Exhibit 99(a)
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On June 7, 1998, Norwest Corporation ("Norwest") entered into
a definitive agreement for a merger of equals ("Merger") with Wells Fargo &
Company ("Wells Fargo"). 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 common stock. The transaction is subject to
customary stockholder and regulatory approvals and is expected to close in the
fourth quarter of 1998. The pending Merger is significant to the financial
statements of Norwest, as specified in Rules 1-02(w) and 3-05 of Regulation S-
X. Consequently, pro forma financial statements are presented below.
Pro forma Financial Information
The following unaudited pro forma condensed combined financial information and
explanatory notes are presented to show the impact of the Merger using the
"pooling of interests" method of Accounting on the historical financial
positions and results of operations of Norwest and Wells Fargo. The
unaudited pro forma condensed combined financial information combines the
historical financial information of Norwest and Wells Fargo as of June 30, 1998
and for the six months ended June 30, 1998 and 1997, respectively. The
unaudited pro forma condensed combined statements of income give effect to the
Merger as if the Merger had been consummated at the beginning of the earliest
period presented.
The pro forma condensed combined balance sheet assumes the Merger was
consummated on June 30, 1998. The Merger, which is expected to be completed in
the fourth quarter of 1998, provides for the exchange of ten shares of Norwest
common stock for each outstanding share of Wells Fargo common stock. The pro
forma condensed combined financial information as of June 30, 1998 and for the
six months ended June 30, 1998 and 1997 is based on, and derived from, and
should be read in conjunction with the historical consolidated financial
statements and the related notes thereto of Norwest and Wells Fargo. Pro forma
stockholders' equity at June 30, 1998 includes the effect of an estimated non-
recurring Merger charge of $950 million ($625 million after taxes). See Note 3
to the unaudited pro forma condensed financial information on page 66 for
further information. The pro forma condensed combined financial statements do
not give effect to anticipated cost savings or potential revenue enhancements
in connection with the Merger.
The pro forma data are presented for comparative purposes only and are not
necessarily indicative of the future financial position or results of
or the results of operations that would have been realized had the Merger been
consummated during the periods or as of the dates for which the pro forma data
are presented.
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NORWEST CORPORATION AND WELLS FARGO & COMPANY
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AT JUNE 30, 1998
(in millions)
WELLS PROFORMA
NORWEST FARGO ADJUSTMENTS COMBINED
ASSETS
Cash and due from banks ............ $ 4,954 7,130 - 12,084
Interest-bearing deposits .......... 63 17 - 80
Federal funds sold and
resale agreements ................ 866 590 - 1,456
Total cash and cash equivalents .... 5,883 7,737 - 13,620
Trading account securities
held to maturity ................. 247 941 - 1,188
Investment securities
available for sale ............... 18,432 8,449 - 26,881
Investment securities .............. 752 405 - 1,157
Total investment securities ........ 19,184 8,854 - 28,038
Loans held for sale ................ 3,470 1,085 - 4,555
Mortgages held for sale ............ 12,191 319 - 12,510
Loans and leases, net of
unearned discount ................ 43,391 62,916 - 106,307
Allowance for credit losses ........ (1,262) (1,835) - (3,097)
Net loans and leases ............... 42,129 61,081 - 103,210
Premises and equipment, net ........ 1,377 2,017 (107) 3,287
Mortgage servicing rights, net ..... 2,904 - - 2,904
Goodwill and intangible assets ..... 1,141 8,596 - 9,737
Interest receivable
and other assets ................. 4,627 2,570 - 7,197
Total assets .................. $93,153 93,200 (107) 186,246
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing .............. $17,797 23,411 - 41,208
Interest bearing ................. 38,998 47,039 - 86,037
Total deposits ................. 56,795 70,450 - 127,245
Short-term borrowings .............. 12,188 1,549 - 13,737
Accrued expenses and
other liabilities ................ 4,508 2,537 660 7,705
Long-term debt ..................... 12,316 4,415 - 16,731
Guaranteed preferred
beneficial interest in Wells
Fargo subordinated debentures .... - 1,299 - 1,299
Preferred stock .................... 186 275 - 461
Common stock ....................... 1,285 425 993 2,703
Surplus ............................ 483 8,347 (993) 7,837
Retained earnings .................. 5,365 3,837 (767) 8,435
Accumulated other
comprehensive income ............. 375 66 - 441
Notes receivable from ESOP ......... (5) - - (5)
Treasury stock ..................... (343) - - (343)
Total stockholders' equity .... 7,346 12,950 (767) 19,529
Total liabilities and
Stockholders' equity ........ $93,153 93,200 (107) 186,246
The accompanying notes are an integral part of the unaudited pro forma combined
financial information.
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NORWEST CORPORATION AND WELLS FARGO & COMPANY
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1998
(in millions, except for per share amounts)
WELLS PROFORMA
NORWEST FARGO ADJUSTMENTS COMBINED
INTEREST INCOME ON
Loans and leases .................... $ 2,384 2,959 - 5,343
Investment securites
available for sale ................ 631 275 - 906
Investment securities
held to maturity .................. 13 12 - 25
Loans held for sale ................. 139 42 - 181
Mortgages held for sale ............. 353 26 - 379
Money market investments ............ 21 17 - 38
Trading account securities .......... 28 30 - 58
Total interest income .......... 3,569 3,361 - 6,930
INTEREST EXPENSE ON
Deposits ............................ 739 811 - 1,550
Short-term borrowing ................ 291 72 - 363
Long-term debt ...................... 391 148 - 539
Guaranteed preferred beneficial
interest in Wells Fargo
subordinated debentures ........... - 51 - 51
Total interest expense ......... 1,421 1,082 - 2,503
Net interest income ............ 2,148 2,279 - 4,427
Provision for credit losses ......... 264 350 - 614
Net interest income after
provision for credit losses .. 1,884 1,929 - 3,813
NON-INTEREST INCOME
Mortgage banking .................... 540 38 - 578
Trust and investment fees
and commissions ................... 256 271 - 527
Service charges and fees ............ 311 607 - 918
Credit card fee revenue ............. 73 176 - 249
Insurance ........................... 205 - - 205
Data processing ..................... 33 - - 33
Net investment securities
available for sale gains .......... 42 23 - 65
Net venture capital gains ........... 112 - - 112
Trading ............................. 66 38 - 104
Other ............................... 123 283 - 406
Total non-interest income ...... 1,761 1,436 - 3,197
NON-INTEREST EXPENSES
Salaries and benefits ............... 1,389 875 (4) 2,260
Net occupancy ....................... 174 199 - 373
Equipment rentals, depreciation
and maintenance ................... 183 197 5 385
Business development ................ 132 87 - 219
Communication ....................... 159 127 - 286
Data processing ..................... 78 30 - 108
Intangible asset amortization ....... 86 293 - 379
Other ............................... 334 357 - 691
Total non-interest expenses .... 2,535 2,165 1 4,701
(continued on page 63)
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NORWEST CORPORATION AND WELLS FARGO & COMPANY
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1998
(in millions, except for per share amounts)
(Continued from page 62)
WELLS PRO FORMA
NORWEST FARGO ADJUSTMENTS COMBINED
INCOME BEFORE INCOME TAXES .......... 1,110 1,200 (1) 2,309
Income tax expense .................. 360 548 - 908
NET INCOME .......................... $ 750 652 (1) 1,401
NET INCOME PER COMMON SHARE
Basic ............................... $ 0.98 7.52 - 0.86
Diluted ............................. 0.96 7.45 - 0.85
WEIGHTED AVERAGE COMMON AND
POTENTIAL COMMON SHARES
Basic ............................... 757.8 85.5 769.7 1,613.0
Diluted ............................. 771.5 86.4 777.1 1,635.0
The accompanying notes are an integral part of the unaudited pro forma combined
financial information.
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NORWEST CORPORATION AND WELLS FARGO & COMPANY
UNAUDITED PRO FORMA COMBINED STAETEMENTS OFINCOME
SIX MONTHS ENDED JUNE 30, 1997
(in millions, except for per share amounts)
WELLS PRO FORMA
NORWEST FARGO ADJUSTMENTS COMBINED
INTEREST INCOME ON
Loans and leases .................... $ 2,211 3,002 - 5,213
Investment securites
available for sale ................ 690 398 - 1,088
Investment securities
held.to maturity .............. 14 12 - 26
Loans held for sale ................. 112 42 - 154
Mortgages held for sale ............. 196 13 - 209
Money market investments ............ 31 12 - 43
Trading account securities .......... 15 11 - 26
Total interest income .......... 3,269 3,490 - 6,759
INTEREST EXPENSE ON
Deposits ............................ 715 851 - 1,566
Short-term borrowing ................ 215 71 - 286
Long-term debt ...................... 381 159 - 540
Guaranteed preferred beneficial
interest in Wells Fargo
subordinated debentures ........... - 50 - 50
Total interest expense ......... 1,311 1,131 - 2,442
Net interest income ............ 1,958 2,359 - 4,317
Provision for credit losses ......... 232 245 - 477
Net interest income after
provision for credit losses .. 1,726 2,114 - 3,840
NON-INTEREST INCOME
Mortgage banking .................... 399 14 - 413
Trust and investment fees
and commissions ................... 209 253 - 462
Service charges and fees ............ 276 580 - 856
Credit card fee revenue ............. 56 146 - 202
Insurance ........................... 190 - - 190
Data processing ..................... 36 - - 36
Net investment securities
available for sale gains .......... 4 7 - 11
Net venture capital gains ........... 113 - - 113
Trading ............................. 52 38 - 90
Other ............................... 106 251 - 357
Total non-interest income ...... 1,441 1,289 - 2,730
NON-INTEREST EXPENSES
Salaries and benefits ............... 1,117 872 (4) 1,985
Net occupancy ....................... 160 196 - 356
Equipment rentals, depreciation
and maintenance ................... 166 192 5 363
Business development ................ 122 63 - 185
Communication ....................... 143 154 - 297
Data processing ..................... 87 26 - 113
Intangible asset amortization ....... 83 308 - 391
Other ............................... 283 522 - 805
Total non-interest expenses .... 2,161 2,333 1 4,495
(continued on page 65)
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NORWEST CORPORATION AND WELLS FARGO & COMPANY
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1997
(in millions, except for per share amounts)
(Continued from page 64)
WELLS PRO FORMA
NORWEST FARGO ADJUSTMENTS COMBINED
INCOME BEFORE INCOME TAXES 1,006 1,070 (1) 2,075
Income tax expense .................. 353 502 - 855
NET INCOME .......................... $ 653 568 (1) 1,220
NET INCOME PER COMMON SHARE
Basic ............................... $ 0.86 6.12 - 0.73
Diluted ............................. 0.85 6.06 - 0.72
WEIGHTED AVERAGE COMMON AND
POTENTIAL COMMON SHARES
Basic ............................... 747.4 89.9 809.1 1,646.4
Diluted ............................. 759.0 90.9 818.2 1,668.1
The accompanying notes are an integral part of the unaudited pro forma combined
financial information.
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NORWEST CORPORATION
AND WELLS FARGO & COMPANY
Notes to Unaudited Pro Forma Condensed Financial Information
1. Basis of Presentation
The unaudited pro forma condensed financial information has been prepared
using the pooling of interests method of accounting, giving effect to the
Merger as if it had occurred as of the beginning of the earliest period
presented. The pro forma financial information presented is not
necessarily indicative of the results of the operations had the Merger been
consummated at the beginning of the periods presented, nor is it
necessarily indicative of the results of operations in future periods or
the future financial position of the combined entities. Certain historical
financial information has been reclassified to conform with the current
presentation. The Merger, which is expected to be completed in the fourth
quarter of 1998, provides for issuance of ten shares of Norwest common
stock for each outstanding share of Wells Fargo common stock, and is
subject to regulatory and Norwest stockholder and Wells Fargo stockholder
approvals. At June 30, 1998, Norwest had five pending acquisitions
(exclusive of the Merger) with total assets of approximately $2.3 billion,
and it is expected that approximately 14.0 million common shares will be
issued upon consummation of these acquisitions. The pro forma information
does not give effect to these other pending acquisitions of Norwest as they
are not material to the pro forma condensed financial information, either
individually or in the aggregate. Norwest and Wells Fargo anticipate that,
in order to comply with Department of Justice merger guidelines, the
companies will be requested to sell a modest level of deposits. In this
connection, the companies expect to propose divestitures in various
markets. The impact of such divestitures is not expected to be material
and no adjustment has been included in the unaudited pro forma combined
financial statements for the anticipated divestitures.
2. Accounting Policies and Financial Statement Classifications
Norwest and Wells Fargo have identified and conformed certain accounting
policies, and as described below in Note 4, the accompanying pro forma
financial information reflects such conforming accounting adjustments. The
accounting policies of both Norwest and Wells Fargo are in the process of
being reviewed in detail. Upon completion of such review, other conforming
adjustments or financial statement reclassifications may be determined. At
June 30, 1998, Wells Fargo goodwill and intangibles amounted to $8.6
billion, and Norwest goodwill and intangibles amounted to $1.1 billion. In
conjunction with the Merger and recent financial projections, management is
currently in the process of assessing such intangibles for impairment.
Transactions between Norwest and Wells Fargo are not material in relation
to the pro forma financial information and, therefore, intercompany
balances have not been eliminated from the pro forma combined amounts.
3. Non-recurring Merger Charge
Pro forma stockholders' equity includes the effect of an estimated non-
recurring charge of approximately $950 million, $625 million net of income
taxes. Since the estimated charge is non-recurring, it has not been
reflected in the pro forma combined condensed statements of income and
related per common share calculations. The charge does not include any
impairment of intangibles that may be identified upon completion of the
review discussed in Note 2.
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The estimated non-recurring charge consists of the following (in millions):
Employee-related expense ...................................... $295
Costs associated with systems integration,
operations and customer conversions ......................... 350
Branch consolidations, name change and signage ................ 185
Investment banking, legal and accounting fees ................. 120
950
Income tax benefit ............................................ 325
Total estimated non-recurring charge .......................... $625
The pro forma condensed combined financial information does not reflect any
benefit expected from revenue enhancements or derived from potential cost
savings related to the Merger. Although management anticipates revenue
enhancements and cost savings will result from the Merger, there can be no
assurance these items will be achieved.
4. Pro Forma Adjustments
The following pro forma adjustments have been reflected in the pro forma
condensed combined financial information:
- Common stock and surplus were adjusted by $993 million, based on 85.1
million shares of Wells Fargo common stock outstanding at June 30, 1998,
reflecting the exchange of 10 shares of Norwest common stock for each
share of Wells Fargo common stock, and accounting for the Merger as a
pooling of interests. The adjustment reflects the reclassification from
surplus to common stock to reflect the $1 2/3 par value of Norwest common
stock. The number of shares of Norwest common stock to be issued upon
consummation of the Merger will be based on the number of shares of Wells
Fargo common stock outstanding at that time and will include
approximately 2.5 million "tainted" shares of Wells Fargo common stock
that Wells Fargo intends to issue prior to the Merger. From June 1, 1996
to the announcement date of the Merger, Wells Fargo repurchased shares of
Wells Fargo common stock that are presumed to be tainted under Accounting
Principles Board (APB) Opinion No. 16 and authoritative interpretations
thereof. Such shares previously reacquired by Wells Fargo were retired
upon acquisition. Wells Fargo rescinded its share repurchase programs as
of June 7, 1998. These tainted shares result in violations of certain
conditions for the use of pooling of interests accounting for the Merger.
Wells Fargo intends to cure such "tainted" shares prior to the effective
time of the Merger by issuing shares of Wells Fargo common stock in a manner
that complies with the requirements of APB Opinion No. 16 and authoritative
interpretations thereof.
- Other liabilities and retained earnings were adjusted by $950 million
($625 million, net of income taxes), to reflect the non-recurring Merger
charge discussed in Note 3.
- Other liabilities and retained earnings have been adjusted by $153
million before taxes ($100 million, net of income taxes) reflecting the
transition obligation for the Wells Fargo postretirement medical and life
insurance benefits upon initial adoption of Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" (FAS 106) at the beginning of 1992.
Norwest adopted FAS 106 in 1992 and immediately recognized the
accumulated postretirement benefit obligations at the time of adoption as
a cumulative effect of change in accounting principle. Subsequent to
67
1992, salaries and benefits expense has been reduced and retained
earnings has been credited to eliminate the annual pre-tax charge of $8
million ($5 million, net of income taxes) related to the amortization
of the Wells Fargo transition obligations.
Premises and equipment and retained earnings have been adjusted by $107
million before taxes ($70 million, net of income taxes) reflecting the
conforming of capitalization policies for premises and equipment. The
capitalization policy of the pro forma combined company reflects a higher
dollar threshold for capitalizing purchases of furniture and equipment that
is currently used by one of the parties to the Merger. Use of a higher
dollar threshold is consistent with the size of the combined company.
Equipment expense has been adjusted by $5 million for the first half of
1998 and 1997, respectively, reflecting adjustments for capitalization of
such items, partially offset by related depreciation previously recorded.
5. Pro forma Earnings Per Share
The pro forma combined basic and diluted earnings per share for the
respective periods presented is based on the combined weighted average
number of common and dilutive potential common shares and adjusted weighted
shares of Norwest and Wells Fargo. The number of weighted average common
shares and adjusted weighted average shares, including all dilutive
potential common shares, reflects the exchange of ten shares of Norwest
common stock for each share of Wells Fargo common stock. Amounts used in
the determination of pro forma basic and diluted earnings per share are as
follows:
(In millions)
For the Six Months
Ended June 30,
1998 1997
Net income $1,401 1,220
Less dividends accrued on preferred stock 18 26
Income available to common stockholders $1,383 1,194
Weighted average shares outstanding 1,613.0 1,646.4
Adjustments for dilutive securities:
Assumed exercise of stock options and
restricted share rights 22.0 21.7
Assumed conversion of preferred stock and
convertible subordinated debentures - -
Diluted common shares 1,635.0 1,668.1
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