Wells Fargo Financial 10-Q 1999 Q3 Quarterly report

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

For Quarter Ended September 30, 1999
Commission file number 2-80466

Norwest Financial, Inc.
(Exact name of registrant as specified in its charter)

Iowa	42 1186565
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
206 Eighth Street, Des Moines, Iowa	50309
(Address of principal executive offices)	(Zip Code)

(515) 243-2131
Registrant's telephone number, including area code

    Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /x/  No / /

    Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock (without par value): 1,000 shares outstanding as of November 5, 1999.

    The registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with the reduced disclosure format.

PART I. FINANCIAL INFORMATION

NORWEST FINANCIAL, INC.

Consolidated Balance Sheets (Unaudited)

(Thousands of Dollars)

	September 30, 1999		December 31, 1998
Assets
Cash and cash equivalents	$	184,419	$	139,184
Securities available-for-sale		1,209,755		1,203,500
Finance receivables		8,800,985		8,270,227
Less allowance for credit losses		363,896		350,984
Finance receivables—net		8,437,089		7,919,243
Notes receivable—affiliates		383,900		499,123
Property and equipment (at cost, less accumulated depreciation of $150,837 for 1999 and $135,105 for 1998)		248,086		187,695
Deferred income taxes		76,950		60,717
Other receivables from affiliates		25,053
Other assets		454,822		506,745
Total assets	$	11,020,074	$	10,516,207

See accompanying notes to consolidated financial statements.

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NORWEST FINANCIAL, INC.

Consolidated Balance Sheets (Unaudited) (Continued)

(Thousands of Dollars)

	September 30, 1999			December 31, 1998
Liabilities and Stockholder's Equity
Loans payable—short-term:
Commercial paper	$	1,985,017		$	2,662,321
Affiliates		473,945			194,453
Other		46,788			237,467
Unearned insurance premiums and commissions		136,747			132,793
Insurance claims and policy reserves		33,883			29,750
Accrued interest payable		108,675			96,482
Other payables to affiliates					44,173
Other liabilities		370,912			280,737
Senior long-term debt		6,277,445			5,272,818
Total liabilities		9,433,412			8,950,994
Stockholder's equity:
Common stock without par value (authorized 1,000 shares, issued and outstanding 1,000 shares)		3,855			3,855
Additional paid in capital		196,697			189,438
Retained earnings		1,403,436			1,362,370
Accumulated other comprehensive income (loss), net of income taxes		(17,326	)		9,550
Total stockholder's equity		1,586,662			1,565,213
Total liabilities and stockholder's equity	$	11,020,074		$	10,516,207

See accompanying notes to consolidated financial statements.

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NORWEST FINANCIAL, INC.

Consolidated Statements of Income (Unaudited)

(Thousands of Dollars)

	Quarter Ended September 30,				Nine Months Ended September 30,
	1999		1998		1999		1998
Income:
Finance charges and interest	$	410,163	$	379,188	$	1,211,569	$	1,101,196
Insurance premiums and commissions		99,481		59,719		253,811		246,009
Other income		70,874		58,472		182,656		169,972
Total income		580,518		497,379		1,648,036		1,517,177
Expenses:
Operating expenses		197,093		166,278		576,590		498,503
Interest and debt expense		131,012		123,787		381,620		357,840
Provision for credit losses		69,728		68,935		196,611		199,415
Insurance losses and loss expenses		74,212		40,893		179,832		174,218
Total expenses		472,045		399,893		1,334,653		1,229,976
Income before income taxes		108,473		97,486		313,383		287,201
Income taxes		38,846		31,952		112,329		98,671
Net income	$	69,627	$	65,534	$	201,054	$	188,530

See accompanying notes to consolidated financial statements.

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NORWEST FINANCIAL, INC.

Consolidated Statements of Comprehensive Income (Unaudited)

(Thousands of Dollars)

	Quarter Ended September 30,						Nine Months Ended September 30,
	1999			1998			1999			1998
Net income	$	69,627		$	65,534		$	201,054		$	188,530
Other comprehensive income (loss), before income taxes:
Unrealized gains (losses) on securities available-for-sale:
Unrealized gains (losses) arising during the period		(17,638	)		4,578			(37,968	)		16,256
Reclassification adjustment for net gains included in net income		(1,578	)		(436	)		(7,424	)		(4,043	)
		(19,216	)		4,142			(45,392	)		12,213
Foreign currency translation adjustment		172			(2,895	)		3,154			(4,606	)
Other comprehensive income (loss) before income taxes		(19,044	)		1,247			(42,238	)		7,607
Income tax expense (benefit) related to unrealized gains (losses) on securities available-for-sale		(6,663	)		1,451			(15,362	)		4,145
Other comprehensive income (loss), net of income taxes		(12,381	)		(204	)		(26,876	)		3,462
Comprehensive income	$	57,246		$	65,330		$	174,178		$	191,992

See accompanying notes to consolidated financial statements.

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NORWEST FINANCIAL, INC.

Consolidated Statements of Cash Flows (Unaudited)

(Thousands of Dollars)

	Nine Months Ended September 30,
	1999			1998
Cash flows from operating activities:
Net income	$	201,054		$	188,530
Adjustments to reconcile net income to net cash flows from operating activities, net of effect of contributed subsidiaries:
Provision for credit losses		196,611			199,415
Depreciation and amortization		40,988			36,846
Deferred income taxes		1,305			6,122
Other receivables from affiliates		(23,966	)
Other assets		(44,530	)		(47,414	)
Unearned insurance premiums and commissions		3,954			(7,287	)
Insurance claims and policy reserves		4,133			275
Accrued interest payable		12,193			11,180
Other payables to affiliates		(44,173	)		31,551
Other liabilities		89,187			126,689
Net cash provided by operating activities		436,756			545,907
Cash flows from investing activities:
Finance receivables:
Principal collected		5,554,986			4,832,556
Receivables originated or purchased		(6,259,097	)		(5,347,850	)
Proceeds from sales of securities		111,429			101,348
Proceeds from maturities of securities		126,267			145,085
Purchases of securities		(289,343	)		(331,212	)
Net additions to property and equipment		(75,221	)		(71,517	)
Net decrease (increase) in notes receivable—affiliates, net of effect of contributed subsidiaries		93,699			(236,497	)
Cash and cash equivalents of contributed subsidiaries received		1,002			503
Other		120,182			40,407
Net cash used by investing activities		(616,096	)		(867,177	)
Cash flows from financing activities:
Net increase (decrease) in loans payable—short term		(588,491	)		512,918
Proceeds from issuance of senior long-term debt		1,673,573			511,960
Repayment of long-term debt:
Senior		(700,507	)		(425,288	)
Subordinated					(2,000	)
Dividends paid		(160,000	)		(20,000	)
Net cash provided by financing activities		224,575			577,590
Net increase in cash and cash equivalents		45,235			256,320
Cash and cash equivalents beginning of period		139,184			94,600
Cash and cash equivalents end of period	$	184,419		$	350,920

See accompanying notes to consolidated financial statements.

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NORWEST FINANCIAL, INC.

Consolidated Statements of Stockholder's Equity (Unaudited)

(Thousands of Dollars)

								Accumulated Other Comprehensive Income (Loss)
	Common Stock		Additional Paid In Capital		Retained Earnings			Foreign Currency Translation			Unrealized Gains (Losses) on Securities Available- for-Sale			Total
Balance, December 31, 1997	$	3,855	$	185,410	$	1,167,418		$	(8,757	)	$	15,864		$	1,363,790
Comprehensive income (loss):
Net income						188,530									188,530
Other									(4,606	)		8,068			3,462
Contributed subsidiaries				4,028		6,348									10,376
Dividends						(20,000	)								(20,000	)
Balance, September 30, 1998	$	3,855	$	189,438	$	1,342,296		$	(13,363	)	$	23,932		$	1,546,158
Balance, December 31, 1998	$	3,855	$	189,438	$	1,362,370		$	(13,530	)	$	23,080		$	1,565,213
Comprehensive income (loss):
Net income						201,054									201,054
Other									3,154			(30,030	)		(26,876	)
Contributed subsidiaries				7,259		12									7,271
Dividends						(160,000	)								(160,000	)
Balance, September 30, 1999	$	3,855	$	196,697	$	1,403,436		$	(10,376	)	$	(6,950	)	$	1,586,662

See accompanying notes to consolidated financial statements.

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NORWEST FINANCIAL, INC.

Notes to Consolidated Financial Statements (Unaudited)

    The accompanying unaudited consolidated financial statements and notes have been prepared in accordance with the accounting policies set forth in Norwest Financial, Inc.'s 1998 Annual Report on Form 10-K and should be read in conjunction with the Notes to Consolidated Financial Statements therein. In the opinion of management, all adjustments (none of which were other than normal recurring accruals) necessary to present fairly the financial statements for the periods presented have been included. The results of operations for interim periods are not necessarily indicative of the results to be expected for the entire year.

1. Principles of Consolidation.

    The consolidated financial statements include the accounts of Norwest Financial, Inc. (the "Company") and subsidiaries (collectively, "Norwest Financial"). Intercompany accounts and transactions are eliminated. The Company is a wholly-owned subsidiary of Norwest Financial Services, Inc. (the "Parent") which is a wholly-owned subsidiary of Wells Fargo & Company ("Wells Fargo").

2. Dividend Restrictions.

    Certain long-term debt instruments restrict payment of dividends on and acquisitions of the Company's common stock. In addition, such debt instruments and the Company's bank credit agreements contain certain requirements as to maintenance of net worth (as defined). Approximately $937 million of consolidated stockholder's equity was unrestricted at September 30, 1999.

3. Other Income.

    Income from affiliates was $11.5 million and $14.7 million for the quarters ended September 30, 1999 and 1998, respectively, and $35.1 million and $47.2 million for the nine months ended September 30, 1999 and 1998, respectively.

    Interest and dividends from securities available-for-sale and cash equivalents were $19.5 million and $18.1 million for the quarters ended September 30, 1999 and 1998, respectively, and $56.8 million and $54.2 million for the nine months ended September 30, 1999 and 1998, respectively.

4. Reclassifications.

    Certain amounts in the 1998 financial statements have been reclassified to conform to the presentation used in the 1999 financial statements.

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5. Finance Receivables.

    Finance receivables are as follows:

	September 30, 1999		December 31, 1998
	(In Thousands)
United States consumer finance:
Loans secured by real estate	$	2,114,848	$	1,889,410
Loans not secured by real estate		1,173,507		1,124,381
Total loans		3,288,355		3,013,791
Sales finance contracts		1,172,626		1,191,675
Credit cards		527,454		489,131
Total United States consumer finance		4,988,435		4,694,597
Canadian consumer finance:
Loans secured by real estate		81,162		71,011
Loans not secured by real estate		417,225		390,612
Total loans		498,387		461,623
Sales finance contracts		489,541		474,924
Credit cards		12,854		7,608
Total Canadian consumer finance		1,000,782		944,155
Automobile finance		2,169,370		2,022,813
Other		642,398		608,662
Total finance receivables	$	8,800,985	$	8,270,227

6. Allowance for Credit Losses.

    The analysis of the allowance for credit losses is as follows:

	Quarter Ended September 30,						Nine Months Ended September 30,
	1999			1998			1999			1998
	(In Thousands)
Allowance for credit losses beginning of period	$	357,314		$	332,175		$	350,984		$	297,800
Provision for credit losses charged to expense		69,728			68,935			196,611			199,415
Write-offs		(75,922	)		(75,589	)		(223,718	)		(228,623	)
Recoveries		12,776			12,316			40,019			37,419
Allowance related to receivables contributed or acquired											31,826
Allowance for credit losses end of period	$	363,896		$	337,837		$	363,896		$	337,837

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7. Statements of Consolidated Cash Flows.

    The Company and its subsidiaries consider highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Supplemental disclosure of certain cash flow information is presented below:

	Quarter Ended September 30,				Nine Months Ended September 30,
	1999		1998		1999		1998
	(In Thousands)
Cash paid for:
Interest	$	109,243	$	115,979	$	363,722	$	344,603
Income taxes		2,102		48,087		135,377		95,276

8. Segment Information.

    The Company has three reportable segments: U.S. consumer finance, Canadian consumer finance, and automobile finance. The Company's operating segments are determined by product type and geography. U.S. consumer finance operations make loans to individuals and purchase sales finance contracts through 758 consumer finance branches in 46 states, Guam, Saipan, and Puerto Rico. The U.S. consumer finance segment also issues credit cards through two banking subsidiaries. Canadian consumer finance operations make loans to individuals and purchase sales finance contracts through 148 consumer finance branches in the 10 provinces. Automobile finance operations specialize in purchasing sales finance contracts directly from automobile dealers and making loans secured by automobiles through 212 branches in 32 states and Puerto Rico. Results from insurance operations are included in the appropriate segment.

    Selected financial information for each segment is shown below:

	U.S. Consumer Finance				Canadian Consumer Finance				Automobile Finance				Other*				Eliminations						Total
	1999		1998		1999		1998		1999		1998		1999		1998		1999			1998			1999		1998
	(In Thousands)
Quarter Ended September 30,:
Finance charges and interest	$	231,120	$	221,263	$	59,516	$	54,890	$	96,772	$	82,736	$	22,755	$	20,299	$			$			$	410,163	$	379,188
Intersegment income														11,718		11,448		(11,718	)		(11,448	)
Total income		295,153		283,107		65,385		59,664		101,792		86,418		129,906		79,638		(11,718	)		(11,448	)		580,518		497,379
Net income		40,526		44,076		8,509		5,565		9,706		5,661		10,886		10,232								69,627		65,534
Nine Months Ended September 30,:
Finance charges and interest		681,395		667,645		176,080		146,086		288,001		230,475		66,093		56,990								1,211,569		1,101,196
Intersegment income														34,657		36,659		(34,657	)		(36,659	)
Total income		862,011		858,916		194,977		161,012		301,780		241,813		323,925		292,095		(34,657	)		(36,659	)		1,648,036		1,517,177
Net income		110,519		117,436		25,031		17,730		35,295		17,044		30,209		36,320								201,054		188,530

*

Information from other segments below the quantitative threshold are attributable to commercial finance operations, information services operations, miscellaneous insurance companies, collection services, and operations in Argentina.

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9. Recent Accounting Standards.

    In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133 (FAS 133), Accounting for Derivative Instruments and Hedging Activities. In July 1999, the FASB issued FAS 137, Deferring Statement 133's Effective Date, which defers the effective date for implementation of FAS 133 by one year, making FAS 133 effective no later than January 1, 2001 for the Company's financial statements. The Company has not yet determined when it will implement the Statement nor has it completed the analysis required to determine the impact on the financial statements.

10. Business Combinations.

    Effective January 1, 1999, the Parent made a capital contribution, without consideration, to the Company of the issued and outstanding shares of capital stock of Aman Collection Service, Inc. and Aman Collection Service 1, Inc. (collectively referred to as "Aman"). This capital contribution was accounted for as a merger of interests under common control. Aman's headquarters are in Aberdeen, South Dakota and its principal business is collection services.

    Effective January 21, 1999, the Parent made a capital contribution, without consideration, to the Company of the assets (along with and subject to the liabilities) and other related leasehold or property interests or rights formerly held by Mid-Penn Consumer Discount Company ("Mid-Penn"). Immediately preceding the capital contribution, Mid-Penn had merged with and into the Parent, and the Parent was the surviving corporation. This capital contribution was accounted for as a merger of interests under common control. Mid-Penn's headquarters were in Philadelphia, Pennsylvania and its principal business was consumer finance. Mid-Penn had finance receivables outstanding of $10 million at the time of the merger into the Parent.

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NORWEST FINANCIAL, INC.

Management's Discussion and Analysis
of Financial Condition and Results of Operations

Statements made in Management's Discussion and Analysis may be forward-looking and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements address management's present expectations about future performance and involve inherent risks and uncertainties. A number of important factors (some of which are beyond the Company's control) could cause actual results to differ materially from those in the forward-looking statements. Those factors include the economic environment, competition, products and pricing in the geographic and business areas in which the Company conducts its operations, prevailing interest rates, changes in government regulations and policies affecting financial services companies, credit quality and credit risk management, acquisitions, and integration of acquired businesses.

    Norwest Financial's performance for the third quarter of 1999 closely paralleled performance for the first nine months of 1999. The discussion and analysis that follows, therefore, is limited to a discussion of the first nine months as a whole and does not include a separate discussion of the third quarter unless otherwise noted.

    Norwest Financial's total income (revenue) increased 9% for the first nine months ($1,648.0 million in the first nine months of 1999 compared with $1,517.2 million in the first nine months of 1998).

    Income from finance charges and interest increased 10% for the first nine months ($1,211.6 million in the first nine months of 1999 compared with $1,101.2 million in the first nine months of 1998). Changes in income from finance charges and interest result predominantly from (1) changes in the amount of finance receivables outstanding and (2) changes in the rate of charge on those receivables. In total, average finance receivables outstanding in the first nine months of 1999 increased 15% from the first nine months of 1998; average U.S. consumer finance receivables outstanding increased 6%, average Canadian consumer finance receivables outstanding increased 22%, average automobile finance receivables outstanding increased 34%, and average other finance receivables outstanding increased 19%.

	Nine Months Ended September 30,
	1999		1998
Rate of charge on finance receivables:
U.S. consumer finance	18.99	%	19.77	%
Canadian consumer finance	24.90		25.24
Automobile finance	18.68		20.01
Other	14.16		14.49
Total	19.22		20.02

    The increases in income from finance charges and interest was due predominantly to growth in average receivables outstanding. This was offset in part by the decline in the rate of charge. Growth in average receivables for all categories was due predominantly to various acquisitions combined with regular business activity. Most of the increase in Canadian consumer finance average receivables was due to the acquisition of T. Eaton Acceptance Co. Limited and National Retail Credit Services Limited, effective April 21, 1998. Substantially all of the increase in automobile finance average receivables was due to the capital contribution by the Parent to the Company, of the issued and outstanding shares of capital stock of Reliable Financial Services, Inc., effective June 30, 1998, along with the acquisition of automobile sales finance contracts from Sunstar Acceptance Corporation, a division of NationsBank, in October 1998. Substantially all of the increase in other average receivables was due to significant receivable growth of Norwest Financial Preferred Capital, Inc., a subsidiary of the Company which began rediscounting to commercial entities in 1997.

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Changes in the earned rates of charge were due to changes in prevailing market rates combined with a change in the portfolio mix.

    Insurance premiums and commissions increased 3% ($253.8 million in the first nine months of 1999 compared with $246.0 million in the first nine months of 1998.) Insurance losses and loss expenses increased 3% ($179.8 million in the first nine months of 1999 compared with $174.2 million in the first nine months of 1998.) Insurance premiums and commissions in the third quarter of 1999 increased 67% compared with the third quarter of 1998 ($99.5 million compared with $59.7 million). Insurance losses and loss expenses in the third quarter of 1999 increased 81% compared with the third quarter of 1998 ($74.2 million compared with $40.9 million). The increases were predominantly due to increases in insurance premiums and commissions and insurance losses and loss expenses on multiple peril crop insurance.

    Other income increased 7% ($182.7 million in the first nine months of 1999 compared with $170.0 million in the first nine months of 1998), due predominantly to an increase in collection service income combined with a payment received due to the early termination of an information processing subscriber.

    Operating expenses increased 16% ($576.6 million in the first nine months of 1999 compared with $498.5 million in the first nine months of 1998). The increase was due primarily to increases in employee compensation and benefits and other costs relating to business expansion, including various acquisitions during 1998.

    In April 1998, one of the Company's Canadian subsidiaries, Norwest Financial Capital Canada, Inc. ("NFCCI"), acquired all of the issued and outstanding shares of capital stock of the T. Eaton Acceptance Co. Limited ("TEAC") and National Retail Credit Services Limited ("NRCS"). The acquisition was accounted for as a purchase. Effective January 1, 1999, NFCCI, TEAC and NRCS merged with another of the Company's Canadian subsidiaries to form National Retail Credit Services Company ("NRCSCO"). The primary business of NRCSCO is to support certain Canadian retailers, and a significant portion of its business is devoted to the support of the T. Eaton Company Limited ("Eaton's"). On August 20, 1999, Eaton's filed an intention to make a proposal under the Canadian Bankruptcy and Insolvency Act. On September 28, 1999, by order of the Court these proceedings were taken up and continued under the Companies Creditors Arrangement Act resulting in Eaton's filing a plan of compromise and arrangement under this Act. The effect of the plan is that Eaton's will be liquidated with most of the assets of Eaton's being sold and the proceeds thereof distributed to its creditors. Several courses of action affecting NRCSCO could result. Eaton's proposed plan is scheduled to be voted upon by eligible creditors on November 19, 1999. The purchase price paid for TEAC and NRCS included an amount recorded for goodwill. Sufficient information is not yet available for the Company to evaluate the goodwill for impairment because it is not yet possible to predict the ultimate outcome of the proceedings. The Company expects, however, it will be able to complete its evaluation during the fourth quarter of 1999. The analysis may result in the recognition of a non-cash after-tax charge for the impairment of goodwill in the range between zero and $30 million.

    Interest and debt expense increased 7% ($381.6 million in the first nine months of 1999 compared with $357.8 million in the first nine months of 1998). Changes in interest and debt expense result predominantly from (1) changes in the amount of borrowings outstanding and (2) changes in the cost of those borrowings. Average total outstanding borrowings in the first nine months of 1999 increased 10% from the first nine months of 1998.

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	Nine Months Ended September 30,
	1999		1998
Costs of funds:
Short-term	5.15	%	5.64	%
Long-term	6.56		6.76
Total	6.11		6.44

    Changes in average debt outstanding generally correspond to changes in average finance receivables outstanding combined with the change in notes receivable—affiliates. Average finance receivables and notes receivable—affiliates increased 10% from the first nine months of 1998.

    Provision for credit losses decreased 1% ($196.6 million in the first nine months of 1999 compared with $199.4 million in the first nine months of 1998). Net write-offs decreased 4% in the first nine months of 1999.

	Nine Months Ended September 30,
	1999		1998
Net write-offs, not annualized, as a percentage of average net receivables outstanding:
U.S. consumer finance	1.78	%	2.25	%
Canadian consumer finance	3.29		3.11
Automobile finance	2.68		4.17
Other	2.00		.40
Total	2.19		2.61

    During 1999, the provision for credit losses exceeded net write-offs by $12.9 million. At September 30, 1999, the Company had an allowance for credit losses of $363.9 million (4.13% of receivables) compared with $351.0 million (4.24% of receivables) at December 31, 1998. There were no material changes in estimation methods and assumptions during 1999 and 1998. Non-accrual finance receivables were $41.4 million at September 30, 1999 compared with $32.5 million at December 31, 1998. In addition, finance receivables outstanding which were more than three payments contractually delinquent and which were still accruing interest were $104.2 million at September 30, 1999 compared with $123.7 million at December 31, 1998. Management believes the allowance for credit losses at September 30, 1999, is adequate to absorb probable losses on existing receivables in the finance receivables portfolio.

    Income taxes increased 14% ($112.3 million in the first nine months of 1999 compared with $98.7 million in the first nine months of 1998). Income before income taxes increased 9% ($313.4 million in the first nine months of 1999 compared with $287.2 million in the first nine months of 1998.) The effective tax rate was 35.8% for the first nine months of 1999 compared with 34.4% for the first nine months of 1998.

    The Company maintains bank lines of credit and revolving credit agreements to provide an alternative source of liquidity to support the Company's commercial paper borrowings. At September 30, 1999, lines of credit and revolving credit agreements totaling $1,472 million were being maintained at 31 domestic and international banks; the entire amount was available on that date. Additionally, the Company's bank subsidiaries, Dial Bank and Dial National Bank, have access to federal funds borrowings.

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At September 30, 1999, federal funds availability at the two banks was $405 million.

    The Company and a Canadian subsidiary obtain long-term debt capital primarily from the issuance of debt securities to the public through underwriters on a firm-commitment basis and the issuance of debt securities to institutional investors. The Company and a Canadian subsidiary also obtain long-term debt from the issuance of medium-term notes (which have maturities ranging from nine months to 30 years) through underwriters (acting as agent or principal).

    The Company anticipates the continued availability of borrowed funds, at prevailing interest rates, to provide for Norwest Financial's growth in the foreseeable future. Funds are also generated internally from payments of principal and interest on Norwest Financial's finance receivables.

    During 1998 and 1999, Norwest Financial continued with its company-wide project to prepare Norwest Financial's systems for Year 2000 compliance. The Year 2000 issue relates to computer systems that use two digits rather than four to define the applicable year and whether such systems will properly process information when the year changes to 2000. "Systems" include all hardware, networks, system and application software, and commercial "off the shelf" software, and embedded technology such as properties/date impacted processors in automated systems such as elevators, telephone systems, security, heating and cooling systems and others. Priority is given to "mission critical" systems. A system is considered "mission critical" if it is vital to the successful continuation of a core business activity.

    The implementation of Norwest Financial's Year 2000 readiness project is divided into four principal phases: Phase I requires a comprehensive assessment and inventory of all applicable software, system hardware devices, data and voice communication devices and other embedded technology to determine Year 2000 vulnerability and risk; Phase II requires date detection on systems intended to determine which systems must be remediated and which systems are compliant and require testing only, determination of the resources and costs, and the development of schedules and high level testing plans and schedules for the repair, replacement and/or retirement of systems that are determined not to be compliant. Phase III requires repair, replacement and/or retirement of systems that are determined not to be Year 2000 compliant, and planning the integration testing for those systems that have interfaces with other systems both internal and external to Norwest Financial, such as customers/suppliers; and Phase IV requires integration testing on applicable systems to validate that interfaces are Year 2000 compliant and contingency planning.

    Norwest Financial may be affected by the Year 2000 compliance issues of governmental agencies, business and other entities who provide data to, or receive data from, Norwest Financial, and by entities, such as borrowers, vendors, customers and business partners, whose financial condition or operational capability is significant to Norwest Financial. Norwest Financial's Year 2000 project also includes assessing the Year 2000 readiness of certain customers, borrowers, vendors, business partners, counterparties and governmental entities and the testing of major external interfaces with third parties which Norwest Financial has determined are critical. Norwest Financial is primarily engaged in the consumer and automobile finance business. The average balance outstanding with any individual customer is not significant. As a result Norwest Financial does not plan to test the Year 2000 compliance of any borrowers. Norwest Financial has tested mainframe and mid-range software applications included in the company's systems. Norwest Financial is testing the Year 2000 compliance of its mission critical vendors. In addition, Norwest Financial is obtaining representations and warranties of the Year 2000 compliance of its major vendors. In addition to assessing the readiness of these external parties, Norwest Financial has developed contingency plans which include recovery plans and alternatives to mitigate the effects of counterparties whose own failure to properly address Year 2000 issues may adversely impact Norwest Financial's ability to perform mission critical functions. These contingency plans have been substantially completed. The contingency plans have been validated and subject to review by a qualified independent party. Specific plans for the turn of the century event, December 31, 1999 through January 3, 2000 were completed and tested during the third quarter of 1999. The Company has used independent verification and validation processes in determining its Year 2000 compliance.

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The Company did not rely on automated tools for verification and validation.

    Norwest Financial has substantially completed Phases I, II, III and IV of its Year 2000 project, and believes all mission critical functions are Year 2000 compliant. In the area of embedded technology, or non-information technology systems, Norwest Financial has completed Phases I, II, III, and IV of the Year 2000 project. The Company believes all mission critical embedded technology is Year 2000 compliant.

    Through September 30, 1999, Norwest Financial has incurred charges of $5.4 million related to its Year 2000 project. This represents less than 10% of its information technology budget. Charges include $3.8 million related to the cost of internal staff redeployed to the Year 2000 project, as well as $.5 million for external consulting costs and $1.1 million for costs of accelerated replacement of hardware and software due to Year 2000 issues. Norwest Financial currently estimates that its total cost for the Year 2000 project will be $5.7 million. The redeployment of internal staff has not delayed other information technology projects, and thus will not have an impact on the financial condition or results of operations.

    The foregoing paragraphs contain a number of forward-looking statements. These statements reflect management's best current estimates, which were based on numerous assumptions about future events, including the continued availability of certain resources, representations received from third party service providers and other third parties, and additional factors. There can be no guarantee that these estimates, including Year 2000 costs, will be achieved, and actual results could differ materially from those estimates.

    A number of important factors could cause management's estimates and the impact of the Year 2000 issue to differ materially from what is described in the forward-looking statements contained in the above paragraphs. Those factors include, but are not limited to, uncertainties in the costs of hardware and software, the availability and cost of programmers and other systems personnel, inaccurate or incomplete execution of the phases, ineffective remediation of computer code and the ability of Norwest Financial's customers, vendors, competitors and counterparties to effectively address the Year 2000 issue.

    If Year 2000 issues are not adequately addressed by Norwest Financial and significant third parties, Norwest Financial's business, results of operations and financial position could be materially adversely affected. Failure of certain vendors to be Year 2000 compliant could result in disruption of important services upon which Norwest Financial depends, including, but not limited to, such services as telecommunications, electrical power and data processing. The failure of loan customers to properly prepare for the Year 2000 could also result in increases in problem loans and credit losses in future years. Notwithstanding Norwest Financial's efforts, there can be no assurance that Norwest Financial or significant third party vendors or other significant third parties will adequately address their Year 2000 issues. Norwest Financial is continuing to assess the Year 2000 readiness of third parties but does not know at this time whether the failure of third parties to be Year 2000 compliant will have a material effect on results of operations, liquidity and financial condition.

    The forward-looking statements made in the foregoing Year 2000 discussion speak only as of the date on which such statements are made, and Norwest Financial undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made to reflect the occurrence of unanticipated events.

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PART II. OTHER INFORMATION

NORWEST FINANCIAL, INC.

Item 5. Other Information.

RATIOS OF EARNINGS TO FIXED CHARGES

    The following table sets forth the ratios of earnings to fixed charges of Norwest Financial, Inc. and its subsidiaries for the periods indicated:

	Years Ended December 31,
Nine Months Ended September 30, 1999
	1998	1997	1996	1995	1994
1.80	1.72	2.00	2.11	2.13	2.26

    The ratios of earnings to fixed charges have been computed by dividing net earnings plus fixed charges and income taxes by fixed charges. Fixed charges consist of interest and debt expense plus one-third of rentals (which is deemed representative of the interest factor).

Item 6. Exhibits and Reports on Form 8-K.

(a)  Exhibits:

Exhibit (12) Computation of ratios of earnings to fixed charges for the years ended December 31, 1998, 1997, 1996, 1995 and 1994 and the nine months ended September 30, 1999.

(b)  Reports on 8-K

No reports on Form 8-K were filed during the quarter for which this report is filed.

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SIGNATURES

    Pursuant to the requirements 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.

	NORWEST FINANCIAL, INC.
Date: November 5, 1999
	By	/s/ ERIC TORKELSON Eric Torkelson Senior Vice President and Controller (Principal Accounting Officer)

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QuickLinks

PART II. OTHER INFORMATION
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
SIGNATURES