.0 200.0
Medium-Term Notes, Series E, due 2002 7.75% 7.842% 125.0 550.0
Floating Rate Medium-Term Notes, Series E, due 1998 5.893% 5.993% 50.0 250.0
Medium-Term Notes, Series F, due 2000 to 2005 6.50% to 7.68% 5.847% to 7.696% 1,000.0 1,000.0
Medium-Term Notes, Series G, due 1998 to 2006 5.75% to 6.875% 5.835% to 6.043% 1,950.0 1,950.0
Floating Rate Medium-Term Notes, Series G, due 1998 5.986% 6.069% 25.0 25.0
Medium-Term Notes, Series H, due 2001 to 2007 5.625% to 6.75% 5.78% to 6.895% 600.0 400.0
Medium-Term Notes, Series J, due 2006 to 2027 6.55% to 6.75% 5.929% to 6.788% 400.0 200.0
Floating Rate Euro Medium-Term Notes, due 2001 5.863% 6.001% 300.0 300.0
5.75% Senior Notes, due 1998 5.75% 6.028% 100.0 100.0
6% Senior Notes, due 2000 6.00% 6.161% 200.0 200.0
6.003% Senior Notes, due 1997 6.003% -- -- 200.0
ESOP Series B Notes, Due 1999 8.52% 8.709% 8.9 13.3
9 1/4% Subordinated Capital Notes, due 1997 9.25% -- -- 100.0
6 5/8% Subordinated Notes, due 2003 6.625% 6.092% 200.0 200.0
6 3/4% Convertible Subordinated Debentures, due 2003 6.75% 6.805% 0.1 0.1
6.65% Subordinated Debentures, due 2023 6.65% 6.692% 200.0 200.0
Other notes 5.75% to 6.625% 5.75% to 6.625% 7.8 7.5
--------- --------
Total 5,804.9 6,384.0
--------- --------
NORWEST FINANCIAL, INC. AND ITS SUBSIDIARIES
Senior Notes, due 1998 to 2009 4.79% to 8.65% 4.90% to 8.93% 5,219.4 4,080.9
Senior Subordinated Notes, due 1998 7.34% 7.34% 2.0 52.0
--------- --------
Total 5,221.4 4,132.9
--------- --------
OTHER CONSOLIDATED SUBSIDIARIES
FHLB Notes and Advances, due 1998 through 2027 3.15% to 8.38% 3.15% to 8.38% 376.7 477.2
Floating Rate FHLB Advances, due 1998 through 2011 5.343% to 5.919% 5.343% to 6.059% 1,325.3 2,050.0
12.25% Senior Notes, due 1998 to 2000 12.25% 12.25% 1.8 2.5
Other notes and debentures, due 1998 through 2006 3.00% to 11.90% 3.00% to 11.90% 20.1 18.7
Mortgages payable 8.00% to 12.00% 8.00% to 12.00% 0.3 0.4
Capital lease obligations 16.2 16.5
--------- --------
Total 1,740.4 2,565.3
--------- --------
Consolidated long-term debt $12,766.7 13,082.2
========= ========
|
The corporation has entered into various interest rate swap agreements to exchange the fixed interest rate on certain debt issuances for a variable rate and to exchange the variable rate on certain debt issuances for a fixed rate. Through the use of such instruments, the corporation has synthetically altered the stated rate on certain notional amounts of outstanding debt. The effective rates included in the table are based upon rates in effect at December 31, 1997 and also reflect any related amortization of premium or discount.
Notes and debentures of the corporation and Norwest Financial, Inc. and its subsidiaries are unsecured. Medium-Term Notes represent senior, unsubordinated debt and rank equally with all other unsecured and unsubordinated debt of the corporation.
The 6 5/8% Subordinated Notes due 2003 are unsecured and subordinated to all present and future senior debt of the corporation. Payment of principal may be accelerated only in the case of bankruptcy of the corporation. There is no right of acceleration in the case of a default in the payment of principal or interest or in the lack of performance of any covenant or agreement of the corporation.
The 6 3/4% Convertible Subordinated Debentures due 2003 can be converted into common stock of the corporation at $2.50 per share subject to adjustment for certain events. Repayment is subordinated, but only to the extent described in the indenture relating to the debentures, to the prior payment in full of all of the corporation's obligations for borrowed money. The subordinated debentures are redeemable at the principal amount.
The 6.65% Subordinated Debentures due 2023 are unsecured and subordinated to all present and future senior debt of the corporation. There is no right of acceleration in the case of default in the payment of principal or interest or in the lack of performance of any covenant of the corporation. Payment of principal may be accelerated only in the case of bankruptcy of the corporation.
The 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.
The corporation has the option to call $100 million of Medium-Term Notes, Series F beginning May 10, 1998 upon 30 days' notice. During 1997, the corporation called $50 million of Medium-Term Notes, Series C and $25 million of Medium-Term Notes, Series E.
Maturities of long-term debt at December 31, 1997 were:
Parent
In millions Consolidated Company Only
------------ ------------
1998............................................ $ 1,918.2 694.6
1999............................................ 1,806.9 780.8
2000............................................ 1,744.3 801.5
2001............................................ 1,243.1 801.4
2002............................................ 1,317.7 625.8
Thereafter...................................... 4,736.5 2,100.8
--------- -------
Total.......................................... $12,766.7 5,804.9
========= =======
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10. STOCKHOLDERS' EQUITY
Preferred and Preference Stock The corporation is authorized to issue 5,000,000 shares of preferred stock without par value and 4,000,000 shares of preference stock, without par value. Shares of preferred stock and preference stock have such powers, preferences and rights as may be determined by the corporation's board of directors, provided that each share of preference stock will not be entitled to more than one vote per share. No shares of preference stock are currently outstanding. A summary of the corporation's preferred stock at December 31 is presented below.
Annual
Dividend Amount
In millions, except share and per share amounts Shares Outstanding Rate Outstanding
---------------------- --------- --------------------
1997 1996 1997 1997 1996
---------- ---------- --------- -------- -------
Cumulative Tracking, $200 stated value....................... 980,000 980,000 9.30% $196.0 196.0
1997 ESOP Cumulative Convertible, $1,000 stated value........ 22,927 -- 9.50% 23.0 --
1996 ESOP Cumulative Convertible, $1,000 stated value........ 22,831 24,469 8.50% 22.8 24.5
1995 ESOP Cumulative Convertible, $1,000 stated value........ 20,625 22,716 10.00% 20.6 22.7
ESOP Cumulative Convertible, $1,000 stated value............. 10,022 11,594 9.00% 10.0 11.6
Less: Cumulative Tracking shares held by a subsidiary........ (25,000) (25,000) (5.0) (5.0)
--------- --------- ------ -----
1,031,405 1,013,779 267.4 249.8
========= =========
Unearned ESOP shares......................................... (79.4) (61.0)
------ -----
Total preferred stock................................. $188.0 188.8
====== =====
|
All shares of the corporation's 1997 ESOP Cumulative Convertible Preferred Stock, 1996 ESOP Cumulative Convertible Preferred Stock, 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 Norwest Corporation Savings Investment Plan and Master Savings Trust (the 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 10.00 percent, depending upon the year of issuance, as shown in the table. Each share of ESOP Preferred Stock released from the unallocated reserve of the Plan is
converted into shares of common stock of the corporation based on the stated value of the ESOP Preferred Stock and the then current market price of the corporation's common stock. The ESOP Preferred Stock is also convertible at the option of the holder at any time, unless previously redeemed. The ESOP Preferred Stock is redeemable at any time, in whole or in part, at the option of the corporation at a redemption price per share equal to the higher of (a) $1,000 per share plus accrued and unpaid dividends and (b) the fair market value, as defined in the Certificates of Designation of the ESOP Preferred Stock.
In accordance with the American Institute of Certified Public Accountants (AICPA) Statement of Position 93-6, "Employers' Accounting for Employee Stock Ownership Plans," the corporation recorded a corresponding charge to unearned ESOP shares in connection with the issuance of the ESOP Preferred Stock. The unearned ESOP shares are reduced as shares of the ESOP Preferred Stock are committed to be released.
On December 30, 1994, the corporation issued 980,000 shares of Cumulative Tracking Preferred Stock, $200 stated value per share, of which 25,000 shares were held by a subsidiary at December 31, 1997, 1996 and 1995. Dividends on shares of Cumulative Tracking Preferred Stock are cumulative from the date of issue and are payable quarterly. The initial dividend rate is 9.30 percent per annum. The dividend rate is reset on January 1, 2000, and on January 1 of each fifth year thereafter. The reset rate is the greater of the 5-, 10-, 30-year Treasury rate or three-month LIBOR plus 250 basis points. At the time of initial issuance of the shares of Cumulative Tracking Preferred Stock, the holders thereof became assignees of the corporation's beneficial interest in an equivalent number of Class A preferred limited liability company interests of Residential Home Mortgage, L.L.C., a subsidiary of the corporation. Holders of shares of Cumulative Tracking Preferred Stock are entitled to receive, in addition to the dividends, certain additional cash distributions that are based on the results of operations of the limited liability company. The shares of Cumulative Tracking Preferred Stock may be redeemed after December 31, 1999, at the option of the corporation. The shares of Cumulative Tracking Preferred Stock rank on a parity, both as to payment of dividends and the distribution of assets upon liquidation, with the corporation's ESOP Preferred Stock. The Cumulative Tracking Preferred Stock ranks prior, both as to payment of dividends and the distribution of assets upon liquidation, to common stock and, if any, the corporation's junior participating preferred stock. At December 31, 1997, there were two holders of record of the Cumulative Tracking Preferred Stock.
All shares of the corporation's Cumulative Convertible Preferred Stock, Series B, $200 stated value per share, in the form of depositary shares, were called for redemption on September 1, 1995 at a price of $52.10 per depositary share plus accrued dividends. All shares of the corporation's 10.24% Cumulative Preferred Stock, $100 stated value, were redeemed on January 2, 1996 at the stated value.
Common Stock On April 22, 1997, the stockholders approved an amendment to the corporation's Restated Certificate of Incorporation increasing the authorized shares of common stock to 1,000,000,000. On September 23, 1997, the corporation's board of directors declared a two-for-one stock split of the common shares to be effected in the form of a 100 percent stock dividend, distributed on October 10, 1997, to stockholders of record on October 2, 1997. The stock split resulted in an increase in issued common stock of 381,109,956 shares and was accounted for by a transfer of $635.2 million to common stock from surplus. All prior year common share and per share disclosures have been restated to reflect the stock split.
Each share of the corporation's common stock includes one preferred share purchase right. These rights will become exercisable only if a person or group acquires or announces an offer to acquire 25 percent or more of the corporation's common stock. This triggering percentage may be reduced to no less than 15 percent by the board of directors prior to the time the rights become exercisable. When exercisable, each right will entitle the holder to buy one eight-hundredth of a share of a new series of junior participating preferred stock at a price of $175 for each one one-hundredth of a preferred share. In addition, upon the occurrence of certain events, holders of the rights will be entitled to purchase either the corporation's common stock or shares in an "acquiring entity" at one-half of the then current market value. The corporation will generally be entitled to redeem the rights at one-eighth cent per right at any time before they become exercisable. The rights will expire on November 23, 1998, unless extended, previously redeemed or exercised. The corporation has reserved 1.25 million shares of preferred stock for issuance upon exercise of the rights.
During 1996 and 1995, holders of $10,000 and $270,000, respectively, of convertible subordinated debentures exchanged such debt for 2,000 shares and 54,000 shares, respectively, of the corporation's common stock. There were no conversions in 1997. At December 31, 1997, there were four holders of record of the convertible subordinated debentures.
Under the corporation's direct purchase plan, individuals may purchase shares of common stock at market prices up to $10,000 per month and may reinvest dividends.
The corporation had reserved shares of authorized but unissued common stock at December 31, as follows:
1997 1996
------------- -------------
Stock incentive plans.......................................... 92,211,575 90,803,952
Convertible subordinated debentures and warrants*.............. 35,963,348 35,963,348
Dividend reinvestment.......................................... 2,500,057 3,344,260
Invest Norwest Program......................................... 1,488,600 2,241,986
Savings Investment Plans and Executive Incentive Compensation
Plan.......................................................... 5,695,384 8,798,768
Directors' Formula Stock Award and Stock Deferral Plans........ 624,436 653,582
Employees' deferral plans...................................... 1,815,212 1,884,680
------------- -------------
Total.......................................................... 140,298,612 143,690,576
============= =============
|
*Includes warrants issued by the corporation to subsidiaries to purchase shares of the corporation's common stock as follows: 8,928,172 shares at $42.50 per share in 1996, 11,000,176 shares at $37.50 per share in 1995 and 16,000,000 shares at $35.00 per share in 1994.
11. EMPLOYEE BENEFIT AND STOCK INCENTIVE PLANS
Savings Investment Plans Under the Savings Investment Plan (SIP), each eligible SIP participant was permitted in 1997 to contribute on a before-tax basis up to 12 percent of his or her certified earnings. However, SIP participants who were also eligible to participate in the Employees' Deferred Compensation Plan were only allowed to contribute up to six percent of certified earnings. Effective January 1, 1998, participants not eligible for the Employees' Deferred Compensation Plan may contribute on a before-tax basis up to 18 percent of certified earnings. Contributions will be matched 100 percent by the corporation up to six percent of the participant's certified earnings. The corporation's matching contributions vest 25 percent per year of employment. All of the corporation's matching contributions are invested in the corporation's common stock. The participant's contributions may be invested in one or more of ten investment funds, including a Norwest common stock fund, or a combination thereof, at the participant's direction. The corporation also maintains a Supplemental Savings Investment Plan under which amounts otherwise available for contribution to the SIP, in excess of the contribution limitations imposed by the Internal Revenue Code, are credited to an account for the participant. Contribution expense for the plans amounted to $50.1 million, $33.0 million and $37.5 million in 1997, 1996 and 1995, respectively.
SIP contains Employee Stock Ownership Plan (ESOP) provisions under which SIP may borrow money to purchase the corporation's common or preferred stock. Beginning in 1994, the corporation loaned money to SIP which has been used to purchase shares of the corporation's ESOP Preferred Stock. As ESOP Preferred Stock is released and converted into common shares, compensation expense is recorded equal to the current market price of the common shares. Dividends on the common shares allocated as a result of the release and conversion of the ESOP Preferred Stock are recorded as a reduction of retained earnings and the shares are considered outstanding for purposes of earnings per share computations. Dividends on the unallocated ESOP Preferred Stock are not recorded as a reduction of retained earnings, and the shares are not considered to be common stock equivalents for purposes of earnings per share computations. Loan principal and interest payments are made from the corporation's contributions to SIP, 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 SIP participants.
In 1989, the corporation loaned money to SIP which was used to purchase shares of the corporation's common stock (the 1989 ESOP shares). The corporation accounts for the 1989 ESOP shares in accordance with AICPA Statement of Position 76-3. Accordingly, the corporation's ESOP loans to SIP related to the purchase of the 1989 ESOP shares are recorded as a reduction of stockholders' equity, and compensation expense based on the cost of the shares is recorded as shares are released and allocated to participants' accounts. The 1989 ESOP shares are considered outstanding for purposes of earnings per share computations and dividends on the shares are recorded as a reduction to retained earnings. The 1989 ESOP shares also include ESOP shares acquired in conjunction with business combinations accounted for under the pooling of interests method of accounting. The loans from the corporation to SIP are repayable in monthly installments through April 26, 1999, with interest at 8.45 percent. Interest income on these loans was $1.0 million, $1.2 million and $1.1 million in 1997, 1996 and 1995, respectively, and is included as a reduction in salaries and benefits expense. Total interest expense on the Series A and B ESOP Notes was $0.8 million, $ 3.7 million and $3.7 million in 1997, 1996 and 1995, respectively. Total dividends paid to SIP on ESOP shares were as follows:
In millions 1997 1996 1995
----------- ---------- ----------
ESOP Preferred Stock:
Common dividends........................ $ 4.4 2.9 1.5
Preferred dividends..................... 4.0 3.2 3.5
1989 ESOP shares:
Common dividends........................ 10.6 9.1 7.7
----------- ---------- ----------
Total..................................... $ 19.0 15.2 12.7
=========== ========== ==========
|
The ESOP shares as of December 31 were as follows:
In millions, except shares 1997 1996
----------- ----------
ESOP Preferred Stock:
Allocated shares (common)............. 7,793,681 6,580,846
Unreleased shares (preferred)......... 76,405 58,779
1989 ESOP shares:
Allocated shares...................... 15,555,673 15,382,122
Unreleased shares..................... 1,053,925 1,993,978
Fair value of unearned ESOP shares....... $ 76.4 58.8
|
Norwest Financial Services, Inc. has a thrift and profit sharing plan for its employees in which eligible employees may make basic contributions of up to 6% of their compensation and supplemental contributions up to an additional 4% of their compensation. Norwest Financial Services, Inc. makes a matching contribution of 25 percent of the basic employee contributions. Norwest Financial Services, Inc. may also make a profit sharing contribution with the amount determined by the percentage return on equity of Norwest Financial Services, Inc. and its subsidiaries. Contribution expense for the plan was $17.3 million, $15.3 million and $12.1 million in 1997, 1996 and 1995, respectively.
Pension Plans The corporation's noncontributory defined benefit pension plans cover substantially all full-time employees. Pension benefits provided are based on the employee's highest compensation in three consecutive years during the last ten years of employment. The corporation's funding policy is to maximize the federal income tax benefits of the contributions while maintaining adequate assets to provide for both benefits earned to date and those expected to be earned in the future.
The combined plans' funded status at December 31 is presented below.
In millions 1997 1996
--------- --------
Plan assets at fair value*.................................................... $1,338.6 1,111.3
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits
of $824.0 and $693.1 in 1997 and 1996, respectively...................... 889.2 755.8
Projected benefit obligation for service rendered to date.................. 1,083.5 927.6
-------- -------
Plan assets greater than projected benefit obligation......................... 255.1 183.7
Unrecognized net gain from past experience different from that
assumed and effects of changes in assumptions................................. (225.5) (155.6)
Unrecognized net asset being amortized over
approximately 17 years..................................................... (8.8) (10.1)
Unrecognized prior service cost............................................... 7.4 (0.6)
-------- -------
Prepaid pension assets included in other assets............................... $ 28.2 17.4
======== =======
|
*Consists primarily of listed stocks and bonds and obligations of the U.S. government and its agencies.
The components of net pension expense for the years ended December 31 are presented below.
In millions 1997 1996 1995
------- -------- -------
Service cost-benefits earned during the year......................... $ 48.8 42.8 45.4
Interest cost on projected benefit obligation........................ 69.1 57.2 55.4
Actual return on plan assets......................................... (237.4) (156.4) (156.5)
Net amortization and deferral*....................................... 147.1 79.5 105.6
------- -------- -------
Net pension expense.................................................. $ 27.6 23.1 49.9
======= ======== =======
|
*Consists primarily of the net effects of the difference between the expected investment return and the actual investment return and the amortization of the unrecognized net gains and losses over five years.
The corporation also has established grantor trusts to be used to satisfy in part its non-qualified pension benefit liabilities. The market value of these trusts was $84.2 million and $70.5 million as of December 31, 1997 and 1996, respectively, and is not included in plan assets as presented above.
The weighted average discount rate used in determining the actuarial present value of the projected benefit obligation was seven percent for both 1997 and 1996. The rate of increase in future compensation levels used in actuarial computations was five percent in 1997 and 1996. The expected long-term rate of return on assets was nine percent in 1997 and eight percent in 1996.
Other Postretirement Benefits The corporation sponsors medical plans for retired employees. Substantially all employees become eligible for these benefits if they retire under the corporation's pension plans. The corporation's funding policy is to maximize the federal income tax benefits of the contributions while maintaining adequate assets to provide for both benefits earned to date and those expected to be earned in the future. The combined plans' funded status at December 31 is presented below.
In millions
1997 1996
------ ------
Plan assets at fair value*.............................. $140.4 124.4
Accumulated postretirement benefit obligation:
Retirees............................................... 74.7 77.2
Fully eligible active plan participants................ 1.0 0.8
Other active plan participants......................... 145.1 124.8
------ -----
220.8 202.8
Plan assets less than accumulated
postretirement benefit obligation...................... 80.4 78.4
Unrecognized net gain (loss)............................ 18.6 15.9
Unrecognized prior service cost......................... (1.7) (1.9)
------ -----
Accrued postretirement benefit liabilities included in
other liabilities...................................... $ 97.3 92.4
====== =====
|
*Consists primarily of life insurance policies, listed stocks and bonds and obligations of the U.S. government and its agencies.
The components of net periodic postretirement benefit expense for the years ended December 31 are presented below.
In millions 1997 1996 1995
-------- ------- -------
Service cost-benefits earned during the year........ $ 12.2 11.6 10.7
Interest cost on accumulated postretirement
benefit obligation................................ 14.2 13.0 12.7
Actual return on plan assets........................ (17.5) (13.7) (15.2)
Net amortization and deferral*...................... 2.5 4.9 13.6
-------- ------- -------
Net periodic postretirement benefit expense......... $ 11.4 15.8 21.8
======== ======= =======
|
*Consists primarily of the net effects of the difference between the expected investment return and the actual investment return and amortization of gains and losses over five years.
For measurement purposes, a 10.0 percent annual increase in the cost of covered health care benefits is assumed in the first year. This rate is assumed to decrease to eight percent after five years and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. For example, a one percent increase in the health care cost trend rate would increase the accumulated postretirement benefit obligation by approximately $32.5 million at December 31, 1997, and the service and interest components of the net periodic cost by $5.1 million for the year. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was seven percent in 1997 and 1996. The expected long-term rate of return on plan assets after taxes was 5.4 percent for 1997 and 4.8 percent for 1996.
Stock Incentive Plans The corporation grants stock incentives to key employees under the Long-Term Incentive Compensation Plan (LTICP) approved by the stockholders in 1985. In 1988, 1991, 1993 and 1996, the stockholders approved amendments which increased the number of shares that may be distributed under the LTICP. Shares which are not used because the terms of an award are not met, and shares which are used by a participant to pay all or part of the purchase price of an option, may again be used for awards under the LTICP.
At the discretion of a committee comprised of non-management directors, participants may be granted stock options, stock appreciation rights, restricted stock, performance awards, and stock awards without restrictions. At December 31, 1997, 265,640 shares of restricted stock and options to acquire 42,432,953 shares of common stock were outstanding under the LTICP.
Stock options may be granted as incentive stock options or non-qualified options, but may not be granted at prices less than market value at the dates of grant. Options may be exercised during a period fixed by the committee of not more than ten years. At the discretion of the committee, a stock option grant may include the right to acquire an Accelerated Ownership Non-Qualified Stock Option ("AO"). If an option grant contains the AO feature and if a participant pays all or part of the purchase price of the option with shares of the corporation's stock held by the participant for at least six months, then upon exercise of the option the participant is granted an AO to purchase, at the fair market value as of the date of the AO grant, the number of shares of common stock of the corporation equal to the sum of the number of shares used in payment of the purchase price and a number of shares with respect to taxes.
On July 23, 1996, the corporation's board of directors approved the Norwest Corporation Best Practices PartnerShares Plan, a broad-based employee stock option plan. In conjunction with the plan's approval, options for 9,751,800 shares, with an exercise price of $16.56 per share, were granted to full and part-time employees who were not participants in the LTICP (the 1996 PartnerShares grant). On July 10, 1997, the market value of the corporation's common stock closed above the vesting price for the 1996 PartnerShares grant. Of 7.6 million options that vested, 4.4 million had been exercised at December 31, 1997. On September 23, 1997, the corporation's board of directors approved a second grant under this plan to eligible employees (the 1997 PartnerShares grant). The 1997 PartnerShares grant awarded options to acquire 21.9 million common shares, at an exercise price of $31.34 per share, which are generally exercisable upon the earlier of September 24, 2002, or the first date the closing market value of the corporation's common stock equals or exceeds $60 per share.
The corporation applies APB Opinion No. 25 and related Interpretations in accounting for its stock incentive plans. Accordingly, no compensation cost has been recognized for the fixed option plans. Proceeds from stock options exercised are credited to common stock and surplus. There are no charges or credits to expense with respect to the granting or exercise of options since the options were issued at fair market value on their respective dates of grant. Had compensation cost for the corporation's stock-based compensation plans been determined consistent with FAS 123, the corporation's net income and earnings per share would have been reduced to the pro forma amounts indicated below.
In millions, except per common share amounts
1997 1996 1995
-------- -------- -------
Net income
As reported............................... $1,351.0 1,153.9 956.0
Pro forma................................. 1,315.9 1,143.8 953.2
Earnings per common share:
Basic
As reported.............................. 1.78 1.55 1.39
Pro forma................................ 1.73 1.54 1.39
Diluted
As reported.............................. 1.75 1.54 1.36
Pro forma................................ 1.71 1.52 1.36
|
The fair value for each option grant for the LTICP and the Best Practices
PartnerShares Plan used in the foregoing pro forma amounts is estimated on the
date of grant using an option pricing model. The model incorporates the
following weighted-average assumptions used for grants in 1997, 1996 and 1995:
15.45 percent dividend growth; 20 percent expected volatility; risk-free
interest rates ranging from 5.11 percent to 7.84 percent; and expected lives
ranging from 1 to 5 years.
Stock Option Transactions In connection with the acquisition of Benson Financial Corporation (Benson) in 1996, the corporation assumed Benson's obligations under a stock option plan. As a result of the merger, all options under the plan were converted into options to acquire 110,764 shares of the corporation's common stock. At December 31, 1997, 28,482 of such options remain outstanding.
In connection with the 1994 acquisition of First National Bank of Kerrville (Kerrville), the corporation assumed Kerrville's obligations under a stock option plan. As a result of the acquisition, all options under the plan were converted into options to acquire 362,600 shares of the corporation's common stock, of which 77,500 options remain outstanding as of December 31, 1997.
In connection with the 1993 acquisition of Financial Concepts Bancorp, Inc. (Financial Concepts), the corporation assumed Financial Concepts' obligations under a stock option plan. As a result of the merger, all options under the plan were
converted into options to acquire 199,424 shares of the corporation's common stock. At December 31, 1997, 78,528 of such options remain outstanding.
In connection with the 1993 acquisition of Lincoln Financial Corporation (Lincoln), the corporation assumed Lincoln's obligations under two stock option plans and a Director's Stock Compensation Plan. At December 31, 1997, options to acquire 26,112 shares of common stock were outstanding under one of Lincoln's stock option plans.
In connection with the United Banks of Colorado, Inc. (United) merger in 1992, the corporation assumed United's obligations under two stock option plans and the Outside Directors' Supplemental Compensation Plan. At December 31, 1997, options to acquire 30,500 shares were outstanding under one of United's stock option plans.
A summary of stock option activity under the LTICP and acquired plans is presented below.
Weighted
Available Options Average
for Grant Outstanding Exercise Price
----------- ----------- --------------
December 31, 1994 (16,968,666 options exercisable)... 15,845,078 31,432,216 $ 10.5380
Granted* (Weighted average fair
value $1.9713 per option).......................... (3,720,442) 3,720,442 14.7885
Shares Swapped...................................... 1,231,618 --
Exercised........................................... -- (3,853,152) 8.0416
Cancelled........................................... 659,036 (659,272) 12.6506
Restricted Stock Awards............................. (87,400) --
----------- ---------- -------------
December 31, 1995 (19,227,188 options exercisable)... 13,927,890 30,640,234 11.3225
Shareholder amendment............................... 35,000,000 --
Granted* (Weighted average fair
value $2.9143 per option).......................... (4,242,450) 4,242,450 18.0401
Shares Swapped...................................... 4,041,922 --
Exercised........................................... -- (6,867,658) 10.7668
Cancelled........................................... 522,358 (522,358) 13.6879
Restricted Stock Awards............................. (48,000) --
Acquisition of Benson............................... -- 110,764 4.7410
----------- ---------- -------------
December 31, 1996 (20,817,912 options exercisable)... 49,201,720 27,603,432 12.4818
Granted* (weighted average fair
value $4.4054 per option).......................... (25,231,462) 25,231,462 30.7314
Shares Swapped...................................... 868,407 --
Exercised........................................... -- (9,287,984) 11.4908
Cancelled........................................... 914,435 (872,835) 26.6733
Restricted Stock Awards............................. (92,000) --
----------- ---------- -------------
December 31, 1997 (20,506,305 options exercisable)... 25,661,100 42,674,075 $23.1511
=========== ========== =============
|
*Includes 2,687,762, 2,680,800 and 1,178,276 AO grants at December 31, 1997, 1996, and 1995, respectively.
The following table summarizes information about stock options outstanding at December 31, 1997 with respect to the LTICP and acquired plans.
Options Outstanding Options Exercisable
----------------------------------------------------------- ---------------------------------------
Weighted Average
Number Remaining
Range of Outstanding on Contractual Life Weighted Average Number Exercisable Weighted Average
Exercise Prices December 31, 1997 in Years Exercise Price on December 31, 1997 Exercise Price
--------------- ----------------- ------------------ ---------------- -------------------- ----------------
$ 2.24-4.99 446,509 3.2 $ 3.77 446,509 $ 3.77
5.00-9.99 2,914,413 2.9 7.93 2,914,413 7.93
10.00-14.99 10,339,587 5.4 12.80 10,339,587 12.80
15.00-19.99 4,176,936 6.9 17.21 3,832,866 17.25
20.00-24.99 701,722 6.3 22.73 696,722 22.72
25.00-29.99 796,730 6.5 27.08 708,730 27.30
30.00-34.99 23,036,892 9.3 30.90 1,479,692 31.33
35.00-38.53 261,286 8.6 36.16 87,786 37.17
----------- -----------
Total 42,674,075 20,506,305
=========== ===========
|
The weighted average fair value of options granted under the corporation's Best Practices PartnerShares Plan was $2.8365 per option for the 1996 PartnerShares grant and $4.8093 per option for the 1997 PartnerShares grant. At December 31, 1997, 23,876,400 options were outstanding under the Best Practices PartnerShares Plan, of which 3,238,400 options were exercisable at an option price of $16.56 and 76,800 options were exercisable at an option price of $31.34. During 1997, 4,415,800 options were exercised and 3,164,900 options were cancelled. During 1996, 300 options were exercised and 462,750 options were cancelled.
12. INCOME TAXES
Components of income tax expense were:
In millions 1997 1996 1995
------ ------ ------
Current
Federal.............................. $606.7 374.2 468.2
State................................ 47.0 10.5 41.7
Foreign.............................. 32.9 37.1 27.3
------ ----- -----
Total current....................... 686.6 421.8 537.2
------ ----- -----
Deferred
Federal.............................. 21.3 173.5 (56.5)
State................................ 2.4 36.7 (11.4)
Foreign.............................. (11.6) (4.4) (2.5)
------ ----- -----
Total deferred...................... 12.1 205.8 (70.4)
------ ----- -----
Total............................... $698.7 627.6 466.8
====== ===== =====
|
Income tax expense applicable to net gains on investment securities for the year ended December 31, 1997 was $13.3 million. Income tax benefit applicable to net losses on investment securities for the years ended December 31, 1996 and 1995 was $16.5 million and $14.6 million, respectively.
Income before income taxes from operations outside the United States was $56.0 million, $85.5 million, and $56.6 million for the years ended December 31, 1997, 1996 and 1995, respectively.
The net deferred tax liability (asset) included the following major temporary differences at December 31:
In millions
1997 1996
--------- -------
Deferred tax liabilities
Depreciation...................................... $ 36.4 38.9
Lease financing................................... 224.6 252.0
Mark to market.................................... 122.4 160.1
Mortgage servicing................................ 747.1 483.2
FAS 115 adjustment................................ 239.8 167.2
Other............................................. 149.3 121.3
--------- -------
Total deferred tax liabilities.................. 1,519.6 1,222.7
--------- -------
Deferred tax assets
Provision for credit losses....................... (344.2) (271.3)
Expenses deducted when paid....................... (476.1) (233.8)
Other............................................. (245.2) (263.4)
--------- -------
Total deferred tax assets....................... (1,065.5) (768.5)
Valuation allowance.................................... -- --
--------- -------
Deferred tax assets, net.......................... (1,065.5) (768.5)
--------- -------
Total net deferred tax liability....................... $ 454.1 454.2
========= =======
|
The corporation has determined that it is not required to establish a valuation reserve for any of the deferred tax assets since it is more likely than not that these assets will be principally realized through carryback to taxable income in prior years, and future reversals of existing taxable temporary differences, and, to a lesser extent, future taxable income and tax planning strategies. The corporation's conclusion that it is "more likely than not" that the deferred tax assets will be realized is based on federal taxable income of over $1.9 billion in the carryback period, substantial state taxable income in the carryback period, as well as a history of growth in earnings and the prospects for continued growth.
The deferred tax liability related to FAS 115 had no impact on 1997, 1996 or 1995 income tax expense as the effect of unrealized gains and losses, net of taxes, was recorded in stockholders' equity.
A reconciliation of the federal income tax rate to effective income tax rates follows:
1997 1996 1995
---- ---- ----
Federal income tax rate.................... 35.0% 35.0 35.0
Adjusted for
State income taxes...................... 1.6 1.7 1.4
Tax-exempt income....................... (1.8) (1.5) (1.9)
Other, net.............................. (0.7) -- (1.7)
---- ---- ----
Effective income tax rate.................. 34.1% 35.2 32.8
==== ==== ====
|
13. COMMITMENTS AND CONTINGENT LIABILITIES
At December 31, 1997, the corporation and its subsidiaries were obligated under noncancelable leases for premises and equipment with terms, including renewal options, ranging from one to approximately 100 years, which provide for increased rentals based upon increases in real estate taxes, operating costs or selected price indices.
Rental expense (including taxes, insurance and maintenance when included in rent, and contingent rentals), net of sublease rentals, amounted to $213.1 million, $227.6 million and $187.4 million in 1997, 1996 and 1995, respectively.
Future minimum rental payments under capital leases and noncancelable operating leases, net of sublease rentals, with terms of one year or more, at December 31, 1997 were:
Capital Operating
In millions Leases Leases
------ ---------
1998................................................ $ 2.0 $ 146.1
1999................................................ 2.1 128.6
2000................................................ 2.1 115.7
2001................................................ 2.1 92.4
2002................................................ 1.9 66.8
Thereafter.......................................... 27.2 546.6
------ ---------
Total minimum rental payments....................... 37.4 $ 1,096.2
=========
Less interest....................................... (21.2)
------
Present value of net minimum rental payments........ $ 16.2
======
|
To meet the financing needs of its customers and as part of its overall risk management strategy, the corporation is a party to financial instruments with off-balance sheet risk. These financial instruments include commitments to extend credit, recourse obligations, options, standby letters of credit, interest rate futures, caps and floors and interest rate swaps and forward contracts. These instruments involve elements of credit and interest rate risk in addition to amounts recognized in the financial statements.
The corporation's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit, recourse obligations, and financial guarantees written is represented by the contractual amount of those instruments. The corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. The corporation also uses the same credit and collateral policies in making loans which are subsequently sold with recourse obligations as it does for loans not sold. Refer to Note 15, Derivative Activities, for contractual or notional amounts of derivatives held by the corporation and a discussion of risks associated with such instruments.
A summary of the contractual amounts of these financial instruments at December 31 is as follows:
In millions 1997 1996
----------- --------
Commitments to extend credit.................... $ 16,964.8 10,191.7
Standby letters of credit*...................... 1,104.0 1,117.3
Other letters of credit......................... 374.0 284.0
|
*Total standby letters of credit are net of participations sold to other institutions of $487.6 million in 1997 and $386.4 million in 1996.
Commitments to extend credit generally have fixed expiration dates or other termination clauses and usually require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained is based on management's credit evaluation of the counterparty. Collateral held varies, but may include cash, marketable securities, accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties.
Standby letters of credit and financial guarantees written are conditional commitments issued by subsidiaries of the corporation to guarantee the performance of a customer to a third party. Outstanding standby letters of credit at December 31, 1997 supported $734.9 million of industrial revenue bonds, $366.3 million of supplier payment guarantees, $148.5 million of insurance premium financing, $167.2 million of performance bonds and $174.7 million of other obligations of unaffiliated parties with maturities up to 20 years, 10 years, three years, 17 years and 17 years, respectively. Risks associated with such standby letters of credit are considered in the evaluation of overall credit risk in determining the allowance for credit losses. The collateral requirements are essentially the same as those involved in extending loan facilities to customers. As part of its overall risk management strategy, the corporation does not believe it has any significant concentrations of credit risk.
Other commitments include sales of mortgage loans prior to 1985 in non-standard, negotiated transactions, primarily with the Federal Home Loan Mortgage Corporation, which provide for recourse to Norwest Inc. The Mortgage, outstanding loan balances which relate to these sales transactions amounted to $73.6 million and $79.1 million at December 31, 1997 and 1996, respectively. The corporation has also provided a financial guarantee related to the sale of certain mortgage participation certificates in the event LIBOR exceeds specified levels. The liability under the foregoing arrangements is not material.
The corporation and certain subsidiaries are defendants in various matters of litigation generally incidental to their business. Although it is difficult to predict the ultimate outcome of these cases, management believes, based on discussions with counsel, that any ultimate liability will not materially affect the consolidated financial position or results of operations of the corporation and its subsidiaries.
14. TRADING REVENUES
The corporation conducts trading of debt and equity securities, money market instruments, derivative products and foreign exchange contracts to satisfy the investment and risk management needs of its customers and those of the corporation. Trading activities are conducted within risk limits established and monitored by the Asset and Liability Management Committee as further discussed in the Interest Rate Sensitivity and Liquidity Management section of the Financial Review. The table below provides a summary of the corporation's trading revenues in the principal markets in which the corporation participates.
In millions 1997 1996 1995
---- ---- ----
Interest income:
Securities..................................................... $ 40.8 24.7 11.2
Swaps and other interest rate contracts........................ -- -- 3.6
-------- ---- ----
Total interest income........................................ 40.8 24.7 14.8
-------- ---- ----
Non-interest income:
Gains on securities sold....................................... 68.3 26.7 15.6
Foreign exchange trading....................................... 13.6 9.2 7.8
Swaps and other interest rate contracts........................ 1.1 (0.9) 6.0
Options........................................................ 4.4 (3.0) 11.6
Futures........................................................ (8.8) 3.3 (1.1)
-------- ---- ----
Total non-interest income.................................... 78.6 35.3 39.9
-------- ---- ----
Total trading revenues............................................ $ 119.4 60.0 54.7
======== ==== ====
|
15. DERIVATIVE ACTIVITIES
Derivatives are financial instruments that are used by banks, corporations, governments, and individuals to manage the financial risks associated with their business activities. For example, a futures contract can be used to guard against price fluctuations and a swap can be used to change fixed interest rate payments into floating interest rate payments. In general terms, derivative instruments are contracts or agreements whose value can be linked to interest rates, exchange rates, security prices, or financial indices. A derivative financial instrument is a futures, forward, swap, or option contract or other financial instrument with similar characteristics. The corporation uses derivatives in both its trading and its asset and liability management activities. The corporation's trading activities include acting as a dealer to satisfy the investment and risk management needs of its customers and, in addition, the corporation assumes trading positions based on market expectations and to benefit from price differentials between financial instruments and markets. As an end-user, the corporation uses various types of derivative products (principally interest rate swaps, interest rate caps and floors, futures contracts and options) as part of its overall interest rate risk management strategy.
As with on-balance sheet financial instruments such as loans and investment securities, derivatives are subject to credit and market risk. Accordingly, the corporation evaluates the risks associated with derivatives in much the same way as the risks associated with on-balance sheet financial instruments. However, unlike on-balance sheet financial instruments, where the risk of credit loss is generally represented by the notional or principal value, the derivatives' risk of credit loss is generally a small
fraction of the notional value of the instrument and is represented by the fair value of the derivative instrument. For example, the notional amount for interest rate swaps does not represent the amount at risk because the notional amount will not be exchanged. The notional amount does, however, provide the basis for determining the contractual cash flows, which are discounted to determine fair values of the related derivatives. For foreign exchange forward contracts, the fair value is based on the gap between the current forward market rate of the underlying currency and the contractual rate.
The corporation attempts to limit its credit risk by dealing with creditworthy counterparties, obtaining collateral where appropriate, and utilizing master netting agreements in accordance with Financial Accounting Standards Board Interpretation No. 39, "Offsetting of Amounts Related to Certain Contracts" as amended by Financial Accounting Standards Board Interpretation No. 41, "Offsetting of Amounts Related to Certain Repurchase and Reverse Repurchase Agreements." The market risk of derivatives arises from the potential for changes in value due to fluctuations in interest and foreign exchange rates and in prices of debt and equity securities.
Derivative Financial Instruments Held or Issued for Trading Purposes The following table provides the notional and fair value of the corporation's derivatives included in its trading portfolio at December 31, 1997 and 1996, and the average fair value of derivatives held or issued for trading purposes during the years ended December 31, 1997 and 1996:
1997 1996
--------------------------------- -------------------------------
Average Average
Notional Fair Daily Fair Notional Fair Daily Fair
In millions Value Value Value Value Value Value
----------- -------- ----- ---------- -------- ----- -----------
Swaps:
In a favorable position.......................... $ 525.0 3.5 4.0 226.0 2.8 4.0
In an unfavorable position....................... 614.0 (4.0) (4.0) 383.0 (1.5) (4.0)
Caps and Floors:
In a favorable position.......................... 471.0 1.1 1.0 450.0 2.1 1.0
In an unfavorable position....................... 574.0 (1.5) (2.0) 505.0 (2.0) (1.0)
Options:
Purchased........................................ 40.0 -- -- -- -- --
Written.......................................... -- -- (1.0) -- -- (3.0)
Futures contracts:
In a favorable position.......................... 2.0 -- -- 434.0 -- --
In an unfavorable position....................... 15.0 -- -- 449.0 -- --
Foreign exchange contracts:
In a favorable position.......................... 573.0 20.5 14.0 246.0 10.3 6.0
In an unfavorable position....................... 540.0 (19.2) (13.0) 290.0 (10.0) (5.0)
Foreign exchange options:
Purchased........................................ 6.0 0.1 -- 4.0 0.4 --
Written.......................................... 4.0 0.1 -- 4.0 (0.4) --
|
Derivative Financial Instruments Held or Issued for Purposes Other Than Trading The corporation and its subsidiaries, as end-users, utilize various types of derivative products (principally interest rate swaps and interest rate caps and floors) as part of an overall interest rate risk management strategy.
The use of interest rate contracts enables the corporation to synthetically alter the repricing characteristics of designated assets and interest-bearing liabilities. In the following information for cash flows and maturities, variable rates are assumed to remain constant at December 31, 1997 levels. To the extent that rates change, both the average notional and variable interest rate information may change. Interest rate swaps generally involve the exchange of fixed and floating rate interest payments based on an underlying notional amount. Generic swaps' notional amounts do not change for the life of the contract. The current outstanding amortizing swaps' average notional amounts change based on a remaining principal amount of a pool of mortgage-backed securities. Generally, as rates fall, the notional amounts decline more rapidly and as rates increase notional amounts decline more slowly. Basis swaps are contracts where the corporation receives an amount and pays an amount based on different floating indices. Currently, interest rate floors, futures contracts and options on futures contracts are principally
being used by the corporation in hedging its portfolio of mortgage servicing rights. The floors provide for the receipt of payments when interest rates are below predetermined interest rate levels. The cash flows on interest rate floors and futures contracts are used, as appropriate, to offset lost future servicing revenue related to increased levels of prepayments associated with lower interest rates. Option contracts allow the holder of the option to purchase or sell a financial instrument at a specified price and within a specified period of time from or to the seller or "writer" of the option. The writer of the option receives a premium at the outset and then bears the risk of an unfavorable change in the price of the underlying financial instrument. Forward foreign exchange contracts are used by the corporation to hedge uncertainties in funding costs related to certain commercial paper issuances denominated in foreign currencies. The table below presents the maturity and weighted average rates for end-user derivatives by type at December 31, 1997.
For the year ended December 31, 1997, end-user derivative activities increased interest income by $0.7 million and reduced interest expense by $81.2 million, for a total benefit to net interest income of $81.9 million. For 1996 and 1995, end-user derivative activities increased interest income by $9.8 million and decreased interest income by $2.7 million, respectively, and reduced interest expense by $47.1 million and $9.8 million, respectively, for a total benefit to net interest income of $56.9 million and $7.1 million, respectively.
Maturity
----------------------------------------------------------------
Dollars in millions 1998 1999 2000 2001 2002 Thereafter Total
------ ---- ---- ---- ---- ---------- -----
Swaps:
Generic receive fixed-
Notional value......................... $ 650 766 400 500 500 1,500 4,316
Weighted average receive rate.......... 6.34% 7.28 6.17 6.35 6.81 6.53 6.61
Weighted average pay rate.............. 5.82 5.93 5.85 5.83 5.94 5.84 5.86
Amortizing receive fixed-
Notional value......................... $ -- 1,939 1,246 -- -- -- 3,185
Weighted average receive rate.......... --% 7.46 6.43 -- -- -- 7.06
Weighted average pay rate.............. --% 5.71 5.91 -- -- -- 5.78
Generic pay fixed-
Notional value......................... $ -- -- 5 6 100 110 221
Weighted average receive rate.......... --% -- 5.81 5.94 5.94 5.89 5.91
Weighted average pay rate.............. --% -- 6.15 6.33 5.99 5.75 5.88
Basis-
Notional value......................... $ 29 -- -- -- -- -- 29
Weighted average receive rate.......... 4.41% -- -- -- -- -- 4.41
Weighted average pay rate.............. 2.99% -- -- -- -- -- 2.99
Interest rate caps and floors:*
Notional value......................... $ 527 400 3,200 4,750 -- 5,500 14,377
Futures contracts:*
Notional value......................... $ 4,690 -- -- -- -- 4,690
Options on futures contracts:*
Notional value......................... $ 9,886 -- -- -- -- -- 9,886
Security options:*
Notional value......................... $ 1,200 40 -- -- -- -- 1,240
Forward foreign exchange contracts:
Notional value......................... $ 491 -- -- -- -- -- 491
------- ----- ----- ----- ---- ----- ------
Total notional value.................. $17,473 3,145 4,851 5,256 600 7,110 38,435
======= ===== ===== ===== ==== ===== ======
Total weighted average rates on swaps:
Receive rate.......................... 6.25% 7.41 6.37 6.34 6.67 6.49 6.77
======= ===== ===== ===== ==== ===== ======
Pay rate.............................. 5.70% 5.77 5.90 5.83 5.95 5.83 5.82
======= ===== ===== ===== ==== ===== ======
|
*Average rates are not meaningful for interest rate caps and floors, futures,
contracts or options.
Note: Weighted average variable rates are the actual rates as of December 31,
1997.
Activity in the notional amounts of end-user derivatives for each of the three years ended December 31, 1997, 1996, and 1995, is summarized as follows:
Swaps
----------------------------------------------------------------
Interest
Generic Amortizing Generic Rate
Receive Receive Pay Total Caps/
In millions Fixed Fixed Fixed Basis Swaps Floors
------- ---------- ------- ----- ----- --------
Balance, December 31, 1994.. $1,025 -- 130 229 1,384 751
Additions.................. 1,891 1,575 200 -- 3,666 7,100
Amortizations and
maturities................ -- -- -- -- -- 8
Terminations............... 100 -- -- -- 100 --
------ ----- --- ----- ----- ------
Balance, December 31, 1995.. 2,816 1,575 330 229 4,950 7,843
Additions.................. 2,911 522 154 -- 3,587 11,000
Amortizations and
maturities................ 675 168 30 200 1,073 16
Terminations............... 450 1,846 100 -- 2,396 2,850
------ ----- --- ----- ----- ------
Balance, December 31, 1996.. 4,602 83 354 29 5,068 15,977
Additions.................. 1,003 3,261 20 -- 4,284 7,000
Amortizations and
maturities................ 650 79 3 -- 732 --
Terminations............... 639 80 150 -- 869 8,600
------ ----- --- ----- ----- ------
Balance, December 31, 1997.. $4,316 3,185 221 29 7,751 14,377
====== ===== === ===== ===== ======
Options Forward
on Foreign
Futures Security Exchange Total
In millions Futures Contracts Options Contracts Derivatives
------- --------- -------- --------- -----------
Balance, December 31, 1994.. -- -- -- -- 2,135
Additions.................. -- -- 5,951 -- 16,717
Amortizations and
maturities................ -- -- 3,670 -- 3,678
Terminations............... -- -- 2,281 -- 2,381
------ ------ ----- ---------- -------
Balance, December 31, 1995.. -- -- -- -- 12,793
Additions.................. 18,196 26,753 6,675 -- 66,211
Amortizations and
maturities................ 2,651 13,576 5,650 -- 22,966
Terminations............... 11,928 7,618 200 -- 24,992
------ ------ ----- ---------- -------
Balance, December 31, 1996.. 3,617 5,559 825 -- 31,046
Additions.................. 27,135 63,853 5,655 1,234 109,161
Amortizations and
maturities................ 250 20,806 3,765 743 26,296
Terminations............... 25,812 38,720 1,475 -- 75,476
------ ------ ----- ---------- -------
Balance, December 31, 1997.. 4,690 9,886 1,240 491 38,435
====== ====== ===== ========== =======
|
The following table provides the gross gains and gross losses not yet recognized in the consolidated financial statements for open end-user derivatives applicable to certain hedged assets and liabilities as of December 31, 1997 and 1996:
Balance Sheet Category
-------------------------------------------------------------------------------------------
Loans Mortgage Interest- Short- Long-
Investment and Servicing bearing term term
In millions Securities Leases Rights Deposits Borrowings Debt Total
----------- ---------- ------ --------- --------- ---------- ----- -----
1997:
Swaps
Pay variable unrealized gains...... $ -- -- 27.5 77.0 -- 88.3 192.8
Pay variable unrealized losses..... -- -- -- -- -- (3.3) (3.3)
------ ------ ------ ------ ------ ------ ------
Pay variable net................. -- -- 27.5 77.0 -- 85.0 189.5
------ ------ ------ ------ ------ ------ ------
Pay fixed unrealized gains......... -- -- -- 1.2 -- -- 1.2
Pay fixed unrealized losses........ -- (0.4) -- -- -- -- (0.4)
------ ------ ------ ------ ------ ------ ------
Pay fixed net.................... -- (0.4) -- 1.2 -- -- 0.8
------ ------ ------ ------ ------ ------ ------
Basis unrealized gains............. -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------
Total unrealized gains............. -- -- 27.5 78.2 -- 88.3 194.0
Total unrealized losses............ -- (0.4) -- -- -- (3.3) (3.7)
------ ------ ------ ------ ------ ------ ------
Total net........................ $ -- (0.4) 27.5 78.2 -- 85.0 190.3
====== ====== ====== ====== ====== ====== ======
Interest rate caps/floors
Unrealized gains................... $ -- -- 133.1 -- -- -- 133.1
Unrealized losses.................. -- -- (0.1) -- -- -- (0.1)
------ ------ ------ ------ ------ ------ ------
Total net......................... $ -- -- 133.0 -- -- -- 133.0
====== ====== ====== ====== ====== ====== ======
Futures contracts
Unrealized gains................... $ -- -- 39.0 -- -- -- 39.0
Unrealized losses.................. -- -- (0.2) -- -- -- (0.2)
------ ------ ------ ------ ------ ------ ------
Total net......................... $ -- -- 38.8 -- -- -- 38.8
====== ====== ====== ====== ====== ====== ======
Options on futures contracts
Unrealized gains................... $ -- -- 45.5 -- -- -- 45.5
Unrealized losses.................. (0.2) -- (14.5) -- -- -- (14.7)
------ ------ ------ ------ ------ ------ ------
Total............................. $ (0.2) -- 31.0 -- -- -- 30.8
====== ====== ====== ====== ====== ====== ======
Security options
Unrealized gains................... $ -- 0.5 -- -- -- -- 0.5
Unrealized losses.................. -- (1.0) -- -- -- -- (1.0)
------ ------ ------ ------ ------ ------ ------
Total net......................... $ -- (0.5) -- -- -- -- (0.5)
====== ====== ====== ====== ====== ====== ======
Forward foreign exchange contracts
Unrealized gains................... $ -- -- -- -- 3.0 -- 3.0
Unrealized losses.................. -- -- -- -- (9.3) -- (9.3)
------ ------ ------ ------ ------ ------ ------
Total net......................... $ -- -- -- -- (6.3) -- (6.3)
====== ====== ====== ====== ====== ====== ======
Grand total unrealized gains........ $ -- 0.5 245.1 78.2 3.0 88.3 415.1
Grand total unrealized losses....... (0.2) (1.4) (14.8) -- (9.3) (3.3) (29.0)
====== ====== ====== ====== ====== ====== ======
Grand total net..................... $ (0.2) (0.9) 230.3 78.2 (6.3) 85.0 386.1
====== ====== ====== ====== ====== ====== ======
|
Balance Sheet Category
-------------------------------------------------------------------------------
Loans Mortgage Interest- Short- Long-
Investment and Servicing bearing term term
In millions Securities Leases Rights Deposits Borrowings Debt Total
----------- ---------- ------ --------- --------- ---------- ----- -----
1996:
Swaps
Pay variable unrealized gains..................... $ -- -- -- -- -- 59.7 59.7
Pay variable unrealized losses.................... -- (0.1) (2.9) -- -- (17.8) (20.8)
---------- ----- ----- ------ ------ ------ ------
Pay variable net................................ -- (0.1) (2.9) -- -- 41.9 38.9
---------- ----- ----- ------ ------ ------ ------
Pay fixed unrealized gains........................ -- 1.4 -- 3.9 -- -- 5.3
Pay fixed unrealized losses....................... -- (0.2) -- -- -- -- (0.2)
---------- ----- ----- ------ ------ ------ ------
Pay fixed net................................... -- 1.2 -- 3.9 -- -- 5.1
---------- ----- ----- ------ ------ ------ ------
Basis unrealized gains............................ 0.3 -- -- -- -- -- 0.3
---------- ----- ----- ------ ------ ------ ------
Total unrealized gains............................ 0.3 1.4 -- 3.9 -- 59.7 65.3
Total unrealized losses........................... -- (0.3) (2.9) -- -- (17.8) (21.0)
---------- ----- ----- ------ ------ ------ ------
Total net....................................... $0.3 1.1 (2.9) 3.9 -- 41.9 44.3
========== ===== ===== ====== ====== ====== ======
Interest rate caps/floors
Unrealized gains.................................. $ -- -- 22.6 -- -- -- 22.6
Unrealized losses................................. -- -- (34.5) (0.2) -- (0.2) (34.9)
---------- ----- ----- ------ ------ ------ ------
Total net........................................ $ -- -- (11.9) (0.2) -- (0.2) 12.3
========== ===== ===== ====== ====== ====== ======
Futures contracts
Unrealized gains.................................. $ -- 1.4 0.5 -- -- -- 1.9
========== ===== ===== ====== ====== ====== ======
Options on futures contracts
Unrealized gains.................................. $ -- 4.3 1.4 -- -- -- 5.7
Unrealized losses................................. -- (5.0) (9.3) -- -- -- (14.3)
---------- ----- ----- ------ ------ ------ ------
Total............................................ $ -- (0.7) (7.9) -- -- -- (8.6)
========== ===== ===== ====== ====== ====== ======
Security options
Unrealized gains.................................. $ -- 0.6 -- -- -- -- 0.6
Unrealized losses................................. -- (2.5) -- -- -- -- (2.5)
---------- ----- ----- ------ ------ ------ ------
Total net........................................ $ -- (1.9) -- -- -- -- (1.9)
========== ===== ===== ====== ====== ====== ======
Grand total unrealized gains....................... $ 0.3 7.7 24.5 3.9 -- 59.7 96.1
Grand total unrealized losses...................... -- (7.8) (46.7) (0.2) -- (18.0) (72.7)
---------- ----- ----- ------ ------ ------ ------
Grand total net.................................... $ 0.3 (0.1) (22.2) 3.7 -- 41.7 23.4
========== ===== ===== ====== ====== ====== ======
|
As a result of interest rate fluctuations, off-balance sheet derivatives have resulting unrealized appreciation or depreciation in market values as compared with their costs. As these derivatives hedge certain assets and liabilities of the corporation, as noted in the table above, there has been offsetting unrealized appreciation and depreciation in the assets and liabilities hedged.
Deferred gains and losses on terminated end-user derivatives were not material at December 31, 1997 and 1996.
The corporation has entered into mandatory and standby forward contracts, including options on forward contracts, to reduce interest risk on certain mortgage loans held for sale and other commitments. The contracts provide for the delivery of securities at a specified future date, at a specified future price or yield. At December 31, 1997 and 1996, the corporation had forward contracts totaling $27.5 billion and $19.8 billion, respectively. The contracts mature within 180 days. Gains and losses on forward contracts are included in the determination of market value of mortgages held for sale. The net unrealized gain (loss) on these contracts at December 31, 1997 and 1996, was $(28.9) million and $20.1 million, respectively.
16. BUSINESS SEGMENTS
The corporation's operations include three primary business segments: banking, mortgage banking and consumer finance. The corporation, through its subsidiary banks, offers diversified banking services including retail, commercial and corporate banking, equipment leasing, and trust services; and through their affiliates offers insurance, securities brokerage, investment banking and venture capital investment. Mortgage banking activities include the origination and purchase of residential mortgage loans for sale to various investors as well as providing servicing of mortgage loans for others. Norwest Financial (including Norwest Financial Services, Inc. and Island Finance) provides consumer finance services, including direct installment loans to individuals, purchase of sales finance contracts, private label and lease accounts receivable financing, and other related products and services. Selected financial information by business segment for each of the three years ended December 31 is included in the following summary:
Organizational Total
In millions Revenues* Earnings* Assets
-------- --------- ------
1997:
Banking.............................................. $6,209.1 957.2 61,532.8
Mortgage Banking..................................... 1,509.8 151.0 16,434.3
Norwest Financial.................................... 1,940.8 242.8 10,573.1
-------- ------- --------
Total............................................... $9,659.7 1,351.0 88,540.2
======== ======= ========
1996:
Banking.............................................. $5,672.7 764.6 59,282.8
Mortgage Banking..................................... 1,423.2 125.0 11,939.8
Norwest Financial.................................... 1,787.0 264.3 8,952.8
-------- ------- --------
Total............................................... $8,882.9 1,153.9 80,175.4
======== ======= ========
1995:
Banking.............................................. $5,008.9 602.2 53,479.4
Mortgage Banking..................................... 999.0 104.9 10,089.3
Norwest Financial.................................... 1,557.6 248.9 8,565.7
-------- ----- --------
Total............................................... $7,565.5 956.0 72,134.4
======== ===== ========
|
*Revenues (interest income plus non-interest income), where applicable, and organizational earnings by business segment are impacted by intercompany revenues and expenses, such as interest on borrowings from the parent company, corporate service fees and allocations of federal income taxes.
17. MORTGAGE BANKING ACTIVITIES
The components of mortgage banking non-interest income for each of the three years ended December 31 is presented below:
In millions 1997 1996 1995
-------- ----- ------
Origination and other closing fees............... $314.1 305.3 198.4
Servicing fees................................... 294.6 296.2 211.7
Net gains (losses) on sales of servicing rights.. (8.4) 57.4 81.3
Net gains (losses) on sales of mortgages......... 98.2 13.1 (24.2)
Other............................................ 177.0 149.5 68.3
------ ----- -----
Total mortgage banking non-interest income...... $875.5 821.5 535.5
====== ===== =====
|
Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets. The outstanding balances of serviced loans were $205.8 billion, $179.7 billion and $107.4 billion at December 31, 1997, 1996 and 1995, respectively.
Changes in capitalized mortgage loan servicing rights for each of the three years ended December 31 were:
In millions 1997 1996 1995
---------- -------- --------
Balance at beginning of year............... $2,712.7 1,290.9 649.2
Originations.............................. 361.1 360.8 233.1
Purchases................................. 359.6 1,458.7 757.1
Sales..................................... (34.4) (72.0) (202.1)
Amortization.............................. (444.3) (300.6) (139.6)
Other..................................... (115.6) (25.1) (6.8)
-------- ------- -------
2,839.1 2,712.7 1,290.9
Less valuation allowance.................. (64.2) (64.2) (64.2)
-------- ------- -------
Balance at end of year..................... $2,774.9 2,648.5 1,226.7
======== ======= =======
|
The fair value of capitalized mortgage servicing rights included in the consolidated balance sheet at December 31, 1997 was approximately $3.1 billion, calculated using discount rates ranging from 500 to 700 basis points over the ten-year U.S. Treasury rate.
Changes in the valuation allowance for capitalized mortgage servicing rights for each of the three years ended December 31 were:
In millions 1997 1996 1995
----- ---- ----
Balance at beginning of year........................................... $64.2 64.2 --
Provision for capitalized mortgage servicing rights in excess of fair
value................................................................ -- -- 64.2
----- ---- ----
Balance at end of year................................................. $64.2 64.2 64.2
===== ==== ====
|
18. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 "Disclosures about Fair Value of Financial Instruments" (FAS 107) requires the disclosure of estimated fair values of all asset, liability and off-balance sheet financial instruments. Fair value estimates under FAS 107 are determined as of a specific point in time utilizing various assumptions and estimates. The use of assumptions and various valuation techniques, as well as the absence of secondary markets for certain financial instruments, will likely reduce the comparability of fair value disclosures between financial services companies.
The following methods and assumptions are used by the corporation in estimating its fair value disclosures for financial instruments.
Cash and Cash Equivalents The carrying value of cash and cash equivalents on the consolidated balance sheets approximates fair value due to the relatively short period of time between the origination of the instruments and their expected realization.
Trading Account Securities, Investment Securities, Investment and Mortgage- Backed Securities Available for Sale Fair values of these financial instruments were estimated using quoted market prices, when available. If quoted market prices were not available, fair value was estimated using quoted market prices for similar assets. The fair value of trading account securities and investment and mortgage-backed securities available for sale are recognized in the consolidated balance sheets. See Note 4 for additional information on the amortized cost and fair value of investment securities.
Mortgages Held for Sale Fair values of mortgages held for sale are stated at market.
Loans and Leases and Loans Held for Sale Fair values for loans and leases are estimated based on contractual cash flows, adjusted for prepayment assumptions and credit risk factors, discounted using the current market rate for loans and leases. Variable rate loans, including loans held for sale, are valued at carrying value since the loans reprice to market rates over short periods of time. The fair value of the corporation's consumer finance subsidiaries' loans have been reported at carrying value since the estimated life, assuming prepayments, is short-term in nature.
Interest Receivable and Payable The carrying value of interest receivable and payable approximates fair value due to the relatively short period of time between accrual and expected realization. At December 31, 1997 and 1996, interest receivable was $549.9 million and $487.5 million, respectively, and interest payable was $484.0 million and $445.0 million, respectively.
Deposits The fair value of fixed-maturity deposits is the present value of the contractual cash flows, including principal and interest, and servicing costs, discounted using an appropriate investor yield.
In accordance with FAS 107, the fair value of deposits with no stated maturity, such as demand deposit, savings, NOW and money market accounts, are equal to the amount payable on demand, the carrying amount in the consolidated balance sheets.
Short-term Borrowings The carrying value of short-term borrowings in the consolidated balanced sheets approximates fair value due to the relatively short period of time between the origination of the instruments and their expected repayment.
Long-term Debt The fair value of long-term debt is the present value of the contractual cash flows, discounted by the investor yield which considers the corporation's credit rating.
Commitments to Extend Credit, Standby Letters of Credit and Recourse Obligations The majority of the corporation's commitment agreements and letters of credit contain variable interest rates and counterparty credit deterioration clauses and therefore, the carrying value of the corporation's commitments to extend credit and letters of credit approximates fair value. The fair value of the corporation's recourse obligations are valued based on estimated cash flows associated with such obligations. As any potential liabilities under such recourse obligations are recognized on the corporation's balance sheet, the carrying value of such recourse obligations approximates fair value.
Forward Delivery Commitments, Interest Rate Swaps, Interest Rate Caps and Floors, Futures Contracts, Options on Futures, Contracts, Security Options and Foreign Exchange Contracts The fair value of forward delivery commitments, interest rate swaps, interest rate caps and floors, futures contracts, security options and foreign exchange contracts is estimated, using dealer quotes, as the amount that the corporation would receive or pay to execute a new agreement with terms identical to those remaining on the current agreement, considering current interest rates.
As discussed above, certain of the corporation's asset and liability financial instruments are short-term, and therefore, the carrying amounts in the consolidated balance sheets approximate fair value. Other significant assets and liabilities, which are not considered financial assets or liabilities and for which fair values have not been estimated, include premises and equipment, goodwill and other intangibles, deferred taxes and other liabilities. The fair value of the corporation's remaining financial instruments are summarized below.
Fair Values of Financial Instruments
1997 1996
---------------------------- ----------------------------
Carrying Fair Carrying Fair
In millions Amount Value Amount Value
------------ ------------ ------------ ------------
Financial assets:
Investment securities held for investment.. $ 747.2 762.8 712.2 745.2
Mortgages held for sale.................... 8,848.0 8,954.8 6,339.0 6,339.0
Loans and leases, net...................... 41,287.7 41,825.7 38,340.2 38,708.4
Financial liabilities:
Deposits with stated maturities............ 17,502.0 17,449.5 16,317.0 16,290.3
Long-term debt............................. 12,766.7 12,872.2 13,082.2 13,022.2
Off-balance sheet financial instruments:
Forward delivery commitments............... (28.9) (28.9) 20.1 20.1
Interest rate swaps........................ 1.0 191.3 1.3 45.6
Futures contracts and options
on futures contracts..................... (22.0) 47.6 10.9 (17.6)
Interest rate caps/floors.................. 152.0 285.0 150.4 138.1
Option contracts to sell................... 3.6 3.1 3.7 1.8
Foreign exchange contracts and options..... 1.5 (4.8) 0.3 0.3
|
19. PARENT COMPANY FINANCIAL INFORMATION
Condensed financial information for Norwest Corporation (parent company only) follows:
Balance Sheets
In millions 1997 1996
-------- --------
At December 31,
--------------
ASSETS
Interest-bearing deposits with subsidiary banks............ $ 547.6 12.7
Interest-bearing deposits with non-affiliates.............. 2.1 2.4
--------- --------
Total cash and cash equivalents..................... 549.7 15.1
Advances to non-bank subsidiaries.......................... 5,590.0 5,450.4
Capital notes and term loans of subsidiaries
Banks................................................. 10.2 24.5
Non-banks............................................. 1,561.5 1,466.8
--------- --------
Total capital notes and term loans of subsidiaries.. 1,571.7 1,491.3
--------- --------
Investments in subsidiaries
Banks................................................. 5,222.6 4,108.5
Non-banks............................................. 2,075.0 2,304.6
--------- --------
Total investments in subsidiaries................... 7,297.6 6,413.1
Investment securities available for sale................... 1,190.8 1,233.9
Other assets............................................... 1,236.3 495.2
--------- --------
Total assets........................................ $17,436.1 15,099.0
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings...................................... $ 3,997.7 2,232.5
Accrued expenses and other liabilities..................... 601.8 408.8
Long-term debt with non-affiliates......................... 5,804.9 6,384.0
Stockholders' equity....................................... 7,031.7 6,073.7
--------- --------
Total liabilities and stockholders' equity.......... $17,436.1 15,099.0
========= ========
|
STATEMENTS OF INCOME
1997 1996 1995
In millions -------- -------- -------
Years Ended December 31,
------------------------
INCOME
Dividends from subsidiaries
Banks............................................... $ 793.8 796.1 981.7
Non-banks........................................... 343.4 713.3 268.0
-------- -------- -------
Total dividends from subsidiaries................. 1,137.2 1,509.4 1,249.7
Interest from subsidiaries............................. 387.8 430.7 332.6
Service fees from subsidiaries......................... 118.3 112.7 89.2
Other income........................................... 152.0 157.5 66.6
-------- -------- -------
Total income...................................... 1,795.3 2,210.3 1,738.1
-------- -------- -------
EXPENSES
Interest to subsidiaries............................... 27.8 10.6 10.6
Other interest......................................... 489.0 530.7 409.2
Other expenses......................................... 178.9 95.8 150.2
-------- -------- -------
Total expenses.................................... 695.7 637.1 570.0
-------- -------- -------
Income before income taxes and equity
in undistributed earnings of subsidiaries........... 1,099.6 1,573.2 1,168.1
Income tax (provision) benefit......................... 16.4 (32.3) 27.2
-------- -------- -------
Income before equity in
undistributed earnings of subsidiaries.............. 1,116.0 1,540.9 1,195.3
Equity in undistributed earnings of subsidiaries....... 235.0 (387.0) (239.3)
-------- -------- -------
Net income............................................. $1,351.0 1,153.9 956.0
======== ======== =======
|
Federal law prevents the corporation and its non-bank subsidiaries from borrowing from its subsidiary banks unless the loans are secured by specified assets. Such secured loans by any subsidiary bank are generally limited to 10 percent of the subsidiary bank's capital and surplus and aggregate loans to the corporation and its non-bank subsidiaries are limited to 20 percent of the subsidiary bank's capital and surplus.
The payment of dividends to the corporation by subsidiary banks is subject to various federal and state regulatory limitations. A national bank must obtain the approval of the Comptroller of the Currency if the total of all dividends declared in any calendar year exceeds that bank's net income for that year combined with its retained net income for the preceding two calendar years, less any required transfers to surplus or a fund for the retirement of preferred stock. The corporation also has several state bank subsidiaries that are subject to state regulations limiting dividends. Under these provisions, the corporation's national and state-chartered bank subsidiaries could have declared as of December 31, 1997 aggregate dividends of at least $462.9 million without obtaining prior regulatory approval and without reducing the capital below minimum regulatory levels. In addition, the corporation's non-bank subsidiaries could have declared dividends totaling $978.0 million at December 31, 1997.
STATEMENTS OF CASH FLOWS
In millions 1997 1996 1995
-------- -------- --------
Years Ended December 31,
------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................. $1,351.0 1,153.9 956.0
Adjustments to reconcile net income to net
cash flows from operating activities:
Equity in undistributed earnings of subsidiaries.... (235.0) 387.0 239.3
Depreciation and amortization....................... 18.6 20.6 20.0
Release of preferred shares to ESOP................. 34.1 37.8 40.0
Other assets, net................................... (797.7) (102.4) (146.8)
Accrued expenses and other liabilities, net......... 248.0 (64.7) 205.4
-------- -------- -------
Net cash flows from operating activities............... 619.0 1,432.2 1,313.9
-------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Advances to non-bank subsidiaries, net................. (139.6) (901.5) (2,096.5)
Investment securities available for sale, net.......... 130.5 (222.3) (551.2)
Principal collected on capital notes and
term loans of subsidiaries.......................... 46.0 841.4 296.8
Capital notes and term loans made to subsidiaries...... (112.8) (165.3) (1,318.5)
Investments in subsidiaries, net....................... (384.2) (851.7) (865.9)
-------- -------- -------
Net cash flows used for investing activities........... (460.1) (1,299.4) (4,535.3)
-------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Short-term borrowings, net............................. 1,765.2 (5.6) 689.9
Proceeds from issuance of long-term debt with 403.0 1,803.0 3,405.0
non-affiliates.........................................
Repayment of long-term debt with non-affiliates........ (980.9) (1,259.6) (309.4)
Issuances of common stock.............................. 149.6 82.4 65.4
Repurchases of common stock............................ (482.7) (402.0) (186.8)
Issuance of stock warrants to subsidiaries............. -- 1.8 1.1
Repurchases of preferred stock......................... -- (112.7) (0.4)
Net decrease in ESOP loans............................. 1.0 3.7 --
Dividends paid......................................... (479.5) (403.4) (337.8)
-------- -------- -------
Net cash flows (used for) from financing activities.... 375.7 (292.4) 3,327.0
-------- -------- -------
Net increase (decrease) in cash and cash equivalents... 534.6 (159.6) 105.6
Cash and cash equivalents
Beginning of year................................... 15.1 174.7 69.1
-------- -------- -------
End of year......................................... $ 549.7 15.1 174.7
======== ======== =======
|
INDEPENDENT AUDITORS' REPORT
The Board of Directors and
Stockholders of Norwest Corporation
We have audited the consolidated balance sheets of Norwest Corporation and subsidiaries as of December 31, 1997 and 1996 and the related consolidated statements of income, cash flows and stockholders' equity for each of the years in the three-year period ended December 31, 1997. These consolidated financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Norwest Corporation and subsidiaries at December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP KPMG Peat Marwick LLP Minneapolis, Minnesota January 15, 1998 |
MANAGEMENT'S REPORT
The management of Norwest Corporation has prepared and is responsible for the content of the financial statements included in this annual report and the information contained in other sections of this annual report, which information is consistent with the content of the financial statements. Management believes that the financial statements have been prepared in conformity with generally accepted accounting principles appropriate in the circumstances to reflect, in all material respects, the substance of events and transactions that should be included. In preparing the financial statements, management makes judgments and estimates of the expected effects of events and transactions that are accounted for or disclosed.
Management has long recognized the importance of the corporation maintaining and reinforcing the highest possible standards of conduct in all of its actions, including the preparation and dissemination of statements fairly presenting the financial condition of the corporation. In this regard, it has developed a system of internal accounting control which plays an important role in assisting management in fulfilling its responsibilities in preparing the corporation's financial statements. The corporation's system of internal accounting control is designed to provide reasonable assurance that assets are safeguarded and that transactions are executed in accordance with management's authorizations. This system is augmented by written policies, operating procedures and accounting manuals, plus a strong program of internal audit carried out by qualified personnel. Management recognizes that estimates and judgments are required to assess and balance the relative costs and expected benefits of the controls and errors or irregularities may nevertheless occur. However, management believes that the corporation's internal accounting control system provides reasonable assurance that errors or irregularities that could be material to the financial statements are prevented or would be detected on a timely basis and corrected in the normal course of business.
The board of directors oversees these financial statements through an audit and examination committee comprised of outside directors. The committee meets periodically with management and internal audit to monitor the discharge by each of its responsibilities. The independent auditors, who are engaged to express an opinion on the financial statements, meet periodically with and have free access to the committee or the board, without management present, to discuss internal accounting control, auditing and financial reporting matters.
/s/ RICHARD M. KOVACEVICH Richard M. Kovacevich Chairman and Chief Executive Officer /s/ LESLIE S. BILLER Leslie S. Biller President and Chief Operating Officer /s/ JOHN T. THORNTON John T. Thornton Executive Vice President and Chief Financial Officer /s/ MICHAEL A. GRAF Michael A. Graf Senior Vice President and Controller January 15, 1998 |
Norwest Corporation and Subsidiaries
Six-Year Consolidated Financial Summary
In millions, except per common share amounts and ratios
Years Ended December 31, 1997 1996 1995 1994
------------------------ ------- ------- ------- -------
STATEMENTS OF INCOME
Interest income..................................... $6,697.4 6,318.3 5,717.3 4,393.7
Interest expense.................................... 2,664.0 2,617.0 2,448.0 1,590.1
-------- -------- ------- -------
Net interest income.............................. 4,033.4 3,701.3 3,269.3 2,803.6
Provision for credit losses......................... 524.7 394.7 312.4 164.9
-------- -------- ------- -------
Net interest income after provision for credit
losses......................................... 3,508.7 3,306.6 2,956.9 2,638.7
Non-interest income................................. 2,962.3 2,564.6 1,848.2 1,638.3
Non-interest expenses............................... 4,421.3 4,089.7 3,382.3 3,096.4
-------- -------- ------- -------
Income before income taxes and cumulative effect of
a change in accounting for postretirement medical
benefits......................................... 2,049.7 1,781.5 1,422.8 1,180.6
Income tax expense.................................. 698.7 627.6 466.8 380.2
Cumulative effect on years ended prior to
December 31, 1992 of a change in accounting for
postretirement medical benefits, net of
tax.............................................. -- -- -- --
-------- -------- -------- -------
Net income.......................................... $1,351.0 1,153.9 956.0 800.4
======== ======== ======== =======
PER COMMON SHARE
Net income (a)
Basic............................................ $ 1.78 1.55 1.39 1.23
Diluted.......................................... 1.75 1.54 1.36 1.20
Dividends declared.................................. 0.6150 0.5250 0.4500 0.3825
Stockholders' equity................................ 9.01 7.97 7.10 5.39
Stock price range................................... 39 1/2-21 3/8 23 7/16-15 1/4 17 3/8-11 5/16 14 1/8-10 1/2
Selected Consolidated Balance Sheet Data At December 31,
Assets.............................................. $ 88,540 80,175 72,134 59,316
Investment and mortgage-backed securities available
for sale......................................... 17,984 16,247 15,243 13,602
Investment securities............................... 747 712 761 1,235
Loans, leases, and loans and mortgages held for
sale(b).......................................... 54,777 48,548 46,012 37,723
Deposits............................................ 55,457 50,130 42,029 36,424
Long-term debt...................................... 12,767 13,082 13,677 9,186
Stockholders' equity................................ 7,022 6,064 5,312 3,846
Ratios(c)
Per $100 of average assets
Net interest income (tax-equivalent basis)....... $ 4.93 4.88 4.98 5.14
Provision for credit losses...................... 0.63 0.52 0.47 0.30
-------- -------- ------- -------
Net interest income after provision for credit
losses......................................... 4.30 4.36 4.51 4.84
Non-interest income.............................. 3.58 3.35 2.82 2.97
Non-interest expenses............................ 5.35 5.34 5.13 5.62
-------- -------- ------- -------
Income before income taxes and cumulative effect
of a change in accounting for postretirement
medical benefits.............................. 2.53 2.37 2.20 2.19
Income tax expense............................... 0.85 0.82 0.71 0.69
Less tax equivalent adjustment................... 0.05 0.04 0.05 0.05
Cumulative effect on years ended prior to
December 31, 1992 of a change in accounting for
postretirement medical benefits, net of tax ... -- -- -- --
-------- -------- ------- -------
Net income(a)....................................... $ 1.63 1.51 1.44 1.45
======== ======== ======= =======
Leverage(d)......................................... 12.7x 13.5 14.3 14.3
Return on realized common equity(a)(e).............. 22.1% 21.9 22.3 21.4
Return on realized total equity(a)(e)............... 21.7% 21.5 20.9 20.3
Stockholders' equity to average assets.............. 7.9% 7.4 7.0 7.0
Dividend payout ratio............................... 34.6% 33.9 32.4 31.1
Tier 1 capital ratio at December 31................. 9.09% 8.63 8.11 9.89
Tier 1 and Tier 2 capital ratio at December 31...... 11.01% 10.42 10.18 12.23
Leverage ratio...................................... 6.63% 6.15 5.65 6.94
Years Ended December 31, 1993 1992
------------------------ ------- -------
STATEMENTS OF INCOME
Interest income......................................... 3,946.3 3,806.4
Interest expense........................................ 1,442.9 1,610.6
------- -------
Net interest income.................................. 2,503.4 2,195.8
Provision for credit losses............................. 158.2 270.8
------- -------
Net interest income after provision for credit
losses............................................. 2,345.2 1,925.0
Non-interest income..................................... 1,585.0 1,273.7
Non-interest expenses................................... 3,050.4 2,553.1
------- -------
Income before income taxes and cumulative effect of
a change in accounting for postretirement medical
benefits............................................. 879.8 645.6
Income tax expense...................................... 266.7 175.6
Cumulative effect on years ended prior to
December 31, 1992 of a change in accounting for postretirement
medical benefits, net of tax......................... -- (76.0)
------- -------
Net income.............................................. 613.1 394.0
======= =======
PER COMMON SHARE
Net income (a)
Basic................................................ 0.95 0.60
Diluted.............................................. 0.93 0.60
Dividends declared...................................... 0.320 0.2700
Stockholders' equity.................................... 5.50 4.94
Stock price range....................................... 14 1/2-10 5/16 11 1/16-8 5/16
Selected Consolidated Balance Sheet Data At December 31,
Assets.................................................. 54,665 50,037
Investment and mortgage-backed securities available
for sale............................................. 11,023 10,932
Investment securities................................... 1,694 2,031
Loans, leases, and loans and mortgages held for
sale(b).............................................. 36,201 31,667
Deposits................................................ 35,977 31,609
Long-term debt.......................................... 6,851 4,553
Stockholders' equity.................................... 3,761 3,372
RATIOS(c)
Per $100 of average assets
Net interest income (tax-equivalent basis)........... 4.98 4.81
Provision for credit losses.......................... 0.31 0.58
------- -------
Net interest income after provision for credit
losses............................................. 4.67 4.23
Non-interest income.................................. 3.11 2.74
Non-interest expenses................................ 5.99 5.50
------- -------
Income before income taxes and cumulative effect
of a change in accounting for postretirement
medical benefits................................... 1.79 1.47
Income tax expense................................... 0.52 0.38
Less tax equivalent adjustment....................... 0.07 0.08
Cumulative effect on years ended prior to
December 31, 1992 of a change in accounting for
postretirement medical benefits, net of tax ....... -- (0.16)
------- -------
Net income(a)........................................... 1.20 0.85
======= =======
Leverage(d)............................................. 14.2 13.2
Return on realized common equity(a)(e).................. 18.2 11.7
Return on realized total equity(a)(e)................... 17.1 11.2
Stockholders' equity to average assets.................. 7.1 7.6
Dividend payout ratio................................... 33.7 45.0
Tier 1 capital ratio at December 31..................... 9.71 9.74
Tier 1 and Tier 2 capital ratio at December 31.......... 12.39 12.42
Leverage ratio.......................................... 6.46 6.62
|
(a) Excluding the cumulative effect of a change in accounting for
postretirement medical benefits, 1992 basic net income per common share
would have been $0.73, diluted net income per common share would have been
$0.71, return on realized common equity would have been 14.2%, return on
realized total equity would have been 13.4%, and net income per $100 of
average assets would have been $1.01.
(b) Net of unearned discount.
(c) Based on average balances and net income for the periods.
(d) The ratio of average assets to average stockholders' equity.
(e) Realized equity excludes unrealized gains (losses) on securities available
for sale. Including net unrealized gains (losses) on securities available
for sale, return on common equity was 21.0% and return on total equity was
20.7% in 1997. In 1996, 1995 and 1994, return on common equity was 20.8% ,
21.9% and 22.1% respectively, and return on total equity was 20.4%, 20.6%
and 20.8% respectively.
Norwest Corporation and Subsidiaries
Consolidated Average Balance Sheets and Related Yields and Rates*
1997 1996 1995
-------------------------- --------------------------- ------------------
Interest Average Interest Average Interest
Average Income/ Yields/ Average Income/ Yields/ Average Income/
In millions, except ratios Balance Expense Rates Balance Expense Rates Balance Expense
------- -------- ------- ------- -------- ------- ------- --------
ASSETS
Money market investments........................... $ 913 $ 50.6 5.54% $1,156 $ 63.0 5.47% $ 604 $ 35.7
Trading account securities......................... 595 41.6 6.99 378 25.2 6.62 180 15.2
Investment securities available for sale
U.S. Treasury and federal agencies.............. 2,369 149.4 6.31 1,274 79.8 6.29 1,105 73.5
State, municipal and housing-tax exempt......... 1,338 111.1 8.62 894 78.4 9.05 123 9.4
Mortgage-backed ................................ 14,408 1,058.4 7.43 13,376 988.2 7.41 12,628 945.8
Other........................................... 1,053 48.8 6.31 1,123 48.6 6.36 671 39.6
------ ------- ------ ------- ------- --------
Total investment securities available
for sale..................................... 19,168 1,367.7 7.32 16,667 1,195.0 7.36 14,527 1,068.3
Other securities held for investment............... 726 28.3 3.91 806 36.2 4.49 1,395 106.5
------ ------- ------ ------- ------- --------
Total investment securities..................... 19,894 1,396.0 7.20 17,473 1,231.2 7.23 15,922 1,174.8
Loans held for sale................................ 2,953 231.8 7.85 2,897 254.3 8.78 2,232 195.7
Mortgages held for sale............................ 6,403 462.0 7.22 6,358 468.5 7.37 4,804 366.2
Loans and leases (net of unearned discount)
Commercial...................................... 13,429 1,228.2 9.15 12,728 1,165.2 9.15 10,754 1,003.1
Real estate..................................... 15,044 1,463.6 9.73 13,850 1,345.0 9.71 13,113 1,232.3
Consumer........................................ 12,272 1,868.1 15.22 11,966 1,798.1 15.03 11,694 1,727.8
------ ------- ------ ------- ------- --------
Total loans and leases........................ 40,745 4,559.9 11.19 38,544 4,308.3 11.18 35,561 3,963.2
Allowance for credit losses..................... (1,117) (1,005) (861)
------ ------ -------
Net loans and leases.......................... 39,628 37,539 34,700
------ ------- ------ ------- ------- --------
Total earning assets
(before the allowance for credit losses).... 71,503 6,741.9 9.49 66,806 6,350.5 9.57 59,303 5,750.8
------- ------- --------
Cash and due from banks............................ 3,589 3,594 3,214
Other assets....................................... 8,658 7,107 4,597
------ ------ -------
Total assets.................................. $82,633 $76,502 $66,253
====== ====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing deposits....................... $14,110 $12,212 $ 9,985
Interest-bearing deposits
Savings and NOW accounts........................ 9,593 157.2 1.64 7,017 120.9 1.72 4,992 98.9
Money market accounts........................... 10,771 353.4 3.28 11,062 348.1 3.15 10,595 332.9
Savings certificates............................ 13,008 708.0 5.44 12,420 677.3 5.45 10,809 583.1
Certificates of deposit and other time.......... 3,496 199.5 5.71 2,862 161.8 5.65 1,860 106.7
Foreign time.................................... 669 28.6 4.28 381 16.8 4.41 609 34.7
------ ------- ------ ------- ------- --------
Total interest-bearing deposits............... 37,537 1,446.7 3.85 33,742 1,324.9 3.93 28,865 1,156.3
Short-term borrowings.............................. 8,232 439.4 5.34 8,554 454.1 5.31 8,738 515.8
Long-term debt..................................... 12,464 777.9 6.24 13,667 838.0 6.13 11,918 776.0
------ ------- ------ ------- ------- --------
Total interest-bearing liabilities............ 58,233 2,664.0 4.57 55,963 2,617.0 4.68 49,521 2,448.1
Capitalized interest expense....................... -- -- -- (0.1)
------ ------- ------- --------
Net interest expense.......................... 2,664.0 2,617.0 2,448.0
Other liabilities.................................. 3,761 2,677 2,109
Stockholders' equity............................... 6,529 5,650 4,638
------ ------ -------
Total liabilities and stockholders' equity.... $82,633 $76,502 $66,253
====== ------- ====== ------- ======= --------
Net Interest income (tax-equivalent basis)......... $4,077.9 $3,733.5 $3,302.8
======= ======= =======
Yield spread....................................... 4.92 4.89
Net interest income to earning assets.............. 5.74 5.63
Interest-bearing liabilities to earning assets..... 81.44 83.77
|
* Interest income/expense and yields/rates are calculated on a tax-equivalent basis utilizing a federal incremental tax rate of 35% in 1997, 1996, 1995, 1994 and 1993 and 34% in 1992. Non-accrual loans and the related negative income effect have been included in the calculation of average rates.
NM -- Not meaningful
1994 1993 1992 Average Balance
---------- -------------------------- -------------------------- -------------------------- ------------------
Average Interest Average Interest Average Interest Average 5 Year % Change
Yields/ Average Income/ Yields/ Average Income/ Yields/ Average Income/ Yields/ Growth 1997 Over
Rates Balance Expense Rates Balance Expense Rates Balance Expense Rates Rate % 1996
---------- -------- -------- ------- -------- ------- ------- -------- ------- ------- ------- ---------
5.92% $ 472 $ 21.9 4.66% $ 624 $ 19.8 3.18% $ 779 $ 28.9 3.71% 3.2% (21.0)%
8.48 250 25.2 10.11 254 30.3 11.90 344 23.9 6.95 11.6 57.4
6.71 1,646 93.9 5.74 159 8.2 5.16 7,183 562.7 7.83 (19.9) 85.9
7.62 93 7.8 8.36 61 6.7 10.92 -- -- -- NM 50.0
7.46 10,407 715.7 6.73 8,827 592.4 6.71 2,093 164.9 7.88 47.1 7.7
7.89 398 20.9 6.50 1,623 114.8 7.07 456 38.6 8.46 18.2 (6.2)
------- ------- ------- ------- ------- -------
7.42 12,544 838.3 6.61 10,670 722.1 6.77 9,732 766.2 7.87 14.5 15.0
7.64 1,118 92.4 8.26 1,846 141.0 7.64 3,483 259.8 7.46 (26.9) (9.9)
------- ------- ------- ------- ------- -------
7.44 13,662 930.7 6.74 12,516 863.1 6.90 13,215 1,026.0 7.76 8.5 13.9
8.77 1,563 111.4 7.13 1,266 85.3 6.74 345 24.2 6.99 53.6 1.9
7.62 3,757 257.2 6.85 4,932 326.8 6.63 3,639 279.4 7.68 12.0 0.7
9.33 9,301 749.9 8.06 8,433 648.3 7.69 8,105 670.8 8.28 10.6 5.5
9.40 11,445 997.2 8.71 10,720 934.7 8.72 8,478 834.3 9.84 12.2 8.6
14.78 9,498 1,329.2 13.99 7,415 1,071.3 14.45 6,749 956.8 14.18 12.7 2.6
------- ------- ------- ------- ------- -------
11.14 30,244 3,076.3 10.17 26,568 2,654.3 9.99 23,332 2,461.9 10.55 11.8 5.7
(801) (791) (721) 9.1 11.1
------- ------- -------
29,443 25,777 22,611 11.9 5.6
------- ------- ------- ------- ------- --------
9.72 49,948 4,422.7 8.83 46,160 3,979.6 8.62 41,654 3,844.3 9.23 11.4 7.0
------- ------- --------
2,974 2,871 2,566 6.9 (0.1)
2,952 2,647 2,904 24.4 21.8
------- ------- -------
$55,073 $50,887 $46,403 12.2 8.0
======= ======= =======
$ 8,704 $7,726 $ 6,225 17.8 15.5
1.98 4,617 85.0 1.84 4,244 85.3 2.01 3,872 107.5 2.78 19.9 36.7
3.14 10,487 247.4 2.36 9,106 201.1 2.21 8,159 205.9 2.52 5.7 (2.6)
5.39 9,794 446.9 4.56 9,582 473.1 4.94 10,352 603.9 5.83 4.7 4.7
5.73 1,544 69.9 4.53 1,650 77.7 4.71 1,754 94.7 5.40 14.8 22.2
5.70 328 14.2 4.34 489 15.1 3.09 112 3.6 3.23 43.0 75.6
------- ------- ------ ------- ------- --------
4.01 26,770 863.4 3.23 25,071 852.3 3.40 24,249 1,015.6 4.19 9.1 11.2
5.90 6,628 290.3 4.38 7,316 238.1 3.25 7,058 277.9 3.94 3.1 (3.8)
6.51 7,508 436.4 5.82 5,871 352.6 6.01 4,086 317.3 7.77 25.0 (8.8)
------- ------- ------ ------- ------- --------
4.94 40,906 1,590.1 3.89 38,258 1,443.0 3.77 35,393 1,610.8 4.55 10.5 4.1
-- (0.1) (0.2)
------- ------- --------
1,590.1 1,442.9 1,610.6
1,620 1,315 1,276 24.1 40.5
3,843 3,588 3,509 13.2 15.6
------- ------ -------
$55,073 $50,887 $46,403 12.2 8.0
======= ------- ====== ------- ======= -------
$2,832.6 $2,536.7 $2,233.7
======= ======= =======
4.78 4.94 4.85 4.68
5.58 5.66 5.50 5.36
83.50 81.90 82.88 84.97
|
Norwest Corporation and Subsidiaries
Income Statement Data
1997 Over 1996 1996 Over 1995
---------------------------------- ---------------------------------
In millions Volume Yield/Rate Total Volume Yield/Rate Total
---------- ------------ ---------- ---------- ------------ ---------
Changes in Tax-Equivalent Net Interest Income*
Interest income
Loans and leases................................... $ 246.1 5.5 251.6 332.5 12.6 345.1
Investment and mortgage-backed securities
available for sale.............................. 176.6 (3.9) 172.7 132.5 (5.8) 126.7
Investment securities.............................. (3.6) (4.3) (7.9) (45.0) (25.3) (70.3)
-------- -------- -------- -------- -------- --------
Total investment securities................... 173.0 (8.2) 164.8 87.5 (31.1) 56.4
Money market and trading account securities........ (1.4) 5.4 4.0 48.6 (11.3) 37.3
Loans held for sale................................ 4.9 (27.4) (22.5) 58.3 0.3 58.6
Mortgages held for sale............................ 3.3 (9.8) (6.5) 118.5 (16.2) 102.3
-------- -------- -------- -------- -------- --------
Total......................................... 425.9 (34.5) 391.4 645.4 (45.7) 599.7
-------- -------- -------- -------- -------- --------
Interest expense
Interest-bearing deposits.......................... 149.0 (27.2) 121.8 195.4 (26.8) 168.6
Short-term borrowings.............................. (17.1) 2.4 (14.7) (10.9) (50.8) (61.7)
Long-term debt..................................... (73.8) 13.7 (60.1) 113.9 (51.8) 62.1
-------- -------- -------- -------- -------- --------
Total......................................... 58.1 (11.1) 47.0 298.4 (129.4) 169.0
-------- -------- -------- -------- -------- --------
Net interest income................................ $ 367.8 (23.4) 344.4 347.0 83.7 430.7
======== ======== ======== ======== ======== ========
|
*Changes in the average balance/rate are allocated entirely to the yield/rate changes.
Analysis of Selected Non-interest Expenses
1997 % Change 1996 % Change 1995 1994 1993
------- -------- -------- -------- -------- --------- --------
Salaries and benefits
Salaries............................... $2,002.7 12.5% $1,780.1 24.5% $1,430.2 1,260.9 1,210.8
Benefits............................... 358.2 13.0 317.0 0.7 314.9 312.8 263.5
-------- -------- -------- --------- -------
Total............................. $2,360.9 12.6% $2,097.1 20.2% $1,745.1 1,573.7 1,474.3
======== ======== ======== ========= =======
Business development
Advertising............................ $ 101.2 5.1% $ 96.3 31.9% $ 73.0 98.6 73.0
Other business development............. 152.7 16.0 131.6 32.7 99.2 91.9 78.3
-------- -------- -------- -------- ------
Total............................. $ 253.9 11.4% $ 227.9 32.3% $ 172.2 190.5 151.3
======== ======== ======== ======== ======
Other non-interest expenses
Professional fees...................... $ 152.7 32.0% $ 115.7 28.0% $ 90.4 60.2 60.2
Insurance claims and commissions....... 122.0 49.0 81.9 49.2 54.9 42.7 42.2
Other employment....................... 75.6 16.3 65.0 37.1 47.4 45.6 38.7
Other real estate owned, net........... 12.2 (37.8) 19.6 39.0 14.1 (11.8) 3.3
FDIC assessment and regulatory
examination fees.................... 18.8 (53.1) 40.1 (49.0) 78.6 87.6 79.7
Other.................................. 125.9 (33.3) 188.7 13.3 166.6 270.0 458.0
-------- -------- -------- -------- ------
Total............................. $ 507.2 (0.7)% $ 511.0 13.1% $ 452.0 494.3 682.1
======== ======== ======== ======== ======
|
Norwest Corporation and Subsidiaries
Loan Information
In millions, except ratios 1997 1996 1995 1994 1993 1992
-------- -------- --------- -------- -------- --------
LOANS AND LEASES AT DECEMBER 31,
Commercial, financial and industrial............... $ 10,680 10,205 9,327 7,434 6,686 6,577
Agricultural....................................... 1,276 1,108 1,091 956 938 830
Construction and land development.................. 1,006 944 742 568 566 454
Real Estate
Secured by 1-4 family residential properties.... 10,747 10,376 8,593 8,959 8,321 7,582
Secured by other properties..................... 4,998 4,749 4,174 3,590 3,418 3,186
Consumer........................................... 12,298 10,431 10,521 8,305 6,879 6,046
Credit card........................................ 1,632 1,566 1,666 2,511 1,727 994
Lease financing.................................... 921 812 816 765 699 627
Foreign
Consumer installment............................ 799 703 652 444 425 425
Real estate secured by 1-4 family residential
properties.................................... 65 72 53 42 30 15
Other........................................... 212 188 196 130 93 62
-------- -------- ------- ------- -------- --------
Total loans and leases........................ 44,634 41,154 37,831 33,704 29,782 26,798
Unearned discount............................. (2,112) (1,773) (1,678) (1,128) (1,021) (1,015)
-------- -------- ------- ------- -------- --------
Total loans and leases net of unearned
discount.................................. $ 42,522 39,381 36,153 32,576 28,761 25,783
======== ======== ======= ======= ======== ========
ALLOWANCE FOR CREDIT LOSSES
Balance at beginning of year....................... $1,040.8 917.2 789.9 789.2 773.1 704.3
Allowances related to assets acquired, net......... 168.1 111.3 119.1 29.0 36.2 23.4
Provision for credit losses........................ 524.7 394.7 312.4 164.9 158.2 270.8
Credit losses
Commercial, financial and industrial............ 83.6 53.9 41.3 31.0 58.9 90.9
Agricultural.................................... 4.2 6.1 2.7 4.5 2.6 4.2
Construction and land development............... 1.6 0.6 0.6 2.8 11.9 15.8
Real estate..................................... 29.4 26.5 20.8 44.2 53.2 68.4
Consumer........................................ 399.1 301.8 201.7 130.5 116.4 118.9
Credit card..................................... 92.7 83.5 121.8 73.2 46.1 36.9
Lease financing................................. 5.5 4.5 2.6 2.3 2.2 2.6
Foreign
Consumer installment.......................... 35.9 33.7 27.5 17.4 18.5 2.9
Other......................................... 0.5 1.2 2.2 8.9 0.5 0.5
-------- -------- ------- ------- -------- --------
Total credit losses........................... 652.5 511.8 421.2 314.8 310.3 341.1
-------- -------- ------- ------- -------- --------
Recoveries
Commercial, financial and industrial............ 32.1 33.1 26.9 34.0 39.4 41.4
Agricultural.................................... 2.9 1.9 2.6 2.5 4.0 4.9
Construction and land development............... 0.6 1.3 4.5 7.2 7.2 2.4
Real estate..................................... 15.7 15.5 17.5 26.9 36.6 24.9
Consumer........................................ 76.7 54.4 44.6 35.4 32.1 30.1
Credit card..................................... 13.1 13.8 13.0 10.6 7.8 6.7
Lease financing................................. 0.9 1.0 2.1 0.7 0.3 0.6
Foreign
Consumer installment.......................... 7.4 5.6 4.3 3.5 3.5 --
Other......................................... 3.4 2.8 1.5 0.8 1.1 4.7
-------- -------- ------- ------- -------- --------
Total recoveries.............................. 152.8 129.4 117.0 121.6 132.0 115.7
-------- -------- ------- ------- -------- --------
Net credit losses.................................. 499.7 382.4 304.2 193.2 178.3 225.4
-------- -------- ------- ------- -------- --------
Balance at end of year............................. $1,233.9 1,040.8 917.2 789.9 789.2 773.1
======== ======== ======= ======= ======== ========
ALLOCATION OF ALLOWANCE FOR CREDIT LOSSES
Commercial......................................... $ 207.7 208.6 186.4 151.9 137.4 154.5
Consumer........................................... 422.6 285.7 276.5 209.0 195.2 155.4
Real estate........................................ 168.1 150.3 171.8 163.5 203.4 220.6
Foreign............................................ 42.0 32.3 27.0 20.0 21.2 22.0
Unallocated........................................ 393.5 363.9 255.5 245.5 232.0 220.6
-------- -------- ------- ------- -------- --------
Total......................................... $1,233.9 1,040.8 917.2 789.9 789.2 773.1
======== ======== ======= ======= ======== ========
CREDIT QUALITY RATIOS
Net credit losses as a percent of average loans and 1.23% 0.99 0.86 0.64 0.67 0.97
leases..........................................
Allowance for credit losses to
Total loans and leases at year-end............ 2.90% 2.64 2.54 2.42 2.74 3.00
Net credit losses............................. 2.47x 2.72 3.02 4.09 4.43 3.43
Provision for credit losses to average loans and
leases.......................................... 1.29% 1.02 0.88 0.55 0.60 1.16
Earnings coverage of net credit losses............. 5.15x 5.69 5.70 6.96 5.82 3.53
|
Norwest Corporation and Subsidiaries
Other Balance Sheet Data
In millions, except ratios
MATURITY OF TOTAL INVESTMENT SECURITIES (A)
Carrying Value
-------------------------------------------------------------------------------------
Total
Within 1 Year 1-5 Years 5-10 Years After 10 Years Total Market
Amount/Yield Amount/Yield Amount/Yield Amount/Yield Amount/Yield Value
-------------- ------------ ------------ -------------- ------------- --------
At December 31, 1997
--------------------
Investment securities
available for sale:
U.S. Treasury and federal
agencies............. $ 198.2 5.86% $ 590.9 6.63% $ 239.0 5.25% $ 48.3 7.61% $ 1,076.4 6.22% $ 1,076.4
State, municipal and
housing-tax exempt (b) 69.6 6.01 315.5 5.98 192.7 6.18 910.7 6.43 1,488.5 6.28 1,488.5
Other................... 236.3 5.81 412.7 5.30 164.2 6.94 220.5 6.14 1,033.7 5.87 1,033.7
------- -------- ------- -------- -------- ---------
Total investment
securities
available for sale 504.1 5.88 1,319.1 6.07 595.9 6.00 1,179.5 6.43 3,598.6 6.16 3,598.6
------- -------- ------- -------- -------- ---------
Mortgage-backed
securities:
Federal agencies........ 79.7 5.75 323.8 7.15 137.6 6.96 13,586.1 7.49 14,127.2 7.47 14,127.2
Collateralized mortgage
obligations.......... -- -- 16.5 5.76 13.7 7.71 227.9 7.57 258.1 7.47 258.1
------- -------- ------- -------- -------- ---------
Total
mortgage-backed
securities available
for sale.............. 79.7 5.75 340.3 7.06 151.3 6.99 13,814.0 7.49 14,385.3 7.47 14,385.3
------- -------- ------- -------- -------- ---------
Total securities
available for sale... 583.8 5.87 1,659.4 6.21 747.2 6.35 14,993.5 7.41 17,983.9 7.22 17,983.9
------- -------- ------ -------- -------- ---------
Other investment
securities held for
investment........... -- -- 332.0 0.27 -- -- 415.2 6.87 747.2 3.94 762.8
------- -------- ------ --------- -------- ---------
Total investment
securities........... $ 583.8 5.87 $1,991.4 5.13 $747.2 6.35 $15,408.7 7.40 $18,731.1 7.09 $18,746.7
======= ======== ====== ========== ========= =========
|
MATURITY OF LOANS (C) Within 1 Year 1-5 Years After 5 Years Total
------------- --------- ------------- --------
Commercial .................................................. $7,101 3,913 942 11,956
Construction and land development ........................... 625 298 83 1,006
Real estate ................................................. 930 2,360 1,708 4,998
Foreign...................................................... 101 71 40 212
------ ----- ----- ------
Total ....................................................... $8,757 6,642 2,773 18,172
====== ===== ===== ======
Predetermined interest rates ................................ $4,376 3,605 1,440 9,421
Floating interest rates...................................... 4,381 3,037 1,333 8,751
------ ----- ----- ------
Total........................................................ $8,757 6,642 2,773 18,172
====== ===== ===== ======
MATURITY OF TIME DEPOSITS OF $100,000 OR MORE Within 3 Months 3-6 Months 6-12 Months Over 12 Months Total
--------------- ---------- ----------- -------------- --------
Certificates of deposit and other time............... $ 1,479 771 840 632 3,722
Foreign time......................................... 756 -- -- -- 756
------- ----- ----- ----- -------
Total................................................ $ 2,235 771 840 632 4,478
======= ===== ===== ===== =======
DEPOSITS AT DECEMBER 31, 1997 1996 1995 1994 1993
------- ------ ----- ----- -------
Noninterest-bearing deposits.......................... $16,253 14,296 11,624 9,283 9,054
Interest-bearing deposits
Savings and NOW accounts.......................... 10,204 8,069 5,378 4,790 4,421
Money market accounts............................. 11,498 11,418 11,268 10,403 10,592
Savings certificates.............................. 12,975 12,814 11,244 9,773 10,043
Certificates of deposit and other time............ 3,722 3,187 2,316 1,528 1,678
Foreign time (d).................................. 805 346 199 647 189
------- ------ ------ ------ -------
Total deposits....................................... $55,457 50,130 42,029 36,424 35,977
======= ====== ====== ====== =======
|
(a) Based on contractual maturities.
(b) The yield on state, municipal and housing securities is increased by the
benefit of tax exemption, assuming a 35% federal income tax rate. For the
year ended December 31, 1997, the amount of the increases in the yields for
these securities and for total securities available for sale is 2.84% and
0.20%, respectively.
(c) Excludes leases of $921 million and consumer and residential mortgage loans
of $25.5 billion.
(d) Includes $48 million of foreign time deposits less than $100,000 in 1997.
Norwest Corporation and Subsidiaries
Quarterly Condensed Consolidated Financial Information
1997 Quarters
-------------------------------------------------------------------
In millions, except per common share
amounts and ratios Fourth Third Second First
------------- ------------- ------------- -------------
Interest income........................ $1,735.6 1,692.9 1,661.5 1,607.4
Interest expense....................... 682.9 670.3 661.7 649.1
------------- ------------- ------------- -------------
Net interest income.................... 1,052.7 1,022.6 999.8 958.3
Provision for credit losses............ 146.2 146.7 122.8 109.0
Non-interest income.................... 767.9 753.4 756.4 684.6
Non-interest expenses.................. 1,148.8 1,111.3 1,119.7 1,041.5
------------- ------------- ------------- -------------
Income before income taxes............. 525.6 518.0 513.7 492.4
Income tax expense..................... 169.5 176.4 182.3 170.5
------------- ------------- ------------- -------------
Net income............................. $ 356.1 341.6 331.4 321.9
============= ============= ============= =============
PER COMMON SHARE
Net income
Basic............................... $ 0.47 0.45 0.43 0.43
Diluted............................. 0.46 0.44 0.43 0.42
Dividends declared..................... 0.165 0.150 0.150 0.150
Stockholders' equity................... 9.01 8.83 8.44 7.98
Stock price range.................... 39 1/2-29 1/4 32 5/32-28 1/8 29 5/8-22 3/16 26 5/8-21 5/8
Period end stock price............... 38 1/4 30 5/8 28 1/8 23 1/8
TAX-EQUIVALENT YIELDS AND RATES
Money market investments............... 5.80% 5.76 5.64 5.29
Trading account securities............. 6.46 7.14 7.48 6.98
Investment securities.................. 4.03 3.89 3.83 3.89
Investment and mortgage-backed
securities available for sale....... 7.38 7.30 7.26 7.37
Total investment securities....... 7.24 7.17 7.14 7.23
Mortgages held for sale................ 7.15 7.36 7.26 7.13
Loans held for sale.................... 7.94 7.76 7.89 7.79
Loans and leases....................... 11.30 11.27 11.12 11.07
Total earning assets.............. 9.58 9.55 9.42 9.42
Interest-bearing deposits.............. 3.87 3.81 3.83 3.91
Short-term borrowings.................. 5.46 5.45 5.25 5.19
Long-term debt......................... 6.29 6.32 6.26 6.10
Total interest-bearing liabilities 4.61 4.58 4.54 4.57
Yield spread........................... 4.97 4.97 4.88 4.85
Net interest income to earning assets.. 5.85 5.81 5.69 5.62
RATIOS*
Return on assets....................... 1.66% 1.64 1.61 1.63
Leverage............................... 11.95x 12.55 13.15 13.10
Return on realized common equity....... 21.1% 22.2 22.1 22.7
1996 Quarters
------------------------------------------------------------------
In millions, except per common share
amounts and ratios Fourth Third Second First
--------------- --------- ------------- --------------
Interest income........................ 1,608.2 1,611.1 1,575.0 1,524.0
Interest expense....................... 661.9 663.4 658.5 633.2
--------------- --------- ------------- --------------
Net interest income.................... 946.3 947.7 916.5 890.8
Provision for credit losses............ 113.6 105.9 87.4 87.8
Non-interest income.................... 738.1 631.8 641.9 552.8
Non-interest expenses.................. 1,103.0 1,032.4 1,011.1 943.2
--------------- --------- ------------- --------------
Income before income taxes............. 467.8 441.2 459.9 412.6
Income tax expense..................... 159.7 152.2 174.5 141.2
--------------- --------- ------------- --------------
Net income............................. 308.1 289.0 285.4 271.4
=============== ========= ============= ==============
PER COMMON SHARE
Net income
Basic............................... 0.41 0.38 0.38 0.38
Diluted............................. 0.41 0.38 0.38 0.37
Dividends declared..................... 0.135 0.135 0.135 0.120
Stockholders' equity................... 7.97 7.76 7.36 7.32
Stock price range.................... 23 7/16-20 3/8 20 1/2-16 18 3/4-16 1/2 18 9/16-15 1/4
Period end stock price............... 21 3/4 20 3/8 17 7/6 18 3/8
TAX-EQUIVALENT YIELDS AND RATES
Money market investments............... 5.41 5.97 5.14 5.63
Trading account securities............. 6.83 6.95 6.66 6.14
Investment securities.................. 4.74 4.05 4.73 4.50
Investment and mortgage-backed
securities available for sale....... 7.38 7.38 7.29 7.42
Total investment securities....... 7.27 7.22 7.16 7.27
Mortgages held for sale................ 7.33 7.84 7.45 6.83
Loans held for sale.................... 7.75 7.77 8.94 10.19
Loans and leases....................... 11.15 11.15 11.13 11.28
Total earning assets.............. 9.48 9.59 9.50 9.71
Interest-bearing deposits.............. 3.94 3.91 3.91 3.95
Short-term borrowings.................. 5.32 5.31 5.22 5.39
Long-term debt......................... 6.14 6.14 6.04 6.21
Total interest-bearing liabilities 4.65 4.66 4.65 4.75
Yield spread........................... 4.83 4.93 4.85 4.96
Net interest income to earning assets.. 5.60 5.66 5.54 5.69
Ratios*
Return on assets....................... 1.55 1.48 1.50 1.51
Leverage............................... 13.19 13.54 13.76 3.71
Return on realized common equity....... 22.0 21.0 22.1 22.7
|
(Continued on page 79)
*Based on average balances and net income for the periods.
Norwest Corporation and Subsidiaries
Quarterly Condensed Consolidated Financial Information (Continued from page 78)
In millions 1997 Quarters 1996 Quarters
--------------------------------------- -------------------------------------
Fourth Third Second First Fourth Third Second First
------- ------ ------ ------ ------- ------ ------- ------
AVERAGE ASSETS
Money market investments.................... $ 766 619 663 1,620 2,633 629 790 559
Trading account securities.................. 767 741 591 272 253 365 498 398
Investment securities....................... 728 720 738 720 723 864 839 796
Investment and mortgage-backed securities
available for sale....................... 18,276 18,987 20,937 18,472 17,053 17,540 16,827 15,237
------- ------ ------ ------ ------ ------ ------ ------
Total investment securities............ 19,004 19,707 21,675 19,192 17,776 18,404 17,666 16,033
Mortgages held for sale..................... 7,725 6,980 5,391 5,485 5,553 6,385 7,160 6,344
Loans held for sale......................... 3,172 2,874 2,841 2,924 2,691 2,493 2,970 3,440
Loans and leases, net of unearned discount.. 41,974 40,795 40,244 39,946 39,654 39,431 38,049 37,020
------- ------ ------ ------- ------ ------ ------ ------
Total average earning assets........... 73,408 71,716 71,405 69,439 68,560 67,707 67,133 63,794
Allowance for credit losses................. (1,213) (1,118) (1,075) (1,058) (1,041) (1,034) (991) (952)
Cash and due from banks..................... 3,644 3,553 3,514 3,646 3,691 3,503 3,632 3,551
Other assets................................ 9,274 8,584 8,608 8,150 7,902 7,663 6,938 5,909
------- ------- ------ ------ ------ ------ ------- -------
Total average assets................... $85,113 82,735 82,452 80,177 79,112 77,839 76,712 72,302
======= ======= ====== ====== ====== ====== ====== ======
AVERAGE LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing deposits................ $15,514 14,351 13,460 13,086 13,243 12,499 11,926 11,167
Interest-bearing deposits................... 38,109 37,514 37,551 36,962 35,272 34,545 33,553 31,573
Short-term borrowings....................... 8,169 8,142 8,872 7,741 8,135 8,825 8,986 8,269
Long-term debt.............................. 12,670 12,510 11,958 12,719 13,299 13,409 14,279 13,689
Other liabilities........................... 3,529 3,626 4,339 3,550 3,165 2,814 2,393 2,330
Stockholders' equity........................ 7,122 6,592 6,272 6,119 5,998 5,747 5,575 5,274
------ ------- ------ ------- ------ ------ ------- -------
Total average liabilities and
stockholders' equity................ $85,113 82,735 82,452 80,177 79,112 77,839 76,712 72,302
======= ====== ====== ====== ====== ====== ====== ======
|
The financial information on pages 78 and 79 is unaudited. In the opinion of management, all adjustments necessary (which are of a normal recurring nature) have been included for a fair presentation of the results of operations.
Exhibit 10(a).
LONG-TERM INCENTIVE COMPENSATION PLAN
(As restated to reflect the two-for-one stock split in the form of a 100% stock dividend distributed on October 10, 1997)
2.1 The following terms, whenever used in this Plan, shall have the meanings set forth below:
(a) "Affiliate" means any corporation, a majority of the voting stock or membership interests of which is directly or indirectly owned by the Corporation, and any partnership designated by the Committee in which such a corporation is a partner.
(b) "Award" means a grant made under this Plan in the form of Performance Shares, Restricted Stock, Stock Options, Performance Units, Stock Appreciation Rights, or Stock.
(c) "Board" means the Board of Directors of the Corporation.
(d) "Committee" means a committee of at least three members of the Board who are not eligible, and have not at any time within one year prior to service on the Committee been eligible, to receive any Award under the Plan or under any other benefit plan of the Corporation or any of its Affiliates entitling the participants therein to acquire stock, stock options or stock appreciation rights of the Corporation or any of its Affiliates.
(e) "Corporation" means Norwest Corporation.
(f) "Employee" means a regular salaried employee (including an officer or director who is also an employee) of the Corporation or an Affiliate.
(g) "Fair Market Value" as of any date means the average of the highest and lowest price of a share of Stock as reported by the consolidated tape of the New York Stock Exchange for that date. If there are no Stock transactions reported for said date, the determination of said average shall be made as of the last immediately preceding date on which Stock transactions were reported by said consolidated tape.
(h) "Incentive Stock Option" means any Option designated as such and granted in accordance with the requirements of Section 422A of the Internal Revenue Code of 1986, as amended.
(i) "Non-Qualified Stock Option" means an Option other than an Incentive Stock Option.
(j) "Option" means a right to purchase Stock.
(k) "Participant" means a person designated by the Committee to receive an Award under the Plan who is an Employee at the time of such designation.
(l) "Performance Cycle" means the period of time of not fewer than two years nor more than five years as specified by the Committee over which Performance Shares or Performance Units are to be earned.
(m) "Performance Shares" means an Award made pursuant to Section 6 which entitles a Participant to receive Shares, their cash equivalent or a combination thereof based on the achievement of performance targets during a Performance Cycle.
(n) "Performance Units" means an Award made pursuant to Section 6 which entitles a Participant to receive cash, Stock or a combination thereof based on the achievement of performance targets during a Performance Cycle.
(o) "Plan" means this Long-Term Incentive Compensation Plan, as amended from time to time.
(p) "Restricted Stock" means Stock granted under Section 7 that is subject to restrictions imposed pursuant to said Section.
(q) "Retirement" means retirement which entitles a Participant to a benefit under Section 6.1 or Section 6.2 of the Norwest Corporation Pension Plan or under Section 4.1 or Section 4.2 of the Norwest
Financial Pension Plan as said sections may be amended from time to time.
(r) "Share" means a share of Stock.
(s) "Stock" means the common stock, $1-2/3 par value per share, of the Corporation.
(t) "Stock Appreciation Right" means the right to receive a payment in cash or in Stock or a combination thereof in an amount equal to the excess of the Fair Market Value of the Stock at the time of exercise over the Fair Market Value of the Stock at the time of grant.
(u) "Successor" means the legal representative of the estate of a deceased Participant or the person or persons who may acquire the right to exercise an Option or to receive Shares issuable in satisfaction of an Award, by bequest or inheritance.
(v) "Term" means the period during which an Option or Stock Appreciation Right may be exercised or the period during which the restrictions placed on Restricted Stock are in effect.
payment is not made in Stock and any Shares which are used for full or partial payment of the purchase price of Shares with respect to which an Option is exercised may again be used for an Award under the Plan. No Employee may be awarded in any calendar year Options or Stock Appreciation Rights covering an aggregate of more than 7,000,000 Shares.
maximum amount of a Participant's Award will be paid (subject to
Section 6.5) for performance which exceeds the minimum performance
target but falls below the maximum performance target applicable to
such Award.
"This certificate and the shares of stock represented hereby are subject to the terms and conditions (including forfeiture provisions and restrictions against transfer) contained in the Long-Term Incentive Compensation Plan and an Agreement entered into between the registered owner and Norwest Corporation. Release
from such terms and conditions shall obtain only in accordance with the provisions of the Plan and Agreement, a copy of each of which is on file in the office of the Secretary of Norwest Corporation."
(a) If a Participant ceases to be an Employee by reason of his death, permanent disability or Retirement, all Options outstanding shall become immediately exercisable and remain exercisable to the extent and for such period or periods determined by the Committee but not beyond the expiration date of said Options.
(b) If a Participant ceases to be an Employee by reason of his death, permanent disability or Retirement, all outstanding Stock Appreciation Rights granted in conjunction with Options shall become immediately exercisable and remain exercisable to the extent and for such period or periods determined by the Committee but not beyond the expiration date of said Stock Appreciation Rights.
to which it relates does not exceed the exercise price of the Option associated with those Shares.
12.1 Transfers of employment between the Corporation and an Affiliate, or between Affiliates, will not constitute termination of employment for purposes of any Award.
12.2 The Committee may specify in the agreement relating to an Award whether any authorized leave of absence or absence for military or government service or for any other reasons will constitute a termination of employment for purposes of the Award and the Plan.
(a) All outstanding Options and Stock Appreciation Rights shall become exercisable immediately prior to the consummation of the transaction.
(b) All restrictions with respect to Restricted Stock shall lapse immediately prior to the consummation of the transaction.
(c) All Performance Cycles for the purpose of determining the amounts of Awards of Performance Shares and Performance Units payable shall end at the end of the calendar quarter immediately preceding the consummation of the transaction. The amount of an Award payable shall be that fraction of the Award computed pursuant to the preceding sentence the numerator of which is the number of calendar quarters completed in the Performance Cycle through the end of the calendar quarter immediately preceding the consummation of the transaction and the denominator of which is the number of full calendar quarters in the Performance Cycle. The amount of an Award payable shall be paid within sixty days after consummation of the transaction.
The Committee shall take such action as in their discretion may be necessary or advisable to carry out the provisions of this Section.
(i) All outstanding Options and Stock Appreciation Rights shall become immediately exercisable and may be exercised at any time within six months after the Participant ceases to be an Employee.
(ii) All restrictions with respect to Restricted Stock shall lapse and Shares free of restrictive legend shall be delivered to the Participant.
(iii) All Performance Cycles for the purpose of determining the amounts of Awards of Performance Shares and Performance Units payable shall end at the end of the calendar quarter immediately preceding the date on which said Participant ceased to be an Employee. The amount of an Award payable to said Participant shall be that fraction of the Award computed pursuant to the preceding sentence the numerator of which is the number of calendar quarters during the Performance Cycle during all of which said Participant was an Employee and the denominator of which is the number of full calendar quarters in the Performance Cycle. The amount of an Award payable shall be paid within sixty days after said Participant ceases to be an Employee.
The Committee shall take such action as in their discretion may be necessary or advisable to carry out the provisions of this Section.
Such terms and conditions shall be included in a deferral agreement signed by a Participant electing such deferral.
(a) Increase the total amount of Stock which may be awarded under the Plan.
(b) Change the class of Employees eligible to participate in the Plan.
(c) Withdraw the administration of the Plan from the Committee.
(d) Permit any person, while a member of the Committee, to be eligible to participate in the Plan.
(e) Extend the duration of the Plan.
No termination, suspension, or modification of the Plan will adversely
affect any right acquired by any Participant or any Successor under an
Award granted before the date of termination, suspension, or modification,
unless otherwise agreed to by the Participant; but it will be conclusively
presumed that any adjustment for changes in capitalization provided for in
Section 20 does not adversely affect any right.
NORWEST CORPORATION
LONG-TERM INCENTIVE COMPENSATION PLAN
FORM OF NON-QUALIFIED STOCK OPTION AGREEMENT
WITH RIGHT TO ACQUIRE ACCELERATED OWNERSHIP STOCK OPTION
GRANT DATE: ________
EMPLOYEE'S NAME
1. GRANT OF OPTION - GRANT. The Corporation has granted the Employee a Non- Qualified Stock Option ("Option") to purchase _____ Shares of the Corporation's common stock ("Stock").
2. OPTION PURCHASE PRICE. The Option purchase price is $________per Share.
3. TERM AND EXERCISE OF OPTION. The Option will become exercisable in increments over a period of three years as indicated in the grant letter or grant summary included with this Agreement. The Option will expire on ______________ as to all Shares subject to the Option. The Option may be exercised between the vesting date and the expiration date of the Option provided you are continuously employed by the Corporation or an Affiliate ("Norwest"). If your employment with Norwest is terminated, the Option may be exercised only as described in paragraph 4 below. While you are alive, the Option may be exercised only by you or your guardian or legal representative.
To exercise all or part of the Option, deliver a "Notice of Exercise" to the Norwest Corporation Stock Option Administrator, Norwest Center, Sixth and Marquette, Minneapolis, MN 55479-1037, specifying the number of whole Shares you wish to purchase. You must pay the total Option price for that number of Shares on the day that you exercise either (a) in cash or (b) in whole Shares of Stock valued at its Fair Market Value on the date of exercise (except that cash may be used to buy up to the next whole Share). If Stock is used to pay the purchase price, the Stock used must have been owned by you for at least six months prior to the date of exercise and must not have been used in a stock-for-stock swap transaction within the preceding six months.
4. RETIREMENT, DISABILITY, DEATH OR OTHER TERMINATION OF EMPLOYMENT. If you retire from Norwest and are entitled to a benefit under Section 6.1 or Section 6.2 of the Norwest Corporation Pension Plan or under Section 4.1 or Section 4.2 of the Norwest Financial Pension Plan then (a) any increment of the Option that vests within one year from the date of such retirement will immediately vest and be exercisable until one year after your date of death or until the Option expires, whichever occurs first and (b) any increment of the Option that vests more than one year from the date of such retirement will be cancelled effective as of the date of such retirement. If you become permanently disabled while you are employed by Norwest, then your entire Option is immediately vested and exercisable and will remain exercisable until one year after your date of death or until the Option expires, whichever occurs first. If you die while you are employed by Norwest, then the entire Option is immediately vested and exercisable, and the legal representative of your estate or the person who inherited the Option may exercise the Option until one year after your date of death or until the Option expires, whichever occurs first.
If you leave Norwest's employment for any reason other than death, permanent disability, Retirement, or discharge for cause, you may exercise through the last business day of the month following the month in which your termination of employment occurs, that part of the Option which was exercisable on the date of termination. If you are discharged for cause, the Option will expire upon receipt by you of oral or written notice of termination. Termination of employment does not include a leave of absence approved by the Committee.
5. WITHHOLDING TAXES. When you exercise this Option, you agree to pay all required withholding taxes to your Norwest employer. Income taxes are computed based on the difference between the Fair Market Value (the average of the highest and lowest prices of Norwest common stock) of the Shares acquired on the date of exercise and the Option price for those Shares. Taxes may be paid either in cash or, if you elect, by having the Corporation withhold from the Shares to be issued a number of shares (valued at their Fair Market Value on the date of exercise) necessary to satisfy the taxes. The Corporation is not obligated to deliver the Shares until withholding obligations are met.
6. AWARD OF ACCELERATED OWNERSHIP NON-QUALIFIED STOCK OPTION ("AO"). If you exercise this Option while you are employed by Norwest and pay the purchase price in Stock, you are hereby granted an AO at the Fair Market Value on the date of such exercise. The AO grant equals the number of whole Shares used in the swap exercise to pay the purchase price plus a number of Shares with respect to taxes payable upon exercise, determined in accordance with procedures approved by the Committee which take into account estimated incremental tax rates. Subject to the provisions of paragraphs 3 and 4, the AO may be exercised between the date of grant and the date of expiration of this Option. The AO shall be evidenced by an agreement containing such other terms and conditions as the Committee approves. No AO is granted if the Option is exercised after your Retirement, permanent disability, death or other termination of employment.
7. TRANSFERABILITY OF OPTION. This Option may be transferred only by will or the laws of descent and distribution.
8. NO AGREEMENT FOR NORWEST TO CONTINUE YOUR EMPLOYMENT. Nothing in this Agreement gives you any right to continued employment and Norwest may terminate you at any time for any reason.
9. GENERAL RESTRICTIONS. The Corporation may delay the exercise of any Option if it determines that (a) the Shares subject to the Option should be listed, registered or qualified on any securities exchange or under any law, or (b) the consent of a regulatory body is desirable.
10. ADDITIONAL PROVISIONS AND INTERPRETATION OF THIS AGREEMENT. This Agreement is subject to the provisions of the Plan. Capitalized terms not defined in this Agreement are used as defined in the Plan. If the Plan and this Agreement are inconsistent, provisions of the Plan will govern. Interpretations of the Plan and this Agreement by the Committee are binding on you and the Corporation.
NORWEST CORPORATION
LONG-TERM INCENTIVE COMPENSATION PLAN
FORM OF RESTRICTED STOCK AGREEMENT
This Restricted Stock Agreement (this "Agreement") between Norwest Corporation (the "Corporation") and ________________________ (the "Participant") is dated as of _________________. The purpose of this Agreement is to implement the Corporation's Long-Term Incentive Compensation Plan ("Plan").
1. GRANT - Grant Number: RS....... The Corporation hereby grants Participant ________ shares of the Corporation's Restricted Stock (the "Restricted Stock Grant") subject to the terms of this Agreement.
2. Transfer Restriction Participant may not sell, assign, pledge, encumber or otherwise transfer any of the shares of the Restricted Stock Grant until the Restriction Lapse described in paragraph 3 below ("Transfer Restriction"). Prior to the Restriction Lapse, any stock certificates issued to Participant for the Restricted Stock Grant shall be in the sole custody of the Corporation and shall bear the following legend:
"This certificate and the shares of stock represented hereby are subject to the terms and conditions (including forfeiture provisions and restrictions against transfer) contained in the Long-Term Incentive Compensation Plan and an Agreement entered into between the registered owner and Norwest Corporation. Release from such terms and conditions shall be obtained only in accordance with the provisions of the Plan and Agreement, a copy of each of which is on file in the office of the Secretary of Norwest Corporation."
3. Restriction Lapse Subject to the terms of the Plan, the Transfer Restriction on the Restricted Stock Grant shall lapse in accordance with the following schedule (if not forfeited prior to that date):
(a) thirty percent of the Restricted Stock Grant (rounded down to the
nearest whole share) on the third anniversary of the grant
(_________________); and
(b) an additional thirty percent of the Restricted Stock Grant
(rounded down to the nearest whole share) on the fourth
anniversary of the grant (_________________); and
(c) the remainder of the Restricted Stock Grant on the fifth
anniversary of the grant (_________________)
Provided, however, that if Participant is an Employee immediately prior to a reorganization as described in Section 13 of the Plan, the Transfer Restriction shall lapse immediately prior to the consummation of the reorganization for the entire Restricted Stock Grant. In addition, if Participant is an Employee immediately prior to a change in the Board as described in Section 14 of the Plan and thereafter within six months after said change in the Board terminates his or her employment with the Corporation or an Affiliate for any reason other than death, permanent disability or Retirement, the Transfer Restriction shall lapse on said termination date for the entire Restricted Stock Grant.
Upon lapse of the Transfer Restriction, the stock certificates issued to Participant for said shares shall be free of the legend described in paragraph 2 above .
4. Forfeiture Participant's right to retain the Restricted Stock Grant, or any portion thereof, is subject to his/her continuous employment by the Corporation or an Affiliate until the Restriction Lapse. If Participant's employment by the Corporation or an Affiliate terminates for any reason prior to the Restriction Lapse, the Restricted Stock Grant (or the relevant portion(s) thereof) shall be forfeited and revert to the Corporation. However, no such forfeiture shall occur if the termination of the Participant's employment:
(a) is due to the Participant's death; or
(b) is due to the Participant's retirement where Participant retires
under circumstances which entitle Participant to a benefit under
Section 6.1 or Section 6.2 of the Norwest Corporation Pension
Plan or under Section 4.1 or Section 4.2 of the Norwest Financial
Pension Plan as said sections may be amended from time to time;
or
(c) occurs under circumstances by which the Participant is eligible for a long-term disability benefit under the Corporation's Long Term Disability Plan or its successor.
5. Voting Power and Taxes Prior to the earlier of the Restriction Lapse or forfeiture of the Restricted Stock Grant, Participant shall have voting power with respect to said shares and shall receive dividends thereon. Any dividends or other distributions with respect to the Restricted Stock Grant which are payable in Stock shall be subject to the same restrictions then applicable to the Restricted Stock Grant and shall thereafter be considered Restricted Stock for purposes of this Agreement. If Participant recognizes ordinary income on the Restricted Stock Grant or any related payments, it may be necessary to withhold income taxes and social security taxes. Participant agrees to pay the Corporation or its Affiliate to satisfy any withholding obligations. Payment may be made by Participant in cash or, at Participant's election, the Corporation may withhold from the Shares to be issued the number of Shares (based on the Fair Market Value of the Stock as of the date of the Restriction Lapse) that would satisfy the withholding taxes due (except that any fractional share amount shall be paid by the Participant in cash). The Corporation will not be obligated to deliver any stock certificates for said Shares until withholding obligations are met.
6. Definitions Capitalized terms not otherwise defined herein are used as defined in the Corporation's Long-Term Incentive Compensation Plan, as amended (the "Plan").
7. This Agreement is subject to the Plan and to the extent this Agreement and the Plan are inconsistent, the Plan shall govern. Nothing in this Agreement shall interfere with or limit in any way the right of the Corporation or any of its Affiliates to terminate Participant's employment at any time, nor confer upon Participant any right to continue in the employ of the Corporation or any of its Affiliates.
8. This Agreement, together with the Plan, as amended, is the entire Agreement between the Participant and the Corporation with regard to the Restricted Stock Grant and may not be modified except in writing, signed by both parties hereto. This Agreement is binding on the parties hereto and their respective successors and assigns. It is governed and construed in accordance with the laws of Minnesota.
IN WITNESS WHEREOF, the Participant and the Corporation have executed this Agreement as of the date above.
NORWEST CORPORATION
By:
Its:_________________________
Participant Dated
EXHIBIT 10(b)
NORWEST CORPORATION
EMPLOYEES' STOCK DEFERRAL PLAN
(As restated to reflect the two-for-one stock split in the form of a 100% stock dividend distributed on October 10, 1997)
amount of the credit shall be the number of shares (rounded to the nearest one- hundredth of a share) determined by dividing the amount of the participant's Incentive Award specified for deferral by the average of the high and low prices per share of Common Stock reported on the consolidated tape of the New York Stock Exchange on the Credit Date or, if the New York Stock Exchange is closed on the Credit Date, the next preceding date on which it was open.
such other year as elected by the participant pursuant to Section 3. Amounts paid in cash, including cash in lieu of fractional shares, shall be determined based on the average of the high and low prices per share of Common Stock reported on the consolidated tape of the New York Stock Exchange on the January 31 immediately preceding the date of payment or, if the New York Stock Exchange is closed on that date, the next preceding date on which it was open. If a participant dies before receiving all payments to which he or she is entitled under the Plan, payment shall be made on February 28 (or the next succeeding business day if February 28 is not a business day) of the calendar year following the date of death to such participant's estate or, if the participant has designated a beneficiary in writing and the written designation has been delivered to and accepted by the Plan Administrator prior to the participant's death, to such beneficiary. Notwithstanding the foregoing, in the event of a Change of Control (as defined in Section 18), credits to a participant's Deferred Stock Account as of the day immediately prior to the effective date of the transaction constituting the Change of Control shall be paid in full to the participant or the participant's estate or beneficiary, as the case may be, in whole shares of Common Stock (together with cash in lieu of a fractional share) on such date.
yield for three-month United States Treasury Bills as reported for the preceding month in Federal Reserve statistical release H.15(519). The interest rate shall be adjusted monthly, and interest shall be credited to the participant's Deferred Stock Account as of the last day of each month. If a participant dies before receiving all payments to which he or she is entitled under the Plan, payment in full shall be made on February 28 (or the next succeeding business day if February 28 is not a business day) of the calendar year following the date of death to such participant's estate or, if the participant has designated a beneficiary in writing and the written designation has been delivered to and accepted by the Plan Administrator prior to the participant's death, to such beneficiary. Notwithstanding the foregoing, in the event of a Change of Control (as defined in Section 18) before the first installment payment date, credits to a participant's Deferred Stock Account as of the day immediately prior to the effective date of the transaction constituting the Change of Control shall be paid in full to the participant or the participant's estate or beneficiary, as the case may be, in whole shares of Common Stock (together with cash in lieu of a fractional share) on such date. In the event of a Change of Control after the first installment payment date, the remaining cash balance in such participant's Deferred Stock Account shall be paid in full to the participant or the participant's estate or beneficiary, as the case may be, in cash on the day immediately prior to the effective date of the transaction constituting the Change of Control.
on the day prior to the date such action was taken, unless agreed to by the participant.
(a) the acquisition by any individual, entity, or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of
the combined voting power of the then outstanding voting securities of the
Corporation entitled to vote generally in the election of directors (the
"Outstanding Corporation Voting Securities"); provided, however, that for
purposes of this subsection (a), the following acquisitions shall not constitute
a Change of Control: (i) any acquisition directly from the Corporation, (ii)
any acquisition by the Corporation, (iii) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Corporation or
any corporation controlled by the Corporation, or (iv) any acquisition by any
corporation pursuant to a transaction which complies with clauses (i), (ii), and
(iii) of subsection (c) below; or
(b) individuals who constitute the Board of Directors of the Corporation as of April 27, 1992, (the "Incumbent Board") cease for any reason to constitute at least two-thirds thereof; provided that any person becoming a director subsequent to such date whose election, or nomination for election, by the stockholders of the Corporation was approved by a vote of at least three- fourths of the directors comprising the Incumbent Board shall, for the purposes of this clause, be considered as though such person were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Incumbent Board; or
(c) approval by the stockholders of the Corporation of a reorganization, merger, or consolidation, or sale or other disposition of all or substantially all of the assets of the Corporation (a "Business Combination"), in each case, unless following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Corporation Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding
shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Corporation or all or substantially all of the Corporation's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Corporation Voting Securities, (ii) no Person (excluding any employee benefit plan (or related trust) of the Corporation or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 25% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the board action, providing for such Business Combination.
Plan by the holders of Common Stock.
EXHIBIT 10(c).
NORWEST CORPORATION
EMPLOYEES' DEFERRED COMPENSATION PLAN
(As restated to reflect the two-for-one stock split in the form of a 100% stock dividend distributed on October 10, 1997)
1. RESTATEMENT OF PLAN. On July 27, 1993, the Board of Directors of Norwest Corporation, a Delaware corporation (the "Corporation"), authorized the creation of a nonqualified, unfunded, elective deferral plan known as the "Norwest Corporation Employees' Deferred Compensation Plan" (the "Old Plan") for the purpose of allowing a select group of management and highly compensated employees of the Corporation and its subsidiaries to defer the receipt of compensation which would otherwise be paid to those employees. The Corporation reserved the power to amend and terminate the Old Plan by action of the Human Resources Committee of the Corporation's Board of Directors. The Human Resources Committee desires to exercise that reserved power of amendment by the adoption of this amended and restated Norwest Corporation Employees' Deferred Compensation Plan (hereinafter referred to as the "Plan").
2. ELIGIBILITY. Each full-time employee of the Corporation or any of its
subsidiaries who has target total compensation of $80,000 or more
("Compensation") and any other employee who is highly compensated and has been
selected for participation in this Plan by the Plan Administrator (as defined in
Section 11) or such officers of the Corporation to which the Plan Administrator
has delegated its authority shall be eligible to participate in the Plan (each,
an "Eligible Employee").
3. DEFERRAL OF COMPENSATION. An Eligible Employee may elect to defer all
or a portion of the Eligible Employee's "Regular Compensation" (salaries,
bonuses, and commissions) that the Eligible Employee may earn from the
Corporation or its subsidiaries during the calendar year (the "Deferral Year")
following the year in which the Deferral Election (as defined in Section
4(A)(1)) is made. However, any other payroll deductions elected by the Eligible
Employee (such as payments for welfare or retirement benefits or insurance),
including FICA taxes, shall be made before any deferrals are made under this
Plan. Such Deferral Election shall be made pursuant to Section 4(A)(2). An
Eligible Employee may also defer certain gains derived from specified stock
option grants ("Stock Option Compensation") under the Corporation's Long-Term
Incentive Compensation Plan and any other stock option plan approved by the Plan
Administrator. The terms of a Stock Option Compensation deferral will be
subject to an independent deferral election made pursuant to Section 4(B)(2).
4. ELECTION TO PARTICIPATE AND DEFER COMPENSATION.
A) DEFERRAL OF REGULAR COMPENSATION.
1) PARTICIPATION. Except as provided in Section 4(A)(3) as to new
Eligible Employees, an Eligible Employee becomes a participant
in the Plan by filing, during an enrollment period specified by
the Plan Administrator but no later than December 15 of the year
preceding the Deferral Year, an irrevocable election (the
"Deferral Election") with the Plan Administrator. An Eligible
Employee who has made a Deferral Election under this Section for
any Deferral Year and has a Deferral Account (as defined in
Section 5) is deemed a "Participant." The Deferral Election
shall be effective only for the Deferral Year specified. A new
Deferral Election must be filed for each Deferral Year. Amounts
deferred under a Regular Compensation Deferral Election shall be
credited to a "Regular Deferral Account" established under the
Plan for the Eligible Employee.
2) DEFERRAL ELECTION. The Deferral Election shall consist of the Eligible Employee's election to defer Regular Compensation, election of earnings option(s) as described in Section 5(A), and election of the timing and form of distribution of amounts deferred as described in Section 7. An Eligible Employee may elect to defer, in any combination, all or part of the Eligible Employee's a) base salary earned and paid on a periodic basis throughout the Deferral Year, b) incentive pay earned throughout the Deferral Year and paid after the end of the Deferral Year, and c) commissions and other periodic incentive payments paid during the Deferral Year. The Eligible Employee shall specify for each Regular Compensation category an amount to be deferred per pay period, expressed either as a percentage or a dollar amount.
3) INITIAL DEFERRAL ELECTION OR INITIAL ELIGIBILITY. A new Eligible Employee must make a Deferral Election within thirty days of the date the Eligible Employee becomes eligible to participate in the Plan in order to defer Regular Compensation earned in the current Deferral Year.
4) EARLY WITHDRAWAL. A Participant who wishes to receive payment of all or part of the Participant's deferred Regular Compensation on a date earlier than that specified in the Deferral Election may do so by filing with the Plan Administrator a request for early withdrawal. Such payment will be made from the earliest Deferral Year(s) in which the Participant has participated in the Plan. Regular Deferral Accounts will be distributed in the order in which the accounts were established. Stock Option Deferral Accounts will be distributed in the order in which the accounts were established following the distribution of all funds from Regular Deferral Accounts. For the appropriate Deferral Year(s), account accruals to date shall be disbursed completely, less a 10% early withdrawal penalty on the amount distributed. The 10% penalty assessed for early withdrawal will be permanently forfeited by the Participant and will be credited to the account of the Corporation. Further, the Participant shall forfeit eligibility to defer Regular Compensation or Stock Option Compensation during the two Deferral Years following the year in which the early withdrawal is made, but in no case shall an early withdrawal cause a current Deferral Election (either of Regular Compensation or Stock Option Compensation) to be suspended or canceled. In no case may a Participant make more than one early withdrawal per calendar year.
B) DEFERRAL OF STOCK OPTION GAINS
1) PARTICIPATION. An Eligible Employee may file, during an enrollment period specified by the Plan Administrator, an irrevocable election (a "Stock Option Deferral Election") with the Plan Administrator. Except as provided in Section 4(B)(3), Stock Option Deferral Elections become effective on the second January 1 following the date of the election. An Eligible Employee who has made a Stock Option Deferral Election under this Section is deemed a "Participant." Each Stock Option Deferral Election pertains only to the specific option grant(s) covered. Amounts deferred under a Stock Option Deferral Election shall be credited to a "Stock Option Deferral Account" established under the Plan for the Eligible Employee.
2) DEFERRAL ELECTION. A Stock Option Deferral Election shall consist of the Eligible Employee's election to defer all of the eligible Stock Option Compensation derived from a specific stock option grant. Eligible Stock Option Compensation consists of only stock option gains realized using the stock-for-stock swap method of exercise. Stock option gains derived from either a cash exercise or a same day sale will not be eligible Stock Option Compensation. Therefore, if an Eligible Employee elects to defer the stock option gain derived from a specific stock option grant, the Eligible Employee must agree to use the stock- for-stock method (as set forth in the option agreement) to exercise the specific option grant. Stock option gains from stock-for-stock swaps will be allocated solely to the Norwest Corporation common stock earnings option. The Stock Option Deferral Election must also specify the timing and form of distribution of the amount deferred as described in Section 7.
3) DEFERRAL ELECTIONS FOR 1998. Stock Option Deferral Elections made by August 31, 1997 shall become effective January 1, 1998.
4) EARLY WITHDRAWAL. A Participant who wishes to receive payment of all or part of the Participant's deferred Stock Option Compensation on a date earlier than that specified in the Stock Option Deferral Election may do so by filing with the Plan Administrator a request for early withdrawal. Stock Option Deferral Accounts will be distributed in the order in which the accounts were established after all funds from Regular Deferral Accounts are distributed. A 10% early withdrawal penalty will be assessed on the amount distributed. The 10% penalty assessed for early withdrawal will be permanently forfeited by the Participant and will be credited to the account of the Corporation. Further, the Participant shall forfeit eligibility to defer Regular Compensation or Stock Option Compensation during the two Deferral Years following the year in which the early withdrawal is made, but in no case shall an early withdrawal cause a current Deferral Election (either of Regular Compensation or Stock Option Compensation) to be suspended or canceled. In no case may a Participant make more than one early withdrawal per calendar year.
5) EFFECT ON STOCK OPTIONS. Stock Option Compensation which the Participant has elected to defer may not be received between the filing of the Stock Option Deferral Election and its effective date. Termination of employment during this period other than by reason of death, disability or retirement will void the Stock Option Deferral Election.
5. DEFERRAL ACCOUNT.
A) EARNINGS OPTIONS. The earnings options available for selection on the Deferral Election are as follows:
1) Norwest Corporation common stock option ("Common Stock Option"). This is the only earnings option available for Stock Option Deferral Accounts.
2) Norwest Bank Minnesota, N.A. one-year certificate of deposit option ("CD Option").
3) A selection of registered investment companies chosen by the Employee Benefit Review Committee of the Corporation ("Fund Option").
A Participant must choose to allocate amounts credited to the Participant's Regular Deferral Account among the earnings options in increments of five (5) percent. Except as provided in Section 4(A)(3) as to new Eligible Employees, the initial election of earnings options must be made by the Participant in advance of each Deferral Year. A Participant's Stock Option Deferral Account must be allocated to the Common Stock Option. Except with respect to a Participant's Stock Option Deferral Account, after the initial election of earnings options, Participants shall be entitled to change their earnings options each January 1 by filing an irrevocable written earnings option election form with the Plan Administrator at least thirty (30) days prior to the January 1 effective date.
B) PERIODIC CREDITS. On each pay day on which the deferred Regular Compensation would otherwise be paid to a Participant, the Participant shall receive a credit to the Participant's Regular Deferral Account. When a stock option covered by a Stock Option Deferral Election is exercised using a stock-for-stock swap, the Participant's Stock Option Deferral Account will be credited on the last day of the month in which the stock option is exercised. The amount of each credit shall be equal to the amount deferred from the Participant's Regular Compensation and/or Stock Option Compensation. In the case of Regular Compensation, each credit shall be accounted for based on the earnings options selected by the Participant on the Regular Compensation Deferral Election.
In the case of Stock Option Compensation, the credit shall be a number of shares of Norwest common stock ("Common Stock") determined in accordance with Section 6(B) below.
C) ADJUSTMENTS. Subject to Section 5(C)(4), that portion of a Participant's Regular Deferral Account which is accounted for under each earnings option shall be further adjusted by an amount determined in accordance with the respective earnings option as follows:
1) CD OPTION. Adjustments under the CD Option shall be made monthly as of the last day of each month. The amount of the adjustment for the CD Option shall be calculated by multiplying the Participant's average balance in the CD Option for the month by an earnings factor based on the interest rate for a Norwest Bank Minnesota, N.A. one-year certificate of deposit as determined from time to time by the Plan Administrator.
2) FUND OPTION. Adjustments under any Fund Option shall be made monthly as of the last day of each month. The amount of the adjustment for a Fund Option shall be calculated by multiplying the Participant's average balance in the Fund Option for the month by an adjustment factor based on the reported positive or negative performance for the month of the registered investment company assets relating to the Fund Option selected.
3) COMMON STOCK OPTION. Adjustments under the Common Stock Option shall be made each time a dividend is paid on Common Stock in accordance with paragraph 6(C) below.
4) NO ADJUSTMENTS AFTER VALUATION. No adjustment shall be made to a Participant's Regular Deferral Account with respect to a lump sum payment or an installment payment after the valuation date used to determine the amount of such payment pursuant to Section 7(A)(6).
6. COMMON STOCK OPTION.
A) ACCOUNTING. All periodic credits and all adjustments to a Participant's Stock Option Deferral Account or Regular Deferral Account (the "Deferral Accounts") under the Common Stock Option shall be credited in shares of Common Stock. Shares of Common Stock shall be rounded to the nearest ten-thousandth of a share.
B) DETERMINATION OF NUMBER OF SHARES. The number of shares of Common Stock credited to a Participant's Deferral Accounts under the Common Stock Option shall be determined by dividing the amount of each periodic credit by the average of the high and low prices per share of Common Stock reported on the consolidated tape of the New York Stock Exchange on the last day of each month (or, if the New York Stock Exchange is closed on that date, on the next preceding date on which it is open).
C) ADJUSTMENTS BASED ON DIVIDENDS. Subject to Section 5(C)(4), adjustments under the Common Stock Option shall be made each time a dividend is paid on Common Stock. The number of shares credited to a Participant's Deferral Accounts for such adjustments shall be determined by multiplying the dividend amount per share by the number of shares credited to the Participant's Deferral Accounts as of the record date for the dividend and dividing the product by the average of the high and low prices per share of Common Stock reported on the consolidated tape of the New York Stock Exchange on the dividend payment date (or, if the New York Stock Exchange is closed on that date, on the next preceding date on which it is open).
D) NUMBER OF SHARES ISSUABLE UNDER THE PLAN. Subject to adjustment as provided in Section 6(E), the maximum number of shares of Common Stock that may be credited under the Plan is 1,000,000.
E) ADJUSTMENTS FOR CERTAIN CHANGES IN CAPITALIZATION. If the Corporation shall at any time increase or decrease the number of its outstanding shares of Common Stock or change in any way the rights and privileges of such shares by means of the payment of a stock dividend or any other distribution upon such shares payable in Common Stock, or through a stock split, subdivision, consolidation, combination, reclassification, or recapitalization involving the Common Stock, then the numbers, rights, and privileges of the shares issuable under the Plan shall be increased, decreased, or changed in like manner as if such shares had been issued and outstanding, fully paid, and nonassessable at the time of such occurrence.
7. DISTRIBUTIONS.
A) REGULAR DEFERRAL ACCOUNTS. Payment of Regular Deferral Accounts shall be made pursuant to the Participant's Deferral Election, subject to the following:
1) UPON RETIREMENT OR DATE-CERTAIN DISTRIBUTION. A Participant may designate on the Deferral Election that distribution of the Regular Deferral Account shall be made either in a lump sum or in annual installments over a period of years not to exceed ten if the Participant elects distribution to commence upon retirement or a date certain. For this purpose, retirement means the Participant is entitled to regular retirement or early retirement as defined in Section 6.1 or 6.2 of the Norwest Corporation Pension Plan.
2) UPON DISABILITY. A Participant may designate on the Deferral Election that distribution of the Regular Deferral Account shall be made either in a lump sum or in annual installments over a period of years not to exceed ten if the Participant becomes disabled as described in the Norwest Corporation Long-Term Disability Plan. The Participant may also specify on the Deferral Election that such disability shall not cause a distribution before the originally elected distribution commencement date.
3) UPON DEATH. If a Participant dies before receiving all payments under the Plan, payment of the balance in the Regular Deferral Account shall be made to the Participant's designated beneficiary in the form and manner designated in the Deferral Election or in a lump sum at the request of the designated beneficiary, but not sooner than 90 days following the date of the Participant's death. To be valid, a beneficiary designation must be in writing and the written designation must have been delivered to and accepted by the Plan Administrator prior to the Participant's death.
If at the time of the Participant's death there is not on file a fully effective beneficiary designation form, or if the designated beneficiary did not survive the Participant, the person or persons surviving at the time of the Participant's death in the first of the following classes of beneficiaries in which there is a survivor, shall be entitled to receive the balance of the Participant's Regular Deferral Account. If a person in the class surviving dies before receiving the balance (or the person's share of the balance in case of more than one person in the class) of the Participant's Regular Deferral Account, that person's right to receive the Participant's Regular Deferral Account will lapse and the determination of who will be entitled to receive the Participant's Regular Deferral Account will be determined as if that person predeceased the Participant.
(a) Participant's surviving spouse
(b) Equally to the Participant's children, except that if any of the Participant's children predecease the Participant but leave descendants surviving, such descendants shall take by right of representation the share their parent would have taken if living
(c) Participant's surviving parents equally
(d) Participant's surviving brothers and sisters equally
(e) Representative of the Participant's estate.
4) UPON OTHER TERMINATION OF EMPLOYMENT. If a Participant terminates employment with the Corporation prior to the Participant's regular or early retirement as defined in Section 6.1 or 6.2 of the Norwest Corporation Pension Plan, or disability as described in the Norwest Corporation Long-Term Disability Plan, or death, the Regular Deferral Account will be paid in a lump sum or in annual installments over a period of years not to exceed ten years to the Participant in accordance with the elections made on the termination of employment section of the Deferral Election.
5) FORM OF DISTRIBUTIONS. All distributions from Regular Deferral Accounts shall be payable as follows:
a) In cash for all Regular Deferral Accounts for which the Participant elected an earnings option other than the Common Stock Option; or
b) If the Participant elected the Common Stock Option, in cash or in whole shares of Common Stock (together with cash in lieu of a fractional share), or in a combination thereof, as the Participant shall elect prior to payment. If no election is made, distribution shall be made in cash.
6) VALUATION OF DEFERRAL ACCOUNTS FOR DISTRIBUTION.
a) The amount of the distribution in cash and/or Common Stock on any February 28 (or the next preceding business day if February 28 is not a business day) shall be determined based on the Participant's Regular Deferral Account balance (and, if applicable, the price of Common Stock) as of the preceding December 31 (or the next preceding business day if December 31 is not a business day). The amount of the distribution in cash and/or Common Stock as of any other date on which a distribution is made shall be determined based on the Participant's Regular Deferral Account balance (and, if applicable, the price of Common Stock) as of the end of the month in which the event which triggers distribution occurs. Earnings adjustments to amounts that have been valued for distribution shall cease as of the date used to value such amounts.
b) The amount of each installment payment shall be a fraction of the value of the Participant's Regular Deferral Account as of the December 31 preceding the date of the installment payment (or the next preceding business day if December 31 is not a business day), the numerator of which is one and the denominator of which is the total number of installments elected (not to exceed ten) minus the number of installments previously paid. The balance remaining in the Regular Deferral Account shall continue to be adjusted based on the earnings options selected by the Participant in the Deferral Election until the valuation date used to determine the amount of the last payment. All installment payments will be made by pro rata withdrawals from each earnings option elected by the Participant.
B) STOCK OPTION DEFERRAL ACCOUNTS. Payment of Stock Option Deferral Accounts shall be made pursuant to the Participant's Stock Option Deferral Election, subject to the following:
1) DATE-CERTAIN DISTRIBUTION. A Participant may designate on the Stock Option Deferral Election that distribution of the Stock Option Deferral Account shall be made either in a lump sum or in annual installments over a period of years not to exceed ten.
The
Participant may not elect to receive the distribution earlier than 12 months after the date on which the option is exercised.
2) UPON RETIREMENT. A Participant may designate on the Stock Option Deferral Election that distribution of the Stock Option Deferral Account shall be made either in a lump sum or in annual installments over a period of years not to exceed ten if the Participant elects distribution to be made after the Participant's regular retirement date or early retirement date as defined in Sec. 6.1 or 6.2 of the Norwest Corporation Pension Plan. The Participant may also specify that retirement shall not cause a distribution before the originally elected date-certain date.
3) UPON DISABILITY. A Participant may designate on the Stock Option Deferral Election that distribution of the Stock Option Deferral Account shall be made in either a lump sum or annual installments over a period of years not to exceed ten if the Participant becomes disabled as described in the Norwest Corporation Long-Term Disability Plan. The Participant may also specify that such a disability shall not cause a distribution before the originally elected date-certain date.
4) UPON DEATH. If a Participant dies before receiving all payments under the Plan, payment of the balance in the Stock Option Deferral Account shall be made to the Participant's designated beneficiary in the form and manner designated in the Stock Option Deferral Election or in a lump sum at the request of the designated beneficiary, but not sooner than 90 days following the date of the Participant's death. To be valid, a beneficiary designation must be in writing and the written designation must have been delivered to and accepted by the Plan Administrator prior to the Participant's death.
If at the time of the Participant's death there is not on file a fully effective beneficiary designation form, or if the designated beneficiary did not survive the Participant, the person or persons surviving at the time of the Participant's death in the first of the following classes of beneficiaries in which there is a survivor, shall be entitled to receive the balance of the Participant's Stock Option Deferral Account. If a person in the class surviving dies before receiving the balance (or the person's share of the balance in case of more than one person in the class) of the Participant's Stock Option Deferral Account, that person's right to receive the Participant's Stock Option Deferral Account will lapse and the determination of who will be entitled to receive the Participant's Stock Option Deferral Account will be determined as if that person predeceased the Participant.
(a) Participant's surviving spouse
(b) Equally to the Participant's children, except that if any of the Participant's children predecease the Participant but leave descendants surviving, such descendants shall take by right of representation the share their parent would have taken if living
(c) Participant's surviving parents equally
(d) Participant's surviving brothers and sisters equally
(e) Representative of the Participant's estate.
5) UPON OTHER TERMINATION OF EMPLOYMENT. If a Participant terminates employment with the Corporation prior to the Participant's regular or early retirement as defined in Section 6.1 or 6.2 of the Norwest Corporation Pension Plan, or disability as described in the Norwest Corporation Long-Term Disability Plan, or death, the Stock Option Deferral Account will be paid in a lump sum or in annual installments over a period of years not to exceed ten years to
the Participant in accordance with the elections made in the termination section of the Stock Option Deferral Election. Should the option be unexercised, the Stock Option Deferral Election is canceled.
6) FORM OF DISTRIBUTIONS. All distributions from the Stock Option Deferral Accounts shall be payable in whole shares of Common Stock (together with cash in lieu of a fractional share).
7) VALUATION OF STOCK OPTION DEFERRAL ACCOUNTS FOR DISTRIBUTION.
a) The amount of the distribution on any February 28 (or the next preceding business day if February 28 is not a business day) shall be determined based on the Participant's Stock Option Deferral Account balance and on the price of Common Stock determined pursuant to Section 6 as of the preceding December 31 (or the next preceding business day if December 31 is not a business day). The amount of the distribution as of any other date on which a distribution is made shall be determined based on the Participant's Stock Option Deferral Account balance and on the price of Common Stock determined pursuant to Section 6 as of the end of the month in which the event which triggers distribution occurs. Earnings adjustments to amounts that have been valued for distribution shall cease as of the date used to value such amounts.
b) The amount of each installment payment shall be a fraction of the balance of the Participant's Stock Option Deferral Account as of the December 31 preceding the date of the installment payment, the numerator of which is one and the denominator of which is the total number of installments elected (not to exceed ten) minus the number of installments previously paid. The balance remaining in the Stock Option Deferral Account shall continue to be adjusted until the valuation date used to determine the last payment.
8. NONASSIGNABILITY. No Participant or beneficiary shall have any interest in any Deferral Accounts which can be transferred, nor shall any Participant or beneficiary have any power to anticipate, alienate, dispose of, pledge or encumber the same while in the possession or control of the Corporation, nor shall the Corporation recognize any assignment thereof, either in whole or in part, nor shall any Deferral Account be subject to attachment, garnishment, execution following judgment or other legal process while in the possession or control of the Corporation. The designation of a beneficiary by a Participant does not constitute a transfer.
9. WITHHOLDING OF TAXES. Distributions under this Plan shall be subject to the deduction of the amount of any federal, state, or local income taxes, Social Security tax, Medicare tax, or other taxes required to be withheld from such payments by applicable laws and regulations.
10. UNSECURED OBLIGATION. The obligation of the Corporation to make payments under this Plan constitutes only the unsecured (but legally enforceable) promise of the Corporation to make such payments. The Participant shall have no lien, prior claim or other security interest in any property of the Corporation. The Corporation is not required to establish or maintain any fund, trust or account (other than a bookkeeping account or reserve) for the purpose of funding or paying the benefits promised under this Plan. If such a fund is established, the property therein shall remain the sole and exclusive property of the Corporation. The Corporation will pay the cost of this Plan out of its general assets. All references to accounts, accruals, gains, losses, income, expenses, payments, custodial funds and the like are included merely for the purpose of measuring the Corporation's obligation to Participants in this Plan and shall not be construed to impose on the Corporation the obligation to create any separate fund for purposes of this Plan.
11. ADMINISTRATION. For purposes of Section 3(16)(A) of the Employee Retirement Income Security Act of 1974 ("ERISA"), the Plan Administrator shall be the Human Resources Committee of the Corporation's Board of Directors. The Plan Administrator or its delegatee shall have the authority to interpret the Plan, to adopt procedures for implementing the Plan, and to determine adjustments under the Plan.
12. AMENDMENT AND TERMINATION. The Board of Directors or the Human Resources Committee of the Corporation's Board of Directors may at any time terminate, suspend, or amend this Plan; provided, however, that if necessary to maintain the availability of the exemption contained in Rule 16b-3, or any successor regulation, under the Securities Exchange Act of 1934, as amended, for transactions pursuant to this Plan, the provisions of this Plan relating to the amount, price and timing of awards pursuant to this Plan may not be amended more than once in every six months other than to comport with changes in the Internal Revenue Code or ERISA, or the rules thereunder. No such action shall deprive any Participant of any benefits to which the Participant would have been entitled under the Plan if termination of the Participant's employment had occurred on the day prior to the date such action was taken, unless agreed to by the Participant.
13. EFFECTIVE DATE. This restated Plan is generally effective August 1, 1997, except that the provisions of Section 5(A) allowing changes to earnings options elections for Regular Deferral Accounts will be effective January 1, 1998, unless the Chairperson of the Human Resources Committee of the Corporation's Board of Directors takes action in writing to delay the effectiveness of such provisions. Once effective, the provisions of Section
5(A) will apply to all earnings options elections, regardless of when made.
Exhibit 10(h).
NORWEST CORPORATION
SUPPLEMENTAL SAVINGS INVESTMENT PLAN
(As restated to reflect the two-for-one stock split in the form of a 100% stock dividend distributed on October 10, 1997)
a) Employees who, prior to becoming eligible for participation in the SIP, are designated as participants in this Plan.
b) Employees who enter into a written agreement with their respective Participating Employer under which payment of compensation earned by the participant will be deferred to a stated year subsequent to the year in which it would otherwise have been recognized as Certified Earnings. The compensation of a participant that is so deferred is referred to in this Plan as "Deferred Compensation".
c) Employees who are subject to one or more of the following limits:
(1) Employees whose Pay Conversion Contributions for any Plan Year
commencing on or after January 1, 1987 are limited by Code
Section 402(g).
(2) Employees whose Pay Conversion Contributions and/or Employer Matching Contributions for any Plan Year commencing on or after January 1, 1988 are limited by the dollar limitation in Code Section 415(c)(1)(A).
(3) Employees whose Pay Conversion Contributions and/or Employer Matching Contributions for any Plan Year commencing on or after January 1, 1989 are limited by Code Section 401(a)(17); or
(4) Employees whose Pay Conversion Contributions and/or Employer Matching Contributions for any Plan Year commencing on or after January 1, 1992 are otherwise limited by law.
(d) Notwithstanding subsection (c), an employee described in subsection (c) is not an eligible participant in this Plan for a Plan Year unless the employee would have reached one or more of the limits under subsection (c)(1), (2), (3), and/or (4) for that Plan Year based on his or her Certified Earnings, except that for officers of the Company who are subject to Section 16 of the Securities Exchange Act of 1934, Certified Earnings under this Plan shall include only incentive compensation awarded under the Executive Incentive Compensation Plan and under such other incentive compensation plans as may be designated by the Personnel and Compensation Committee of the Company's Board of Directors.
(e) For purposes of this section, and for purposes of credits to Plan Accounts under Sections 6, 7 and 8, Certified Earnings shall be determined by assuming that the provisions of Sec. 2.6(a) of the SIP as in effect on December 31, 1996 continue to apply in Plan Years commencing on or after January 1, 1997.
(a) It will be assumed that a participant in this Plan made Pay Conversion Contributions during the period referred to above equal to the maximum amount permitted by the SIP for which an Employer Matching Contribution would have been made.
(b) Each such participant's Plan Account shall receive the credits as of the end of the Plan Year in which an Employer Matching Contribution would otherwise have been reflected in the participant's SIP Account if the participant in this Plan had been an Active Participant in SIP.
(a) It will be assumed that the participant made Pay Conversion Contributions with respect to his or her Deferred Compensation at the rate selected by the
participant with regard to Certified Earnings for the quarter in which the Deferred Compensation would otherwise have been paid or, for the period between the participant's Employment Commencement Date and the Entry Date on which he or she first became eligible to participate in the SIP, at the maximum rate permitted under the SIP.
(b) Each such participant's Plan Account shall receive credits under this section as of the end of the Plan Year in which an Employer Matching Contribution would otherwise have been reflected in the participant's SIP Account.
(a) It will be assumed that the participant continued to make Pay Conversion Contributions during the remainder of the Plan Year equal to the rate of contribution selected by the participant for the quarter in which the participant first reached one of the limits specified in Section 4(c) or, for the period between the participant's Employment Commencement Date and the Entry Date on which he or she first became eligible to participate in the SIP, at the maximum rate permitted under the SIP. It will be further assumed that the Certified Earnings for the Plan Year of a participant described in Section 4(b) included his or her Deferred Compensation for the Plan Year.
(b) The maximum credit to the participant's Plan Account for any Plan Year under this Section 8 shall be equal to the Employer Matching Contribution for the entire Plan Year based on the rate of contribution selected by the participant (not to exceed the maximum percentage of Certified Earnings eligible for an Employer Matching Contribution under the SIP) for the quarter in which the participant first reached one of the limits specified in Section 4(c) and computed as if such limits did not apply, minus (i) the total Employer Matching Contribution made to the SIP on behalf of that participant for that year, and (ii) any
credits the participant received for that Plan Year under Section 6 and Section 7.
(c) Credits under this section shall be reflected in the participant's Plan Account as of the end of the Plan Year in which an Employer Matching Contribution would have been reflected in the participant's SIP Account if the limits specified in Section 4(c) did not apply for that Plan Year.
(a) Prior to September 30, 1991, the Investment Accounts available to participants under the Plan for each calendar quarter were the same as the Investment Funds (other than the Norwest ESOP Fund) which were available as investment options under the SIP for that quarter.
(b) Except as provided in subsection (c), each Investment Account will reflect the investment performance of the corresponding SIP Investment Fund on a pro rata basis. If one or more SIP Investment Funds are merged, divided, discontinued or otherwise adjusted, corresponding adjustments shall be made in the credits held in Investment Accounts under this Plan.
(c) On and after September 30, 1991, all credits to the participant's Plan Account shall be made to the "Norwest Stock Investment Account." Such credits shall be stated in the form of shares of Company common stock, the number of which shall be determined by dividing the amount of the credits made pursuant to
Sections 6, 7, or 8 of this Plan by the average of the high and low prices per share of Company common stock on the consolidated tape of the New York Stock Exchange on the date on which an Employer Matching Contribution would otherwise have been reflected in the participant's SIP account, or if the New York Stock Exchange is closed on that date, on the next preceding day on which it was open. Adjustments to the number of shares of Company common stock credited to the participant's Norwest Stock Investment Account in his or her Plan Account shall be made to reflect dividends paid on Company common stock pursuant to subsection (e) below. If the Company chooses to fund the credits to the Norwest Stock Investment Account, the Company shall make contributions in cash or in Company common stock to the trust described in Section 21. Any cash contributions shall be used by the trustee named in Section 21 to purchase shares of Company common stock within 10 business days after such deposit. Purchase of such shares may be made by the trustee in brokerage transactions or by private purchase, including purchase from the Company. All shares held by the trust shall be held in the name of the trustee.
(d) All Plan Account credits shall consist solely of bookkeeping entries.
(e) Each time a dividend is paid on the Company common stock, the participant shall receive a credit to the Norwest Stock Investment Account in his or her Plan Account. The amount of the dividend credit shall be the number of shares of Company common stock determined by multiplying the dividend amount per share by the number of shares credited to a participant's Norwest Stock Investment Account as of the record date for the dividend and dividing the product by the average of the high and low prices per share of the Company's common stock reported on the consolidated tape of the New York Stock Exchange on the dividend payment date or, if the New York Stock Exchange is closed on such date, the next preceding date on which it was open.
do so. The issuance of such statements shall not in any way affect the rights of participants hereunder.
Sections 16 or 17, multiplied by the vested percentage under the SIP that would be applicable to the participant. Any portion of the participant's Plan Account that is not vested shall be forfeited.
Transaction, any future credits to Plan Accounts or payment of vested benefits payable in the form of shares of common stock shall be made in the form of shares of such Publicly-Traded Stock.
If the consideration received by the holders of common stock of the Company in a Transaction consists of any consideration other than Publicly-Traded Stock, each share of Company common stock credited to a participant's Plan Account shall be restated as credits for cash in an amount equal to the number of shares of Company common stock credited to a participant's Plan Account immediately prior to the effective date of the Transaction multiplied by the average of the high and low prices of a share of Company common stock on the New York Stock Exchange for each of the five trading days preceding the effective date of the Transaction. Such cash shall automatically be deemed to be invested in one or more investment accounts that conform to the investment fund options then provided by the SIP, upon such terms and conditions as may be established by the Personnel and Compensation Committee of the Board of Directors.
Directors after approval of the Plan by the common stockholders of the Company.
Exhibit 10(i).
NORWEST CORPORATION
SUPPLEMENTAL PENSION PLAN
(As restated to reflect November 23, 1993 amendment)
(a) Those management employees of the Company or any of the other Participating Employers who enter into a written agreement with their respective employers approved by the chief executive officer of Norwest Corporation or his designate under which payment of compensation earned by the Participant shall be deferred to a stated year subsequent to the year in which it would otherwise have been paid, provided such compensation would otherwise have been recognized as "Monthly Earnings" as defined in the Pension Plan. The compensation of a Participant that is so deferred is referred to in this Plan as the Participant's "Deferred Compensation".
(b) Those management employees of the Company or any of the other Participating Employers whose benefits under the Pension Plan are reduced as a result of the limits imposed by Sections 401(a)(17) and 415 of the Internal Revenue Code and Treasury Regulation Section 1.401-4(c). However, an employee will not be eligible under the previous sentence unless the employee would have reached one or more of those limits based on his or her Monthly Earnings excluding all payments under incentive compensation plans which have not been specifically designated by the Company's chief executive officer or president as being included in Monthly Earnings for purposes of determining eligibility under this Plan.
(a) The monthly amount that would have been payable under the Pension Plan
if (i) the Deferred Compensation of a Participant described in Section
3(a) had been recognized as Monthly Earnings under the Pension Plan in
the year earned, and (ii) the limits imposed by Sections 401(a)(17)
and 415 of the Internal Revenue Code and Treasury Regulation Section
1.401-4(c) did not apply in the case of a Participant described in
Section 3(b).
(b) The monthly amount actually payable under the Pension Plan.
In the event that any benefit payable to a Participant under this Plan during the calendar year that the Participant retires or separates from service ("Separation Year") would cause any part of the compensation paid to the Participant during the Separation Year to be considered non-deductible compensation paid by the Company, then the amount of the benefit payable pursuant to this Plan for the Separation Year equal to the amount of the compensation that would have been non-deductible in the Separation Year shall be paid in the calendar year following the Separation Year.
joint annuitant, a court, or any other person or entity shall result in forfeiture of the benefits otherwise payable under this Plan with respect to said Participant.
Adopted 11/16/89
Amended 11/23/93
Exhibit 10(m).
NORWEST CORPORATION
DIRECTORS' STOCK DEFERRAL PLAN
(As restated to reflect the two-for-one stock split in the form of a 100% stock dividend distributed on October 10, 1997)
1. ELIGIBILITY. Each member of the Board of Directors of Norwest Corporation (the "Corporation") who is not an employee or officer of the Corporation or of any subsidiary of the Corporation shall be eligible to participate in the Directors' Stock Deferral Plan (the "Plan").
2. DEFERRAL OF COMPENSATION. Subject to the availability of shares of Common Stock under this Plan, an eligible director may elect to defer, in the form of shares of the common stock of the Corporation (the "Common Stock"), all or a portion of the annual retainer and meeting fees payable in cash by the Corporation for his or her service as a director for the calendar year (the "Deferral Year") following the year in which the deferral election is made. Such election shall be made pursuant to Section 3.
3. ELECTION TO PARTICIPATE. An eligible director becomes a participant
in the Plan by filing not later than December 15 of the year preceding the
Deferral Year an irrevocable election with the Plan Administrator (as defined in
Section 15) on a form provided for that purpose. The election to participate
shall be effective with respect to fees payable for the Deferral Year and after
the date indicated on the election form. The election form shall specify an
amount to be deferred expressed as a percentage of the fees otherwise payable in
cash for the director's service, one of the payment options described in
Sections 8 and 9, and the year in which amounts deferred shall be paid in a lump
sum pursuant to Section 8 or in which installment payments shall commence
pursuant to Section 9. The deferral election shall be effective only for the
Deferral Year specified on the form. A new deferral election form must be filed
for each Deferral Year.
4. DEFERRED STOCK ACCOUNT. On the first day of each calendar quarter (the "Credit Date"), a participant shall receive a credit to his or her account under the Plan (the "Deferred Stock Account"). The amount of the credit shall be the number of shares (rounded to the nearest one-hundredth of a share) determined by dividing the amount of the participant's fees earned during the immediately preceding quarter and specified for deferral by the average of the high and low prices per share of Common Stock reported on the consolidated tape of the New York Stock Exchange on the Credit Date or, if the New York Stock Exchange is closed on the Credit Date, the next preceding date on which it was open.
5. DIVIDEND CREDIT. Each time a dividend is paid on the Common Stock, a participant shall receive a credit to his or her Deferred Stock Account. The amount of the dividend credit shall be the number of shares (rounded to the nearest one-hundredth of a share) determined by multiplying the dividend amount per share by the number of shares credited to the participant's Deferred Stock Account as of the record date for the dividend and dividing the product by the average of the high and low prices per share of Common Stock reported on the consolidated tape of the New York Stock Exchange on the dividend payment date or, if the New York Stock Exchange is closed on the dividend payment date, the next preceding date on which it was open.
6. NUMBER OF SHARES ISSUABLE UNDER THE PLAN. Subject to adjustment as provided in Section 7, the maximum number of shares of Common Stock that may be credited under the Plan is 600,000.
7. ADJUSTMENTS FOR CERTAIN CHANGES IN CAPITALIZATION. If the Corporation shall at any time increase or decrease the number of its outstanding shares of Common Stock or change in any way the rights and privileges of such shares by means of the payment of a stock dividend or any other distribution upon such shares payable in Common Stock, or through a stock split, subdivision, consolidation, combination, reclassification, or recapitalization involving the Common Stock, then the numbers, rights, and privileges of the shares issuable under the Plan shall be increased, decreased, or changed in like manner as if such shares had been issued and outstanding, fully paid, and nonassessable at the time of such occurrence.
8. PAYMENT OF DEFERRED STOCK ACCOUNTS IN A LUMP SUM. Unless a
participant elects pursuant to Section 3 to receive payment of his or her
Deferred Stock Account in installments as described in Section 9, credits to a
participant's Deferred Stock Account shall be payable in full in cash or in
whole shares of Common Stock (together with cash in lieu of a fractional share),
or in a combination thereof, on February 28 (or the next succeeding business day
if February 28 is not a business day) of the calendar year following termination
of service as a director or such other year as elected by the participant
pursuant to Section 3. Amounts paid in cash, including cash in lieu of
fractional shares, shall be determined based on the average of the high and low
prices per share of Common Stock reported on the consolidated tape of the New
York Stock Exchange on the January 31 immediately preceding the date of payment
or, if the New York Stock Exchange is closed on that date, the next preceding
date on which it was open. If a participant dies before receiving all payments
to which he or she is entitled under the Plan, payment shall be made on February
28 (or the next succeeding business day if February 28 is not a business day) of
the calendar year following the date of death in accordance with the
participant's designation of a beneficiary on a form provided for that purpose
and delivered to and accepted by the Plan Administrator or, in the absence of a
valid designation or if the designated beneficiary does not survive the
participant, to such participant's estate. Notwithstanding the foregoing, in
the event of a Change of Control (as defined in Section 17), credits to a
participant's Deferred Stock Account as of the day immediately prior to the
effective date of the transaction constituting the Change of Control shall be
paid in full to the participant or the participant's beneficiary or estate, as
the case may be, in whole shares of Common Stock (together with cash in lieu of
a fractional share) on such date.
9. PAYMENT OF DEFERRED STOCK ACCOUNTS IN INSTALLMENTS. A participant may elect pursuant to Section 3 to have his or her Deferred Stock Account paid in cash in annual installments commencing on February 28 of the calendar year following termination of service as a director or such other year as elected by the participant pursuant to Section 3. A participant's Deferred Stock Account shall be converted from a share balance to a cash balance by multiplying the number of shares credited as of the Valuation Date (as defined below) immediately prior to the first installment payment, by the average of the high and low prices per share of Common Stock reported on the consolidated tape of the New York Stock Exchange on the Valuation Date or, if the New York Stock Exchange is closed on the Valuation Date, the next preceding date on which it was open. The amount of each installment payment shall be a fraction of the value of the participant's Deferred Stock Account on the January 31 (the "Valuation Date") prior to the date of the installment payment, the numerator of which is one and the denominator of which is the total number of installments elected (not to exceed ten) minus the number of installments previously paid. Beginning on the day following the date of the first installment payment, the cash balance remaining in the Deferred Stock Account from time to time shall bear interest at an annual rate equal to the interest equivalent of the secondary market yield for three-month United States Treasury Bills as reported for the preceding month in Federal Reserve statistical release H.15(519). The interest rate shall be adjusted monthly, and interest shall be credited to the participant's Deferred Stock Account as of the last day of each month. If a participant dies before receiving all payments to which he or she is entitled under the Plan, payment in full shall be made on February 28 (or the next succeeding business day if February 28 is not a business day) of the calendar year following the date of death in accordance with the participant's designation of a
beneficiary on a form provided for that purpose and delivered to and accepted by the Plan Administrator or, in the absence of a valid designation or if the designated beneficiary does not survive the participant, to such participant's estate. Notwithstanding the foregoing, in the event of a Change of Control (as defined in Section 17) before the first installment payment date, credits to a participant's Deferred Stock Account as of the day immediately prior to the effective date of the transaction constituting the Change of Control shall be paid in full to the participant or the participant's beneficiary or estate, as the case may be, in whole shares of Common Stock (together with cash in lieu of a fractional share) on such date. In the event of a Change of Control after the first installment payment date, the remaining cash balance in such participant's Deferred Stock Account shall be paid in full to the participant or the participant's beneficiary or estate, as the case may be, in cash on the day immediately prior to the effective date of the transaction constituting the Change of Control.
10. NONASSIGNABILITY. No right to receive payments under the Plan nor any shares of Common Stock credited to a participant's Deferred Stock Account shall be assignable or transferable by a participant other than by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Internal Revenue Code of 1986, as amended ("Internal Revenue Code"), Title I of the Employee Retirement Income Security Act ("ERISA"), or rules thereunder. The designation of a beneficiary by a participant pursuant to Section 8 or 9 does not constitute a transfer.
11. FUNDING. If the Corporation chooses to fund the credits to the Deferred Stock Accounts, the Corporation shall make contributions in cash or in shares of Common Stock to the trust described in Section 12. Any cash contributions shall be used by the trustee named in Section 12 to purchase shares of Common Stock within 10 business days after such deposit. Purchase of such shares may be made by the trustee in brokerage transactions or by private purchase, including purchase from the Corporation. All shares held by the trust shall be held in the name of the trustee.
12. TRUST FUND. Shares of Common Stock credited to Deferred Stock Accounts under the Plan may, in the sole discretion of the Corporation, be held and administered in trust (referred to as the "Trust Fund") in accordance with the terms of the Plan. The Trust Fund shall be held under a trust agreement between the Corporation and Marquette Bank Minneapolis, N.A. as Trustee, or any duly appointed successor trustee. All Common Stock in the Trust Fund shall be held on a commingled basis and shall be subject to the claims of general creditors of the Corporation.
13. VOTING COMMON STOCK. If any credits made pursuant to this Plan are, in the discretion of the Corporation, funded in a trust as described in Section 12, the Common Stock held in trust shall be voted by the Trustee in its discretion; provided, however, that the participant may instruct the Trustee with respect to the voting of a number of shares determined by multiplying a fraction, the numerator of which is the number of shares credited to the participant's Deferred Stock Account and the denominator of which is the total number of shares credited to all participants' Deferred Stock Accounts, by the total number of shares held by the Trustee for the Plan. For purposes of this section, all numbers of shares shall be determined as of the applicable record date.
14. UNSECURED OBLIGATION. Benefits payable under this Plan shall be an unsecured obligation of the Corporation.
15. ADMINISTRATION. The Plan shall be administered by the Corporation's senior human resources officer (the "Plan Administrator"), who shall have the authority to interpret the Plan and to adopt procedures for implementing the Plan.
16. AMENDMENT AND TERMINATION. The Board Affairs Committee of the Corporation's Board of Directors may at any time terminate, suspend, or amend this Plan; provided, however, that the provisions of Sections 1, 2, 3, 4, 5, and 6 may not be amended more than once in every six months other than to comport with changes in the Internal Revenue Code, ERISA, or the rules thereunder. No such action shall deprive any participant of any benefits to which he or she would have been entitled under the Plan if termination of the participant's service as a director had occurred on the day prior to the date such action was taken, unless agreed to by the participant.
17. CHANGE OF CONTROL. "Change of Control" means any one of the following events:
(a) the acquisition by an individual, entity, or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of
the combined voting power of the then outstanding voting securities of the
Corporation entitled to vote generally in the election of directors (the
"Outstanding Corporation Voting Securities"); provided, however, that for
purposes of this subsection (a), the following acquisitions shall not constitute
a Change of Control: (i) any acquisition directly from the Corporation, (ii)
any acquisition by the Corporation, (iii) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Corporation or
(iv) any acquisition by any corporation pursuant to a transaction which complies
with clauses (i), (ii), and (iii) of subsection (c) below; or
(b) individuals who constitute the Board of Directors of the Corporation as of April 27, 1992, (the "Incumbent Board") cease for any reason to constitute at least two-thirds thereof; provided that any person becoming a director subsequent to such date whose election, or nomination for election, by the stockholders of the Corporation was approved by a vote of at least three- fourths of the directors comprising the Incumbent Board shall, for the purposes of this clause, be considered as though such person were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Incumbent Board; or
(c) approval by the stockholders of the Corporation of a reorganization, merger, or consolidation, or sale or other disposition of all or substantially all of the assets of the Corporation (a "Business Combination"), in each case, unless following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Corporation Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Corporation or all or substantially all of the Corporation's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Corporation Voting Securities, (ii) no Person (excluding any employee benefit plan (or related trust) of the Corporation or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 25% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the board action, providing for such Business Combination.
18. EFFECTIVE DATE. The effective date of the Plan shall be the date of approval of the Plan by the holders of the Common Stock.
4/28/92
6/4/93
10/2/97
Exhibit 10(n).
NORWEST CORPORATION
DIRECTORS' FORMULA STOCK AWARD PLAN
(As restated to reflect the two-for-one stock split in the form of a 100% stock dividend distributed on October 10, 1997)
The fair market value shall be determined using the closing price of a share of Common Stock as reported on the consolidated tape of the New York Stock Exchange. If the New York Stock Exchange is not open on the Award Date, the shares shall be valued at their fair market value as of the next preceding day on which the New York Stock Exchange was open.
Each Eligible Non-Employee Director who was a non-employee director of the Corporation during all of 1995 and is a director on March 1, 1996 shall be awarded on May 1, 1996 that number of shares (rounded up to the next whole share) of Common Stock having an aggregate fair market value (determined as set forth above) on said date of $6,000.
participant dies before receiving a lump sum distribution to which he or she is entitled under the Plan, such distribution shall be made on February 28 (or the next succeeding business day if February 28 is not a business day) of the calendar year following the date of death in accordance with the participant's designation of a beneficiary on a form provided for that purpose and delivered to and accepted by the Plan Administrator or, in the absence of a valid designation or if the designated beneficiary does not survive the participant, to such participant's estate.
(i) materially increase the benefits accruing to participants under the Plan;
(ii) materially increase the number of securities which may be issued under the Plan; or
(iii) materially modify the requirements as to eligibility for
in the Plan.
Exhibit 11.
NORWEST CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
In thousands, except per share amounts Year Ended December 31
--------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- ------- ------- -------
BASIC:
------
Weighted average number of common shares
outstanding 750,059 731,836 658,364 625,942 609,742
========= ========= ======= ======= =======
Net income $1,351,003 1,153,929 955,973 800,415 613,096
Less dividends accrued on preferred stock (17,763) (17,763) (39,908) (27,915) (31,170)
---------- ---------- -------- ------- -------
Net income, as adjusted $1,333,240 1,136,166 916,065 772,500 581,926
========= ========= ======= ======= =======
Net income per share $ 1.78 1.55 1.39 1.23 0.95
DILUTED:
--------
Weighted average number of common shares
outstanding 750,059 731,836 658,364 625,942 609,742
Net effect of assumed exercise of stock options
based on treasury stock method using average
market price 9,986 7,584 4,994 4,242 5,710
Assumed conversion of 6-3/4% convertible
subordinated debentures due 2003 and 12%
convertible notes due 1993 as of the
beginning of the period 35 36 48 94 146
Assumed conversion of preferred stock - - 16,760 25,252 32,072
-------- -------- ------- ------- -------
760,080 739,456 680,166 655,530 647,670
======== ======== ======= ======= =======
Net income $1,351,003 1,153,929 955,973 800,415 613,096
Less dividends accrued on preferred stock (17,763) (17,763) (29,297) (11,903) (12,182)
Add interest and amortization of debt expense,
net of income tax effect, for 6-3/4% convertible
subordinated debentures due 2003 and 12%
convertible notes due 1993 4 4 5 10 16
--------- --------- ------- ------- -------
Net income, as adjusted $1,333,244 1,136,170 926,681 788,522 600,930
========= ========= ======= ======= =======
Net income per share $ 1.75 1.54 1.36 1.20 0.93
|
Exhibit 12(a).
Norwest Corporation and Subsidiaries
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Unaudited)
Year Ended December 31,
--------------------------------------------------------------
In thousands 1997 1996 1995 1994 1993
---------- --------- --------- --------- ---------
Computation of Income:
Income before
income taxes $2,049,726 1,781,509 1,422,814 1,180,601 879,755
Capitalized interest (22) (14) (112) (69) (65)
---------- --------- --------- --------- ---------
Income before income
taxes and capitalized
interest 2,049,704 1,781,495 1,422,702 1,180,532 879,690
Fixed charges 2,734,466 2,685,447 2,503,603 1,640,049 1,485,936
---------- --------- --------- --------- ---------
Total income for
computation $4,784,170 4,466,942 3,926,305 2,820,581 2,365,626
========== ========= ========= ========= =========
Total income for
computation excluding
interest on deposits
from fixed charges $3,337,488 3,142,024 2,770,005 1,957,224 1,513,317
========== ========= ========= ========= =========
Computation of Fixed
Charges:
Net rental
expense (a) $ 211,191 205,409 166,591 149,462 128,573
========== ========= ========= ========= =========
Portion of rentals
deemed
representative
of interest $ 70,397 68,470 55,530 49,821 42,858
---------- --------- --------- --------- ---------
Interest:
Interest on
deposits 1,446,682 1,324,918 1,156,300 863,357 852,309
Interest on
federal funds
and other
short-term
borrowings 439,492 454,013 515,646 290,211 238,046
Interest on
long-term debt 777,873 838,032 776,015 436,591 352,658
Capitalized
interest 22 14 112 69 65
---------- --------- --------- --------- ---------
Total interest 2,664,069 2,616,977 2,448,073 1,590,228 1,443,078
---------- --------- --------- --------- ---------
Total fixed
charges $2,734,466 2,685,447 2,503,603 1,640,049 1,485,936
========== ========= ========= ========= =========
Total fixed
charges excluding
interest on
deposits $1,287,784 1,360,529 1,347,303 776,692 633,627
========== ========= ========= ========= =========
Ratio of Income
to Fixed Charges:
Excluding
interest on
deposits 2.59x 2.31 2.06 2.52 2.39
Including
interest on
deposits 1.75x 1.66 1.57 1.72 1.59
|
(a) Includes equipment rentals.
Exhibit 12(b).
NORWEST CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(Unaudited)
Year Ended December 31,
-----------------------------------------------------
In thousands 1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
Computation of Income:
Income before
income taxes $2,049,726 1,781,509 1,422,814 1,180,601 879,755
Capitalized interest (22) (14) (112) (69) (65)
--------- --------- --------- --------- ---------
Income before income
taxes and capitalized
interest 2,049,704 1,781,495 1,422,702 1,180,532 879,690
Fixed charges 2,734,466 2,685,447 2,503,603 1,640,049 1,485,936
--------- --------- --------- --------- ---------
Total income for
computation $4,784,170 4,466,942 3,926,305 2,820,581 2,365,626
========= ========= ========= ========= =========
Total income for
computation excluding
interest on deposits
from fixed charges $3,337,488 3,142,024 2,770,005 1,957,224 1,513,317
========= ========= ========= ========= =========
Computation of Fixed
Charges:
Net rental
expense (a) $ 211,191 205,409 166,591 149,462 128,573
========= ========= ========= ========= =========
Portion of rentals
deemed
representative
of interest $ 70,397 68,470 55,530 49,821 42,858
--------- --------- --------- --------- ---------
Interest:
Interest on
deposits 1,446,682 1,324,918 1,156,300 863,357 852,309
Interest on
federal funds
and other
short-term
borrowings 439,492 454,013 515,646 290,211 238,046
Interest on
long-term debt 777,873 838,032 776,015 436,591 352,658
Capitalized
interest 22 14 112 69 65
--------- --------- --------- --------- ---------
Total interest 2,664,069 2,616,977 2,448,073 1,590,228 1,443,078
--------- --------- --------- --------- ---------
Total fixed
charges $2,734,466 2,685,447 2,503,603 1,640,049 1,485,936
========= ========= ========= ========= =========
Total fixed
charges excluding
interest on
deposits $1,287,784 1,360,529 1,347,303 776,692 633,627
========= ========= ========= ========= =========
Preferred stock
dividends 17,763 17,763 41,220 27,827 31,170
Pre-tax earnings
needed to meet
preferred stock
dividend
requirements 26,950 27,424 61,349 41,044 44,728
Total combined fixed
charges and preferred
stock dividends $2,761,416 2,712,871 2,564,952 1,681,093 1,530,664
Total combined ========= ========= ========= ========= =========
fixed charges
and preferred stock
dividends excluding
interest on
deposits $1,314,734 1,387,953 1,408,652 817,736 678,355
========= ========= ========= ========= =========
|
(a) Includes equipment rentals.
Exhibit 12(b).
(continued)
NORWEST CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(Unaudited)
Year Ended December 31,
-----------------------------------------------------
In thousands 1997 1996 1995 1994 1993
--------- --------- --------- -------- --------
Ratio of Income to Combined
Fixed Charges and Preferred
Stock Dividends:
Excluding interest on
deposits 2.54x 2.26 1.97 2.39 2.23
Including interest on
Deposits 1.73x 1.65 1.53 1.68 1.55
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Exhibit 21.
SUBSIDIARIES OF THE CORPORATION
The following is a list of subsidiaries of the corporation as of February 1, 1998. The corporation's bank subsidiaries which have the words "National Association" (N.A.), or "National" in their respective titles are organized under the laws of the United States; and all state bank subsidiaries are incorporated under the laws of the state in which each is domiciled. Each non- bank subsidiary is incorporated or organized in the jurisdiction appearing opposite its name.
Bank Subsidiaries
ARIZONA
Norwest Bank Arizona, N.A.
COLORADO
Norwest Bank Colorado, N.A.
Norwest Bank Grand Junction, N.A.
Norwest Bank Grand Junction-Downtown, N.A.
Norwest National Bank
The Bank of the Southwest, N.A.
ILLINOIS
Norwest Bank Illinois, N.A.
INDIANA
Norwest Bank Indiana, N.A.
IOWA
Dial National Bank
Norwest Bank Iowa, N.A.
MINNESOTA
Norwest Bank Cloquet, N.A.
Norwest Bank Faribault, N.A.
Norwest Bank International Falls, N.A.
Norwest Bank Minnesota, N.A.
Norwest Bank Minnesota North, N.A.
Norwest Bank Minnesota South, N.A.
Norwest Bank Minnesota Southwest, N.A.
Norwest Bank Minnesota West, N.A.
Norwest Bank North Country, N.A.
Norwest Bank Red Wing, N.A.
MONTANA
Norwest Bank Montana, N.A.
NEBRASKA
Norwest Bank Nebraska, N.A.
Packers Bank
NEVADA
Norwest Bank Nevada, N.A.
NEW MEXICO
Norwest Bank New Mexico, N.A.
Norwest Bank New Mexico Northeast, N.A.
NORTH DAKOTA
Norwest Bank North Dakota, N.A.
OHIO
Norwest Bank Ohio, N.A.
SOUTH DAKOTA
Dial Bank
Norwest Bank South Dakota, N.A.
TEXAS
Continental State Bank
Fidelity Bank & Trust, N.A.
First Valley Bank
Norwest Bank El Paso, N.A.
Norwest Bank Texas, N.A.
Norwest Trust Texas, Odessa, N.A.
WISCONSIN
Norwest Bank La Crosse, N.A.
Norwest Bank Wisconsin, N.A.
WYOMING
Norwest Bank Wyoming, N.A.
Non-Bank Subsidiaries
Jurisdiction of
Incorporation or
Directly Owned: Organization
-------------- ------------
AMFED Financial, Inc. Nevada
B & G Investment Company Texas
Benson Financial Corporation Texas
Blackhawk Bancorporation Iowa
Canton Bancshares, Inc. Illinois
Central Bancorporation, Inc. Texas
Cityside Savings & Financial Services Co. Minnesota
Courtesy Funding Corporation (inactive) California
Credisol, S.A. Costa Rica
Directors Acceptance Corporation (inactive) California
Directors Equity (inactive) California
Farmers National Bancorp, Inc. Delaware
Financiera El Sol, S.A. Panama
Fidelity Bancshares, Inc. Texas
First Valley Bank Group, Inc. Texas
GST Co. Delaware
Henrietta Bancshares, Inc. Texas
Independent Bancorp of Arizona, Inc. Delaware
International Bancorporation, Inc. Minnesota
Irene Bancorporation, Inc. South Dakota
Island Finance (Aruba) N.V. Aruba
Island Finance (Bonaire) N.V. Netherlands Antilles
Island Finance (Cuaracao) N.V. Netherlands Antilles
Island Finance (St. Maarten) N.V. Netherlands Antilles
Island Finance Puerto Rico, Inc. Delaware
Island Finance Virgin Islands, Inc. Delaware
Lindeberg Financial Corporation Minnesota
Lomas Properties, Inc. (inactive) New Mexico
Lowry Hill Investment Advisors, Inc. Minnesota
Midwest Credit Life Insurance Company Arizona
Minnetonka Overseas Investment Limited (inactive) Cayman Islands, BWI
Myers Bancshares Inc. Texas
Northern Prairie Indemnity Limited Cayman Islands, BWI
Norwest Agricultural Credit, Inc. Minnesota
Norwest Alliance System, Inc. (inactive) Minnesota
Norwest AMG, Inc. Delaware
Norwest Asia Limited Hong Kong
Norwest Audit Services, Inc. Minnesota
Norwest Auto Receivables Corporation Delaware
Norwest Capital Markets, Inc. (inactive) Minnesota
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Jurisdiction of
Incorporation or
Directly Owned: Organization
-------------- ------------
Norwest Credit, Inc. Minnesota
Norwest Escrow Funding, Inc. Delaware
Norwest Financial Services, Inc. Delaware
Norwest Foundation Minnesota
Norwest Holding Company Delaware
Norwest Insurance, Inc. Minnesota
Norwest Investment Services, Inc. Minnesota
Norwest Investors, Inc. Minnesota
Norwest Limited, Inc. Minnesota
Norwest Nova, Inc. Minnesota
Norwest Properties, Inc. Minnesota
Norwest Services, Inc. Minnesota
Norwest Trust Company, Cayman Islands Cayman Islands, BWI
Packers Management Company, Inc. Nebraska
Peoples Mortgage and Investment Company Iowa
Stan-Shaw Corporation California
Statewide Mortgage Company Texas
Texas Bancorporation, Inc. Texas
Texas National Bankshares, Inc. Texas
The First National Bankshares, Inc. New Mexico
The Foothill Group, Inc. Delaware
Union Texas Bancorporation, Inc. Texas
United Banks Insurance Services, Inc. Colorado
Victoria Bankshares, Inc. Texas
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Jurisdiction of
Incorporation or
Indirectly Owned: Organization
---------------- ------------
Admiral Life Insurance Company of America Arizona
AMAN Collection Service, Inc. South Dakota
AMAN Collection Service 1, Inc. Nevada
Allied Business Systems, Inc. Iowa
American Community Bank Services Corporation Minnesota
American Land Title Co., Inc. Nebraska
American Land Title Company of Kansas City, Inc. Missouri
Americorp Financial, Inc. Nevada
ATI Holding Company Minnesota
ATI Title Company of California California
ATI Title Company of Nevada Nevada
ATI Title Agency of Arizona, Inc. (inactive) Arizona
ATI Title Agency of Ohio, Inc. Ohio
Bancshares Insurance Company Arizona
Blackhawk Leasing Corporation (inactive) Minnesota
Blue Jay Asset Management, Inc. Delaware
Blue Spirit Insurance Company Vermont
BSF Trustee, Inc. (inactive) Nevada
Cardinal Asset Management, Inc. Delaware
Central Bancorporation of Delaware, Inc. Delaware
Central Casualty Insurance Agency, Inc. (inactive) Oklahoma
Centurion Agency Nevada, Inc. Nevada
Centurion Agency Ohio, Inc. (inactive) Ohio
Centurion Agencies, Co. Iowa
Centurion Casualty Company Iowa
Centurion Life Insurance Company Missouri
CGT Insurance Company Barbados
CHM Insurance Company South Dakota
Cityside Insurance Company, LTD Turks & Caicos Islands
Clinton Street Garage Company, Inc. Indiana
Commonwealth Leasing Corporation Minnesota
Community Casualty Co. Vermont
Community Pacific Broadcasting Corporation Nevada
Copper Asset Management, Inc. Delaware
Crestone Capital Management, Inc. Colorado
Dial Finance Company, Inc. (inactive) Nevada
Dial Finance Company, Incorporated (inactive) Delaware
Dial Finance Company of Hawaii, Inc. (inactive) Hawaii
Dial Finance Company of Michigan No. 1 (inactive) Michigan
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Jurisdiction of
Incorporation or
Indirectly Owned: Organization
---------------- ------------
Dial Finance Company of Ohio No. 1, Inc.
Merger Company, Inc. (inactive) New Hampshire
Dial Finance Company of Oklahoma (inactive) Oklahoma
Dial Finance Company of Oregon (inactive) Oregon
Dial National Community Benefits, Inc. Nevada
Directors Asset Conduit Corporation Delaware
Douglas Financial, Inc. (inactive) Nevada
Ellis Advertising, Inc. Iowa
Falcon Asset Management, Inc. Delaware
Faxual Credit Reporting Service, Inc. California
FB Mortgage Corporation (inactive) Texas
FCC Holdings California
Fidelity Acceptance Holding, Inc. Nevada
Fidelity Acceptance Corporation /1/ Minnesota
Fidelity Bancorporation, Inc. Delaware
Fidelity National Life Insurance Company Arizona
Finvercon USA, Inc. Nevada
Finvercon S.A. Compania Financiera Argentina
First City Life Insurance Company Arizona
First DialWest Escrow Company, Inc. California
First Interstate Equipment Finance, Inc. (inactive) Wisconsin
First Nevada Company (inactive) Nevada
First of Lubbock Agricultural Credit Corporation Texas
First Western Service Corporation (inactive) Nevada
First Valley Delaware Financial Corporation Delaware
Foothill Capital Corporation California
Fremont Properties, Inc. Colorado
Galliard Capital Management, Inc. Minnesota
Great Plains Insurance Company Vermont
Green Bay Asset Management, Inc. Delaware
Henrietta Delaware Financial Corporation Delaware
Home Escrow Corporation (inactive) Nevada
Home Trustee, Inc. (inactive) Nevada
IntraWest Asset Management, Inc. Delaware
IntraWest Insurance Company Arizona
Iowa Asset Management, Inc. Delaware
_______________________
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/1/Fidelity Acceptance Corporation is the parent and directly or indirectly beneficially owns all the voting securities of subsidiaries operating as consumer finance companies in the United States and Guam (39 as of February 1, 1998). Such subsidiaries were incorporated or otherwise organized in Alabama, Arizona, California, Colorado, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Michigan, Minnesota, Mississippi, Missouri, Nebraska, Nevada, New Jersey, New Mexico, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, Wisconsin and Guam.
Jurisdiction of
Incorporation or
Indirectly Owned: Organization
---------------- ------------
Island Finance Credit Services, Inc. New York
Island Finance New York, Inc. New York
La Crosse Asset Management, Inc. Delaware
LaSalle, Inc. (inactive) Indiana
Lincoln Building Corporation Colorado
Mail Systems Co. Iowa
Marquette Real Estate Funding Corporation Delaware
Minnetonka Representacoes Comerciais Ltda (inactive) Brazil
Mission Savings and Loan Association U.S.
Modern Casualty Insurance Agency Arizona
Nabankco, Inc. (inactive) Indiana
National Letter Service Company Minnesota
Nat-Lea, Inc. (inactive) Indiana
NISI Nevada Insurance, Inc. Nevada
NISI Wyoming Insurance Wyoming
North Star Mortgage Guaranty Reinsurance Company Vermont
Norwest Colorado Community Development Corporation Colorado
Norwest Agencies Montana, Inc. (inactive) Montana
Norwest Asset Securities Corporation Delaware
Norwest Auto Finance, Inc. Minnesota
Norwest Auto Lease, Inc. Minnesota
Norwest Business Credit, Inc. Minnesota
Norwest Center, Inc. (inactive) Minnesota
Norwest Colorado Community Development Corporation Colorado
Norwest do Brasil Servicos Ltda Brazil
Norwest Electronic Tax Service, Inc. Minnesota
Norwest Energy Capital, Inc. Texas
Norwest Equipment Finance, Inc. Minnesota
Norwest Equipment Finance & Leasing, Inc. New Jersey
Norwest Equity Capital, L.L.C. Minnesota
Norwest Financial, Inc./2/ Iowa
Norwest Financial Alabama, Inc. Alabama
Norwest Financial Business Credit, Inc. Iowa
Norwest Financial Canada, Inc. Ontario
________________________
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/2/Norwest Financial, Inc. is the parent and directly or indirectly beneficially owns all the voting securities of subsidiaries operating as consumer finance companies in the United States, Canada, Guam and Saipan. (102 subsidiaries at February 1, 1998). Such subsidiaries were incorporated or otherwise organized in: Alaska, Arizona, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Washington, West Virginia, Wisconsin, Wyoming, Canada, Guam and Saipan.
Jurisdiction of
Incorporation or
Indirectly Owned: Organization
---------------- ------------
Norwest Financial Capital, Inc. Delaware
Norwest Financial Capital Canada, Inc. Ontario
Norwest Financial Coast, Inc. California
Norwest Financial Communication Services
Group, Inc.(inactive) Iowa
Norwest Financial Credit Services, Inc. Florida
Norwest Financial DE Asset Management, Inc. Delaware
Norwest Financial Information Services Group, Inc. Iowa
Norwest Financial Investment, Inc. Nevada
Norwest Financial Investment 1, Inc. Nevada
Norwest Financial Leasing, Inc. Iowa
Norwest Financial North Carolina 2, Inc. North Carolina
Norwest Financial North Carolina 3, Inc. North Carolina
Norwest Financial NV Asset Management, Inc. Nevada
Norwest Financial Resources, Inc. Iowa
Norwest Financial Security Services, Inc. Iowa
Norwest Financial South Carolina 1, Inc. North Carolina
Norwest Funding, Inc. Minnesota
Norwest Funding II, Inc. Minnesota
Norwest Insurance Arizona, Inc. Arizona
Norwest Insurance New Mexico, Inc. New Mexico
Norwest Insurance Wyoming, Inc. Wyoming
Norwest Integrated Structured Assets, Inc. Delaware
Norwest International Commercial Services Limited Hong Kong
Norwest Investment Management, Inc. Minnesota
Norwest Mortgage, Inc. California
Norwest Mortgage Asset Management Corporation Minnesota
Norwest Mortgage Closing Services, Inc. Iowa
Norwest Mortgage Conventional 1, Inc. Delaware
Norwest Mortgage Insured 1, Inc. Delaware
Norwest Mortgage Insured 2, Inc. Delaware
Norwest Mortgage of Massachusetts, Inc. Massachusetts
Norwest Mortgage of New Mexico, Inc. New Mexico
Norwest Mortgage of New York, Inc. New York
Norwest Properties Holding Company (inactive) Minnesota
Norwest Rural Insurance Services, Inc. Minnesota
Norwest Trust Company, New York
(a Limited Purpose Trust Company) New York
Norwest Venture Capital Management, Inc. Minnesota
Norwest Ventures, Inc. Minnesota
Osprey Asset Management, Inc. Delaware
Peregrine Capital Management, Inc. Minnesota
PGD, Inc. Texas
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Jurisdiction of
Incorporation or
Indirectly Owned: Organization
---------------- ------------
Premium Service/Norwest Financial Coast, Inc. South Carolina
PriMerit Investor Services (inactive) Nevada
Raven Asset Management, Inc. Delaware
Reliable Financial Services, Inc. Puerto Rico
Regency Insurance Agency, Inc. Minnesota
Residential Home Mortgage, L. L. C. Delaware
Residential Home Mortgage Investment, L. L. C. Delaware
Robin Asset Management, Inc. Delaware
Rural Community Insurance Company Minnesota
Rural Community Insurance Agency, Inc. Minnesota
Scott Life Insurance Company Arizona
Servcorp of Yankton, Inc. (inactive) South Dakota
South Dakota Asset Management, Inc. Delaware
Statewide Acceptance Corporation Texas
Superior Asset Management, Inc. Delaware
Superior Guaranty Insurance Company Vermont
Superior Health Care Management, Inc. Delaware
Superior North Asset Management, Inc. Delaware
Superior Red Wing Asset Management, Inc. Delaware
Superior South Asset Management, Inc. Delaware
Superior Southwest Asset Management, Inc. Delaware
Superior West Asset Management, Inc. Delaware
TDM Corporation (inactive) Texas
The United Group, Inc. North Carolina
Tower Data Processing Corporation Iowa
Transact Financial Corporation (inactive) Texas
USF Life Reinsurance Company Arizona
United New Mexico Credit Services, Inc. (inactive) New Mexico
United New Mexico Financial Corporation New Mexico
United New Mexico Real Estate Services, Inc. New Mexico
United Title Agency of Arizona, Inc. Arizona
Valley Asset Management, Inc. Delaware
Valley-Hi Securities, Inc. (inactive) Texas
Valuation Information Technology, Inc. Iowa
Victoria Capital Corporation (inactive) Texas
Victoria Financial Services, Inc. Delaware
VIE, Inc. Minnesota
Warranty Title, Inc. Minnesota
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Note: Not included in the above list of subsidiaries of the corporation are certain subsidiaries formed solely for the purpose of reserving a name,
joint ventures or limited partnerships.
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
Norwest Corporation:
We consent to incorporation by reference of our report dated January 15, 1998 relating to the consolidated balance sheets of Norwest Corporation and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of income, cash flows and stockholders' equity for each of the years in the three-year period ended December 31, 1997, which report appears in the December 31, 1997, Form 10-K of Norwest Corporation, in the following Registration Statements of Norwest Corporation: Nos. 033-10820, 033-11438, 033- 21484, 033-21485, 033-35162, 033-38767, 033-42198, 033-50305, 033-50307, 033- 50309, 033-50311, 033-65007, 033-65009, 333-02485, 333-09413 and 333-12423 on Form S-8, Nos. 033-50435, 033-59629, 033-61045, 033-63911, 333-01737, 333-02309, 333-03573, 333-09489 and 333-12925 on Form S-3 and No. 333-40989 on Form S-4.
/s/ KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 27, 1998
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Exhibit 24.
NORWEST CORPORATION
Power of Attorney of Director
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of NORWEST CORPORATION, a Delaware corporation, does hereby make, constitute, and appoint RICHARD S. LEVITT, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and DAVID A. CHRISTENSEN, a director and member of the Audit and Examination Committee of the Board of Directors, and each or either of them, the undersigned's true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigned's name, place, and stead, to sign and affix the undersigned's name as such director of said Corporation to an Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and all amendments thereto, to be filed by said Corporation with the Securities and Exchange Commission, Washington, D.C. under the Securities Exchange Act of 1934, and the rules and regulations of said Commission, and to file the same, with all exhibits thereto and other supporting documents, with said Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 23rd day of February, 1998.
/s/ Leslie S. Biller
--------------------------------
Leslie S. Biller
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NORWEST CORPORATION
Power of Attorney of Director
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of NORWEST CORPORATION, a Delaware corporation, does hereby make, constitute, and appoint RICHARD S. LEVITT, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and DAVID A. CHRISTENSEN, a director and member of the Audit and Examination Committee of the Board of Directors, and each or either of them, the undersigned's true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigned's name, place, and stead, to sign and affix the undersigned's name as such director of said Corporation to an Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and all amendments thereto, to be filed by said Corporation with the Securities and Exchange Commission, Washington, D.C. under the Securities Exchange Act of 1934, and the rules and regulations of said Commission, and to file the same, with all exhibits thereto and other supporting documents, with said Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 23rd day of February, 1998.
/s/ J.A. Blanchard III
----------------------------------
J. A. Blanchard III
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NORWEST CORPORATION
Power of Attorney of Director
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of NORWEST CORPORATION, a Delaware corporation, does hereby make, constitute, and appoint RICHARD S. LEVITT, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and DAVID A. CHRISTENSEN, a director and member of the Audit and Examination Committee of the Board of Directors, and each or either of them, the undersigned's true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigned's name, place, and stead, to sign and affix the undersigned's name as such director of said Corporation to an Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and all amendments thereto, to be filed by said Corporation with the Securities and Exchange Commission, Washington, D.C. under the Securities Exchange Act of 1934, and the rules and regulations of said Commission, and to file the same, with all exhibits thereto and other supporting documents, with said Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 23rd day of February, 1998.
/s/ David A. Christensen
-------------------------------------
David A. Christensen
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NORWEST CORPORATION
Power of Attorney of Director
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of NORWEST CORPORATION, a Delaware corporation, does hereby make, constitute, and appoint RICHARD S. LEVITT, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and DAVID A. CHRISTENSEN, a director and member of the Audit and Examination Committee of the Board of Directors, and each or either of them, the undersigned's true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigned's name, place, and stead, to sign and affix the undersigned's name as such director of said Corporation to an Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and all amendments thereto, to be filed by said Corporation with the Securities and Exchange Commission, Washington, D.C. under the Securities Exchange Act of 1934, and the rules and regulations of said Commission, and to file the same, with all exhibits thereto and other supporting documents, with said Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 23rd day of February, 1998.
/s/ Pierson M. Grieve
-------------------------------------
Pierson M. Grieve
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NORWEST CORPORATION
Power of Attorney of Director
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of NORWEST CORPORATION, a Delaware corporation, does hereby make, constitute, and appoint RICHARD S. LEVITT, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and DAVID A. CHRISTENSEN, a director and member of the Audit and Examination Committee of the Board of Directors, and each or either of them, the undersigned's true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigned's name, place, and stead, to sign and affix the undersigned's name as such director of said Corporation to an Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and all amendments thereto, to be filed by said Corporation with the Securities and Exchange Commission, Washington, D.C. under the Securities Exchange Act of 1934, and the rules and regulations of said Commission, and to file the same, with all exhibits thereto and other supporting documents, with said Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 23rd day of February, 1998.
/s/ Charles M. Harper
-------------------------------------
Charles M. Harper
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NORWEST CORPORATION
Power of Attorney of Director
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of NORWEST CORPORATION, a Delaware corporation, does hereby make, constitute, and appoint RICHARD S. LEVITT, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and DAVID A. CHRISTENSEN, a director and member of the Audit and Examination Committee of the Board of Directors, and each or either of them, the undersigned's true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigned's name, place, and stead, to sign and affix the undersigned's name as such director of said Corporation to an Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and all amendments thereto, to be filed by said Corporation with the Securities and Exchange Commission, Washington, D.C. under the Securities Exchange Act of 1934, and the rules and regulations of said Commission, and to file the same, with all exhibits thereto and other supporting documents, with said Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 23rd day of February, 1998.
/s/ William A. Hodder
-----------------------------------
William A. Hodder
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NORWEST CORPORATION
Power of Attorney of Director
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of NORWEST CORPORATION, a Delaware corporation, does hereby make, constitute, and appoint RICHARD S. LEVITT, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and DAVID A. CHRISTENSEN, a director and member of the Audit and Examination Committee of the Board of Directors, and each or either of them, the undersigned's true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigned's name, place, and stead, to sign and affix the undersigned's name as such director of said Corporation to an Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and all amendments thereto, to be filed by said Corporation with the Securities and Exchange Commission, Washington, D.C. under the Securities Exchange Act of 1934, and the rules and regulations of said Commission, and to file the same, with all exhibits thereto and other supporting documents, with said Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 23rd day of February, 1998.
/s/ Lloyd P. Johnson
-----------------------------------
Lloyd P. Johnson
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NORWEST CORPORATION
Power of Attorney of Director
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of NORWEST CORPORATION, a Delaware corporation, does hereby make, constitute, and appoint RICHARD S. LEVITT, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and DAVID A. CHRISTENSEN, a director and member of the Audit and Examination Committee of the Board of Directors, and each or either of them, the undersigned's true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigned's name, place, and stead, to sign and affix the undersigned's name as such director of said Corporation to an Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and all amendments thereto, to be filed by said Corporation with the Securities and Exchange Commission, Washington, D.C. under the Securities Exchange Act of 1934, and the rules and regulations of said Commission, and to file the same, with all exhibits thereto and other supporting documents, with said Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 23rd day of February, 1998.
/s/ Reatha Clark King
-----------------------------------
Reatha Clark King
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NORWEST CORPORATION
Power of Attorney of Director
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of NORWEST CORPORATION, a Delaware corporation, does hereby make, constitute, and appoint RICHARD S. LEVITT, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and DAVID A. CHRISTENSEN, a director and member of the Audit and Examination Committee of the Board of Directors, and each or either of them, the undersigned's true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigned's name, place, and stead, to sign and affix the undersigned's name as such director of said Corporation to an Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and all amendments thereto, to be filed by said Corporation with the Securities and Exchange Commission, Washington, D.C. under the Securities Exchange Act of 1934, and the rules and regulations of said Commission, and to file the same, with all exhibits thereto and other supporting documents, with said Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 23rd day of February, 1998.
/s/ Richard M. Kovacevich
-----------------------------------
Richard M. Kovacevich
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NORWEST CORPORATION
Power of Attorney of Director
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of NORWEST CORPORATION, a Delaware corporation, does hereby make, constitute, and appoint RICHARD S. LEVITT, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and DAVID A. CHRISTENSEN, a director and member of the Audit and Examination Committee of the Board of Directors, and each or either of them, the undersigned's true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigned's name, place, and stead, to sign and affix the undersigned's name as such director of said Corporation to an Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and all amendments thereto, to be filed by said Corporation with the Securities and Exchange Commission, Washington, D.C. under the Securities Exchange Act of 1934, and the rules and regulations of said Commission, and to file the same, with all exhibits thereto and other supporting documents, with said Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 23rd day of February, 1998.
/s/ Richard S. Levitt
-----------------------------------
Richard S. Levitt
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NORWEST CORPORATION
Power of Attorney of Director
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of NORWEST CORPORATION, a Delaware corporation, does hereby make, constitute, and appoint RICHARD S. LEVITT, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and DAVID A. CHRISTENSEN, a director and member of the Audit and Examination Committee of the Board of Directors, and each or either of them, the undersigned's true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigned's name, place, and stead, to sign and affix the undersigned's name as such director of said Corporation to an Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and all amendments thereto, to be filed by said Corporation with the Securities and Exchange Commission, Washington, D.C. under the Securities Exchange Act of 1934, and the rules and regulations of said Commission, and to file the same, with all exhibits thereto and other supporting documents, with said Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 23rd day of February, 1998.
/s/ Richard D. McCormick
-----------------------------------
Richard D. McCormick
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NORWEST CORPORATION
Power of Attorney of Director
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of NORWEST CORPORATION, a Delaware corporation, does hereby make, constitute, and appoint RICHARD S. LEVITT, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and DAVID A. CHRISTENSEN, a director and member of the Audit and Examination Committee of the Board of Directors, and each or either of them, the undersigned's true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigned's name, place, and stead, to sign and affix the undersigned's name as such director of said Corporation to an Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and all amendments thereto, to be filed by said Corporation with the Securities and Exchange Commission, Washington, D.C. under the Securities Exchange Act of 1934, and the rules and regulations of said Commission, and to file the same, with all exhibits thereto and other supporting documents, with said Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 23rd day of February, 1998.
/s/ Cynthia H. Milligan
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Cynthia H. Milligan
|
NORWEST CORPORATION
Power of Attorney of Director
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of NORWEST CORPORATION, a Delaware corporation, does hereby make, constitute, and appoint RICHARD S. LEVITT, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and DAVID A. CHRISTENSEN, a director and member of the Audit and Examination Committee of the Board of Directors, and each or either of them, the undersigned's true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigned's name, place, and stead, to sign and affix the undersigned's name as such director of said Corporation to an Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and all amendments thereto, to be filed by said Corporation with the Securities and Exchange Commission, Washington, D.C. under the Securities Exchange Act of 1934, and the rules and regulations of said Commission, and to file the same, with all exhibits thereto and other supporting documents, with said Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 23rd day of February, 1998.
/s/ Benjamin F. Montoya
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Benjamin F. Montoya
|
NORWEST CORPORATION
Power of Attorney of Director
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of NORWEST CORPORATION, a Delaware corporation, does hereby make, constitute, and appoint RICHARD S. LEVITT, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and DAVID A. CHRISTENSEN, a director and member of the Audit and Examination Committee of the Board of Directors, and each or either of them, the undersigned's true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigned's name, place, and stead, to sign and affix the undersigned's name as such director of said Corporation to an Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and all amendments thereto, to be filed by said Corporation with the Securities and Exchange Commission, Washington, D.C. under the Securities Exchange Act of 1934, and the rules and regulations of said Commission, and to file the same, with all exhibits thereto and other supporting documents, with said Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 23rd day of February, 1998.
/s/ Ian M. Rolland
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Ian M. Rolland
|
NORWEST CORPORATION
Power of Attorney of Director
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of NORWEST CORPORATION, a Delaware corporation, does hereby make, constitute, and appoint RICHARD S. LEVITT, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and DAVID A. CHRISTENSEN, a director and member of the Audit and Examination Committee of the Board of Directors, and each or either of them, the undersigned's true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigned's name, place, and stead, to sign and affix the undersigned's name as such director of said Corporation to an Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and all amendments thereto, to be filed by said Corporation with the Securities and Exchange Commission, Washington, D.C. under the Securities Exchange Act of 1934, and the rules and regulations of said Commission, and to file the same, with all exhibits thereto and other supporting documents, with said Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 23rd day of February, 1998.
/s/ Michael W. Wright
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Michael W. Wright
|
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
| ARTICLE 9 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER 31, 1997 ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRELY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| MULTIPLIER: 1,000,000 |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | DEC 31 1997 |
| PERIOD END | DEC 31 1997 |
| CASH | 4,912 |
| INT BEARING DEPOSITS | 47 |
| FED FUNDS SOLD | 967 |
| TRADING ASSETS | 487 |
| INVESTMENTS HELD FOR SALE | 17,984 |
| INVESTMENTS CARRYING | 747 |
| INVESTMENTS MARKET | 763 |
| LOANS | 42,522 |
| ALLOWANCE | 1,234 |
| TOTAL ASSETS | 88,540 |
| DEPOSITS | 55,457 |
| SHORT TERM | 9,557 |
| LIABILITIES OTHER | 3,737 |
| LONG TERM | 12,767 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 188 |
| COMMON | 1,282 |
| OTHER SE | 5,552 |
| TOTAL LIABILITIES AND EQUITY | 88,540 |
| INTEREST LOAN | 4,553 |
| INTEREST INVEST | 1,359 |
| INTEREST OTHER | 785 |
| INTEREST TOTAL | 6,697 |
| INTEREST DEPOSIT | 1,447 |
| INTEREST EXPENSE | 2,664 |
| INTEREST INCOME NET | 4,033 |
| LOAN LOSSES | 525 |
| SECURITIES GAINS | 38 |
| EXPENSE OTHER | 4,421 |
| INCOME PRETAX | 2,050 |
| INCOME PRE EXTRAORDINARY | 2,050 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 1,351 |
| EPS BASIC | 1.78 |
| EPS DILUTED | 1.75 |
| YIELD ACTUAL | 5.74 |
| LOANS NON | 178 |
| LOANS PAST | 154 |
| LOANS TROUBLED | 0 |
| LOANS PROBLEM | 0 |
| ALLOWANCE OPEN | 1,041 |
| CHARGE OFFS | 653 |
| RECOVERIES | 153 |
| ALLOWANCE CLOSE | 1,234 |
| ALLOWANCE DOMESTIC | 798 |
| ALLOWANCE FOREIGN | 42 |
| ALLOWANCE UNALLOCATED | 394 |