UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
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
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. X Yes ___ No.
Common Stock, par value $1 2/3 per share,
outstanding at July 31, 1998 765,783,139 shares
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
The following consolidated financial statements of Norwest Corporation
and its subsidiaries are included herein:
Page
1. Consolidated Balance Sheets -
June 30, 1998 and December 31, 1997.......................... 3
2. Consolidated Statements of Income -
Quarters and Six Months Ended June 30, 1998 and 1997......... 4
3. Consolidated Statements of Comprehensive Income -
Quarters and Six Months Ended June 30, 1998 and 1997......... 5
4. Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1998 and 1997...................... 6
5. Consolidated Statements of Stockholders' Equity -
Six Months Ended June 30, 1998 and 1997...................... 7
6. Notes to Unaudited Consolidated Financial Statements........... 9
The financial information for the interim periods 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. The results of operations for an interim period are not necessarily
indicative of the results that may be expected for a full year or any other
interim period.
2
Norwest Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Unaudited)
In millions, except shares June 30, December 31,
1998 1997
ASSETS
Cash and due from banks ...................... $ 4,953.7 4,912.1
Interest-bearing deposits with banks ......... 63.4 46.6
Federal funds sold and resale agreements ..... 865.5 967.4
Total cash and cash equivalents .......... 5,882.6 5,926.1
Trading account securities ................... 247.4 486.9
Investment and mortgage-backed securities
available for sale ......................... 18,432.1 17,983.9
Investment securities held to maturity (fair
value $772.8 in 1998 and $762.8 in 1997) ... 752.4 747.2
Total investment securities .............. 19,184.5 18,731.1
Loans held for sale .......................... 3,470.1 3,407.0
Mortgages held for sale ...................... 12,190.7 8,848.0
Loans and leases, net of unearned discount ... 43,390.8 42,521.6
Allowance for credit losses .................. (1,262.1) (1,233.9)
Net loans and leases ..................... 42,128.7 41,287.7
Premises and equipment, net .................. 1,377.2 1,295.5
Mortgage servicing rights, net ............... 2,903.6 2,774.9
Interest receivable and other assets ......... 5,768.5 5,783.0
Total assets ............................. $93,153.3 88,540.2
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing ........................ $17,796.7 16,253.3
Interest-bearing ........................... 38,998.5 39,203.8
Total deposits ........................... 56,795.2 55,457.1
Short-term borrowings ........................ 12,188.1 9,557.0
Accrued expenses and other liabilities ....... 4,508.3 3,737.2
Long-term debt ............................... 12,315.6 12,766.7
Total liabilities ........................ 85,807.2 81,518.0
Preferred stock .............................. 284.4 267.4
Unearned ESOP shares ......................... (97.9) (79.4)
Total preferred stock .................... 186.5 188.0
Common stock, $1 2/3 par value - authorized
2,000,000,000 shares:
Issued 771,113,149 and 769,113,149 shares
in 1998 and 1997, respectively ............ 1,285.2 1,281.9
Surplus ...................................... 482.8 419.6
Retained earnings ............................ 5,364.9 5,007.7
Accumulated other comprehensive income ....... 374.7 409.9
Notes receivable from ESOP ................... (5.4) (10.1)
Treasury stock - 10,850,171 and 10,493,685
common shares in 1998 and 1997, respectively (342.6) (274.8)
Total common stockholders' equity ........ 7,159.6 6,834.2
Total stockholders' equity ............... 7,346.1 7,022.2
Total liabilities and
stockholders' equity ................... $93,153.3 88,540.2
See notes to unaudited consolidated financial statements.
3
Norwest Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
In millions, except per common share amounts Quarter Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
INTEREST INCOME ON
Loans and leases ........................... $1,198.1 1,115.7 2,383.5 2,211.1
Investment and mortgage-backed securities
available for sale ........................ 317.6 364.8 631.3 690.3
Investment securities held to maturity ..... 6.5 7.1 13.1 14.1
Loans held for sale ........................ 68.4 55.9 138.9 112.1
Mortgages held for sale .................... 197.0 97.8 352.8 195.5
Money market investments ................... 10.1 9.4 21.8 30.5
Trading account securities ................. 16.9 10.8 27.7 15.3
Total interest income .................. 1,814.6 1,661.5 3,569.1 3,268.9
INTEREST EXPENSE ON
Deposits ................................... 372.1 358.6 739.2 714.7
Short-term borrowings ...................... 167.2 116.0 291.5 215.1
Long-term debt ............................. 194.2 187.1 390.7 381.0
Total interest expense ................. 733.5 661.7 1,421.4 1,310.8
Net interest income .................. 1,081.1 999.8 2,147.7 1,958.1
PROVISION FOR CREDIT LOSSES ................ 139.4 122.8 263.9 231.8
Net interest income after
provision for credit losses ........ 941.7 877.0 1,883.8 1,726.3
NON-INTEREST INCOME
Mortgage banking ........................... 287.4 177.3 540.1 399.1
Trust and investment fees and commissions .. 132.1 107.2 256.0 208.8
Service charges and credit related fees .... 162.5 141.6 310.5 275.7
Credit card fee revenue .................... 39.8 27.9 72.8 55.8
Insurance .................................. 110.5 99.9 205.2 190.1
Data processing ............................ 16.1 18.3 33.2 36.4
Net investment securities held to maturity
gains .................................... - 0.3 - 0.3
Net investment and mortgage-backed securities
available for sale gains .................. 34.6 8.6 42.1 4.2
Net venture capital gains .................. 53.2 93.3 111.9 112.5
Trading .................................... 42.1 27.3 66.4 52.2
Other ...................................... 71.9 54.7 122.3 105.9
Total non-interest income .............. 950.2 756.4 1,760.5 1,441.0
NON-INTEREST EXPENSES
Salaries and benefits ...................... 721.8 569.9 1,389.1 1,116.5
Net occupancy .............................. 88.6 79.6 174.4 159.6
Equipment rentals, depreciation and
maintenance .............................. 95.1 83.5 183.1 165.7
Business development ....................... 66.4 63.7 132.0 122.1
Communication .............................. 82.3 71.3 159.0 142.8
Data processing ............................ 42.1 42.3 77.8 87.4
Intangible asset amortization .............. 43.7 43.0 86.0 83.4
Other ...................................... 184.5 166.4 333.1 283.7
Total non-interest expenses ............ 1,324.5 1,119.7 2,534.5 2,161.2
INCOME BEFORE INCOME TAXES ................. 567.4 513.7 1,109.8 1,006.1
Income tax expense ......................... 185.3 182.3 360.0 352.8
NET INCOME ................................. $ 382.1 331.4 749.8 653.3
PER COMMON SHARE
Net Income
Basic .................................... $ 0.50 0.43 0.98 0.86
Diluted .................................. 0.49 0.43 0.96 0.85
Dividends ................................. 0.165 0.150 0.330 0.300
See notes to unaudited consolidated financial statements.
4
Norwest Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
In millions Quarter Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
Net income ................................. $ 382.1 331.4 749.8 653.3
Other comprehensive income, before income taxes:
Change in net unrealized gains (losses) on
securities available for sale:
Unrealized losses arising during
the period .............................. 132.6 450.2 102.6 157.6
Less: reclassification adjustment for gains
included in net income .................. 87.8 101.9 154.0 116.7
44.8 348.3 (51.4) 40.9
Foreign currency translation adjustment ... (3.1) 0.3 (2.8) (1.5)
Other comprehensive income, before
income taxes .............................. 41.7 348.6 (54.2) 39.4
Income tax expense (benefit) related to
components of other comprehensive income at an
effective income tax rate of 35 percent ... (14.6) (122.0) 19.0 (13.8)
Other comprehensive income, net of
income taxes .............................. 27.1 226.6 (35.2) 25.6
Comprehensive income ....................... $ 409.2 558.0 714.6 678.9
See notes to unaudited consolidated financial statements.
5
Norwest Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
In millions Six Months Ended
June 30,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ............................................................ $ 749.8 653.3
Adjustments to reconcile net income to net cash flows from
operating activities:
Provision for credit losses ....................................... 263.9 231.8
Depreciation and amortization ..................................... 592.0 410.2
Gains on sales of loans, securities and other assets, net ......... (370.8) (221.5)
Release of preferred shares to ESOP ............................... 18.0 19.3
Purchases of trading account securities ........................... (64,782.2) (39,517.4)
Proceeds from sales of trading account securities ................. 65,110.4 38,257.9
Originations of mortgages held for sale ........................... (46,938.6) (22,983.4)
Proceeds from sales of mortgages held for sale .................... 43,719.0 22,931.4
Originations of loans held for sale ............................... (459.2) (546.9)
Proceeds from sales of loans held for sale ........................ 389.2 585.4
Interest receivable ............................................... (29.9) (79.6)
Interest payable .................................................. (8.8) (16.8)
Other assets, net ................................................. (485.7) (425.3)
Other accrued expenses and liabilities, net ....................... 652.7 532.1
Net cash flows from operating activities ........................ (1,580.2) (169.5)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities and paydowns of investment securities
held to maturity .................................................. 19.4 0.5
Proceeds from maturities and paydowns of investment and mortgage-
backed securities available for sale .............................. 2,214.5 1,152.6
Proceeds from sales and calls of investment securities held to
maturity .......................................................... 34.8 44.0
Proceeds from sales and calls of investment and mortgage-backed
securities available for sale ..................................... 5,891.2 5,350.9
Purchases of investment securities held to maturity ................. (86.8) (94.3)
Purchases of investment and mortgage-backed securities available
for sale .......................................................... (8,091.3) (9,009.4)
Net change in banking subsidiaries' loans and leases ................ (412.6) (313.2)
Non-bank subsidiaries' loans and leases originated .................. (4,295.9) (4,032.2)
Principal collected on non-bank subsidiaries' loans and leases ...... 4,044.6 3,852.2
Purchases of premises and equipment ................................. (222.8) (151.5)
Proceeds from sales of premises, equipment & other real estate owned 116.5 65.5
Cash paid for acquisitions, net of cash and cash equivalents acquired (194.1) 27.1
Net cash flows used for investing activities ...................... (982.5) (3,107.8)
CASH FLOWS FROM FINANCING ACTIVITIES
Deposits, net ....................................................... 922.7 95.3
Short-term borrowings, net .......................................... 2,601.9 1,783.8
Long-term debt borrowings ........................................... 462.4 1,342.0
Repayments of long-term debt ........................................ (1,020.5) (2,385.1)
Issuances of common stock ........................................... 77.4 34.7
Repurchases of common stock ......................................... (270.4) (215.5)
Net decrease in notes receivable from ESOP .......................... 4.7 1.0
Dividends paid ...................................................... (259.0) (233.5)
Net cash flows used for financing activities ...................... 2,519.2 422.7
Net decrease in cash and cash equivalents ......................... (43.5) (2,854.6)
CASH AND CASH EQUIVALENTS
Beginning of period ................................................. 5,926.1 7,371.3
End of period .......................................................$ 5,882.6 4,516.7
See notes to unaudited consolidated financial statements.
6
Norwest Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
In Accumulated
millions, Unearned Other Notes
except for Preferred ESOP Common Sur- Retained Comprehensive Receivable Treasury
shares Stock Shares Stock plus Earnings Income from ESOP Stock Total
Balance,
December 31, 1996...... $ 249.8 (61.0) 625.9 948.6 4,248.2 297.1 (11.1) (233.3) 6,064.2
Comprehensive income:
Net income............ - - - - 653.3 - - - 653.3
Other................. - - - - - 25.6 - - 25.6
Dividends on
Common stock.......... - - - - (224.6) - - - (224.6)
Preferred stock....... - - - - (8.9) - - - (8.9)
Conversion of 19,245
preferred shares to
771,672 common shares. (19.3) - - 2.6 - - - 16.7 -
Cash payments received
on notes receivable
from ESOP............. - - - - - - 1.0 - 1.0
Issuance of 51,700
preferred shares to
ESOP.................. 51.7 (53.8) - 2.1 - - - - -
Release of preferred
shares to ESOP........ - 20.1 - (0.8) - - - - 19.3
Issuance of 4,154,330
common shares......... - - - 29.6 (49.3) - - 79.0 59.3
Issuance of 14,667,100
common shares for
acquisitions.......... - - 9.3 7.8 42.6 0.9 - 72.8 133.4
Repurchase of 8,460,946
common shares......... - - - - - - - (215.5) (215.5)
Balance,
June 30, 1997......... $ 282.2 (94.7) 635.2 989.9 4,661.3 323.6 (10.1) (280.3) 6,507.1
(Continued on page 8)
7
Norwest Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
(Continued from page 7)
In Accumulated
millions, Unearned Other Notes
except for Preferred ESOP Common Sur- Retained Comprehensive Receivable Treasury
shares Stock Shares Stock plus Earnings Income from ESOP Stock Total
Balance,
December 31, 1997...... $ 267.4 (79.4) 1,281.9 419.6 5,007.7 409.9 (10.1) (274.8) 7,022.2
Comprehensive income:
Net income............ - - - - 749.8 - - - 749.8
Other................. - - - - - (35.2) - - (35.2)
Dividends on
Common stock.......... - - - - (250.1) - - - (250.1)
Preferred stock....... - - - - (8.9) - - - (8.9)
Conversion of 18,043
preferred shares to
452,668 common shares. (18.0) - - 2.5 - - - 15.5 -
Cash payments received
on notes receivable
from ESOP............. - - - - - - 4.7 - 4.7
Issuance of 35,000
preferred shares to
ESOP.................. 35.0 (37.7) - 2.7 - - - - -
Release of preferred
shares to ESOP........ - 19.2 - (1.2) - - - - 18.0
Issuance of 5,273,982
common shares......... - - - 34.3 (97.8) - - 164.5 101.0
Issuance of 2,646,909
common shares for
acquisitions.......... - - 3.3 25.2 (35.8) - - 22.3 15.0
Repurchase of 6,730,045
common shares......... - - - (0.3) - - - (270.1) (270.4)
Balance,
June 30, 1998......... $ 284.4 (97.9) 1,285.2 482.8 5,364.9 374.7 (5.4) (342.6) 7,346.1
See notes to unaudited consolidated financial statements.
8
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Changes in Accounting Policies
Effective January 1, 1998, the corporation adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (FAS 130).
FAS 130 requires disclosures of the components of comprehensive income and
the accumulated balance of other comprehensive income within total
stockholders' equity. The adoption of FAS 130 has not had a material
effect on the corporation's financial statements.
2. Consolidated Statements of Cash Flows
Supplemental disclosures of cash flow information for the six months ended
June 30 include:
In millions 1998 1997
Interest...................................... $1,430.2 1,327.5
Income taxes.................................. 18.5 84.0
Transfer of loans to other real estate owned.. 70.8 26.8
See Notes 8 and 13 for certain non-cash common and preferred stock
transactions.
3. 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, 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 and the 6 3/4 percent convertible subordinated debentures. Amounts
used in the determination of basic and diluted earnings per share for the
quarters and six months ended June 30, 1998 and 1997 are shown in the
table below.
In millions, except shares
Quarter Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
Net income ................ $ 382.1 331.4 749.8 653.3
Less dividends accrued on
preferred stock ......... 4.5 4.5 8.9 8.9
Income available to common
stockholders ............ $ 377.6 326.9 740.9 644.4
Weighted average shares
outstanding ............. 757,867,635 749,137,792 757,787,480 747,366,474
Adjustments for dilutive
securities:
Assumed exercise of stock
options ............... 13,092,213 10,255,394 13,655,151 10,288,454
Assumed conversion of
convertible subordinated
debentures ............ 34,400 34,800 34,469 34,800
Diluted common shares ..... 770,994,248 759,427,986 771,477,100 757,689,728
9
4. Investment Securities
The amortized cost and fair value of investment securities at June 30, 1998
were:
In millions Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Available for sale:
U.S. Treasury and federal agencies .. $ 3,631.8 32.2 (3.9) 3,660.1
State, municipal and housing -
tax exempt ......................... 1,426.8 84.1 (0.5) 1,510.4
Other ............................... 1,057.8 232.4 (8.9) 1,281.3
Total investment securities
available for sale .............. 6,116.4 348.7 (13.3) 6,451.8
Mortgage-backed securities:
Federal agencies ................... 11,452.4 303.8 (5.5) 11,750.7
Collateralized mortgage
obligations ....................... 225.0 4.7 (0.1) 229.6
Total mortgage-backed securities
available for sale .............. 11,677.4 308.5 (5.6) 11,980.3
Total investment and
mortgage-backed securities
available for sale .................. $17,793.8 657.2 (18.9) 18,432.1
Investment securities held to
maturity ........................... $ 752.4 25.7 (5.3) 772.8
Total investment securities .......... $18,546.2 682.9 (24.2) 19,204.9
Interest income on investment securities for the quarters and six months ended
June 30 was:
Quarter Six Months
In millions 1998 1997 1998 1997
Available for sale:
U.S. Treasury and federal agencies .. $ 62.8 64.4 97.1 96.5
State, municipal and housing -
tax exempt ........................ 20.6 20.0 40.9 34.6
Other ............................... 11.6 9.7 23.7 24.2
Total investment securities
available for sale .............. 95.0 94.1 161.7 155.3
Mortgage-backed securities:
Federal agencies ................... 218.6 266.7 461.0 526.6
Collateralized mortgage
obligations ....................... 4.0 4.0 8.6 8.4
Total mortgage-backed securities
available for sale .............. 222.6 270.7 469.6 535.0
Total investment and mortgage-backed
securities available for sale ...... $ 317.6 364.8 631.3 690.3
Investment securities held to
maturity ........................... $ 6.5 7.1 13.1 14.1
Total investment securities .......... $ 324.1 371.9 644.4 704.4
Certain investment securities held to maturity with a total amortized cost
of $11.9 million and $34.8 million for the quarter and six months ended
June 30, 1998, respectively, and $38.5 million and $43.7 million for the
quarter and six months ended June 30, 1997, respectively, were sold by the
corporation due to significant deterioration in the creditworthiness of the
related issuers or because such securities were called by the issuers prior
to maturity. Sales and calls of investment securities resulted in no gain
or loss for the quarter and six months ended June 30, 1998 and a gain of
$0.3 million for the quarter and six months ended June 30, 1997.
10
5. Loans and Leases
The carrying values of loans and leases at June 30, 1998 and
December 31, 1997 were:
In millions June 30, December 31,
1998 1997
Commercial, financial and industrial ..... $11,338.4 10,680.2
Agricultural ............................. 1,270.0 1,276.2
Real estate
Secured by 1-4 family residential
properties ........................... 10,915.3 10,746.6
Secured by development properties ...... 1,969.9 2,131.4
Secured by construction and land
development .......................... 1,049.4 1,005.8
Secured by owner-occupied properties ... 3,001.4 2,866.1
Consumer ................................. 11,877.0 12,298.0
Credit card .............................. 1,569.3 1,632.2
Lease financing .......................... 1,029.8 921.2
Foreign
Consumer ............................... 1,217.2 864.0
Commercial ............................. 223.7 212.4
Total loans and leases ............... 45,461.4 44,634.1
Unearned discount ........................ (2,070.6) (2,112.5)
Total loans and leases, net of
unearned discount .................... $43,390.8 42,521.6
Changes in the allowance for credit losses for the quarters and six months
ended June 30 were:
Quarter Six Months
In millions 1998 1997 1998 1997
Balance at beginning of period ....... $1,236.3 1,062.6 1,233.9 1,040.8
Allowance related to assets
acquired, net ..................... 26.0 0.5 35.3 25.3
Provision for credit losses ........ 139.4 122.8 263.9 231.8
Credit losses ...................... (177.3) (157.0) (350.8) (303.7)
Recoveries ......................... 37.7 42.2 79.8 76.9
Net credit losses ................ (139.6) (114.8) (271.0) (226.8)
Balance at end of period ............. $1,262.1 1,071.1 1,262.1 1,071.1
11
6. Non-performing Assets and 90-day Past Due Loans and Leases
Total non-performing assets and 90-day past due loans and leases at June 30,
1998 and 1997 and December 31, 1997 were:
In millions June 30, December 31,
1998 1997 1997
Impaired loans
Non-accrual ........................... $ 128.4 113.5 89.4
Restructured .......................... 0.7 0.2 0.1
Total impaired loans ................ 129.1 113.7 89.5
Other non-accrual loans and leases ...... 86.4 74.2 88.7
Total non-accrual and
restructured loans and leases ........ 215.5 187.9 178.2
Other real estate owned ................. 49.3 44.8 50.3
Total non-performing assets ........... 264.8 232.7 228.5
Loans and leases past due 90 days or more* 165.0 115.4 153.8
Total non-performing assets and
90-day past due loans and leases ..... $ 429.8 348.1 382.3
* Excludes non-accrual and restructured loans and leases.
The average balances of impaired loans for the six months ended June 30,
1998 and 1997 were $115.9 million and $108.4 million, respectively. The
allowance for credit losses related to impaired loans at June 30, 1998 and
December 31, 1997 was $38.3 million and $33.5 million, respectively.
Impaired loans of $3.3 million and $1.8 million were not subject to a
related allowance for credit losses at June 30, 1998 and December 31, 1997,
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 the
quarters and six months ended June 30 was:
Quarter Six Months
In millions 1998 1997 1998 1997
Interest
As originally contracted ........... $ 6.4 6.1 9.9 11.3
As recognized ...................... (1.4) (0.9) (2.0) (1.4)
Reduction of interest income ..... $ 5.0 5.2 7.9 9.9
7. Long-term Debt
During the first six months of 1998, certain subsidiaries of the
corporation received $339.8 million of advances from the Federal Home Loan
Bank. Advances of $39.8 million were issued bearing interest at fixed
rates ranging from 5.47 percent to 6.19 percent, which mature between
March 2001 and December 2027. Advances of $300.0 million were issued
bearing interest at rates of one-month LIBOR less 15 basis points, which
mature between July 1998 and March 1999. Advances maturing within the next
year are expected to be refinanced, extending the maturity of such
borrowings beyond one year. Norwest Financial, Inc. and its subsidiaries
issued $111.6 million in senior notes bearing interest at fixed rates
ranging from 5.50 percent to 6.08 percent, which mature between April 2003
and March 2008. Norwest Financial, Inc. and its subsidiaries assumed
$104.8 million in senior notes in connection with its acquisition of The T.
Eaton Acceptance Company Limited, bearing interest at fixed rates ranging from
7.55 percent to 9.00 percent, which mature between December 1999 to
December 2000.
12
8. Stockholders' Equity
The table below is a summary of the corporation's preferred and preference
stock at June 30, 1998 and December 31, 1997. A detailed description of the
corporation's preferred and preference stock is provided in Note 10 to the
audited consolidated financial statements included in the corporation's 1997
annual report on Form 10-K.
In millions, except share amounts
Annual
Dividend
Shares Outstanding Rate at Amount Outstanding
June 30, December 31, June 30, June 30, December 31,
1998 1997 1998 1998 1997
Cumulative
Tracking, $200
stated value .............. 980,000 980,000 9.30% $ 196.0 196.0
1998 ESOP Cumulative
Convertible, $1,000 stated
value ..................... 20,636 - 10.75% 20.6 -
1997 ESOP Cumulative
Convertible, $1,000 stated
value ..................... 19,982 22,927 9.50% 20.0 23.0
1996 ESOP Cumulative
Convertible, $1,000 stated
value ..................... 22,458 22,831 9.50% 22.5 22.8
1995 ESOP Cumulative
Convertible, $1,000 stated
value ..................... 20,396 20,625 10.00% 20.4 20.6
ESOP Cumulative Convertible,
$1,000 stated value ....... 9,890 10,022 9.00% 9.9 10.0
Less: Cumulative
Tracking shares held by
a subsidiary .............. (25,000) (25,000) (5.0) (5.0)
1,048,362 1,031,405 284.4 267.4
Unearned ESOP shares ........ (97.9) (79.4)
Total preferred stock ... $ 186.5 188.0
On February 24, 1998, the corporation issued 35,000 shares of 1998 ESOP
Cumulative Convertible Preferred Stock, $1,000 stated value per share
("1998 ESOP Preferred Stock"), in the stated amount of $35.0 million at a
premium of $2.7 million; a corresponding charge of $37.7 million was
recorded to unearned ESOP shares.
On February 24, 1997, the corporation issued 51,700 shares of 1997 ESOP
Cumulative Convertible Preferred Stock, $1,000 stated value per share
("1997 ESOP Preferred Stock"), in the stated amount of $51.7 million at a
premium of $2.1 million; a corresponding charge of $53.8 million was
recorded to unearned ESOP shares.
During the quarter and six months ended June 30, 1998, 9,466 and 18,043
shares of ESOP Preferred Stock were converted into 246,201 and 452,668
shares of common stock of the corporation, respectively. During the
quarter and six months ended June 30, 1997, 7,678 and 19,245 shares of ESOP
Preferred Stock were converted into 275,040 shares and 771,672 shares of
common stock of the corporation, respectively.
Accumulated other comprehensive income at June 30, 1998 and December 31,
1997 is comprised of the following:
June 30, December 31,
1998 1997
Unrealized gains on securities available
for sale ............................. $ 386.0 419.4
Foreign currency translation ........... (11.3) (9.5)
Accumulated other comprehensive income $ 374.7 409.9
13
9. Business Segments
The corporation's operations include three primary business segments:
banking, mortgage banking and consumer finance. See Note 16 to the audited
consolidated financial statements included in the corporation's annual
report on Form 10-K for the year ended December 31, 1997 for a detailed
description of each business segment. Selected financial information by
business segment for the quarters and six months ended June 30 is included
in the following summary:
In millions
Quarter Six Months
1998 1997 1998 1997
Revenues:*
Banking ................ $ 1,697.1 1,608.0 3,285.6 3,099.8
Mortgage Banking ....... 531.1 347.1 980.5 691.5
Norwest Financial ...... 536.6 462.8 1,063.5 918.6
Total ................ $ 2,764.8 2,417.9 5,329.6 4,709.9
Organizational earnings:*
Banking ................ $ 274.4 229.7 538.3 456.2
Mortgage Banking ....... 54.0 35.3 105.9 69.1
Norwest Financial ...... 53.7 66.4 105.6 128.0
Total ................ $ 382.1 331.4 749.8 653.3
Total assets:
Banking ................ $60,404.4 62,759.1
Mortgage Banking ....... 21,929.9 12,111.3
Norwest Financial ...... 10,819.0 8,985.9
Total ................ $93,153.3 83,856.3
* 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 allocation of
federal income taxes.
10. Mortgage Banking Activities
Additional information about mortgage banking non-interest income for
the quarters and six months ended June 30 is presented below:
Quarter Six Months
In millions 1998 1997 1998 1997
Origination and other
closing fees ............ $129.1 77.8 238.2 136.4
Servicing fees ............ (19.0) 45.7 31.2 140.8
Net gains (losses) on sales
of servicing rights ..... 16.6 (2.6) 16.3 (2.4)
Net gains on sales of
mortgages ............... 98.5 14.5 135.3 46.0
Other ..................... 62.2 41.9 119.1 78.3
Total mortgage banking
non-interest income ... $287.4 177.3 540.1 399.1
14
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. The outstanding balances of serviced loans
were $220.3 billion and $191.1 billion at June 30, 1998 and 1997,
respectively, and $205.8 billion at December 31, 1997.
Changes in capitalized mortgage servicing rights for the quarters and six
months ended June 30 were:
Quarter Six Months
In millions 1998 1997 1998 1997
Mortgage servicing rights:
Balance at beginning
of period ............ $2,874.9 2,785.1 2,839.1 2,712.7
Originations ........... 180.9 82.0 310.8 159.8
Purchases and other
additions ............ 190.2 76.9 307.7 108.6
Sales .................. (56.1) - (56.1) (17.4)
Amortization ........... (175.2) (132.8) (328.3) (218.0)
Other .................. (46.9) (27.4) (105.4) 38.1
2,967.8 2,783.8 2,967.8 2,783.8
Less valuation allowance (64.2) (64.2) (64.2) (64.2)
Balance at end of period . $2,903.6 2,719.6 2,903.6 2,719.6
The fair value of capitalized mortgage servicing rights at June 30, 1998
was approximately $3.3 billion, calculated using discount rates ranging
from 500 to 700 basis points over the ten-year U.S. Treasury rate.
There were no changes in the valuation allowance for capitalized mortgage
servicing rights during the quarters and six months ended June 30, 1998 and
1997.
11. Trading Revenues
For the quarters and six months ended June 30, trading revenues were
derived from the following activities:
Quarter Six Months
In millions 1998 1997 1998 1997
Interest income:
Securities .............................. $ 16.9 10.8 27.7 15.3
Non-interest income:
Gains(losses) on securities sold ........ 36.2 16.3 48.7 31.6
Swaps and other interest rate contracts . 0.5 0.3 0.5 0.6
Foreign exchange trading ................ 2.9 3.9 6.5 7.6
Options ................................. 1.7 1.7 2.0 3.8
Futures ................................. 0.8 5.1 8.7 8.6
Total non-interest income ............. 42.1 27.3 66.4 52.2
Total trading revenues .................... $ 59.0 38.1 94.1 67.5
12. Derivative Activities
The corporation and its subsidiaries, as end-users, utilize various types of
derivative products (principally interest rate swaps,interest rate caps
and floors, futures and options on futures contracts) as part of an
overall interest rate risk management strategy. See Note 15 to the
audited consolidated financial statements included in the corporation's
annual report on Form 10-K for the year ended December 31, 1997 for a
detailed description of derivative products utilized in end-user activities.
For the six months ended June 30, 1998, end-user derivative activities
increased interest income by $3.8 million and decreased interest expense by
$45.6 million, for a total benefit to net interest income of $49.4 million.
For the same period in 1997, the total benefit to net interest income was
$35.3 million.
Activity in the notional amounts of end-user derivatives for the six months
ended June 30, 1998 is summarized as follows:
In millions December 31, Amortization June 30,
1997 Additions & Maturities Terminations 1998
Swaps:
Generic receive fixed ..... $ 4,316 - (300) - 4,016
Amortizing receive fixed .. 3,185 - (188) - 2,997
Generic pay fixed ......... 221 123 (3) - 341
Basis ..................... 29 29 (29) - 29
Total swaps ............. 7,751 152 (520) - 7,383
Interest rate caps
and floors ................ 14,377 - (327) - 14,050
Futures contracts ........... 4,690 15,105 (4,903) (9,836) 5,056
Options on futures contracts 9,886 41,605 (23,963) (15,065) 12,463
Security options ............ 1,240 24,526 (12,801) (7,040) 5,925
Forward foreign exchange
contracts ................. 491 188 (556) - 123
Total ....................... $ 38,435 81,576 (43,070) (31,941) 45,000
Deferred gains and losses on closed end-user derivatives were not material
at June 30, 1998 and December 31, 1997.
A key assumption in the information which follows is that rates remain
constant at June 30, 1998 levels. To the extent that rates change, both
the average notional and variable interest rate information may change.
16
The following table presents the maturities and weighted average rates for
end-user derivatives by type:
Dollars in millions
Maturity
There-
June 30, 1998 1998 1999 2000 2001 2002 after Total
Swaps:
Generic receive fixed-
Notional value ........$ 450 766 400 500 400 1,500 4,016
Weighted avg.
receive rate ........ 6.02% 7.28 6.17 6.35 6.59 6.53 6.56
Weighted avg. pay rate 5.68% 5.67 5.67 5.71 5.69 5.69 5.69
Amortizing receive fixed-
Notional value ........$ - 1,786 1,211 - - - 2,997
Weighted avg.
receive rate ........ -% 7.46 6.53 - - - 7.08
Weighted avg. pay rate -% 5.52 5.65 - - - 5.57
Generic pay fixed-
Notional value ........$ 3 4 4 110 101 119 341
Weighted avg.
receive rate ........ 5.69% 8.50 5.51 5.67 5.69 5.69 5.71
Weighted avg. pay rate 6.18% 9.24 5.97 5.76 5.99 5.78 5.88
Basis-
Notional value ........$ - - - - - 29 29
Weighted avg.
receive rate ........ -% - - - - 5.11 5.11
Weighted avg. pay rate -% - - - - 2.69 2.69
Interest rate caps and
floors (1):
Notional value ........$ 200 400 3,200 4,750 5,500 - 14,050
Futures contracts (1):
Notional value ........$ 5,056 - - - - - 5,056
Options on futures
contracts (1):
Notional value ........$12,463 - - - - - 12,463
Security options (1):
Notional value ........$ 5,900 - - 25 - - 5,925
Forward foreign exchange
contracts (1):
Notional value ........$ 123 - - - - - 123
Total notional value ....$24,195 2,956 4,815 5,385 6,001 1,648 45,000
Total weighted avg.
rates on swaps:
Receive rate ........ 6.02% 7.41 6.44 6.22 6.41 6.44 6.73
Pay rate ............ 5.68% 5.57 5.66 5.72 5.75 5.64 5.64
(1) Average rates are not meaningful for interest rate caps and floors, futures
contracts, options or forward foreign exchange contracts.
Note: Weighted average variable rates are based on the actual rates as of
June 30, 1998.
17
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:
In millions Balance Sheet Category
Loans Mortgage Interest- Short- Long-
Investment and Servicing bearing term term
Securities Leases Rights Deposits Borrowings Debt Total
Swaps:
Pay variable
Unrealized gains ..... $ - - 41.8 69.2 - 94.2 205.2
Unrealized (losses) .. - - - - - (1.0) (1.0)
Pay variable net ..... - - 41.8 69.2 - 93.2 204.2
Pay fixed
Unrealized gains ..... - 0.2 - 0.5 - - 0.7
Unrealized losses .... - (1.5) - - - - (1.5)
Pay fixed net ........ - (1.3) - 0.5 - - (0.8)
Basis
Unrealized (losses) .. (0.1) - - - - - (0.1)
Total unrealized gains . - 0.2 41.8 69.7 - 94.2 205.9
Total unrealized (losses) (0.1) (1.5) - - - (1.0) (2.6)
Total net ............ $ (0.1) (1.3) 41.8 69.7 - 93.2 203.3
Interest rate caps and floors:
Unrealized gains ..... $ - - 188.4 - - - 188.4
Unrealized (losses) .. - - - - - - -
Total net .......... $ - - 188.4 - - - 188.4
Futures contracts:
Unrealized gains ..... $ - 0.2 44.2 - - - 44.4
Unrealized (losses) .. - (4.9) - - - - (4.9)
Total net .......... $ - (4.7) 44.2 - - - 39.5
Options on futures contracts:
Unrealized gains ..... $ - 0.5 26.2 - - - 26.7
Unrealized (losses) .. - (1.9) (4.5) - - - (6.4)
Total net .......... $ - (1.4) 21.7 - - - 20.3
Security options:
Unrealized gains ..... $ - 11.7 - - - - 11.7
Unrealized (losses) .. - (4.2) - - - - (4.2)
Total net .......... $ - 7.5 - - - - 7.5
Forward foreign exchange contracts:
Unrealized (losses) .. $ - - - - (2.1) - (2.1)
Grand total
unrealized gains ... $ - 12.6 300.6 69.7 - 94.2 477.1
Grand total
unrealized (losses) (0.1) (12.5) (4.5) - (2.1) (1.0) (20.2)
Grand total net ...... $ (0.1) 0.1 296.1 69.7 (2.1) 93.2 456.9
18
As a result of interest rate fluctuations, off-balance sheet derivatives
have unrealized appreciation or depreciation in market values as compared
with their cost. As these derivatives hedge certain assets and liabilities
of the corporation, as noted in the table above, there has been offsetting
unrealized appreciation and depreciation in the assets and liabilities
hedged.
The corporation has entered into mandatory and standby forward contracts,
including options on forward contracts, to reduce interest rate risk on
certain mortgage loans held for sale and other commitments. The contracts
provide for the delivery of securities at a specified future date, at a
specified price or yield. At June 30, 1998, the corporation had forward
contracts and options on forward contracts totaling $31.2 billion, all of
which mature within 180 days. Gains and losses on forward contracts and
options on forward contracts are included in the determination of market
value of mortgages held for sale.
At June 30, 1998, the corporation's trading account portfolio included
futures of $325 million notional value, which are valued at market with any
gains or losses recognized currently.
13. 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. At June 30,
1998, the corporation had six pending acquisitions with total assets of
approximately $95.5 billion, and it is anticipated that approximately 889.9
million common shares will be issued upon completion of these acquisitions.
The pending acquisitions include the proposed merger of the corporation and
Wells Fargo & Company pursuant to an agreement signed on June 7, 1998. In
accordance with the agreement, common stockholders of Wells Fargo will
receive ten shares of Norwest common stock in exchange for each share of
Wells Fargo & Company common stock. Each of the corporation's pending
acquisitions, subject to any required approvals by stockholders and regulatory
agencies, is expected to be completed by the end of 1998.
19
Transactions completed in the six months ended June 30, 1998 include:
In millions, except share amounts Common
Cash Shares Method of
Date Assets Paid Issued Accounting
Finvercon S.A. Compania
Financiera
Argentina (F) ................. January 8 $ 57.4 $ 19.7 - Purchase
Fidelity Bancshares, Inc.
Fort Worth, Texas (B) ......... January 13 111.0 16.1 - Purchase
Heritage Trust Company,
Grand Junction, Colorado (B)... February 20 1.6 - 136,950 Purchase
Founders Trust Company
Dallas, Texas (B) ............. March 2 1.6 6.9 - Purchase
The T. Eaton Acceptance Company
Limited and National Retail Credit
Services Limited, Don Mills,
Ontario, Canada (F) ........... April 21 370.0 247.6 - Purchase
WMC Mortgage Corporation
Woodland Hills, California (M). April 30 4.9 21.9 - Purchase
First Bank Pooling of
Katy, Texas (B) ............... May 22 309.7 - 1,999,980 Interests*
First Bank of Grants
Grants, New Mexico (B) ........ May 28 44.9 - 212,000 Purchase
Spring Mountain Escrow Company
Irvine, California (M) ........ May 29 1.3 1.7 - Purchase
Emjay Corporation
Milwaukee, Wisconsin (B) ...... June 15 5.8 - 297,979 Purchase
$ 908.2 $ 313.9 2,646,909
* Pooling of interests transaction was not material to the corporation's
consolidated financial statements; accordingly, previously reported results
have not been restated.
(B) - Banking Group; (M) - Mortgage Banking; (F) - Norwest Financial
20
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Management's discussion and analysis should be read together with the
financial statements submitted under Item 1 of Part I and with Norwest
Corporation's 1997 Annual Report on Form 10-K.
EARNINGS PERFORMANCE
The corporation reported net income of $382.1 million for the quarter ended
June 30, 1998, a 15.3 percent increase over the $331.4 million earned in
the second quarter of 1997. Diluted earnings per share were 49 cents,
compared with 43 cents in the second quarter of 1997, an increase of 14.0
percent. Basic earnings per share increased 16.3 percent to 50 cents per
common share in the second quarter of 1998 from 43 cents a year earlier.
Return on realized common equity was 23.1 percent and return on assets was
1.65 percent for the second quarter of 1998, compared with 22.1 percent and
1.61 percent, respectively, in the second quarter of 1997.
For the six months ended June 30, 1998, net income was $749.8 million, or
96 cents per diluted common share, an increase of 14.8 percent and 12.9
percent, respectively, over the $653.3 million, or 85 cents per diluted
common share, earned in the first six months of 1997. Return on realized
common equity was 23.0 percent and return on assets was 1.67 percent for
the first six months of 1998 compared with 22.4 percent and 1.62 percent,
respectively, in the same period a year ago.
ORGANIZATIONAL EARNINGS
The organizational earnings of the corporation's primary business segments
are included in Note 9 to the unaudited consolidated financial statements
for the three and six months ended June 30, 1998 and 1997 and are discussed
in the following paragraphs.
Banking Group
The Banking Group reported second quarter 1998 earnings of $274.4 million,
a 19.5 percent increase over the second quarter 1997 earnings of $229.7
million. For the six months ended June 30, 1998, earnings increased 18.0
percent to $538.3 million compared with $456.2 million for the same period
in 1997. The increased earnings in the first six months of 1998 reflect a 3.0
percent increase in tax-equivalent net interest income to $1,436.2
million, primarily due to a 15 basis point increase in net interest margin.
The Banking Group's provision for credit losses for the six months ended June
30, 1998 decreased $26.6 million to $68.7 million from $95.3 million a year
earlier, as average loans and leases rose $869.7 million, or 2.7 percent, and
net charge-offs as a percent of average loans and leases decreased 13 basis
points to 0.51 percent. Non-interest income rose $221.0 million to $1,060.6
million for the first six months of 1998, due primarily to growth in trust and
investment fees and commissions, service charges and fees, credit card fee
revenue, and insurance revenue, partially offset by lower net venture capital
gains. Non-interest expenses of $1,623.1 million for the first six months of
1998 were $190.1 million higher when compared with the first six months of
1997, reflecting additional operating expenses from acquired companies.
21
Mortgage Banking
Mortgage Banking earned $54.0 million in the current quarter compared with
$35.3 million in the second quarter of 1997. For the first six months of
1998, Mortgage Banking earned $105.9 million compared with $69.1 million in
the same period of 1997. See Note 10 to the unaudited consolidated
financial statements for additional information about Mortgage Banking
revenues for the three and six months ended June 30, 1998 and 1997.
The growth in Mortgage Banking earnings over the first half of 1997
primarily reflects a 74.6 percent increase in origination and other
closing fees associated with the low mortgage interest rate environment.
Mortgage loan originations amounted to $46.9 billion during the first six
months of 1998, compared with $23.0 billion in the first six months of
1997. Combined gains on sales of mortgages and servicing rights amounted to
$151.6 million in the first six months of 1998, compared with $43.6 million
in the same period of 1997. The growth in Mortgage Banking earnings is
also due to higher tax-equivalent net interest income related to increases
in the average balance of mortgage loans held for sale. The growth in
origination and closing fees, gains on sales of mortgages and servicing
rights, and net interest income was partially offset by lower servicing
revenue, reflecting increased amortization of capitalized mortgage
servicing rights due to the low mortgage interest rate environment.
Amortization of capitalized mortgage servicing rights was $328.3 million in
the first six months of 1998, compared with $218.0 million in the first
half of 1997.
The percentage of fundings attributed to mortgage loan refinancings was
approximately 51 percent in the first half of 1998, compared with 21
percent for the same period of 1997. The unclosed pipeline of mortgage
loans was $19.4 billion at June 30, 1998, compared with $10.6 billion at
December 31, 1997. The servicing portfolio had a weighted average coupon of
7.61 percent and 7.75 percent at June 30, 1998 and December 31, 1997,
respectively.
Norwest Financial
Norwest Financial (including Norwest Financial Services, Inc. and Island
Finance) reported earnings of $53.7 million in the second quarter of 1998,
compared with $66.4 million in the second quarter of 1997, a decrease of
19.0 percent. For the first six months of 1998, Norwest Financial's net
income was $105.6 million, down 17.5 percent from the first six months of
1997. The decrease in net income for the quarter and six months ended
June 30, 1998 was primarily due to higher levels of charge-offs and non-
interest expenses, partially offset by an increase in tax-equivalent net
interest income.
Norwest Financial's net charge-offs in the first six months of 1998 were
$185.2 million, or 4.16 percent of average loans, compared with $125.6
million, or 3.39 percent of average loans, in the same period in 1997. The
increase in net charge-offs was primarily attributable to increased
bankruptcies in Puerto Rico and the acquisition of Fidelity Acceptance
Corporation in August 1997. Non-interest expenses for the first six months
of 1998 increased 21.1 percent over the same period of 1997 primarily due
to the acquisition of Fidelity Acceptance Corporation. Tax-equivalent net
interest income for the first half of 1998 increased 16.2 percent over the
same period of last year due to a 19.8 percent increase in average earning
assets partially offset by a decrease of 23 basis points in net interest
margin.
22
CONSOLIDATED INCOME STATEMENT ANALYSIS
Net Interest Income
Consolidated tax-equivalent net interest income was $1,093.0 million in the
second quarter of 1998, compared with $1,011.6 million in the second quarter of
1997, an increase of 8.0 percent. For the first six months of 1998,
tax-equivalent net interest income increased 9.8 percent from the same period in
1997 to $2,171.7 million. Growth in tax-equivalent net interest income over the
second quarter ended June 30, 1997 was primarily due to an 11.6 percent growth
in average earning assets, partially offset by a 15 basis point decrease in net
interest margin. Net interest margin, the ratio of annualized tax-equivalent
net interest income to average earning assets, was 5.54 percent in the second
quarter of 1998, compared with 5.69 percent in the second quarter of 1997. The
decrease in net interest margin from second quarter of 1997 is principally due
to a higher mix of mortgages held for sale and investment securities that have
lower yields than other interest-earning assets.
The following table summarizes changes in tax-equivalent net interest income
between the quarters ended June 30 and March 31 and the six months ended June
30.
Changes in Tax-Equivalent Net Interest Income*
In millions 2Q 98 2Q 98 6 Mos. 98
from from from
2Q 97 1Q 98 6 Mos. 97
Increase (decrease) due to:
Change in earning asset volume ............ $112.2 57.5 195.7
Change in volume of interest-free funds ... 8.7 (1.2) 27.4
Change in net return from
Interest-free funds ...................... 1.6 1.8 1.8
Interest-bearing funds ................... (36.0) (18.9) (38.8)
Change in earning asset mix ............... (8.3) (22.0) (4.3)
Change in funding mix ..................... 3.2 (2.9) 11.1
Change in tax-equivalent net interest income. $ 81.4 14.3 192.9
* Net interest income is presented on a tax-equivalent basis using a
federal incremental tax rate of 35 percent in each period presented.
Provision for Credit Losses
The corporation provided $139.4 million for credit losses in the second
quarter of 1998, compared with $122.8 million in the same period a year
ago. Net credit losses totaled $139.6 million and $114.8 million for the
three months ended June 30, 1998 and 1997, respectively. As a percentage
of average loans and leases, net credit losses were 131 basis points in the
second quarter of 1998, compared with 114 basis points in the same period a
year ago.
For the first six months of 1998, the provision for credit losses totaled
$263.9 million, compared with $231.8 million in the first six months of
1997. Net credit losses were $271.0 million, or 1.28 percent of average
loans and leases, for the six months ended June 30, 1998, compared with
$226.8 million, or 1.14 percent, for the same period in 1997. The increase
in net credit losses over 1997 is principally due to higher levels of
consumer credit charge-offs.
Non-interest Income
Consolidated non-interest income was $950.2 million in the second quarter
of 1998, an increase of $193.8 million, or 25.6 percent, from the second
quarter of 1997. For the six months ended June 30, 1998, non-interest
23
income was up $319.5 million to $1,760.5 million, an increase of 22.2
percent over 1997. Contributing to the 1998 increases was continued growth
in mortgage banking revenue, trust and investment fees and commissions,
service charges and fees, credit card fee revenue and insurance revenue,
partially offset by lower net venture capital gains.
The increase in mortgage banking revenue is attributed to increases in
origination and other closing fees and gains on sales of mortgages and
servicing rights, partially offset by increased amortization of capitalized
mortgage servicing rights related to the low mortgage interest rate
environment. Mortgage banking revenue derived from sales of servicing
rights are largely dependent upon portfolio characteristics and prevailing
market conditions. See Note 10 to the unaudited consolidated financial
statements for additional information about mortgage banking revenues for
the three and six months ended June 30, 1998 and 1997.
The increases in trust and investment fees and commissions, service charges
and fees, credit card fee revenue, and insurance revenue reflect overall
increases in business activity due to acquisitions and marketing efforts.
Net venture capital gains were $53.2 million for the three months and
$111.9 million for the six months ended June 30, 1998, compared with $93.3
million and $112.5 million, respectively, for the same periods in 1997.
Sales of venture capital securities generally relate to timing of holdings
becoming publicly traded and subsequent market conditions, causing venture
capital gains to be unpredictable in nature. Net unrealized appreciation
in the venture capital investment portfolio was $160.6 million at June 30,
1998.
The corporation's trading revenue for the second quarter of 1998 was $42.1
million, compared with $27.3 million in the second quarter of 1997.
Trading revenues amounted to $66.4 million in the first half of 1998,
compared with $52.2 million in the same period of 1997. See Note 11 to
the unaudited consolidated financial statements for a detailed analysis of
trading revenues for the three and six months ended June 30, 1998 and 1997.
Non-interest Expense
Consolidated non-interest expense was $1,324.5 million in the second
quarter of 1998, an increase of 18.3 percent from the second quarter of
1997. For the first six months of 1998, consolidated non-interest expense
increased $373.3 million, or 17.3 percent, over the six months ended
June 30, 1997. The increase in non-interest expense reflects increased
Mortgage Banking expenses associated with higher origination volume and
additional operating expenses related to acquisitions.
CONSOLIDATED BALANCE SHEET ANALYSIS
At June 30, 1998, earning assets were $79.4 billion, an increase of 5.9
percent from $75.0 billion at December 31, 1997. This increase was primarily
due to a $3.3 billion increase in mortgages held for sale related to the
increased mortgage origination activity during the first half of 1998. At
June 30, 1998, interest-bearing liabilities totaled $63.5 billion, a 3.2
percent increase from $61.5 billion at December 31, 1997. The increase was
primarily due to a $2.6 billion increase in short-term borrowings to fund
mortgage originations.
24
Credit Quality
The major categories of loans and leases are included in Note 5 to the
unaudited consolidated financial statements for the quarter ended June 30,
1998.
At June 30, 1998, the allowance for credit losses totaled $1,262.1 million,
or 2.91 percent of loans and leases outstanding. Comparable amounts were
$1,071.1 million, or 2.63 percent, at June 30, 1997, and $1,233.9 million,
or 2.90 percent, at December 31, 1997. The ratio of the allowance for
credit losses to total non-performing assets and 90-day past due loans and
leases was 293.6 percent at June 30, 1998, compared with 307.7 percent at
June 30, 1997 and 322.7 percent at December 31, 1997.
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 allocation of the allowance for credit losses to major categories of
loans at June 30, 1998 and December 31, 1997 was:
June 30, December 31,
1998 1997
Commercial .................... $ 231.5 207.7
Consumer ...................... 426.6 422.6
Real estate ................... 164.7 168.1
Foreign ....................... 71.7 42.0
Unallocated ................... 367.6 393.5
Total ...................... $1,262.1 1,233.9
Non-performing assets and 90-day past due loans and leases totaled $429.8
million, or 0.46 percent of total assets, at June 30, 1998, compared with
$348.1 million, or 0.42 percent, at June 30, 1997, and $382.3 million, or
0.43 percent, at December 31, 1997.
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 Banking
Group operates in 16 states, largely in the Midwest, Western/Rocky Mountain
and Southwest regions of the country. Distribution of average loans by
region during the first half of 1998 was approximately 51 percent in the
Midwest, 27 percent in the Western/Rocky Mountain and 22 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 year to date in 1998
are: California $8,601.0 million; Minnesota $3,195.7 million; Illinois
$2,561.8 million; Texas $2,325.4 million; and Washington $2,064.5 million.
The originations in these five states comprise approximately 40 percent of
25
total originations in 1998. The five largest states in the servicing
portfolio include: California $43.5 billion; Minnesota $13.1 billion;
Texas $11.6 billion; New York $10.3 billion; and New Jersey $9.8 billion.
These five states comprise approximately 40 percent of the total servicing
portfolio at June 30, 1998.
Norwest Financial engages in consumer finance activities in 47 states, Guam,
Saipan, all ten Canadian provinces, the Caribbean and Latin America. The
five states with the largest consumer finance receivables are: California
$646.4 million; Ohio $250.9 million; Illinois $246.6 million; Florida $240.0
million; and Texas $235.3 million. Consumer finance receivables in Puerto
Rico and Canada totaled $1.4 billion and $901.6 million, respectively, at
June 30, 1998. The consumer finance receivables of Puerto Rico, Canada, and
the five largest states listed above comprise approximately 46 percent of
total consumer finance receivables at June 30, 1998.
With respect to credit card receivables, approximately 66 percent of the
portfolio is within the corporation's 16-state banking region. Minnesota
represents approximately 13 percent of the total outstanding credit card
portfolio. No other state accounts for more than 10 percent of the
portfolio.
In general, the economy in regions of the U.S. where the corporation
primarily conducts operations continues to reflect modest growth. Consumer
past due delinquencies were as follows:
June 30, December 31, June 30,
1998 1997 1997
Banking Group 30 days past due ....... 1.66% 2.02 1.83
Norwest Financial 60 days past due ... 3.56 3.58 3.69
Credit card 30 days past due ......... 3.76 3.92 3.75
Capital and Liquidity Management
The corporation's regulatory capital and ratios are summarized as follows:
June 30, December 31,
1998 1997
Tier 1 capital......................... $ 5,846 5,525
Total capital.......................... 7,039 6,692
Total risk-adjusted assets............. 66,166 60,774
Tier 1 capital ratio................... 8.84% 9.09
Total capital to risk-adjusted assets.. 10.64% 11.01
Leverage ratio......................... 6.44% 6.63
The corporation's Tier 1 capital, total capital to risk-adjusted assets and
leverage ratios exceed the regulatory minimums of 4.0 percent, 8.0 percent
and 3.0 percent, respectively.
The corporation's dividend payout ratio was 33.0 percent for the second
quarter of 1998 compared with 34.9 percent for the second quarter of 1997.
In July 1998, the board of directors approved an increase in the
corporation's quarterly common stock dividend to 18.5 cents per share from
16.5 cents. The dividend is payable on September 1, 1998 to common
stockholders of record on August 7, 1998.
On June 7, 1998, the corporation and Wells Fargo & Company (Wells Fargo)
signed a definitive agreement for a merger of the two companies. In accordance
with the agreement, common stockholders of Wells Fargo will receive ten shares
of the corporation's stock in exchange for each share of Wells Fargo common
26
stock. The transaction, which will be accounted for using the pooling of
interests method, is subject to customary stockholder and regulatory approvals
and is expected to be completed in the fourth quarter of 1998.
YEAR 2000
During 1998, the corporation has continued with its company-wide
program to prepare the corporation'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. The
corporation has incurred charges totaling $52.2 million in testing and
correcting its computer systems and other systems with embedded technology,
such as security systems, to be year 2000 compliant. Such charges include
internal staff costs, as well as consulting and other expenses. Of the total
expenditures to date, $36.3 million was incurred in the first half of 1998.
The corporation now estimates the cost of implementing its year 2000
compliance program will be approximately $150 million based on the current
estimate of the project's size and, in part, the inclusion of accelerated
replacement of additional hardware and software costs within the scope of the
project.
The corporation has essentially completed the inventory and assessment phases of
the program to identify hardware and software requiring modification and has
developed implementation plans for remediation and testing. An assessment of
the readiness of significant customers, vendors, counterparties and others
with whom the corporation does business is underway. The implementation plans
provide for remediation and completion of testing for the corporation's
mission critical systems and the development of contingency plans for
unforeseen difficulties related to the year 2000 issue by December 31,
1998. 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.
The preceding two paragraphs include forward-looking statements that
involve inherent risks and uncertainties. A number of important factors
could cause the actual cost of year 2000 compliance and impact of the year
2000 issue to differ materially from what is described in the forward-looking
statements. Those factors include but are not limited to uncertainties in the
cost of hardware and software, the availability and cost of programmers and
other systems personnel, inaccurate or incomplete inventory and assessment
phase results, ineffective remediation of computer code, and the ability of the
corporation's customers, vendors, competitors and counterparties to
effectively address the year 2000 issue.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (FAS 131). 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
27
chief operating decision maker in assessing performance and making resource
allocation determinations for operating components such as those which exceed
ten percent or more of combined revenue, income or assets.
In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132 "Employers' Disclosures about Pensions and Other
Postretirement Benefits" (FAS 132). FAS 132 standardizes disclosure
requirements for pension and other postretirement plans, and requires
certain additional information on changes in benefit obligations and fair
values of plan assets.
The corporation will be required to adopt the provisions of FAS 131 and FAS
132 at the end of 1998, and adoption is not expected to have a material
impact on the corporation's consolidated financial statements.
In March 1998, the AICPA issued Statement of Position 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use" (SOP
98-1). SOP 98-1 requires capitalization of certain costs associated with
software developed or obtained for internal use. The corporation will be
required to adopt the provisions of SOP 98-1 in 1999. The adoption of SOP 98-1
is not expected to have a material effect on the corporation's consolidated
financial statements.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 "Accounting for Derivative Instruments and Hedging Activities" (FAS
133). FAS 133 requires recognition of all derivative instruments as either
assets or liabilities in the statement of financial position and
measurement of those instruments at fair value. A derivative may be
designated as a hedge of an exposure to changes in the fair value of a
recognized asset or liability, an exposure to variable cash
flows of a forecasted transaction, or a foreign currency exposure. The
accounting for gains and losses associated with changes in the fair value
of a derivative and the impact on the corporation's consolidated financial
statements will depend on its hedge designation and whether the hedge is
highly effective in offsetting changes in the fair value or cash flows of
the underlying hedged item. The corporation will be required to adopt the
provisions of FAS 133 in the year 2000 and has currently not determined the
impact of FAS 133 on its consolidated financial statements.
28
Norwest Corporation and Subsidiaries
CONSOLIDATED AVERAGE BALANCE SHEETS AND RELATED YIELDS AND RATES
Quarter Ended June 30,
In millions, except ratios 1998 1997
Interest Average Interest Average
Average Income/ Yields/ Average Income/ Yields/
Balance Expense* Rates* Balance Expense* Rates*
Assets
Money market investments .... $ 680 $ 10.0 5.91% $ 663 $ 9.4 5.64%
Trading account securities .. 1,150 17.2 5.92 591 11.1 7.48
Investment securities
available for sale:
U.S. Treasury & federal
agencies ................ 4,369 62.8 5.78 3,854 64.4 6.63
State, municipal and
housing tax-exempt ...... 1,485 30.7 8.72 1,389 29.9 8.78
Mortgage-backed ........... 12,581 222.6 7.27 14,626 270.7 7.39
Other ..................... 999 11.6 6.11 1,068 9.6 5.17
Total investment
securities available
for sale ............. 19,434 327.7 6.99 20,937 374.6 7.26
Investment securities held to
maturity ................ 746 6.5 3.48 738 7.1 3.83
Total investment
securities ........... 20,180 334.2 6.85 21,675 381.7 7.14
Loans held for sale ......... 3,489 68.4 7.86 2,841 55.9 7.89
Mortgages held for sale ..... 11,304 197.0 6.97 5,391 97.8 7.26
Loans and leases
(net of unearned discount)
Commercial ................ 14,491 324.1 8.97 13,430 307.5 9.19
Real estate ............... 15,123 368.3 9.75 15,077 365.8 9.71
Consumer .................. 13,238 507.3 15.34 11,737 444.1 15.16
Total loans and leases .. 42,852 1,199.7 11.21 40,244 1,117.4 11.12
Allowance for credit losses (1,257) (1,075)
Net loans and leases .... 41,595 39,169
Total earning assets
(before the allowance for
credit losses) .......... 79,655 1,826.5 9.26 71,405 1,673.3 9.42
Cash and due from banks ..... 4,007 3,514
Other assets ................ 10,231 8,608
Total assets .............. $92,636 $82,452
(Continued on page 30)
29
Norwest Corporation and Subsidiaries
CONSOLIDATED AVERAGE BALANCE SHEETS AND RELATED YIELDS AND RATES
(Continued from page 29)
Quarter Ended June 30,
In millions, except ratios 1998 1997
Interest Average Interest Average
Average Income/ Yields/ Average Income/ Yields/
Balance Expense* Rates* Balance Expense* Rates*
Liabilities and
Stockholders' Equity
Noninterest-bearing deposits. $17,625 $ - -% $13,460 $ - -%
Interest-bearing deposits
Savings and NOW accounts .. 10,601 42.7 1.62 9,552 39.4 1.65
Money market accounts ..... 11,773 99.5 3.39 10,619 83.7 3.16
Savings certificates ...... 12,537 169.8 5.43 13,082 176.8 5.42
Certificates of deposit
and other time .......... 3,902 54.2 5.56 3,440 48.6 5.68
Foreign time .............. 500 5.9 4.76 858 10.1 4.71
Total interest-bearing
deposits .............. 39,313 372.1 3.80 37,551 358.6 3.83
Federal funds purchased
repurchase agreements ..... 6,030 77.2 5.13 3,811 46.5 4.89
Short-term borrowings ....... 6,335 90.0 5.69 5,061 69.5 5.51
Long-term debt .............. 12,407 194.2 6.26 11,958 187.1 6.26
Total interest-bearing
liabilities ........... 64,085 733.5 4.59 58,381 661.7 4.54
Other liabilities ........... 3,796 4,339
Preferred stock ............. 185 187
Common stockholders' equity . 6,945 6,085
Total liabilities and
stockholders' equity .. $92,636 $82,452
Net interest income
(tax-equivalent basis) .. $ 1,093.0 $ 1,011.6
Yield spread .............. 4.67 4.88
Net interest margin ....... 5.54 5.69
Interest-bearing liabilities
to earning assets ....... 80.45 81.76
30
Norwest Corporation and Subsidiaries
CONSOLIDATED AVERAGE BALANCE SHEETS AND RELATED YIELDS AND RATES
Six Months Ended June 30,
In millions, except ratios 1998 1997
Interest Average Interest Average
Average Income/ Yields/ Average Income/ Yields/
Balance Expense* Rates* Balance Expense* Rates*
Assets
Money market investments .... $ 763 $ 21.7 5.73% $1,138 $ 30.5 5.39%
Trading account securities .. 919 28.0 6.12 433 15.8 7.32
Investment securities
available for sale:
U.S. Treasury & federal
agencies ................ 3,365 97.1 5.80 2,965 96.5 6.48
State, municipal and
housing tax-exempt ...... 1,488 61.3 8.72 1,202 51.5 8.80
Mortgage-backed ........... 13,140 469.6 7.34 14,446 535.0 7.43
Other ..................... 991 23.7 6.20 1,098 24.1 6.06
Total investment
securities available
for sale ............. 18,984 651.7 7.12 19,711 707.1 7.31
Investment securities held to
maturity ................ 745 13.1 3.52 729 14.1 3.86
Total investment
securities ............ 19,729 664.8 6.98 20,440 721.2 7.18
Loans held for sale ......... 3,547 138.9 7.90 2,882 112.1 7.84
Mortgages held for sale ..... 10,168 352.8 6.94 5,438 195.5 7.19
Loans and leases
(net of unearned discount)
Commercial ................ 14,221 640.0 9.07 13,371 604.7 9.12
Real estate ............... 15,091 732.8 9.74 15,025 723.6 9.66
Consumer .................. 13,238 1,014.1 15.37 11,700 886.2 15.20
Total loans and leases .. 42,550 2,386.9 11.27 40,096 2,214.5 11.10
Allowance for credit losses (1,248) (1,067)
Net loans and leases .... 41,302 39,029
Total earning assets
(before the allowance for
credit losses) .......... 77,676 3,593.1 9.36 70,427 3,289.6 9.42
Cash and due from banks ..... 3,975 3,580
Other assets ................ 9,950 8,381
Total assets .............. $90,353 $81,321
(Continued on page 32)
31
Norwest Corporation and Subsidiaries
CONSOLIDATED AVERAGE BALANCE SHEETS AND RELATED YIELDS AND RATES
(Continued from page 31)
Six Months Ended June 30,
In millions, except ratios 1998 1997
Interest Average Interest Average
Average Income/ Yields/ Average Income/ Yields/
Balance Expense* Rates* Balance Expense* Rates*
Liabilities and
Stockholders' Equity
Noninterest-bearing deposits. $17,164 $ - -% $13,274 $ - -%
Interest-bearing deposits
Savings and NOW accounts .. 10,429 82.7 1.60 9,498 78.1 1.66
Money market accounts ..... 11,665 194.4 3.36 10,543 173.4 3.32
Savings certificates ...... 12,708 343.5 5.45 13,141 353.2 5.42
Certificates of deposit
and other time .......... 3,903 107.9 5.57 3,426 96.2 5.66
Foreign time .............. 452 10.7 4.78 650 13.8 4.29
Total interest-bearing
deposits .............. 39,157 739.2 3.81 37,258 714.7 3.87
Federal funds purchased
repurchase agreements ..... 4,897 123.6 5.09 3,152 76.4 4.89
Short-term borrowings ....... 5,936 167.9 5.70 5,157 138.7 5.42
Long-term debt .............. 12,432 390.7 6.28 12,337 381.0 6.18
Total interest-bearing
liabilities ........... 62,422 1,421.4 4.58 57,904 1,310.8 4.55
Other liabilities ........... 3,682 3,947
Preferred stock ............. 186 188
Common stockholders' equity . 6,899 6,008
Total liabilities and
stockholders' equity .. $90,353 $81,321
Net interest income
(tax-equivalent basis) .. $2,171.7 $1,978.8
Yield spread .............. 4.78 4.87
Net interest margin ....... 5.65 5.66
Interest-bearing liabilities
to earning assets ....... 80.36 82.22
* Interest income and yields are calculated on a tax-equivalent basis using
a federal incremental tax rate of 35% in each period presented. Non-accrual
loans and the related negative income effect have been included in the
calculation of yields.
32
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes in market risk exposures that affect the
quantitative or qualitative disclosures presented in the corporation's annual
report on Form 10-K for the year ended December 31, 1997.
33
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of stockholders of the corporation was held on April 28,
1998. There were 758,124,007 shares of common stock outstanding and entitled
to vote at said meeting; and a total of 585,119,697 (77.18%) shares were
present at the meeting in person or by proxy. The stockholders voted to
approve an amendment to the corporation's Restated Certificate of
Incorporation to increase the authorized shares of common stock from
1,000,000,000 to 2,000,000,000 shares (551,238,646 for, 31,178,279 against,
2,702,772 abstained and no broker non-votes), approve the corporation's
amended and restated Performance-Based Compensation Policy (550,395,607 for,
30,514,381 against, 4,209,709 abstained and no broker non-votes), increase
the number of shares of common stock that may be awarded under the
corporation's Long-Term Incentive Compensation Plan by 37,000,000
(448,538,473 for, 132,207,808 against, 4,373,416 abstained and no broker
non-votes) and ratified the appointment of KPMG Peat Marwick LLP to audit
the books of the corporation for the year ending December 31, 1998
(582,535,844 for, 1,111,849 against, 1,472,004 abstained and no broker
non-votes). The stockholders did not approve a proposal requesting the
Board of Directors to take steps to provide for cumulative voting in the
election of directors if a stockholder or group of stockholders holds 30
percent or more of the corporation's common stock (156,927,899 for,
353,792,315 against, 15,445,570 abstained and 58,953,913 broker non-votes).
In addition, 13 nominees were elected directors of the corporation, as
follows:
Shares FOR Shares WITHHELD
Leslie S. Biller 582,873,820 2,245,877
J.A. Blanchard III 582,836,950 2,282,747
David A. Christensen 582,872,859 2,246,838
William A. Hodder 582,588,123 2,531,574
Lloyd P. Johnson 582,574,425 2,545,272
Reatha Clark King 582,764,780 2,354,917
Richard M. Kovacevich 582,848,318 2,271,379
Richard S. Levitt 582,688,776 2,430,921
Richard D. McCormick 582,841,740 2,277,957
Cynthia H. Milligan 582,744,488 2,375,209
Benjamin F. Montoya 582,641,157 2,478,540
Ian M. Rolland 582,734,393 2,385,304
Michael W. Wright 582,866,272 2,253,425
34
Item 5. Other Information
Deadline for Stockholder Proposals Submitted Other Than Pursuant to Rule14a-8
under the Securities Exchange Act of 1934
Any proposal from a stockholder to be presented at the 1999 Annual Meeting of
Stockholders of the corporation that is submitted outside the processes of
Rule 14a-8 of the Securities Exchange Act of 1934 and therefore will not be
included in proxy materials to be sent to stockholders by the corporation,
must be received by the Secretary of the corporation, at Norwest Center, Sixth
and Marquette, Minneapolis, Minnesota 55479-1026, no earlier than February 26,
1998 and no later than March 28, 1998 in order to be considered timely
received under the By-laws of the corporation.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
The following exhibits are filed or incorporated by reference in
response to Item 601 of Regulation S-K.
Exhibit
No. Exhibit Page No.
2. Agreement and Plan of Merger with Wells Fargo & Company
(incorporated by reference to Exhibit 2 of the
corporation's Current Report on Form 8-K dated June 7,
1998 and filed on June 18, 1998).
3(a). Restated Certificate of Incorporation, as amended
(incorporated by reference to Exhibit 3(b) to the
corporation's Current Report on Form 8-K dated
June 28, 1993, Exhibit 3 to the corporation's Current
Report on Form 8-K dated July 3, 1995, and Exhibit 3 to
the corporation's Current Report on Form 8-K dated
June 12, 1998).
3(b). Certificate of Designations of Powers, Preferences and
Rights of 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 of 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 of 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 of Designations with respect to the 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(f). Certificate of Designations with respect to the 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(g). Certificate of Designations with respect to the 1998 ESOP
Cumulative Convertible Preferred Stock (incorporated by
reference to Exhibit 3 to the corporation's Current Report
on Form 8-K dated April 20, 1998).
35
Exhibit
No. Exhibit Page No.
3(h). 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(h) of this Item.
4(b). Rights Agreement dated as of November 22, 1988 between
the corporation and Citibank, N.A., as Rights Agent
(incorporated by reference to Exhibit 1 to the corporation's
Form 8-A dated December 6, 1988).
4(c). Certificate of Adjustment, dated October 10, 1997, to Rights
Agreement (incorporated by reference to Exhibit 5 to the
corporation's Form 8-A/A dated October 14, 1997).
4(d). Amendment No. 1 to Rights Agreement, dated as of June 7, 1998,
between the corporation and Citibank, N.A., as Rights Agent
(incorporated by reference to Exhibit 4(b) to the corporation's
Current Report on Form 8-K, dated June 7, 1998 and filed on
June 18, 1998.
4(e). Copies of instruments with respect to long-term debt will be
furnished to the Commission upon request.
10(a). Performance-Based Compensation Policy, as amended and
restated effective as of January 1, 1998. 39
10(b). Long-Term Incentive Plan, as amended effective April 28,
1998 43
11. Computation of Earnings Per Share. 55
12(a). Computation of Ratio of Earnings to Fixed Charges. 57
12(b). Computation of Ratio of Earnings to Fixed Charges
and Preferred Stock Dividends. 58
27. Financial Data Schedule (filed electronically).
99(a). Norwest Corporation and Wells Fargo & Company unaudited
pro forma combined financial information as of June 30,
1998 and for the six months ended June 30, 1998 and 1997. 60
99(b). Wells Fargo & Company unaudited consolidated financial
statements as of June 30, 1998 and for the three- and six-
month periods ended June 30, 1998 and 1997(incorporated
by reference to Item 1 of the Wells Fargo & Company
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998).
Stockholders may obtain a copy of any Exhibit not contained herein, upon
payment of a reasonable fee, by writing Norwest Corporation, Office of the
Secretary, Norwest Center, Sixth and Marquette, Minneapolis, Minnesota 55479-
1026.
36
(b) Reports on Form 8-K.
On April 22, 1998, the corporation filed a Current Report on Form 8-K,
dated April 14, 1998, reporting consolidated operating results of the
corporation for the quarter ended March 31, 1998.
On April 20, 1998, the corporation filed a Current Report on Form 8-K,
dated April 20, 1998, placing on file the Certificate of Designations
relating to the corporation's 1998 ESOP Cumulative Convertible Preferred
Stock.
On June 8, 1998, the corporation filed a Current Report on Form 8-K,
dated June 7, 1998, reporting the corporation's execution and terms of an
agreement to merge with Wells Fargo & Company and filing a presentation to
analysts regarding the merger. On June 9, 1998, the corporation filed
a Current Report on Form 8-K dated June 8, 1998, and on July 22, 1998,
filed a Current Report on Form 8-K dated July 14, 1998, which amended
certain of the analyst presentation materials included in the Current
Report on Form 8-K filed on June 8, 1998, and also placed on file an
abridged analyst presentation.
On June 12, 1998, the corporation filed a Current Report on Form 8-K,
dated June 12, 1998, placing on file a Certificate of Amendment of
Certificate of Incorporation, amending the corporation's Restated
Certificate of Incorporation to increase the corporation's authorized
common stock from one billion to two billion shares.
On June 18, 1998, the corporation filed a Current Report on Form 8-K,
dated June 7, 1998, placing on file the Agreement and Plan of Merger with
Wells Fargo & Company dated as of June 7, 1998. Stock option agreements
between the corporation and Wells Fargo & Company and an amendment to the
corporation's Rights Agreement were also filed as exhibits to this Form
8-K.
37
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 CORPORATION
August 14, 1998 By /s/ Michael A. Graf
Senior Vice President
and Controller
(Chief Accounting Officer)
38