-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ibx393bTvUv5GoOpi86AqQP4zu0ZaKvr+otojUY4YpXZIEteK8Czc+MFSRXQNiCn zvLe/vp5gtUX/OkonTZTEg== 0000912057-01-504042.txt : 20010319 0000912057-01-504042.hdr.sgml : 20010319 ACCESSION NUMBER: 0000912057-01-504042 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010316 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WELLS FARGO & CO/MN CENTRAL INDEX KEY: 0000072971 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 410449260 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-02979 FILM NUMBER: 1570235 BUSINESS ADDRESS: STREET 1: 420 MONTGOMERY ST STREET 2: SIXTH & MARQUETTE CITY: SAN FRANCISCO STATE: CA ZIP: 94163 BUSINESS PHONE: 6126671234 MAIL ADDRESS: STREET 1: NORWEST CENTER STREET 2: SIXTH & MARQUETTE CITY: MINNEAPOLIS STATE: MN ZIP: 55479 FORMER COMPANY: FORMER CONFORMED NAME: NORWEST CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: NORTHWEST BANCORPORATION DATE OF NAME CHANGE: 19830516 10-K 1 a2040410z10-k.txt 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2000 Commission File Number 001-2979 WELLS FARGO & COMPANY (Exact name of registrant as specified in its charter) Delaware No. 41-0449260 (State of incorporation) (I.R.S. Employer Identification No.) 420 Montgomery Street, San Francisco, California 94163 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: 1-800-411-4932 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of Each Exchange Title of Each Class on Which Registered ------------------- --------------------- Common Stock, par value $1-2/3 New York Stock Exchange Chicago Stock Exchange Preferred Share Purchase Rights New York Stock Exchange Chicago Stock Exchange 6 3/4% Convertible Subordinated Debentures Due 2003 New York Stock Exchange Adjustable Rate Cumulative Preferred Stock, Series B New York Stock Exchange No securities are registered pursuant to Section 12(g) of the Act.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes x No -- -- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of February 28, 2001, 1,715,970,357 shares of common stock were outstanding having an aggregate market value, based on a closing price of $49.64 per share, of $85,181 million. At that date, the aggregate market value of common stock held by non-affiliates was approximately $83,297 million. DOCUMENTS INCORPORATED BY REFERENCE Portions of the 2000 Annual Report to Stockholders - Incorporated into Parts I, II and IV. Portions of the Proxy Statement for the 2001 Annual Meeting of Stockholders - Incorporated into Part III. FORM 10-K CROSS-REFERENCE INDEX
PAGE(S) --------------------------------------------------- FORM Annual Proxy 10-K Report (1) Statement (2) ----- ------- --------- PART I Item 1. Business Description of Business 2-9 33-98 - Statistical Disclosure: Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rates and Interest Differential 10 40-43 - Investment Portfolio -- 45, 56, 63 - Loan Portfolio 11-12 45-47, 57, 64-66 - Summary of Loan Loss Experience 13-15 47, 57, 65-66 - Deposits - 48, 68 - Return on Equity and Assets - 34-35 - Short-Term Borrowings - 69 - Derivative Financial Instruments - 49, 58-59, 91-93 - Item 2. Properties 16 67 - Item 3. Legal Proceedings - 90 - Item 4. Submission of Matters to a Vote of Security Holders (3) - - - PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters - 51 - Item 6. Selected Financial Data - 36 - Item 7. Management's Discussion and Analysis of Finan- cial Condition and Results of Operations - 34-51 - Item 7A. Quantitative and Qualitative Disclosures About Market Risk - 48-49 - Item 8. Financial Statements and Supplementary Data - 52-98 - Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure (3) - - - PART III Item 10. Directors and Executive Officers of the Registrant 17-20 - 6-9, 34 Item 11. Executive Compensation - - 13-30, 34 Item 12. Security Ownership of Certain Beneficial Owners and Management - - 4-5 Item 13. Certain Relationships and Related Transactions - - 31-33 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 21-27 52-98 - SIGNATURES 28 - - - -----------------------------------------------------------------------------------------------------------------------
(1) The 2000 Annual Report to Stockholders, portions of which are incorporated by reference into this Form 10-K. (2) The information required to be submitted in response to these items is incorporated by reference to the Company's definitive Proxy Statement for the 2001 Annual Meeting of Stockholders to be held on April 24, 2001, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A. (3) Not applicable. 1 DESCRIPTION OF BUSINESS GENERAL Wells Fargo & Company (Parent) is a diversified financial services company organized under the laws of Delaware and registered under the Bank Holding Company Act (BHC Act) of 1956, as amended, and registered as a financial holding company under the Gramm-Leach-Bliley Act. Based on assets as of December 31, 2000, it was the fourth largest bank holding company in the United States. As a diversified financial services organization, Wells Fargo & Company owns subsidiaries engaged in banking and a variety of related businesses. Subsidiaries of the Parent provide retail, commercial and corporate banking services through banks located in Alaska, Arizona, California, Colorado, Idaho, Illinois, Indiana, Iowa, Michigan, Minnesota, Montana, Nebraska, Nevada, New Mexico, North Dakota, Ohio, Oregon, South Dakota, Texas, Utah, Washington, Wisconsin and Wyoming. Additional financial services are provided to customers by subsidiaries engaged in various businesses, principally: wholesale banking, mortgage banking, consumer finance, equipment leasing, agricultural finance, commercial finance, securities brokerage and investment banking, insurance agency services, computer and data processing services, trust services, mortgage-backed securities servicing and venture capital investment. Wells Fargo & Company together with its subsidiaries is referred to in this report as the Company. On October 25, 2000, the merger involving the Company and First Security Corporation (the FSCO Merger) was completed, with First Security Corporation (First Security or FSCO) surviving as a wholly-owned subsidiary of the Company. On November 2, 1998, the merger involving Norwest Corporation and the former Wells Fargo & Company (the WFC Merger) was completed. On completion of the WFC Merger, Norwest Corporation changed its name to Wells Fargo & Company. The FSCO Merger and the WFC Merger were accounted for under the pooling-of-interests method of accounting and, accordingly, the information included in this report, including the Financial Statements and Supplementary Data, and Management's Discussion and Analysis of Financial Condition and Results of Operations, presents the combined results as if both mergers had been in effect for all periods presented. The Company has four operating segments for the purpose of management reporting: Community Banking, Wholesale Banking, Wells Fargo Home Mortgage (formerly Norwest Mortgage) and Wells Fargo Financial (formerly Norwest Financial). Financial information and narrative descriptions of these operating segments are included in the 2000 Annual Report to Stockholders, incorporated by reference herein. HISTORY AND GROWTH Norwest Corporation, prior to the WFC Merger, provided banking services to customers in 16 states and additional financial services through subsidiaries engaged in a variety of businesses including mortgage banking and consumer finance. 2 The former Wells Fargo & Company's principal subsidiary, Wells Fargo Bank, N.A., was the successor to the banking portion of the business founded by Henry Wells and William G. Fargo in 1852. That business later operated the westernmost leg of the Pony Express and ran stagecoach lines in the western part of the United States. The California banking business was separated from the express business in 1905, was merged in 1960 with American Trust Company, another of the oldest banks in the Western United States, and became Wells Fargo Bank, N.A., a national banking association, in 1968. The former Wells Fargo & Company acquired First Interstate Bancorp in April 1996. First Interstate's assets had an approximate book value of $55 billion. The transaction was valued at approximately $11.3 billion and was accounted for as a purchase. The Company expands its business, in part, by acquiring banking institutions and other companies engaged in activities that are financial in nature. The Company continues to explore opportunities to acquire banking institutions and other companies. Discussions are continually being carried on related to such acquisitions. It is not presently known whether, or on what terms, such discussions will result in further acquisitions. Generally it is the policy of the Company not to comment on such discussions or possible acquisitions until a definitive acquisition agreement has been signed. COMPETITION The financial services industry is highly competitive. The Company's subsidiaries compete with financial services providers, such as banks, savings and loan associations, credit unions, finance companies, mortgage banking companies, insurance companies, and money market and mutual fund companies. They also face increased competition from non-banking institutions such as brokerage houses and insurance companies, as well as from financial services subsidiaries of commercial and manufacturing companies. Many of these competitors enjoy the benefits of fewer regulatory constraints and lower cost structures. Effective March 13, 2000, securities firms and insurance companies that elect to become financial holding companies may acquire banks and other financial institutions. This may significantly change the competitive environment in which the Company conducts business. The financial services industry is also likely to become more competitive as further technological advances enable more companies to provide financial services. These technological advances may diminish the importance of depository institutions and other financial intermediaries in the transfer of funds between parties. REGULATION AND SUPERVISION The following discussion, together with Notes 3 and 22 to Financial Statements included in the 2000 Annual Report to Stockholders, incorporated by reference herein, sets forth the material elements of the regulatory framework applicable to bank holding companies and their subsidiaries and provides certain specific information relevant to the Company. This regulatory framework is to protect depositors, federal deposit insurance funds and the banking 3 system as a whole, and not to protect security holders. To the extent that the information describes statutory and regulatory provisions, it is qualified in its entirety by reference to those provisions. Further, such statutes, regulations and policies are continually under review by Congress and state legislatures, and federal and state regulatory agencies. A change in statutes, regulations or regulatory policies applicable to the Company, including changes in interpretation or implementation thereof, could have a material effect on the Company's business. Applicable laws and regulations could restrict the Company's ability to diversify into other areas of financial services, acquire depository institutions, and pay dividends on the Company's capital stock. They could also require the Company to provide financial support to one or more of its subsidiary banks, maintain capital balances in excess of those desired by management, and pay higher deposit insurance premiums as a result of the deterioration in the financial condition of depository institutions in general. GENERAL PARENT BANK HOLDING COMPANY. As a bank holding company, the Company is subject to regulation under the BHC Act and to inspection, examination and supervision by the Board of Governors of the Federal Reserve System (Federal Reserve Board or FRB). SUBSIDIARY BANKS. The Company's national subsidiary banks are subject to regulation and examination primarily by the Office of the Comptroller of the Currency (OCC) and secondarily by the Federal Deposit Insurance Corporation (FDIC) and the FRB. The Company's state-chartered banks are subject to primary federal regulation and examination by the FDIC or the FRB and, in addition, are regulated and examined by their respective state banking departments. NONBANK SUBSIDIARIES. Many of the Company's nonbank subsidiaries are also subject to regulation by the FRB and other applicable federal and state agencies. The Company's brokerage subsidiaries are regulated by the SEC, the National Association of Securities Dealers, Inc. and state securities regulators. The Company's insurance subsidiaries are subject to regulation by applicable state insurance regulatory agencies. Other nonbank subsidiaries of the Company are subject to the laws and regulations of both the federal government and the various states in which they conduct business. PARENT BANK HOLDING COMPANY ACTIVITIES "FINANCIAL IN NATURE" REQUIREMENT. As a bank holding company that has elected to become a financial holding company pursuant to the BHC Act, the Company may affiliate with securities firms and insurance companies and engage in other activities that are financial in nature or incidental or complementary to activities that are financial in nature. "Financial in nature" activities include securities underwriting, dealing and market making, sponsoring mutual funds and investment companies, insurance underwriting and agency, merchant banking, and activities that the FRB, in consultation with the Secretary of the Treasury, determines from 4 time to time to be financial in nature or incidental to such financial activity or is complementary to a financial activity and does not pose a safety and soundness risk. A bank holding company that is not also a financial holding company is limited to engaging in banking and such other activities as determined by the FRB to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. No Federal Reserve Board approval is required for the Company to acquire a company (other than a bank holding company, bank or savings association) engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the FRB. Prior FRB approval is required before the Company may acquire the beneficial ownership or control of more than 5% of the voting shares or substantially all of the assets of a bank holding company, bank or savings association. If any subsidiary bank of the Company ceases to be "well capitalized" or "well managed" under applicable regulatory standards, the FRB may, among other actions, order the Company to divest the subsidiary bank. Alternatively, the Company may elect to conform its activities to those permissible for a bank holding company that is not also a financial holding company. If any subsidiary bank of the Company receives a rating under the Community Reinvestment Act of 1977 of less than satisfactory, the Company will be prohibited, until the rating is raised to satisfactory or better, from engaging in new activities or acquiring companies other than bank holding companies, banks or savings associations. The Company became a financial holding company effective March 13, 2000. It continues to maintain its status as a bank holding company for purposes of other FRB regulations. INTERSTATE BANKING. Under the Riegle-Neal Interstate Banking and Branching Act (Riegle-Neal Act), a bank holding company may acquire banks in states other than its home state, subject to any state requirement that the bank has been organized and operating for a minimum period of time, not to exceed five years, and the requirement that the bank holding company not control, prior to or following the proposed acquisition, more than 10% of the total amount of deposits of insured depository institutions nationwide or, unless the acquisition is the bank holding company's initial entry into the state, more than 30% of such deposits in the state (or such lesser or greater amount set by the state). The Riegle-Neal Act also authorizes banks to merge across state lines, thereby creating interstate branches. States were permitted for a period of time to opt out of the interstate merger authority provided by the Riegle-Neal Act and, by doing so, prohibit interstate mergers in the state. The Company will be unable to consolidate its banking operations in one state with those of another state if either state in question has opted out of the Riegle-Neal Act. The state of Montana has opted out until September 2001. Banks are also permitted to acquire and to establish DE NOVO branches in other states where authorized under the laws of those states. REGULATORY APPROVAL. In determining whether to approve a proposed bank acquisition, federal bank regulators will consider, among other factors, the effect of the acquisition on competition, 5 the public benefits expected to be received from the acquisition, the projected capital ratios and levels on a post-acquisition basis, and the acquiring institution's record of addressing the credit needs of the communities it serves, including the needs of low and moderate income neighborhoods, consistent with the safe and sound operation of the bank, under the Community Reinvestment Act of 1977, as amended. DIVIDEND RESTRICTIONS Wells Fargo & Company is a legal entity separate and distinct from its subsidiary banks and other subsidiaries. Its principal source of funds to pay dividends on its common and preferred stock and principal and interest on its debt is dividends from its subsidiaries. Various federal and state statutory provisions and regulations limit the amount of dividends the Company's subsidiary banks and certain other subsidiaries of the Company may pay without regulatory approval. For information about the restrictions applicable to the Company's subsidiary banks, see Note 3 to Financial Statements, incorporated by reference herein. Federal bank regulatory agencies have the authority to prohibit the Company's subsidiary banks from engaging in unsafe or unsound practices in conducting their businesses. The payment of dividends, depending on the financial condition of the bank in question, could be deemed an unsafe or unsound practice. The ability of the Company's subsidiary banks to pay dividends in the future is currently, and could be further, influenced by bank regulatory policies and capital guidelines. HOLDING COMPANY STRUCTURE TRANSFER OF FUNDS FROM SUBSIDIARY BANKS. The Company's subsidiary banks are subject to restrictions under federal law that limit the transfer of funds or other items of value from such subsidiaries to the Parent and its nonbank subsidiaries (including affiliates) in so-called "covered transactions." In general, covered transactions include loans and other extensions of credit, investments and asset purchases, as well as other transactions involving the transfer of value from a subsidiary bank to an affiliate or for the benefit of an affiliate. Unless an exemption applies, covered transactions by a subsidiary bank with a single affiliate are limited to 10% of the subsidiary bank's capital and surplus and, with respect to all covered transactions with affiliates in the aggregate, to 20% of the subsidiary bank's capital and surplus. Also, loans and extensions of credit to affiliates generally are required to be secured in specified amounts. A bank's transactions with its nonbank affiliates are also generally required to be on arm's length terms. SOURCE OF STRENGTH. The FRB has a policy that a bank holding company is expected to act as a source of financial and managerial strength to each of its subsidiary banks and, under appropriate circumstances, to commit resources to support each such subsidiary bank. This support may be required at times when the bank holding company may not have the resources to provide the support. 6 The OCC may order the assessment of the Company if the capital of one of its national bank subsidiaries were to become impaired. If the Company failed to pay the assessment within three months, the OCC could order the sale of the Company's stock in the national bank to cover the deficiency. Capital loans by the Company to any of its subsidiary banks are subordinate in right of payment to deposits and certain other indebtedness of the subsidiary bank. In addition, in the event of the Company's bankruptcy, any commitment by the Company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a priority of payment. DEPOSITOR PREFERENCE. The Federal Deposit Insurance Act (FDI Act) provides that, in the event of the "liquidation or other resolution" of an insured depository institution, the claims of depositors of the institution (including the claims of the FDIC as subrogee of insured depositors) and certain claims for administrative expenses of the FDIC as a receiver will have priority over other general unsecured claims against the institution. If an insured depository institution fails, insured and uninsured depositors, along with the FDIC, will have priority in payment ahead of unsecured, nondeposit creditors, including the Company, with respect to any extensions of credit they have made to such insured depository institution. LIABILITY OF COMMONLY CONTROLLED INSTITUTIONS. All of the Company's banks are insured by the FDIC. FDIC-insured depository institutions can be held liable for any loss incurred, or reasonably expected to be incurred, by the FDIC due to the default of an FDIC-insured depository institution controlled by the same bank holding company, and for any assistance provided by the FDIC to an FDIC-insured depository institution that is in danger of default and that is controlled by the same bank holding company. "Default" means generally the appointment of a conservator or receiver. "In danger of default" means generally the existence of certain conditions indicating that a default is likely to occur in the absence of regulatory assistance. CAPITAL REQUIREMENTS The Company is subject to risk-based capital requirements and guidelines imposed by the FRB, which are substantially similar to the capital requirements and guidelines imposed by the FRB, the OCC and the FDIC on depository institutions under their jurisdictions. For information about these capital requirements and guidelines, see Note 22 to Financial Statements, incorporated by reference herein. The FRB may set higher capital requirements for holding companies whose circumstances warrant it. For example, holding companies experiencing internal growth or making acquisitions are expected to maintain strong capital positions substantially above the minimum supervisory levels, without significant reliance on intangible assets. Also, the FRB considers a "tangible Tier 1 leverage ratio" (deducting all intangibles) and other indications of capital strength in evaluating proposals for expansion or new activities. 7 FRB, FDIC and OCC rules require the Company to incorporate market and interest rate risk components into their risk-based capital standards. Under the market risk requirements, capital is allocated to support the amount of market risk related to a financial institution's ongoing trading activities. As an additional means to identify problems in the financial management of depository institutions, the FDI Act requires federal bank regulatory agencies to establish certain non-capital safety and soundness standards for institutions for which they are the primary federal regulator. The standards relate generally to operations and management, asset quality, interest rate exposure and executive compensation. The agencies are authorized to take action against institutions that fail to meet such standards. The FDI Act requires federal bank regulatory agencies to take "prompt corrective action" with respect to FDIC-insured depository institutions that do not meet minimum capital requirements. A depository institution's treatment for purposes of the prompt corrective action provisions will depend upon how its capital levels compare to various capital measures and certain other factors, as established by regulation. DEPOSIT INSURANCE ASSESSMENTS Through the Bank Insurance Fund (BIF), the FDIC insures the deposits of the Company's depository institution subsidiaries up to prescribed limits for each depositor. The amount of FDIC assessments paid by each BIF member institution is based on its relative risk of default as measured by regulatory capital ratios and other factors. Specifically, the assessment rate is based on the institution's capitalization risk category and supervisory subgroup category. An institution's capitalization risk category is based on the FDIC's determination of whether the institution is well capitalized, adequately capitalized or less than adequately capitalized. An institution's supervisory subgroup category is based on the FDIC's assessment of the financial condition of the institution and the probability that FDIC intervention or other corrective action will be required. The BIF assessment rate currently ranges from zero to 27 cents per $100 of domestic deposits. The BIF assessment rate for the Company's depository institutions currently is zero. The FDIC may increase or decrease the assessment rate schedule on a semiannual basis. An increase in the BIF assessment rate could have a material adverse effect on the Company's earnings, depending on the amount of the increase. The FDIC is authorized to terminate a depository institution's deposit insurance upon a finding by the FDIC that the institution's financial condition is unsafe or unsound or that the institution has engaged in unsafe or unsound practices or has violated any applicable rule, regulation, order or condition enacted or imposed by the institution's regulatory agency. The termination of deposit insurance for one or more of the Company's subsidiary depository institutions could have a material adverse effect on the Company's earnings, depending on the collective size of the particular institutions involved. All FDIC-insured depository institutions must pay an annual assessment to provide funds for the payment of interest on bonds issued by the Financing Corporation, a federal corporation 8 chartered under the authority of the Federal Housing Finance Board. The bonds (commonly referred to as FICO bonds) were issued to capitalize the Federal Savings and Loan Insurance Corporation. FDIC-insured depository institutions paid approximately 2.1 cents per $100 of BIF-assessable deposits in 2000. The FDIC established the FICO assessment rate effective for the first quarter of 2001 at approximately 2.0 cents annually per $100 of BIF-assessable deposits. FISCAL AND MONETARY POLICIES The Company's business and earnings are affected significantly by the fiscal and monetary policies of the federal government and its agencies. The Company is particularly affected by the policies of the FRB, which regulates the supply of money and credit in the United States. Among the instruments of monetary policy available to the FRB are (a) conducting open market operations in United States government securities, (b) changing the discount rates of borrowings of depository institutions, (c) imposing or changing reserve requirements against depository institutions' deposits, and (d) imposing or changing reserve requirements against certain borrowings by banks and their affiliates. These methods are used in varying degrees and combinations to directly affect the availability of bank loans and deposits, as well as the interest rates charged on loans and paid on deposits. The policies of the FRB may have a material effect on the Company's business, results of operations and financial condition. PRIVACY PROVISIONS OF THE GRAMM-LEACH-BLILEY ACT Federal banking regulators, as required under the Gramm-Leach-Bliley Act (the GLB Act), have adopted rules limiting the ability of banks and other financial institutions to disclose nonpublic information about consumers to nonaffiliated third parties. The rules became effective November 13, 2000, but compliance before July 1, 2001 is optional. The rules require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to nonaffiliated third parties. The privacy provisions of the GLB Act will affect how consumer information is transmitted through diversified financial services companies and conveyed to outside vendors. It is not possible at this time to assess fully the impact of the privacy provisions on the Company's business, results of operations or financial condition. FUTURE LEGISLATION Various legislation, including proposals to change substantially the financial institution regulatory system, is from time to time introduced in Congress. This legislation may change banking statutes and the operating environment of the Company in substantial and unpredictable ways. If enacted, this legislation could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions. The Company cannot predict whether any of this potential legislation will be enacted and, if enacted, the effect that it, or any implementing regulations, would have on the Company's business, results of operations or financial condition. 9 ANALYSIS OF CHANGES IN NET INTEREST INCOME The following table allocates the changes in net interest income on a taxable-equivalent basis to changes in either average balances or average rates for both interest-earning assets and interest-bearing liabilities. Because of the numerous simultaneous volume and rate changes during any period, it is not possible to precisely allocate such changes between volume and rate. For this table, changes that are not solely due to either volume or rate are allocated to these categories in proportion to the percentage changes in average volume and average rate.
- ------------------------------------------------------------------------------------------------------------------------- Year ended December 31, ----------------------------------------------------------- 2000 OVER 1999 1999 over 1998 --------------------------- --------------------------- (in millions) VOLUME RATE TOTAL Volume Rate Total - ------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in interest income: Federal funds sold and securities purchased under resale agreements $ 40 $ 17 $ 57 $ (5) $ (8) $ (13) Debt securities available for sale: Securities of U.S. Treasury and federal agencies (173) 35 (138) 16 (21) (5) Securities of U.S. states and political subdivisions (2) (4) (6) 24 (4) 20 Mortgage-backed securities: Federal agencies 187 117 304 263 (40) 223 Private collateralized mortgage obligations (114) 31 (83) 63 2 65 Other securities 46 6 52 113 (9) 104 Mortgages held for sale (213) 111 (102) (74) 17 (57) Loans held for sale (18) 59 41 21 (20) 1 Loans: Commercial 588 305 893 271 (70) 201 Real estate 1-4 family first mortgage 241 23 264 (43) (19) (62) Other real estate mortgage 330 48 378 117 (120) (3) Real estate construction 167 25 192 94 (6) 88 Consumer: Real estate 1-4 family junior lien mortgage 377 57 434 96 (52) 44 Credit card 26 47 73 (91) (74) (165) Other revolving credit and monthly payment 271 36 307 (51) (53) (104) Lease financing 74 (13) 61 142 (23) 119 Foreign 14 8 22 42 -- 42 Other (2) 39 37 9 (28) (19) ------ ----- ------ ------ ----- ----- Total increase (decrease) in interest income 1,839 947 2,786 1,007 (528) 479 ------ ----- ------ ------ ----- ----- Increase (decrease) in interest expense: Deposits: Interest-bearing checking 3 30 33 1 (11) (10) Market rate and other savings 64 323 387 104 (197) (93) Savings certificates 1 153 154 (92) (132) (224) Other time deposits 25 32 57 (31) (23) (54) Deposits in foreign offices 260 31 291 34 (1) 33 Short-term borrowings 319 312 631 233 (69) 164 Long-term debt 276 210 486 318 (79) 239 Guaranteed preferred beneficial interests in Company's subordinated debentures -- 2 2 (18) (4) (22) ------ ----- ------ ------ ----- ----- Total increase (decrease) in interest expense 948 1,093 2,041 549 (516) 33 ------ ----- ------ ------ ----- ----- Increase (decrease) in net interest income on a taxable-equivalent basis $ 891 $ (146) $ 745 $ 458 $ (12) $ 446 ====== ====== ====== ====== ===== ===== - -------------------------------------------------------------------------------------------------------------------------
10 LOAN PORTFOLIO The following table presents the remaining contractual principal maturities of selected loan categories at December 31, 2000 and a summary of the major categories of loans outstanding at the end of the last five years. At December 31, 2000, the Company did not have loan concentrations that exceeded 10% of total loans, except as shown below.
- ----------------------------------------------------------------------------------------------------------------------------------- DECEMBER 31, 2000 - ------------------------------------------------------------------------------------------ OVER ONE YEAR THROUGH FIVE YEARS OVER FIVE YEARS ------------------ --------------- FLOATING FLOATING OR OR December 31, ONE YEAR FIXED ADJUSTABLE FIXED ADJUSTABLE -------------------------------------- (in millions) OR LESS RATE RATE RATE RATE TOTAL 1999 1998 1997 1996 - ----------------------------------------------------------------------------------------------------------------------------------- Selected loan maturities: Commercial $24,515 $ 4,198 $18,602 $ 1,217 $ 1,986 $ 50,518 $ 41,671 $ 38,218 $ 34,368 $ 33,047 Real estate 1-4 family first mortgage 7,458 1,171 110 6,696 3,029 18,464 13,506 12,613 15,220 17,186 Other real estate mortgage 4,377 9,099 935 4,780 4,781 23,972 20,899 18,033 17,587 17,552 Real estate construction 4,062 594 2,536 190 333 7,715 6,067 4,529 3,941 3,807 Foreign 1,234 12 312 2 64 1,624 1,600 1,528 1,155 1,154 ------- ------- ------- ------- ------- -------- ------- ------- ------- -------- Total selected loan maturities $41,646 $15,074 $22,495 $12,885 $10,193 102,293 83,743 74,921 72,271 72,746 ======= ======= ======= ======= ======= -------- ------- ------- ------- -------- Other loan categories: Consumer: Real estate 1-4 family junior lien mortgage 18,218 12,949 11,135 10,622 10,854 Credit card 6,616 5,805 6,119 6,989 7,341 Other revolving credit and monthly payment 23,974 20,617 19,441 20,255 19,615 -------- ------- ------- ------- -------- Total consumer 48,808 39,371 36,695 37,866 37,810 Lease financing 10,023 9,890 8,046 6,298 4,563 -------- ------- ------- ------- -------- Total loans $161,124 $133,004 $119,662 $116,435 $115,119 ======== ======== ======== ======== ======== - -----------------------------------------------------------------------------------------------------------------------------------
The table at the top of the following page summarizes other real estate mortgage loans by state and property type. The table at the bottom of the following page summarizes real estate construction loans by state and project type. 11 REAL ESTATE MORTGAGE LOANS BY STATE AND PROPERTY TYPE (excluding 1-4 family first mortgages)
- -------------------------------------------------------------------------------------------------------------------------------- December 31, 2000 ----------------------------------------------------------------------------------------------------------- Other Non- California Texas Minnesota Colorado States (2) All States accruals -------------- ------------- ------------ -------------- -------------- -------------- as a % Total Non- Total Non- Total Non- Total Non- Total Non- Total Non- of total (in millions) loans accrual loans accrual loans accrual loans accrual loans accrual loans accrual by type - -------------------------------------------------------------------------------------------------------------------------------- Office buildings $2,649 $ 1 $ 490 $ 1 $ 106 $-- $194 $-- $ 2,175 $ 6 $ 5,614 $ 8 --% Retail buildings 1,530 18 363 5 276 3 238 1 1,900 4 4,307 31 1 Industrial 2,005 11 305 7 299 2 197 -- 1,222 5 4,028 25 1 Hotels/motels 352 -- 320 2 58 3 63 -- 1,438 1 2,231 6 -- Apartments 694 1 210 -- 102 -- 83 -- 835 15 1,924 16 1 Institutional 215 2 23 -- -- -- 12 -- 185 -- 435 2 -- Agricultural 344 2 72 1 110 5 25 -- 621 4 1,172 12 1 Land 338 -- 163 1 46 -- 47 1 396 -- 990 2 -- 1-4 family structures (1) 2 -- 7 -- 3 -- 8 -- 102 -- 122 -- -- Other 1,268 2 216 2 146 1 117 1 1,402 5 3,149 11 -- ------ ---- ------ ----- ------ --- ----- --- ------- --- ------- --- Total by state $9,397 $ 37 $2,169 $ 19 $1,146 $14 $984 $ 3 $10,276 $40 $23,972 $113 --% ====== ==== ====== ===== ====== === ==== === ======= === ======= ==== === % of total loans 39% 9% 5% 4% 43% 100% ====== ====== ====== ==== ======= ======= Nonaccruals as a % of total by state --% 1% 1% --% --% ==== ===== === === === - --------------------------------------------------------------------------------------------------------------------------------
(1) Represents loans to real estate developers secured by 1-4 family residential developments. (2) Consists of 46 states; no state had loans in excess of $976 million at December 31, 2000. REAL ESTATE CONSTRUCTION LOANS BY STATE AND PROPERTY TYPE
- ------------------------------------------------------------------------------------------------------------------------------ December 31, 2000 --------------------------------------------------------------------------------------------------------- Other Non- California Nevada Texas Colorado States (2) All States accruals -------------- ------------- ------------- -------------- -------------- ------------ as a % Total Non- Total Non- Total Non- Total Non- Total Non- Total Non- of total (in millions) loans accrual loans accrual loans accrual loans accrual loans accrual loans accrual by type - ------------------------------------------------------------------------------------------------------------------------------ Retail buildings $ 199 $-- $ 48 $-- $ 32 $-- $ 30 $-- $ 453 $-- $ 762 $-- --% 1-4 family: Land 104 -- 14 -- 15 -- 19 -- 84 -- 236 -- -- Structures 356 -- 148 2 171 -- 197 -- 985 19 1,857 21 1 Land (excluding 1-4 family) 332 -- 106 -- 58 1 71 -- 462 -- 1,029 1 -- Apartments 124 -- 108 25 20 -- 32 -- 210 -- 494 25 5 Office buildings 424 -- 19 -- 63 -- 121 -- 490 2 1,117 2 -- Industrial 266 -- 22 -- 57 -- 54 1 224 -- 623 1 -- Hotels/motels 57 -- 39 -- 8 -- 1 -- 112 -- 217 -- -- Institutional 35 -- -- -- 8 -- -- -- 38 -- 81 -- -- Agricultural 13 -- -- -- -- -- -- -- 11 -- 24 -- -- Other 257 -- 228 2 297 2 45 -- 448 3 1,275 7 1 ------ --- ---- --- ---- --- ---- --- ------ --- ------ --- Total by state $2,167 $-- $732 $29 $729 $ 3 $570 $ 1 $3,517 $24 $7,715 $57 1% ====== === ==== === ==== === ==== === ====== === ====== === == % of total loans 28% 10% 9% 7% 46% 100% ====== ==== ==== ==== ====== ====== Nonaccruals as a % of total by state --% 4% --% --% 1% === === == === === - ------------------------------------------------------------------------------------------------------------------------------------
(1) Consists of 41 states; no state had loans in excess of $517 million at December 31, 2000. 12 CHANGES IN THE ALLOWANCE FOR LOAN LOSSES
- ------------------------------------------------------------------------------------------------------------------- (in millions) 2000 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------- BALANCE, BEGINNING OF YEAR $ 3,344 $ 3,307 $ 3,220 $ 3,202 $ 2,846 Allowances related to business combinations, net 265 48 148 172 874 Provision for loan losses 1,329 1,104 1,617 1,203 541 Loan charge-offs: Commercial (429) (395) (271) (369) (206) Real estate 1-4 family first mortgage (16) (14) (29) (28) (25) Other real estate mortgage (32) (28) (54) (27) (51) Real estate construction (8) (2) (3) (5) (14) Consumer: Real estate 1-4 family junior lien mortgage (34) (33) (31) (37) (38) Credit card (367) (403) (549) (593) (500) Other revolving credit and monthly payment (623) (585) (1,069) (672) (530) ------- ------- ------- ------- ------- Total consumer (1,024) (1,021) (1,649) (1,302) (1,068) Lease financing (52) (38) (49) (49) (36) Foreign (86) (90) (84) (37) (35) ------- ------- ------- ------- ------- Total loan charge-offs (1,647) (1,588) (2,139) (1,817) (1,435) ------- ------- ------- ------- ------- Loan recoveries: Commercial 98 90 87 110 96 Real estate 1-4 family first mortgage 4 6 12 10 13 Other real estate mortgage 13 38 79 63 57 Real estate construction 4 5 4 12 13 Consumer: Real estate 1-4 family junior lien mortgage 14 15 7 10 10 Credit card 39 49 59 64 52 Other revolving credit and monthly payment 213 243 187 166 117 ------- ------- ------- ------- ------- Total consumer 266 307 253 240 179 Lease financing 13 12 12 15 9 Foreign 30 15 14 10 9 ------- ------- ------- ------- ------- Total loan recoveries 428 473 461 460 376 ------- ------- ------- ------- ------- Total net loan charge-offs (1,219) (1,115) (1,678) (1,357) (1,059) ------- ------- ------- ------- ------- BALANCE, END OF YEAR $ 3,719 $ 3,344 $ 3,307 $ 3,220 $ 3,202 ======= ======= ======= ======= ======= Total net loan charge-offs as a percentage of average total loans .84% .90% 1.44% 1.19% .99% ======= ======= ======= ======= ======= Allowance as a percentage of total loans 2.31% 2.51% 2.76% 2.77% 2.78% ======= ======= ======= ======= ======= - -------------------------------------------------------------------------------------------------------------------
13 The SEC requires the Company to present the ratio of the allowance for loan losses to total nonaccrual loans. This ratio was 311% and 462% at December 31, 2000 and 1999, respectively. This ratio may fluctuate significantly from period to period due to such factors as the mix of loan types in the portfolio, the prospects of borrowers and the value and marketability of collateral as well as, for the nonaccrual portfolio taken as a whole, wide variances from period to period in terms of delinquency and relationship of book to contractual principal balance. Classification of a loan as nonaccrual does not necessarily indicate that the principal of a loan is uncollectible in whole or in part. Consequently, the ratio of the allowance for loan losses to nonaccrual loans, taken alone and without taking into account numerous additional factors, is not a reliable indicator of the adequacy of the allowance for loan losses. Indicators of the credit quality of the Company's loan portfolio and the method of determining the allowance for loan losses are discussed below and in greater detail in the 2000 Annual Report to Stockholders, incorporated by reference herein. ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES The table below provides a breakdown of the allowance for loan losses by loan category.
- --------------------------------------------------------------------------------------------------------------------------------- December 31, - --------------------------------------------------------------------------------------------------------------------------------- (in millions) 2000 1999 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------------------- Commercial $ 798 $ 655 $ 664 $ 603 $ 519 Real estate 1-4 family first mortgage 55 64 58 71 59 Other real estate mortgage 220 220 238 284 347 Real estate construction 69 58 62 51 63 Consumer: Credit card 394 349 356 483 452 Other consumer 556 428 588 575 485 ------ ------ ------ ------ ----- Total consumer 950 777 944 1,058 937 Lease financing 67 71 66 67 55 Foreign 95 62 79 43 34 ------ ------ ------ ------ ----- Total allocated 2,254 1,907 2,111 2,177 2,014 Unallocated component of the allowance (1) 1,465 1,437 1,196 1,043 1,188 ------ ------ ------ ------ ----- Total $3,719 $3,344 $3,307 $3,220 $3,202 ====== ====== ====== ====== ======
December 31, -------------------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 ----------------- ----------------- ----------------- ----------------- ---------------- ALLOC. LOAN Alloc. Loan Alloc. Loan Alloc. Loan Alloc. Loan ALLOW. CATGRY allow. catgry allow. catgry allow. catgry allow. catgry AS % AS % as % as % as % as % as % as % as % as % OF LOAN OF TOTAL of loan of total of loan of total of loan of total of loan of total CATGRY LOANS catry loans catgry loans catgry loans catgry loans ------ -------- ------- -------- ------- -------- ------- -------- ------- -------- Commercial 1.58% 31% 1.57% 31% 1.74% 32% 1.75% 30% 1.57% 29% Real estate 1-4 family first mortgage .30 12 .47 10 .46 11 .47 13 .34 15 Other real estate mortgage .92 15 1.05 16 1.32 15 1.61 15 1.98 15 Real estate construction .90 5 .96 5 1.37 4 1.29 3 1.66 3 Consumer: Credit card 5.96 4 6.01 4 5.82 5 6.91 6 6.15 6 Other consumer 1.32 26 1.28 26 1.92 25 1.86 27 1.59 27 --- --- --- --- --- Total consumer 1.95 30 1.97 30 2.57 30 2.79 33 2.48 33 Lease financing .67 6 .72 7 .82 7 1.06 5 1.21 4 Foreign 5.89 1 3.88 1 5.17 1 3.72 1 2.95 1 --- --- --- --- --- Total allocated 1.40 100% 1.43 100% 1.76 100% 1.87 100% 1.75 100% === === === === === Unallocated component of the allowance (1) .91 1.08 1.00 .90 1.03 ---- ---- ---- ---- ---- Total 2.31% 2.51% 2.76% 2.77% 2.78% ==== ==== ==== ==== ==== - -----------------------------------------------------------------------------------------------------------------------------------
(1) This amount and any unabsorbed portion of the allocated allowance are also available for any of the above listed loan categories. 14 See Note 5 to Financial Statements in the 2000 Annual Report, incorporated by reference herein, for the description of the process used by the Company to determine the adequacy and the components (allocated and unallocated) of the allowance for loan losses. At December 31, 2000, the allowance for loan losses was $3,719 million, or 2.31% of total loans, compared with $3,344 million, or 2.51%, at December 31, 1999. During 2000, net provision for loan losses exceeded the charge-offs by $110 million. The addition of $265 million of allowances related to business combinations in 2000 accounted for the majority of the increase of $375 million in the reserve, year over year. The components of the allowance, allocated and unallocated, are shown in the table on the previous page. The allocated component increased to $2,254 million from $1,907 million, while the unallocated component grew to $1,465 million from $1,437 million, as of December 31, 2000 and 1999, respectively. At December 31, 2000, the unallocated portion of the allowance amounted to 39% of the total allowance, compared with 43% at December 31, 1999. The $347 million increase in the allocated component of the allowance was entirely due to growth in the loan portfolio. Analyzing the movements in the allocated reserve strictly from a loan volume perspective indicates that, had the ratio of allocated reserves to loans outstanding remained flat with the 1999 ratio of 1.43%, allocated reserves would have increased by approximately $395 million, as loans outstanding grew by $28 billion during the year. However, due to a shift in portfolio composition, the higher volume increased the allocated reserve by only $366 million, as relatively higher-risk foreign loans grew at a slower pace than other, lower-risk portfolio segments. Lower allocated allowance to loans outstanding ratios in the residential mortgage and other real estate mortgage portfolios were substantially offset by higher allocated allowance to loans outstanding ratios in the other consumer and foreign loan portfolios. On a net basis, marginally lower allocated reserve ratios resulted in a reduction of roughly $19 million in allocated reserves, primarily a reflection of modestly lower projected loss rates in the loan portfolio. There were no material changes in estimation methods and assumptions for the allowance that took place during 2000. The Company considers the allowance for loan losses of $3,719 million adequate to cover losses inherent in loans, loan commitments, and standby and other letters of credit at December 31, 2000. The foregoing discussion contains forward-looking statements about the adequacy of the Company's reserves for loan losses. These forward-looking statements are inherently subject to risks and uncertainties. A number of factors--many of which are beyond the Company's control--could cause actual losses to be more than estimated losses. For a discussion of some of the other factors that could cause actual losses to be more than estimated losses, see "Factors That May Affect Future Results" in the "Financial Review" section of the 2000 Annual Report to Stockholders, incorporated by reference herein. 15 PROPERTIES The Company owns its headquarters building in San Francisco as well as Wells Fargo Centers in Phoenix, Arizona and Portland, Oregon. In addition, the Company leases office space for data processing support and various administrative departments in major locations in Alaska, Arizona, California, Colorado, Minnesota, Oregon, Texas, and Utah. As of December 31, 2000, the Company provides banking, mortgage and consumer finance through about 5,400 stores under various types of ownership and leasehold agreements. Wells Fargo Home Mortgage (WFHM) owns its headquarters in Des Moines, Iowa and servicing centers located in Minneapolis, Minnesota; Springfield, Ohio; and Riverside, California. In addition, WFHM leases servicing centers in Minneapolis, Minnesota; Phoenix, Arizona; Charlotte, North Carolina; and Springfield, Illinois, operations centers in Frederick, Maryland and St. Louis, Missouri and all mortgage production offices nationwide. Wells Fargo Financial owns its headquarters in Des Moines, Iowa, and leases all branch locations. The Company is also a joint venture partner in two office buildings in downtown Los Angeles, California. For further information with respect to premises and equipment and commitments under noncancelable leases for premises and equipment, refer to Note 6 to Financial Statements, incorporated by reference herein. 16 EXECUTIVE OFFICERS OF THE REGISTRANT
YEARS WITH NAME AND COMPANY OR COMPANY POSITION POSITIONS HELD DURING THE PAST FIVE YEARS AGE PREDECESSORS - ----------------- ----------------------------------------- --- ------------ John A. Berg Group Executive Vice President (North Central Banking Group) 55 25 Group Executive (November 2000 to Present); Group Executive Vice President (Central Vice President (North Banking) (November 1998 to November 2000); Senior Vice President and Central Banking Group) Regional Group Head of former Norwest (March 1998 to November 1998); Regional President (Greater Minnesota/La Crosse Region) (January 1990 to March 1998) Leslie S. Biller Vice Chairman and Chief Operating Officer (November 1998 to Present); 53 13 Vice Chairman and Chief President and Chief Operating Officer of former Norwest (February Operating Officer 1997 to November 1998); Executive Vice President (South Central Community Banking) (July 1990 to February 1997) Patricia R. Callahan Executive Vice President (Human Resources) (November 1998 to 47 23 Executive Vice President Present); Executive Vice President of former Wells Fargo (Personnel) (Human Resources) (September 1998 to November 1998); Executive Vice President (Wholesale Banking) (July 1997 to September 1998); Executive Vice President (Personnel) (March 1993 to July 1997) James R. Campbell Group Executive Vice President (Minnesota Banking and Investments 58 36 Group Executive Group) (November 2000 to Present); Group Executive Vice President Vice President (Minnesota (Minnesota Banking) (November 1998 to November 2000); Executive Vice Banking and Investments President (North Central Banking) of former Norwest (August 1997 to Group) November 1998); Executive Vice President (Commercial Banking Services, Specialized Lending and Nebraska) (January 1996 to August 1997) Teresa A. Dial Group Executive Vice President (January 2001 to Present); Group 51 28 Group Executive Executive Vice President (California, Business Banking, Telephone Vice President Banking, Distribution Strategies, Insurance, Diversified Products Group, Education Finance) (November 1998 to January 2001); Vice Chair (Consumer and Business Banking) of former Wells Fargo (March 1996 to November 1998); Group Executive Vice President (Business Banking) (September 1991 to March 1996)
17
YEARS WITH NAME AND COMPANY OR COMPANY POSITION POSITIONS HELD DURING THE PAST FIVE YEARS AGE PREDECESSORS - ----------------- ----------------------------------------- --- ------------ C. Webb Edwards Executive Vice President (Technology and Operations Group) (November 53 16 Executive Vice President 1998 to Present); Executive Vice President of the former Norwest (Technology and Operations (April 1995 to November 1998); and President and Chief Executive Group) Officer of Wells Fargo Services Company (formerly known as Norwest Services, Inc. and Norwest Technical Services, Inc.) (May 1995 to Present) David A. Hoyt Group Executive Vice President (Wholesale Banking Group) (November 45 19 Group Executive 1998 to Present); Vice Chair (Real Estate, Capital Markets, Vice President (Wholesale International) of former Wells Fargo (May 1997 to November 1998); Banking Group) Executive Vice President (Capital Markets, Special Loans) (September 1994 to May 1997) Michael R. James Group Executive Vice President (Business Banking and Consumer Lending 49 27 Group Executive Vice Group) (July 2000 to Present); Executive Vice President of Wells President (Business Banking Fargo Bank, N.A. (Business Banking Group Head) (July 1997 to July and Consumer Lending Group) 2000); Executive Vice President (Business Banking Group Division Manager) (June 1992 to July 1997) Ross J. Kari Executive Vice President and Chief Financial Officer (January 2000 to 42 18 Executive Vice President Present); Executive Vice President and Deputy Chief Financial Officer and Chief Financial Officer (November 1998 to January 2000); Chief Financial Officer of former Wells Fargo (May 1998 to November 1998); Executive Vice President (Group Head of Finance) (March 1997 to May 1998); Executive Vice President and General Auditor (September 1995 to March 1997) Richard M. Kovacevich President and Chief Executive Officer (November 1998 to Present); 57 15 President and Chief Chairman and Chief Executive Officer of former Norwest (February 1997 Executive Officer to November 1998); Chairman, President and Chief Executive Officer (May 1995 to January 1997) Ely L. Licht Executive Vice President and Chief Credit Officer (November 1998 to 53 17 Executive Vice President Present); Executive Vice President (Credit Administration) of former (Chief Credit Officer) Wells Fargo (February 1990 to November 1998)
18
YEARS WITH NAME AND COMPANY OR COMPANY POSITION POSITIONS HELD DURING THE PAST FIVE YEARS AGE PREDECESSORS - ----------------- ----------------------------------------- --- ------------ Dennis J. Mooradian Group Executive Vice President (Private Client Services) (July 1999 53 4 Group Executive Vice to Present); Executive Vice President of Wells Fargo Bank, N.A. (May President (Private Client 1996 to July 1999); Lehman Brothers' Global Private Client Services Services) Division's Chief Operating Officer (April 1995 to May 1996) Mark C. Oman Group Executive Vice President (Mortgage and Home Equity Group) 46 21 Group Executive (November 1998 to Present); Executive Vice President (Mortgage Vice President (Mortgage Services and Iowa Community Banking) of former Norwest (February 1997 and Home Equity Group) to November 1998); and Chairman of Wells Fargo Home Mortgage, Inc. (formerly known as Norwest Mortgage, Inc.) (February 1997 to Present); Chief Executive Officer (August 1989 to January 2001); President (August 1989 to February 1997) Clyde W. Ostler Group Executive Vice President (Internet Services Group) (October 54 30 Group Executive 1999 to Present); Group Executive Vice President (Investments) Vice President (Internet (November 1998 to October 1999); Vice Chair (Trust and Investment Services Group) Services) of former Wells Fargo (May 1993 to November 1998) Daniel W. Porter Group Executive Vice President (Wells Fargo Financial) and Chairman 45 1 Group Executive Vice and Chief Executive Officer of Wells Fargo Financial, Inc. President (Wells Fargo (December 1999 to Present); various positions with GE Capital since Financial) 1986 including Managing Director of GE Capital Europe in London (European Transportation Group) (March 1998 to December 1999); President of Global Consumer Development (September 1997 to March 1998); and President and Chief Executive Officer of Retailer Financial Services (April 1994 to September 1997) Les L. Quock, CPA Senior Vice President and Controller (November 1998 to Present); 47 21 Senior Vice President and Senior Vice President (Payment Systems Services Group) of former Controller (Principal Wells Fargo (February 1997 to November 1998); Senior Vice President Accounting Officer) (Business Banking Group Systems) (October 1996 to February 1997); Senior Vice President (Business Loan Finance and Administration) (November 1995 to October 1996)
19
YEARS WITH NAME AND COMPANY OR COMPANY POSITION POSITIONS HELD DURING THE PAST FIVE YEARS AGE PREDECESSORS - ----------------- ----------------------------------------- --- ------------ Stanley S. Stroup Executive Vice President and General Counsel (November 1998 to 57 17 Executive Vice President Present); Executive Vice President and General Counsel of former and General Counsel Norwest (February 1993 to November 1998) John G. Stumpf Group Executive Vice President (Western Banking Group) (May 2000 to 47 19 Group Executive Present); Group Executive Vice President (Southwestern Banking) Vice President (Western (November 1998 to May 2000); Regional President (Texas) of former Banking Group) Norwest (July 1994 to November 1998) Carrie L. Tolstedt Group Executive Vice President (California Banking) (January 2001 to 41 11 Group Executive Vice Present); Regional President of Wells Fargo Bank, N.A. (Central President (California California Banking) (December 1998 to January 2001); Regional Manager Banking) of Norwest Bank Minnesota, N.A. (Greater Minnesota Community Banking) (May 1998 to December 1998); Executive Vice President of FirstMerit Corporation and President and Chief Executive Officer of Citizens National Bank and Peoples National Bank (August 1996 to May 1998); Senior Vice President (Corporate Retail) of FirstMerit Corporation (May 1995 to August 1996)
There is no family relationship among the above officers. All executive officers serve at the pleasure of the Board of Directors. 20 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Financial Statements, Schedules and Exhibits: (1) The consolidated financial statements and related notes, the independent auditors' report thereon and supplementary data that appear on pages 52 through 98 of the 2000 Annual Report to Stockholders are incorporated herein by reference. (2) Financial Statement Schedules: All schedules are omitted, because they are either not applicable or the required information is shown in the consolidated financial statements or the notes thereto. (3) Exhibits: The Company's SEC file number is 001-2979. On and before November 2, 1998, the Company filed documents with the SEC under the name Norwest Corporation. The former Wells Fargo & Company filed documents under SEC file number 001-6214. First Security Corporation filed documents under SEC file number 001-6906.
Exhibit number Description ------ ----------- 3(a) Restated Certificate of Incorporation, incorporated by reference to Exhibit 3(b) to the Company's Current Report on Form 8-K dated June 28, 1993. Certificates of Amendment of Certificate of Incorporation, incorporated by reference to Exhibit 3 to the Company's Current Report on Form 8-K dated July 3, 1995 (authorizing preference stock), and Exhibits 3(b) and 3(c) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998 (changing the Company's name and increasing authorized common and preferred stock, respectively) (b) Certificate of Change of Location of Registered Office and Change of Registered Agent, incorporated by reference to Exhibit 3(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 (c) Certificate of Designations for the Company's ESOP Cumulative Convertible Preferred Stock, incorporated by reference to Exhibit 4 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1994 (d) Certificate of Designations for the Company's 1995 ESOP Cumulative Convertible Preferred Stock, incorporated by reference to Exhibit 4 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995 21 3(e) Certificate Eliminating the Certificate of Designations for the Company's Cumulative Convertible Preferred Stock, Series B, incorporated by reference to Exhibit 3(a) to the Company's Current Report on Form 8-K dated November 1, 1995 (f) Certificate Eliminating the Certificate of Designations for the Company's 10.24% Cumulative Preferred Stock, incorporated by reference to Exhibit 3 to the Company's Current Report on Form 8-K dated February 20, 1996 (g) Certificate of Designations for the Company's 1996 ESOP Cumulative Convertible Preferred Stock, incorporated by reference to Exhibit 3 to the Company's Current Report on Form 8-K dated February 26, 1996 (h) Certificate of Designations for the Company's 1997 ESOP Cumulative Convertible Preferred Stock, incorporated by reference to Exhibit 3 to the Company's Current Report on Form 8-K dated April 14, 1997 (i) Certificate of Designations for the Company's 1998 ESOP Cumulative Convertible Preferred Stock, incorporated by reference to Exhibit 3 to the Company's Current Report on Form 8-K dated April 20, 1998 (j) Certificate of Designations for the Company's Adjustable Cumulative Preferred Stock, Series B, incorporated by reference to Exhibit 3(j) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998 (k) Certificate of Designations for the Company's Fixed/Adjustable Rate Noncumulative Preferred Stock, Series H, incorporated by reference to Exhibit 3(k) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998 (l) Certificate of Designations for the Company's Series C Junior Participating Preferred Stock, incorporated by reference to Exhibit 3(l) to the Company's Annual Report on Form 10-K for the year ended December 31, 1998 (m) Certificate Eliminating the Certificate of Designations for the Company's Series A Junior Participating Preferred Stock, incorporated by reference to Exhibit 3(a) to the Company's Current Report on Form 8-K dated April 21, 1999 (n) Certificate of Designations for the Company's 1999 ESOP Cumulative Convertible Preferred Stock, incorporated by reference to Exhibit 3(b) to the Company's Current Report on Form 8-K dated April 21, 1999 (o) Certificate of Designations for the Company's 2000 ESOP Cumulative Convertible Preferred Stock, incorporated by reference to Exhibit 3(o) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000 22 3(p) By-Laws, incorporated by reference to Exhibit 3(m) to the Company's Annual Report on Form 10-K for the year ended December 31, 1998 4(a) See Exhibits 3(a) through 3(p) (b) Rights Agreement, dated as of October 21, 1998, between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent, incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form 8-A dated October 21, 1998 (c) The Company agrees to furnish upon request to the Commission a copy of each instrument defining the rights of holders of senior and subordinated debt of the Company. 10*(a) Long-Term Incentive Compensation Plan, as amended effective November 23, 1999 (including Forms of Award Term Sheet for grants of restricted share rights), incorporated by reference to Exhibit 10(a) to the Company's Annual Report on Form 10-K for the year ended December 31, 1999. Amendment to Long-Term Incentive Compensation Plan, effective November 1, 2000, filed as paragraph (1) of Exhibit 10(ff) hereto. Forms of Non-Qualified Stock Option and Restricted Stock Agreements for grants subsequent to November 2, 1998, incorporated by reference to Exhibit 10(a) to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. Forms of Non-Qualified Stock Option and Restricted Stock Agreements for grants prior to November 2, 1998, incorporated by reference to Exhibit 10(a) to the Company's Annual Report on Form 10-K for the year ended December 31, 1997 *(b) Long-Term Incentive Plan, incorporated by reference to Exhibit A to the former Wells Fargo's Proxy Statement filed March 14, 1994 *(c) Wells Fargo Bonus Plan *(d) Performance-Based Compensation Policy, incorporated by reference to Exhibit 10(d) to the Company's Annual Report on Form 10-K for the year ended December 31, 1999 *(e) 1990 Equity Incentive Plan, incorporated by reference to Exhibit 10(f) to the former Wells Fargo's Annual Report on Form 10-K for the year ended December 31, 1995 *(f) 1982 Equity Incentive Plan, incorporated by reference to Exhibit 10(g) to the former Wells Fargo's Annual Report on Form 10-K for the year ended December 31, 1993 *(g) Employees' Stock Deferral Plan, incorporated by reference to Exhibit 10(c) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998. Amendment to Employees' Stock Deferral Plan, effective November 1, 2000, filed as paragraph (2) of Exhibit 10(ff) hereto 23 10*(h) Deferred Compensation Plan, as amended and restated effective January 1, 2000, incorporated by reference to Exhibit 10(h) to the Company's Annual Report on Form 10-K for the year ended December 31, 1999. Amendments to Deferred Compensation Plan, effective July 1, 2000 and November 1, 2000 *(i) 1999 Directors Stock Option Plan, incorporated by reference to Exhibit 10(n) to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. Amendment to 1999 Directors Stock Option Plan, effective November 1, 2000, filed as paragraph (3) of Exhibit 10(ff) hereto *(j) 1990 Director Option Plan for directors of the former Wells Fargo, incorporated by reference to Exhibit 10(c) to the former Wells Fargo's Annual Report on Form 10-K for the year ended December 31, 1997 *(k) 1987 Director Option Plan for directors of the former Wells Fargo, incorporated by reference to Exhibit A to the former Wells Fargo's Proxy Statement filed March 10, 1995, and as further amended by the amendment adopted September 16, 1997, incorporated by reference to Exhibit 10 to the former Wells Fargo's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997 *(l) First Security Corporation Comprehensive Management Incentive Plan, incorporated by reference to Exhibit 10.1 to First Security Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 *(m) Deferred Compensation Plan for Non-Employee Directors of the former Norwest, incorporated by reference to Exhibit 10(c) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999. Amendment to Deferred Compensation Plan for Non-Employee Directors, effective November 1, 2000, filed as paragraph (4) of Exhibit 10(ff) hereto *(n) Directors' Stock Deferral Plan for directors of the former Norwest, incorporated by reference to Exhibit 10(d) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999. Amendment to Directors' Stock Deferral Plan, effective November 1, 2000, filed as paragraph (5) of Exhibit 10(ff) hereto *(o) Directors' Formula Stock Award Plan for directors of the former Norwest, incorporated by reference to Exhibit 10(e) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999. Amendment to Directors' Formula Stock Award Plan, effective November 1, 2000, filed as paragraph (6) of Exhibit 10(ff) hereto *(p) Deferral Plan for Directors of the former Wells Fargo, incorporated by reference to Exhibit 10(b) to the former Wells Fargo's Annual Report on Form 10-K for the year ended December 31, 1997 24 10*(q) 1999 Deferral Plan for Directors, incorporated by reference to Exhibit 10(q) of the Company's Annual Report on Form 10-K for the year ended December 31, 1999. Amendment to 1999 Deferral Plan for Directors, effective November 1, 2000, filed as paragraph (7) of Exhibit 10(ff) hereto *(r) 1999 Directors Formula Stock Award Plan, incorporated by reference to Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999. Amendment to 1999 Directors Formula Stock Award Plan, effective November 1, 2000, filed as paragraph (8) of Exhibit 10(ff) hereto *(s) Supplemental 401(k) Plan, incorporated by reference to Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999. Amendment to Supplemental 401(k) Plan, effective November 1, 2000, filed as paragraph (9) of Exhibit 10(ff) hereto *(t) Supplemental Cash Balance Plan, incorporated by reference to Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 *(u) Supplemental Long Term Disability Plan, incorporated by reference to Exhibit 10(f) to the Company's Annual Report on Form 10-K for the year ended December 31, 1990. Amendment to Supplemental Long Term Disability Plan, incorporated by reference to Exhibit 10(g) to the Company's Annual Report on Form 10-K for the year ended December 31, 1992 *(v) Agreement between the Company and Richard M. Kovacevich dated March 18, 1991, incorporated by reference to Exhibit 19(e) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1991. Amendment effective January 1, 1995, to the March 18, 1991 agreement between the Company and Richard M. Kovacevich, incorporated by reference to Exhibit 10(c) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995 *(w) Employment Agreement, dated as of June 7, 1998, between the Company and Paul Hazen, incorporated by reference to Exhibit 10.01 to the Company's Registration Statement No. 333-63247 on Form S-4 filed September 11, 1998. Forms of Stock Option and Restricted Stock Agreements pursuant to Employment Agreement, incorporated by reference to Exhibit 10(cc) to the Company's Annual Report on Form 10-K for the year ended December 31, 1998 *(x) Amended and Restated Employment Agreement, dated as of October 18, 2000, between the Company and Spencer F. Eccles *(y) Agreements between the Company and three executive officers dated October 7, 1998, May 7, 1999 and October 25, 1999, respectively, incorporated by reference to Exhibit 10(y) to the Company's Annual Report on Form 10-K for the year ended December 31, 1999 25 10*(z) Form of severance agreement between the Company and seven executive officers, including two directors, and agreement between the Company and Terri A. Dial, incorporated by reference to Exhibit 10(ee) to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. Amendment effective January 1, 1995, to the March 11, 1991 agreement between the Company and Richard M. Kovacevich, incorporated by reference to Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995 *(aa) Description of Supplemental Pension Arrangement for C. Webb Edwards *(bb) Consulting Agreement dated January 25, 1999, between the Company and Chang-Lin Tien, incorporated by reference to Exhibit 10(ff) to the Company's Annual Report on Form 10-K for the year ended December 31, 1998 *(cc) Description of Relocation Program for Designated High-Cost Areas, incorporated by reference to Exhibit 10(dd) to the Company's Annual Report on Form 10-K for the year ended December 31, 1999 *(dd) Description of Executive Financial Planning Program, incorporated by reference to Exhibit 10(ee) to the Company's Annual Report on Form 10-K for the year ended December 31, 1999 *(ee) Executive Loan Plan, incorporated by reference to Exhibit 10(i) to the former Wells Fargo's Annual Report on Form 10-K for the year ended December 31, 1994 *(ff) Amendments to Long-Term Incentive Compensation Plan, Employees' Stock Deferral Plan, 1999 Directors Stock Option Plan, Deferred Compensation Plan for Non-Employee Directors, Directors' Stock Deferral Plan, Directors' Formula Stock Award Plan, 1999 Deferral Plan for Directors, 1999 Directors Formula Stock Award Plan, and Supplemental 401(k) Plan
- ------------------------ * Management contract or compensatory plan or arrangement Stockholders may obtain a copy of any of the foregoing exhibits, upon payment of a reasonable fee, by writing Wells Fargo & Company, Office of the Secretary, Wells Fargo Center, N9305-173, Sixth and Marquette, Minneapolis, Minnesota 55479. 26 12(a) Computation of Ratios of Earnings to Fixed Charges -- the ratios of earnings to fixed charges, including interest on deposits, were 1.82, 2.07, 1.62, 1.79 and 1.76 for the years ended December 31, 2000, 1999, 1998, 1997 and 1996, respectively. The ratios of earnings to fixed charges, excluding interest on deposits, were 2.67, 3.29, 2.51, 3.02 and 2.97 for the years ended December 31, 2000, 1999, 1998, 1997 and 1996, respectively. (b) Computation of Ratios of Earnings to Fixed Charges and Preferred Dividends -- the ratios of earnings to fixed charges and preferred dividends, including interest on deposits, were 1.81, 2.05, 1.60, 1.77 and 1.72 for the years ended December 31, 2000, 1999, 1998, 1997 and 1996, respectively. The ratios of earnings to fixed charges and preferred dividends, excluding interest on deposits, were 2.65, 3.22, 2.45, 2.93 and 2.77 for the years ended December 31, 2000, 1999, 1998, 1997 and 1996, respectively. 13 2000 Annual Report to Stockholders, pages 33 through 98 21 Subsidiaries of the Company 23 Consent of Independent Accountants 24 Powers of Attorney
(b) The Company filed the following reports on Form 8-K during the fourth quarter of 2000: (1) October 13, 2000, under Item 7, filing as an exhibit the First Supplemental Indenture, dated October 12, 2000, between the Company and Citibank, N.A. (2) October 17, 2000, under Item 5, containing the Company's financial results for the quarter ended September 30, 2000 (3) November 30, 2000, under Item 5, filing as exhibits the Company's Supplemental Annual Report for 1999 and Supplemental Quarterly Report for the period ended September 30, 2000, which give retroactive effect to the FSCO Merger
STATUS OF PRIOR DOCUMENTS The Wells Fargo & Company Annual Report on Form 10-K for the year ended December 31, 2000, at the time of filing with the Securities and Exchange Commission, shall modify and supersede all documents filed prior to January 1, 2001 pursuant to Sections 13, 14 and 15(d) of the Securities Exchange Act of 1934 (other than the Current Report on Form 8-K filed October 14, 1997, containing a description of the Company's common stock) for purposes of any offers or sales of any securities after the date of such filing pursuant to any Registration Statement or Prospectus filed pursuant to the Securities Act of 1933 which incorporates by reference such Annual Report on Form 10-K. 27 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 16, 2001. WELLS FARGO & COMPANY BY: /s/ RICHARD M. KOVACEVICH ------------------------------------- Richard M. Kovacevich President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated. By: /s/ ROSS J. KARI ------------------------------------- Ross J. Kari Executive Vice President and Chief Financial Officer (Principal Financial Officer) By: /s/ LES L. QUOCK ------------------------------------- Les L. Quock Senior Vice President and Controller (Principal Accounting Officer) The Directors of Wells Fargo & Company listed below have duly executed powers of attorney empowering Philip J. Quigley to sign this document on their behalf. Leslie S. Biller Richard M. Kovacevich Michael R. Bowlin Richard D. McCormick David A. Christensen Cynthia H. Milligan Spencer F. Eccles Benjamin F. Montoya Susan E. Engel Donald B. Rice Paul Hazen Judith M. Runstad Robert L. Joss Susan G. Swenson Reatha Clark King Michael W. Wright
By: /s/ PHILIP J. QUIGLEY ------------------------------------- Philip J. Quigley Director and Attorney-in-fact March 16, 2001 28 EX-10.C 2 a2040410zex-10_c.txt EXHIBIT 10(C) EXHIBIT 10(C) WELLS FARGO BONUS PLAN I PURPOSE The purpose of the Wells Fargo Bonus Plan (the "Plan") is to motivate a select group of management, supervisory and individual contributors to achieve superior results for Wells Fargo & Company and its subsidiaries ("Wells Fargo"). The Plan is designed to provide Participants with incentive compensation opportunities that focus on individual and team contributions through the measurement of meaningful performance goals that are consistent with Wells Fargo's corporate and business unit objectives. The Plan is effective January 1, 2000. Participants, incentive opportunities and performance objectives shall be identified annually. II. ELIGIBILITY A select group of Wells Fargo management, supervisors and individual contributors who are in a position to control or influence business units are eligible to participate in the Plan. Eligibility for participation is determined on a case-by-case basis. Business unit managers are responsible for identifying Participants within their business units prior to the beginning of the Plan Year. The intent of the Plan is to provide incentive awards to those Participants who are not eligible for a bonus or incentive compensation under any other plan or written agreement with Wells Fargo. Therefore, Plan Participants who participate in any other Wells Fargo-sponsored incentive compensation plan will not receive an award under this Plan. III. INCENTIVE OPPORTUNITY A. Business unit managers, working with Human Resources, shall establish an incentive opportunity for each Participant's position. The incentive opportunity shall be a range (target - threshold - maximum) stated as a percentage of the Participant's base salary ("Opportunity Percentages"). The target-level Opportunity Percentage should reflect the value of good, commendable, on-plan performance. The threshold-level Opportunity Percentage is typically set at 50% of the target Opportunity Percentage while the maximum-level Opportunity Percentage is typically set at 150% of the target. B. Disqualifying Factors For purposes of this Plan, a "Disqualifying Factor" is an event, the occurrence of which immediately invalidates a Participant's opportunity for an incentive award. If a Participant's incentive opportunity is subject to a Disqualifying Factor and the event occurs, the Participant shall have no incentive opportunity for that particular Plan Year. Generally, Wells Fargo does not support the use of Disqualifying Factors subject to the following exceptions: 1 1. Executive-level Participants shall typically be subject to Disqualifying Factors that tie to Wells Fargo's annual corporate objectives. 2. A Disqualifying Factor applicable to each Participant is that he/she must be employed by Wells Fargo as of the last day of the Plan Year in order to be eligible for an incentive award under the Plan. There will be no incentive opportunity for the Plan Year for those Participants who experience a voluntary or involuntary termination before the last day of the Plan Year except if the termination is a result of the Participant's retirement, death or a qualifying event under the Wells Fargo & Company Salary Continuation Pay Plan as set forth in Section VII, A and C. IV. PERFORMANCE OBJECTIVES A Performance Objective should be established for each Participant to be effective as of the beginning of the Plan Year. The Performance Objective should consist of identifiable Performance Measures and Performance Levels. A. Performance Measures A Performance Measure defines the action or resultant performance expected of a Participant in a given Plan Year. Three to five Performance Measures should be identified for each Participant to be effective as of the beginning of the Plan Year. The business unit manager is responsible for defining the Performance Measure. The business unit manager is encouraged to consult with the Participant in identifying the Performance Measure. All Performance Measures are subject to review at higher levels of the organization. Performance Measures may vary from year to year, from one position to another and/or from one Participant to another. Generally, the Performance Measures should be indicators of the expected: overall financial success at the Participant's level or business unit; tactical, operating achievements which will contribute to the overall success at the Participant's level or business unit; and/or the major strategic milestones achieved by or on behalf of the Participant, the Participant's business unit or Wells Fargo. Where appropriate, the Performance Measures should support or correspond with the financial goals expressed in the annual business plan for the Participant's level or business unit. B. Performance Levels Performance Levels are the designated target, threshold and maximum levels of performance defined as quantitative goals. Performance Levels may be assigned based on the achievement of some or all of the Performance Measures by the end of the Plan Year, or they may be assigned within each Performance Measure so that the accomplishment of some elements of the Performance Measure qualifies for an incentive award. For example, a Participant's target level of performance may be accomplished if the Participant satisfies three of his/her Performance Measures by the 2 end of the Plan Year. Alternatively, Performance Levels could be assigned within a Performance Measure so that the Participant may earn a percentage of his/her incentive award based on the achievement of some or all of the elements of the Performance Measure. The business unit manager is responsible for identifying the target, threshold and maximum Performance Levels that will be used to calculate the Participant's incentive award. In identifying the Performance Levels, the business unit manager is encouraged to consult with the Participant and/or Human Resources. All Performance Levels are subject to review at higher levels of the organization. 1. The target Performance Level should be challenging enough to motivate performance but not unattainable. It should reflect good, commendable, on-plan performance. 2. The threshold Performance Level should reflect satisfactory performance that falls short of the target Performance Level. 3. The maximum Performance Level should reflect performance that significantly exceeds the expectations of the target Performance Level. C. Performance Weighting Performance Measures may be weighted to correspond with the Participant's accountability, strategic and tactical priorities, and the Performance Measure's level of difficulty. The business unit manager is encouraged to consult with the Participant to determine the weights, but these decisions are subject to review at higher levels of the organization. V. INCENTIVE AWARDS For purposes of determining a Participant's incentive award under the Plan, the Participant's performance shall be evaluated as soon as practicable following completion of the Plan Year. (If the Participant is ineligible for an incentive award due to a Disqualifying Factor, then it is not necessary to conduct any further evaluation of the Performance Objectives.) All awards under the Plan are subject to the following guidelines: A. Each Performance Measure is evaluated individually following the end of the Plan Year. The Participant's incentive award for a Plan Year is determined by adding the values determined for each Performance Measure taking into consideration any assigned weighting. The incentive award should be consistent with the overall Opportunity Percentage identified for the Participant's position. B. A Participant's award may be increased or decreased by up to 15% of its value, on a discretionary basis by the manager of the Participant's business unit. C. Incentive awards are based on the Participant's base salary and will be paid to the Participant by the end of March following the end of the Plan Year. 3 D. With approval from the Plan Administrator, an incentive award may be reduced in any amount or denied for unsatisfactory performance. An incentive award may also be denied if a Participant is involuntarily terminated before the date that the Participant's incentive award is paid. VI. ADMINISTRATION A. Plan Administrator The Plan Administrator is the Executive Vice President and Director of Human Resources. The Plan Administrator has full discretionary authority to administer and interpret the Plan and may, at any time, delegate to personnel of Wells Fargo such responsibilities as he or she considers appropriate to facilitate the day-to-day administration of the Plan. The Plan Administrator also has the full discretionary authority to adjust or amend a Participant's incentive opportunity under the Plan at any time. B. Plan Year Participant performance is measured and financial records are kept on a "Plan Year" basis. The Plan Year is the 12-month period beginning each January 1 and ending on the following December 31, unless the Plan is modified, suspended or terminated. C. Disputes If a Participant has a dispute regarding his/her incentive award under the Plan, the Participant should attempt to resolve the dispute with the manager of his/her business unit. If this is not successful, the Participant should prepare a written request for review addressed to the Participant's Human Resources representative. The request for review should include any facts supporting the Participant's request as well as any issues or comments the Participant deems pertinent. The Human Resources representative will send the Participant a written response documenting the outcome of this review in writing no later than 60 days following the date of the Participant's written request. (If additional time is necessary, the Participant shall be notified in writing.) The determination of this request shall be final and conclusive upon all persons. D. Amendment or Termination The Board of Directors of Wells Fargo & Company (the "Company"), and the Human Resources Committee of the Board of Directors, the Company's President, any Vice Chairman, or the Executive Vice President of Human Resources may amend, suspend or terminate the Plan at any time, for any reason. No amendment, suspension or termination of the Plan shall adversely affect a Participant's incentive award earned under the Plan prior to the effective date of the amendment, suspension or termination, unless otherwise agreed to by the Participant. 4 VII. MISCELLANEOUS PROVISIONS A. Leaves of Absence Incentive awards payable under the Plan should be pro-rated for Participants who go on a leave of absence provided the Participant has actively worked at least three months during the Plan Year AND some or all of the Participant's Performance Objective has been met. For Participants who receive notice of a qualifying event under the Wells Fargo & Company Salary Continuation Pay Plan, the Notice Period (as defined by that plan) should be considered in determining whether the Participant satisfies the three-month "actively at work" requirement. Incentive awards will be determined following the end of the Plan Year. B. Changes in Employment Status 1. Employees hired after the beginning of the Plan Year may be eligible to participate in the Plan. Incentive Opportunity Percentages and Performance Objectives should be designed accordingly. Where Performance Objectives are impractical to develop for a partial Plan Year, eligibility should be delayed until the next Plan Year. 2. If, during the Plan Year, a Participant transfers to another business unit or receives a promotion to a new position within Wells Fargo, the Participant's incentive award should be pro-rated provided the Participant met some or the entire Performance Objective prior to the transfer or promotion. Incentive awards will be determined following the end of the Plan Year. C. Death or Retirement In the event of a Participant's death or retirement during the Plan Year, the Participant's incentive award should be a pro-rata share of the anticipated final incentive award provided the Participant actively worked for at least three months during the Plan Year. D. Withholding Taxes Wells Fargo shall deduct from all payments under the Plan an amount necessary to satisfy federal, state or local tax withholding requirements. E. Not an Employment Contract The Plan is not an employment contract and participation in the Plan does not alter a Participant's at-will employment relationship with Wells Fargo. Both the Participant and Wells Fargo are free to terminate their employment relationship at any time for any reason. No rights in the Plan may be claimed by any person whether or not he/she is selected to participate in the Plan. No person shall acquire any right to an accounting or to examine the books or the affairs of Wells Fargo. 5 F. Assignment No Participant shall have any right or power to pledge or assign any rights, privileges, or incentive awards provided for under the Plan. G. Unsecured Obligations Incentive awards under the Plan are unsecured obligations of the Company. H. Code of Conduct Violation of the terms or the spirit of the Plan by the Participant and/or the Participant's supervisor, and other serious misconduct, are grounds for disciplinary action, including disqualification from further participation in the Plan and/or immediate termination. 6 EX-10.H 3 a2040410zex-10_h.txt EXHIBIT 10(H) EXHIBIT 10(H) AMENDMENTS TO DEFERRED COMPENSATION PLAN 1. Compensation. Effective July 1, 2000, Section 2(D) of the Plan is amended to read in full as follows: (D) Compensation. Salaries, bonuses and commissions earned by the Eligible Employee during the Deferral Year for services rendered to the Company or the Company's subsidiaries as determined by the Plan Administrator and payable no later than March 31 of the following Deferral Year. 2. Amendment and Termination. Effective July 1, 2000, Section 19 of the Plan is amended by the addition of a new sentence to the end thereof to read in full as follows: Notwithstanding the foregoing, the President, Executive Vice President of Human Resources and the Senior Vice President of Compensation and Benefits, acting singly, shall have the authority to execute a written action to amend the Plan to authorize the merger of any nonqualified deferred compensation plan maintained by any acquired entity into this Plan. 3. Effective November 1, 2000, Section 7(B) of the Wells Fargo & Company Deferred Compensation Plan is amended by deleting the phrase "the closing price per share of Common Stock reported on the consolidated tape of the New York Stock Exchange" that appears in the third sentence of Section 7(B), and substituting in place thereof the phrase "the New York Stock Exchange-only closing price per share of Common Stock." 1 EX-10.(X) 4 a2040410zex-10_x.txt EXHIBIT 10(X) EXHIBIT 10(X) AMENDED AND RESTATED EMPLOYMENT AGREEMENT ----------------------------------------- AMENDED AND RESTATED EMPLOYMENT AGREEMENT by and between Wells Fargo & Company, a Delaware corporation (the "Company"), and Spencer F. Eccles (the "Executive") dated as of the 18th day of October, 2000 (the "Agreement"). WHEREAS, the Company determined that it was in the best interests of the Company, First Security Corporation, a Delaware corporation ("First Security") and their respective shareholders to assure that the Company and First Security would have the continued dedication of the Executive pending the merger of the Company and First Security (the "Merger") pursuant to the Agreement and Plan of Merger dated as of April 9, 2000 and to provide the surviving corporation after the Merger with continuity of management. Therefore, in order to accomplish these objectives, the Board of Directors of the Company (the "Board") caused the Company to enter into an employment agreement between the Executive and the Company, dated as of April 9, 2000 (the "Employment Agreement"); and WHEREAS, the Company and the Executive have mutually determined their desire to amend and restate the Employment Agreement as set forth herein. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. EFFECTIVE DATE. The "Effective Date" shall mean the effective date of the Merger. 2. EMPLOYMENT PERIOD. The Company hereby agrees to employ the Executive, and the Executive hereby agrees to remain in the employ of the Company subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the last day of the month in which the Executive attains age 70 (the "Employment Period"). 3. TERMS OF EMPLOYMENT. (a) POSITION AND DUTIES. (i) (A) During the Employment Period, the Executive shall serve as Chairman of the Company's Intermountain Region banking activities with such authority, duties and responsibilities as are commensurate with such position and as may be consistent with such position, and (B) the Executive's services shall be performed in Salt Lake City, Utah. The Executive shall report directly to the Chief Executive Officer of the Company. During the Employment Period, subject to the Company's retirement policy, the Executive shall serve as a member of the Company's Board of Directors. (ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time to the business and affairs of the Company consistent with past practice and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall be deemed not to interfere with the performance of the Executive's responsibilities to the Company. (b) COMPENSATION. (i) INITIAL PAYMENT. On the Effective Date, the Company shall make a lump sum cash payment to the Executive equal to $1 million. (ii) BASE SALARY. During the period commencing on the Effective Date and ending on the date of the Company's annual stockholders' meeting in 2002 (the "Initial Period"), the Executive shall receive an annual base salary ("Annual Base Salary") no less than the Executive's annual base salary as in effect immediately prior to the date hereof. During the Initial Period, the Annual Base Salary shall be reviewed no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date and thereafter at least annually. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. After the Initial Period until the end of the Employment Period, the Executive shall receive an Annual Base Salary of $800,000 per annum. As used in this Agreement, the term "affiliated companies" shall include any company controlled by, controlling or under common control with the Company. (iii) ANNUAL BONUS. During the Initial Period, the Executive shall receive an annual cash bonus ("Annual Bonus") no less than the annual bonus earned by the Executive in respect of the 1998 calendar year (the "Minimum Bonus"). The Executive shall be entitled to a pro rata Minimum Bonus in respect of calendar year 2002. (iv) INCENTIVE AWARDS. On the Effective Date, the Company shall grant the Executive an option to acquire 85,000 shares of the Company's common stock (the "Initial Option"). The Initial Option shall vest, in three equal installments, on the first anniversary of the Effective Date, the second anniversary of the Effective Date, with the last installment vesting on the last day of the Initial Period, subject to accelerated vesting as provided herein and upon a change of control of the Company (as defined in the Company's stock incentive plan). The Initial Option shall have an exercise price equal to the fair market value of the stock subject thereto on the date of grant and shall have a term of, and remain exercisable (to the extent vested) for, ten years from the date of grant, without regard to the Executive's earlier termination of employment. The Executive shall be granted an additional option to acquire 100,000 shares of the Company's common stock in calendar year 2001, which shall vest on the last day of the Initial Period (the "Additional Option"). The Additional Option shall have an exercise price equal to the fair market value of the stock subject on the date of grant and shall have a term of, and remain exercisable (to the extent voted) for, ten years from the date of grant, without regard to the Executive's earlier termination of employment. -2- (v) RETIREMENT BENEFITS. The Executive shall be paid an annual retirement benefit of $1,000,000 per year commencing upon the Executive's 70th birthday and, in each case, less any benefit accrued under the Company's qualified and non-qualified defined benefit retirement plans (the "Retirement Benefit"). Upon the Executive's death, his current spouse, should she survive the Executive, shall be paid an annual benefit of 50% of the Retirement Benefit (based on the higher amount) for her life (the "Spouse Benefit"). The Executive shall receive a special bonus equal to $1.5 million on his 70th birthday (the "Special Bonus"). (vi) OTHER EMPLOYEE BENEFIT PLANS. During the Employment Period, except as otherwise expressly provided herein, the Executive shall be entitled to participate in all employee benefit, welfare and other plans, practices, policies and programs generally applicable to senior executives of the Company, with the express exception of the Wells Fargo & Company Salary Continuation Pay Plan or the applicable First Security severance plan. Notwithstanding the Executive's termination of employment for any reason, upon the expiration of the Employment Period, the Executive shall be entitled to receive post-retirement welfare benefits based on the greater of (A) the benefits that the Executive would have been eligible to receive if he had retired on the Effective Date and (B) the benefits that are provided to retired executive officers of the Company at any time after the expiration of the Employment Period subject to the terms of such plans as in effect from time to time. (vii) EXPENSES. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the Company's policies. (viii) OFFICE AND SUPPORT STAFF. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and shall be provided with secretarial and administrative assistance on the same basis as provided to him immediately prior to the Effective Date. (ix) VACATION. During the Initial Period, the Executive shall be entitled to paid vacation in accordance with the plans, policies, programs and practices of the Company and its affiliated companies as in effect with respect to the senior executives of the Company. 4. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 11(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness or injury which is determined to be total and -3- permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. (b) CAUSE. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean: (i) the continued failure of the Executive to perform substantially the Executive's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness or injury), after a written demand for substantial performance is delivered to the Executive by the Board which specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company, or (iii) conviction of a felony or a guilty or nolo contendere plea by the Executive with respect thereto. For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than two-thirds of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail. (c) GOOD REASON. The Executive's employment may be terminated by the Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall mean in the absence of a written consent of the Executive: (i) the assignment of the Executive to any positions other than the positions contemplated by the Merger Agreement and related documents, or any other action by the Company which, in the Executive's reasonable judgment, results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 3(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not -4- occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) the Company's requiring the Executive to be based at any office or location more than 35 miles from that provided in Section 3(a)(i)(B) hereof; (iv) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or (v) any failure by the Company to comply with and satisfy Section 10(c) of this Agreement. For purposes of this Section 4(c), any good faith determination of "Good Reason" made by the Executive shall be conclusive. Notwithstanding anything contained herein to the contrary, during the period commencing on the Effective Date and ending on the first anniversary thereof, the Executive shall not be permitted to terminate his employment hereunder for Good Reason based on the Good Reason event set forth in clause (i) of this Section 4(c), and any such asserted termination shall be considered to be a termination by the Executive without Good Reason for all purposes of this Agreement. (d) NOTICE OF TERMINATION. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 11(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (e) DATE OF TERMINATION. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein within 30 days of such notice, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. 5. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) GOOD REASON; OTHER THAN FOR CAUSE, DEATH OR Disability. If, during the Initial Period, the Company shall terminate -5- the Executive's employment other than for Cause or Disability or the Executive shall terminate employment for Good Reason: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: A. the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, and (2) the product of (x) the Minimum Bonus and (y) a fraction, the numerator of which is the number of days in the fiscal year in which the Date of Termination occurs through the Date of Termination, and the denominator of which is 365, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1) and (2), shall be hereinafter referred to as the "Accrued Obligations"); and B. the amount equal to the product of (1) the number of months and portions thereof from the Date of Termination until the end of the Initial Period, divided by twelve and (2) the sum of (x) the Executive's Annual Base Salary and (y) the Minimum Bonus; and (ii) for the remainder of the Employment Period, the Company shall continue to provide medical and dental benefits to the Executive and his then current spouse on the same basis such benefits were provided to the Executive immediately prior to the Date of Termination (collectively "Medical Benefits"); (iii) the Special Bonus shall become immediately payable; and (iv) the Initial Option and the Additional Option shall vest immediately; and (v) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive (or his beneficiary or estate, as the case may be) any other amounts or benefits required to be paid or provided or which the Executive (or his beneficiary or estate, as the case may be) is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies through the Date of Termination (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (b) DEATH. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for payment of (w) Accrued Obligations, (x) the Special Bonus, (y) the Spouse Benefit and (z) the timely payment or provision of Other Benefits. In addition, the Initial Option and the Additional Option shall vest immediately. Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 5(b) shall include death benefits as in effect on the date of the Executive's death with respect to other senior executives of the Company and their beneficiaries. -6- (c) DISABILITY. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for payment of (w) Accrued Obligations, (x) the Special Bonus, (y) the Retirement Benefit (at a rate of $800,000 per annum until such time as the Executive shall attain 70 years old) commencing at such time as the Executive's benefits under the Company's tax-qualified defined benefit retirement plan commences and (z) the timely payment or provision of Other Benefits. In addition, the Initial Option and the Additional Option shall vest immediately. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 5(c) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits as in effect on the Disability Effective Date with respect to other senior executives of the Company and the continued provision of Medical Benefits to the Executive and his current spouse for the remainder of the Employment Period. (d) CAUSE; OTHER THAN FOR GOOD REASON. If the Executive's employment shall be terminated for Cause or the Executive terminates his employment without Good Reason during the Initial Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay or provide to the Executive (w) his Annual Base Salary through the Date of Termination, (x) the Retirement Benefit (at the rate of $800,000 per annum until the Executive's 70th birthday), (y) provision of Medical Benefits to the Executive and his current spouse for the remainder of the Employment Period, and (z) Other Benefits, in each case to the extent theretofore unpaid, and any unvested portion of the Initial Option shall terminate unless otherwise provided by the Board or the applicable committee thereof. (e) AFTER INITIAL PERIOD. If the Executive's employment shall terminate for any reason following the Initial Period, the Company shall provide (x) the Medical Benefits to the Executive and his current spouse for the remainder of the Employment Period, (y) the Retirement Benefit, which until the Executive's 70th birthday, shall be at the rate of $800,000 per annum and (z) Other Benefits, to the extent theretofore unpaid. 6. NON-EXCLUSIVITY OF RIGHTS. Except as specifically provided, nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor, subject to Section 11(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 7. FULL SETTLEMENT. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to -7- the Executive under any of the provisions of this Agreement and, such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). 8. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment, award, benefit or distribution by the Company (or any of its affiliated entities) to or for the benefit of the Executive (whether pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 8) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any corresponding provisions of state or local tax laws, or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. The payment of a Gross-Up Payment under this Section 8(a) shall not be conditioned upon the Executive's termination of employment. Notwithstanding the foregoing provisions of this Section 8(a), if it shall be determined that the Executive is entitled to a Gross-Up Payment, but that the portion of the Payments that would be treated as "parachute payments" under Section 280G of the Code does not exceed 110% of the greatest amount (the "Safe Harbor Amount") that could be paid to the Executive such that the receipt of Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall be made to the Executive and the amounts payable under this Agreement shall be reduced so that the Payments, in the aggregate, are reduced to the Safe Harbor Amount. The reduction of the amounts payable hereunder, if applicable, shall be made by first reducing the payments under Section 5(a)(i)(B), unless an alternative method of reduction is elected by the Executive. For purposes of reducing the Payments to the Safe Harbor Amount, only amounts payable under this Agreement (and no other Payments) shall be reduced. If the reduction of the amounts payable under this Agreement would not result in a reduction of the Payments to the Safe Harbor Amount, no amounts payable under this Agreement shall be reduced pursuant to this Section 8(a). (b) Subject to the provisions of Section 8(c), all determinations required to be made under this Section 8, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by KPMG Peat Marwick LLP or such other certified public accounting firm reasonably acceptable to the Company as may be designated by the Executive (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and -8- the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the Company to the Executive within five days of (i) the later of the due date for the payment of any Excise Tax, and (ii) the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 8(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 8(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings -9- and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 8(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 8(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 8(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 9. CONFIDENTIAL INFORMATION. (a) The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. (b) In the event of a breach or threatened breach of this Section 9, the Executive agrees that the Company shall be entitled to injunctive relief in a court of appropriate jurisdiction to remedy any such breach or threatened breach, the Executive acknowledges that damages would be inadequate and insufficient. In no event shall an asserted violation of the provisions of this Section 9 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. -10- 10. SUCCESSORS. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 11. MISCELLANEOUS. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: IF TO THE EXECUTIVE: The most recent address on file for the Executive at First Security IF TO THE COMPANY: Attention: General Counsel
or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. -11- (e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 4(c)(i)-(v) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) From and after the Effective Date this Agreement shall supersede any other employment, severance or change of control agreement between the parties with respect to the subject matter hereof, including the Change of Control Employment Agreement between the Company and the Executive dated February 2, 1998, except as expressly provided herein. (g) This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. -12- IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. /s/ SPENCER F. ECCLES -------------------------------------- SPENCER F. ECCLES WELLS FARGO & COMPANY /s/ RICHARD M. KOVACEVICH -------------------------------------- Name: Richard M. Kovacevich Title: President and CEO EX-10.AA 5 a2040410zex-10_aa.txt EXHIBIT 10(AA) EXHIBIT 10(AA) DESCRIPTION OF SUPPLEMENTAL PENSION ARRANGEMENT FOR C. WEBB EDWARDS Under an agreement made in 1995 at the time he was employed by the former Norwest Corporation, C. Webb Edwards is entitled to a supplemental annual retirement benefit provided he remains an employee of Wells Fargo & Company until he reaches the age of 55. To determine the amount of this benefit, the Company first will calculate a hypothetical annual retirement benefit assuming Mr. Edwards had been employed by the Company since July 23, 1984. The Company will calculate this hypothetical amount under the Company's Cash Balance and Supplemental Cash Balance Plans and, alternatively, under the Norwest Corporation Pension and Norwest Corporation Supplemental Pension Plans, using the greater of the two amounts as the hypothetical annual retirement benefit for purposes of determining Mr. Edward's supplemental annual retirement benefit. The Company then will subtract from the hypothetical annual retirement benefit (1) the actual combined annual retirement benefit Mr. Edwards will receive under the Company's Cash Balance and Supplemental Cash Balance Plans, and (2) the amount by which the annuitized value of Mr. Edward's combined balances in the Company's 401(k) and Supplemental 401(k) Plans exceeds the annuitized value of a hypothetical combined account balance under the First Interstate Bancorp 401(k) and Supplemental 401(k) Plans. The Company will calculate the annuitized value of Mr. Edward's combined balances in the Company's 401(k) and Supplemental 401(k) Plans using the 1983 Group Annuity Mortality table for a male of Mr. Edward's age at retirement and seven percent interest. The Company will calculate the annuitized value of a hypothetical combined account balance under the First Interstate Bancorp 401(k) and Supplemental 401(k) Plans assuming that Mr. Edwards had contributed six percent of his base salary with a 50% company match beginning May 1, 1995 and using the 1983 Group Annuity Mortality table for a male of Mr. Edward's age at retirement and seven percent interest. EX-10.(FF) 6 a2040410zex-10_ff.txt EXHIBIT 10(FF) EXHIBIT 10(FF) (1) AMENDMENT TO LONG-TERM INCENTIVE COMPENSATION PLAN: RESOLVED that effective November 1, 2000, Section 2.1(g) of the Company's Long-Term Incentive Compensation Plan is amended in its entirety to read as follows: (g) "Fair Market Value" as of any date means the immediately preceding trading day's New York Stock Exchange-only closing price of a share of Stock. (2) AMENDMENT TO EMPLOYEES' STOCK DEFERRAL PLAN: RESOLVED that effective November 1, 2000, the Employees' Stock Deferral Plan is amended by deleting the phrase "the average of the high and low prices per share of Common Stock reported on the consolidated tape of the New York Stock Exchange" that appears in Sections 4, 5, 8 and 9, and substituting in place thereof the phrase "the New York Stock Exchange-only closing price per share of Common Stock ." (3) AMENDMENT TO 1999 DIRECTORS STOCK OPTION PLAN: RESOLVED that effective November 1, 2000, the definition of "Fair Market Value" set forth in Section II of the Wells Fargo & Company 1999 Directors Stock Option Plan is amended in its entirety to read as follows: Fair Market Value The New York Stock Exchange-only closing price per share of the Common Stock for the trading day immediately preceding the option grant date or exercise date, as the case may be. (4) AMENDMENT TO DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS: RESOLVED that effective November 1, 2000, the Norwest Corporation Deferred Compensation Plan for Non-Employee Directors is amended by deleting the phrase "as reported on the consolidated tape of the New York Stock Exchange" that appears in the last sentence of paragraph 5(d), in the last sentence of paragraph 6(c) regarding payments on or after December 1, 1999, in the second to the last sentence of paragraph 7(c), and in the last sentence of paragraph 7(e), and substituting in place thereof the phrase "on the New York Stock Exchange only." 1 (5) AMEND DIRECTORS' STOCK DEFERRAL PLAN: RESOLVED that effective November 1, 2000, the Norwest Corporation Directors' Stock Deferral Plan is amended by deleting the phrase "as reported on the consolidated tape of the New York Stock Exchange" that appears in the last sentence of Section 4 and the fifth sentence of Section 9.b and by deleting the phrase "reported on the consolidated tape of the New York Stock Exchange" that appears in the last sentence of Sections 7 and 8 and the fourth sentence of Section 9.b, and by substituting in place thereof the phrase "on the New York Stock Exchange only." (6) AMEND DIRECTORS' FORMULA STOCK AWARD PLAN: RESOLVED that effective November 1, 2000, the Directors' Formula Stock Award Plan is amended by deleting the phrase "the closing price per share of Common Stock reported on the consolidated tape of the New York Stock Exchange" which appears in the last sentence of Sections 7 and 8 and in the second to the last sentence of Section 9, and substituting in place thereof the phrase "the New York Stock Exchange-only closing price per share of Common Stock." (7) AMEND 1999 DEFERRAL PLAN FOR DIRECTORS: RESOLVED that effective November 1, 2000, the definition of "Fair Market Value" set forth in Section II of the Wells Fargo & Company 1999 Deferral Plan for Directors is amended in its entirety to read as follows: Fair Market Value The New York Stock Exchange-only closing price per share of the Common Stock as of the trading day immediately preceding the transaction and/or grant date. (8) AMEND 1999 DIRECTORS FORMULA STOCK AWARD PLAN: RESOLVED that effective November 1, 2000, Section 2e of the Wells Fargo & Company 1999 Directors Formula Stock Award Plan is amended in its entirety to read as follows: e. VALUATION. The fair market value shall be determined using the New York Stock Exchange-only closing price of a share of Common Stock for the trading day immediately preceding the date as of which the determination is made. 2 (9) AMEND SUPPLEMENTAL 401(K) PLAN: RESOLVED that effective November 1, 2000, the Wells Fargo & Company Supplemental 401(k) Plan is amended by deleting the phrase "the closing price per share of Company common stock reported on the consolidated tape of the New York Stock Exchange" that appears in Sections 10(c) and 10(e), and substituting in place thereof the phrase "the New York Stock Exchange-only closing price per share of Company common stock." 3 EX-12.(A) 7 a2040410zex-12_a.txt EXHIBIT 12(A) EXHIBIT 12(a) WELLS FARGO & COMPANY AND SUBSIDIARIES COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
- ------------------------------------------------------------------------------------------------------------------- Year ended December 31, ------------------------------------------------------------- (in millions) 2000 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------- EARNINGS, INCLUDING INTEREST ON DEPOSITS (1): Income before income tax expense $ 6,549 $ 6,350 $3,665 $ 4,521 $ 4,055 Fixed charges 8,022 5,943 5,935 5,736 5,301 -------- -------- ------ ------- ------- $ 14,571 $ 12,293 $9,600 $10,257 $ 9,356 ======== ======== ====== ======= ======= Fixed charges (1): Interest expense $ 7,860 $ 5,818 $5,782 $ 5,541 $ 5,104 Estimated interest component of net rental expense 162 125 153 195 197 -------- -------- ------ ------- ------- $ 8,022 $ 5,943 $5,935 $ 5,736 $ 5,301 ======== ======== ====== ======= ======= Ratio of earnings to fixed charges (2) 1.82 2.07 1.62 1.79 1.76 ======== ======== ====== ======= ======= EARNINGS EXCLUDING INTEREST ON DEPOSITS: Income before income tax expense $ 6,549 $ 6,350 $3,665 $ 4,521 $ 4,055 Fixed charges 3,933 2,777 2,420 2,233 2,063 -------- -------- ------ ------- ------- $ 10,482 $ 9,127 $6,085 $ 6,754 $ 6,118 ======== ======== ====== ======= ======= Fixed charges: Interest expense $ 7,860 $ 5,818 $5,782 $ 5,541 $ 5,104 Less interest on deposits 4,089 3,166 3,515 3,503 3,238 Estimated interest component of net rental expense 162 125 153 195 197 -------- -------- ------ ------- ------- $ 3,933 $ 2,777 $2,420 $ 2,233 $ 2,063 ======== ======== ====== ======= ======= Ratio of earnings to fixed charges (2) 2.67 3.29 2.51 3.02 2.97 ======== ======== ====== ======= ======= - -------------------------------------------------------------------------------------------------------------------
(1) As defined in Item 503(d) of Regulation S-K. (2) These computations are included herein in compliance with Securities and Exchange Commission regulations. However, management believes that fixed charge ratios are not meaningful measures for the business of the Company because of two factors. First, even if there were no change in net income, the ratios would decline with an increase in the proportion of income which is tax-exempt or, conversely, they would increase with a decrease in the proportion of income which is tax-exempt. Second, even if there were no change in net income, the ratios would decline if interest income and interest expense increase by the same amount due to an increase in the level of interest rates or, conversely, they would increase if interest income and interest expense decrease by the same amount due to a decrease in the level of interest rates. EX-12.(B) 8 a2040410zex-12_b.txt EXHIBIT 12(B) EXHIBIT 12(b) WELLS FARGO & COMPANY AND SUBSIDIARIES COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS
- -------------------------------------------------------------------------------------------------------------------------- Year ended December 31, -------------------------------------------------------- (in millions) 2000 1999 1998 1997 1996 - -------------------------------------------------------------------------------------------------------------------------- EARNINGS, INCLUDING INTEREST ON DEPOSITS (1): Income before income tax expense $ 6,549 $ 6,350 $3,665 $ 4,521 $4,055 Fixed charges 8,022 5,943 5,935 5,736 5,301 ------- ------- ------ ------- ------ $14,571 $12,293 $9,600 $10,257 $9,356 ======= ======= ====== ======= ====== Preferred dividend requirement $ 17 $ 35 $ 35 $ 43 $ 85 Ratio of income before income tax expense to net income 1.63 1.59 1.69 1.68 1.69 ------- ------- ------ ------- ------ Preferred dividends (2) $ 28 $ 56 $ 59 $ 72 $ 144 ------- ------- ------ ------- ------ Fixed charges (1): Interest expense 7,860 5,818 5,782 5,541 5,104 Estimated interest component of net rental expense 162 125 153 195 197 ------- ------- ------ ------- ------ 8,022 5,943 5,935 5,736 5,301 ------- ------- ------ ------- ------ Fixed charges and preferred dividends $ 8,050 $ 5,999 $5,994 $ 5,808 $5,445 ======= ======= ====== ======= ====== Ratio of earnings to fixed charges and preferred dividends (3) 1.81 2.05 1.60 1.77 1.72 ======= ======= ====== ======= ====== EARNINGS EXCLUDING INTEREST ON DEPOSITS: Income before income tax expense $ 6,549 $ 6,350 $3,665 $ 4,521 $4,055 Fixed charges 3,933 2,777 2,420 2,233 2,063 ------- ------- ------ ------- ------ $10,482 $ 9,127 $6,085 $ 6,754 $6,118 ======= ======= ====== ======= ====== Preferred dividends (2) $ 28 $ 56 $ 59 $ 72 $ 144 ------- ------- ------ ------- ------ Fixed charges: Interest expense 7,860 5,818 5,782 5,541 5,104 Less interest on deposits 4,089 3,166 3,515 3,503 3,238 Estimated interest component of net rental expense 162 125 153 195 197 ------- ------- ------ ------- ------ 3,933 2,777 2,420 2,233 2,063 ------- ------- ------ ------- ------ Fixed charges and preferred dividends $ 3,961 $ 2,833 $2,479 $ 2,305 $2,207 ======= ======= ====== ======= ====== Ratio of earnings to fixed charges and preferred dividends (3) 2.65 3.22 2.45 2.93 2.77 ======= ======= ====== ======= ======= - --------------------------------------------------------------------------------------------------------------------------
(1) As defined in Item 503(d) of Regulation S-K. (2) The preferred dividends were increased to amounts representing the pretax earnings that would be required to cover such dividend requirements. (3) These computations are included herein in compliance with Securities and Exchange Commission regulations. However, management believes that fixed charge ratios are not meaningful measures for the business of the Company because of two factors. First, even if there was no change in net income, the ratios would decline with an increase in the proportion of income which is tax-exempt or, conversely, they would increase with a decrease in the proportion of income which is tax-exempt. Second, even if there was no change in net income, the ratios would decline if interest income and interest expense increase by the same amount due to an increase in the level of interest rates or, conversely, they would increase if interest income and interest expense decrease by the same amount due to a decrease in the level of interest rates. EX-13 9 a2040410zex-13.txt EXHIBIT 13 TABLE OF CONTENTS
FINANCIAL REVIEW Overview.............................................................................................. 34 Factors That May Affect Future Results................................................................ 36 Operating Segment Results............................................................................. 40 Earnings Performance.................................................................................. 40 Net Interest Income................................................................................ 40 Noninterest Income................................................................................. 43 Noninterest Expense................................................................................ 44 Earnings/Ratios Excluding Goodwill and Nonqualifying CDI........................................... 44 Balance Sheet Analysis................................................................................ 45 Securities Available for Sale...................................................................... 45 (table on page 63) Loan Portfolio..................................................................................... 45 (table on page 64) Nonaccrual and Restructured Loans and Other Assets................................................. 45 Allowance for Loan Losses.......................................................................... 47 (table on page 66) Deposits........................................................................................... 48 Market Risk........................................................................................ 48 Derivative Financial Instruments................................................................... 49 Liquidity and Capital Management................................................................... 49 Comparison of 1999 to 1998............................................................................ 51 Additional Information................................................................................ 51 FINANCIAL STATEMENTS Consolidated Statement of Income...................................................................... 52 Consolidated Balance Sheet............................................................................ 53 Consolidated Statement of Changes in Stockholders' Equity and Comprehensive Income.................... 54 Consolidated Statement of Cash Flows.................................................................. 55 Notes to Financial Statements......................................................................... 56 INDEPENDENT AUDITORS' REPORT................................................................................... 97 QUARTERLY FINANCIAL DATA....................................................................................... 98
33 FINANCIAL REVIEW OVERVIEW Wells Fargo & Company is a $272 billion diversified financial services company providing banking, mortgage and consumer finance through stores, the Internet and other distribution channels throughout North America, including all 50 states, and elsewhere internationally. It ranks fourth in assets at December 31, 2000 among U.S. bank holding companies. In this Annual Report, Wells Fargo & Company and Subsidiaries is referred to as the Company and Wells Fargo & Company alone is referred to as the Parent. On October 25, 2000, the merger involving the Company and First Security Corporation (the FSCO Merger) was completed, with First Security Corporation (First Security or FSCO) surviving as a wholly owned subsidiary of the Company. On November 2, 1998, the merger involving Norwest Corporation and the former Wells Fargo & Company (the WFC Merger) was completed. The FSCO Merger and the WFC Merger were accounted for under the pooling-of-interests method of accounting and, accordingly, the information included in the financial review presents the combined results as if the mergers had been in effect for all periods presented. Certain amounts in the financial review for prior years have been reclassified to conform with the current financial statement presentation. Net income in 2000 was $4,026 million, which included a loss of $220 million (after tax) for First Security for the first three quarters of 2000 and First Security related integration and conversion costs of $110 million (after tax) in the fourth quarter, compared with $4,012 million in 1999. Diluted earnings per common share were $2.33, compared with $2.29 in 1999, an increase of 2%. Return on average assets (ROA) was 1.61% and return on average common equity (ROE) was 16.31% in 2000, compared with 1.78% and 17.55%, respectively, in 1999. Diluted earnings before the amortization of goodwill and nonqualifying core deposit intangible ("cash" earnings) were $2.70 per share in 2000, compared with $2.62 per share in 1999. On the same basis, ROA was 1.94% and ROE was 30.89% in 2000, compared with 2.13% and 32.85%, respectively, in 1999. Net interest income on a taxable-equivalent basis was $10,930 million in 2000, compared with $10,185 million a year ago. The Company's net interest margin was 5.35% for 2000, compared with 5.47% in 1999. Noninterest income increased to $8,843 million in 2000 from $7,975 million in 1999, an increase of 11%, largely due to higher net venture capital gains, increased trust and investment fees and service charges on deposit accounts, primarily offset by net losses on sales of securities incurred in restructuring the Company's securities available for sale portfolio and net losses on sales of loans and securitizations associated with First Security prior to the FSCO Merger. Noninterest expense totaled $11,830 million in 2000, compared with $10,637 million in 1999, an increase of 11%. The increase was primarily due to integration and conversion costs related to the WFC Merger, the FSCO Merger and other acquisitions. The provision for loan losses was $1,329 million in 2000, compared with $1,104 million in 1999. During 2000, net charge-offs were $1,219 million, or .84% of average total loans, compared with $1,115 million, or .90%, during 1999. The allowance for loan losses was $3,719 million, or 2.31% of total loans, at December 31, 2000, compared with $3,344 million, or 2.51%, at December 31, 1999. At December 31, 2000, total nonaccrual and restructured loans were $1,195 million, or .7% of total loans, compared with $728 million, or .5%, at December 31, 1999. Foreclosed assets were $128 million at December 31, 2000, compared with $161 million at December 31, 1999. The ratio of common stockholders' equity to total assets was 9.63% at December 31, 2000 and 9.79% at December 31, 1999. The Company's total risk-based capital (RBC) ratio at December 31, 2000 was 10.43% and its Tier 1 RBC ratio was 7.29%, exceeding the minimum regulatory guidelines of 8% and 4%, respectively, for bank holding companies. The Company's RBC ratios at December 31, 1999 were 10.93% and 8.00%, respectively. The Company's leverage ratios were 6.49% and 6.76% at December 31, 2000 and 1999, respectively, exceeding the minimum regulatory guideline of 3% for bank holding companies. 34 Recent Accounting Standards In June 1998, the Financial Accounting Standards Board (FASB) issued Statement No. 133 (FAS 133), ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. In July 1999, the FASB issued Statement No. 137, DEFERRAL OF THE EFFECTIVE DATE OF FASB STATEMENT NO. 133, which deferred the effective date of FAS 133 to no later than January 1, 2001 for the Company's financial statements. In June 2000, the FASB issued Statement No. 138, ACCOUNTING FOR CERTAIN DERIVATIVE INSTRUMENTS AND CERTAIN HEDGING ACTIVITIES, an amendment of FASB Statement No. 133. FAS 133 requires companies to record derivatives on the balance sheet at fair value. Changes in the fair values of those derivatives would be reported in earnings or other comprehensive income depending on the use of the derivative and whether it qualifies for hedge accounting. The key criterion for hedge accounting is that the hedging relationship must be highly effective in achieving offsetting changes between the fair value of assets or liabilities or cash flows from forecasted transactions and the hedging instrument. The Company adopted FAS 133 on January 1, 2001. The effect on net income from the adoption of FAS 133 was an increase of $13 million (after tax). In accordance with the transition provisions of FAS 133, the Company recorded a transition adjustment of $71 million, net of tax, (increase in equity) in other comprehensive income in a manner similar to a cumulative effect of a change in accounting principle. The transition adjustment was the initial amount necessary to adjust the carrying values of certain derivative instruments (that qualified as cash flow hedges) to fair value to the extent that the related hedged transactions had not yet been recognized. In September 2000, the FASB issued Statement No. 140 (FAS 140), ACCOUNTING FOR THE TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES, which replaces FAS 125 (of the same title). FAS 140 revises certain standards in the accounting for securitizations and other transfers of financial assets and collateral, and requires some disclosures relating to securitization transactions and collateral, but it carries over most of FAS 125's provisions. The collateral and disclosure provisions of FAS 140 are effective for year-end 2000 financial statements. The other provisions of this Statement are effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001; the Company does not expect that the impact of the revised provisions will have a material effect on the Company's financial results. Table 1
RATIOS AND PER COMMON SHARE DATA - --------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, ------------------------------------- ($ in millions, except per share amounts) 2000 1999 1998 - --------------------------------------------------------------------------------------------- PROFITABILITY RATIOS Net income to average total assets (ROA) 1.61% 1.78% 1.06% Net income applicable to common stock to average common stockholders' equity (ROE) 16.31 17.55 10.26 Net income to average stockholders' equity 16.20 17.35 10.20 EFFICIENCY RATIO (1) 60.0% 58.8% 68.2% NET INCOME AND RATIOS EXCLUDING GOODWILL AND NONQUALIFYING CORE DEPOSIT INTANGIBLE (CDI) AMORTIZATION AND BALANCES ("CASH") (2) Net income applicable to common stock $4,646 $4,551 $2,716 Earnings per common share 2.73 2.66 1.61 Diluted earnings per common share 2.70 2.62 1.59 ROA 1.94% 2.13% 1.39% ROE 30.89 32.85 21.90 Efficiency ratio 56.5 55.2 64.3 CAPITAL RATIOS At year end: Common stockholders' equity to assets 9.63% 9.79% 9.76% Stockholders' equity to assets 9.72 9.90 9.96 Risk-based capital (3) Tier 1 capital 7.29 8.00 7.99 Total capital 10.43 10.93 10.78 Leverage (3) 6.49 6.76 6.58 Average balances: Common stockholders' equity to assets 9.83 10.07 10.12 Stockholders' equity to assets 9.93 10.27 10.35 PER COMMON SHARE DATA Dividend payout (4) 38.14% 33.83% 54.81% Book value $15.29 $13.91 $12.79 Market prices (5): High $56.38 $49.94 $43.88 Low 31.00 32.13 27.50 Year end 55.69 40.44 39.94 - ---------------------------------------------------------------------------------------------
(1) The efficiency ratio is defined as noninterest expense divided by total revenue (net interest income and noninterest income). (2) Nonqualifying core deposit intangible (acquired after regulatory rule changes in 1992) amortization and average balance excluded from these calculations are, with the exception of the efficiency and ROA ratios, net of applicable taxes. The pretax amount for the average balance of nonqualifying CDI was $1,182 million for the year ended December 31, 2000. The after-tax amounts for the amortization and average balance of nonqualifying CDI were $107 million and $733 million, respectively, for the year ended December 31, 2000. Goodwill amortization and average balance (which are not tax effected) were $530 million and $8,811 million, respectively, for the year ended December 31, 2000. See page 44 for additional information. (3) See Note 22 to Financial Statements for additional information. (4) Dividends declared per common share as a percentage of earnings per common share. (5) Based on daily prices reported on the New York Stock Exchange Composite Transaction Reporting System. 35 Table 2
SIX-YEAR SUMMARY OF SELECTED FINANCIAL DATA - --------------------------------------------------------------------------------------------------------------------------- % CHANGE FIVE-YEAR (in millions, 2000/ COMPOUND except per share amounts) 2000 1999 1998 1997 1996 1995 1999 GROWTH RATE - --------------------------------------------------------------------------------------------------------------------------- INCOME STATEMENT Net interest income $ 10,865 $ 10,116 $ 9,673 $ 9,258 $ 8,776 $ 6,427 7% 11% Provision for loan losses 1,329 1,104 1,617 1,203 541 335 20 32 Noninterest income 8,843 7,975 6,920 6,046 5,075 3,450 11 21 Noninterest expense 11,830 10,637 11,311 9,580 9,256 6,143 11 14 Net income 4,026 4,012 2,191 2,712 2,411 2,114 -- 14 Earnings per common share $ 2.36 $ 2.32 $ 1.28 $ 1.57 $ 1.44 $ 1.68 2 7 Diluted earnings per common share 2.33 2.29 1.26 1.55 1.42 1.64 2 7 Dividends declared per common share .90 .785 .70 .615 .525 .45 15 15 BALANCE SHEET (at year end) Securities available for sale $ 38,655 $ 43,911 $ 36,660 $ 32,151 $ 33,077 $ 26,897 (12)% 8% Loans 161,124 133,004 119,662 116,435 115,119 79,126 21 15 Allowance for loan losses 3,719 3,344 3,307 3,220 3,202 2,846 11 5 Goodwill 9,303 8,046 7,889 8,237 8,307 1,365 16 47 Assets 272,426 241,053 224,135 203,819 204,075 135,716 13 15 Core deposits 156,710 138,247 144,179 133,051 137,409 85,801 13 13 Long-term debt 32,046 26,866 22,662 18,820 18,936 17,447 19 13 Guaranteed preferred beneficial interests in Company's subordinated debentures 935 935 935 1,449 1,300 -- -- -- Common stockholders' equity 26,221 23,600 21,869 20,700 20,466 9,518 11 22 Stockholders' equity 26,488 23,871 22,332 21,164 21,256 10,310 11 21 - ---------------------------------------------------------------------------------------------------------------------------
FACTORS THAT MAY AFFECT FUTURE RESULTS We may make forward-looking statements in this report and in other reports and proxy statements filed with the Securities and Exchange Commission (SEC). In addition, our senior management may make forward-looking statements orally to analysts, investors, the media and others. Written and oral forward-looking statements might include: - - projections of revenues, income, earnings per share, capital expenditures, dividends, capital structure or other financial items; - - descriptions of plans or objectives of management for future operations, products or services, including pending acquisitions; - - forecasts of future economic performance; and - - descriptions of assumptions underlying or relating to any of the foregoing. Forward-looking statements discuss matters that are not facts and often include "believe," "expect," "anticipate," "intend," "plan," "estimate," "will," "can," "would," "should," "could" or "may." You should not unduly rely on forward-looking statements. They give our expectations about the future and are not guarantees. Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update them to reflect changes that occur after the date they are made. There are several factors--many of which are beyond our control--that could cause results to differ significantly from expectations. Some of these factors are described below. Other factors, such as credit, market, operational, liquidity, interest rate and other risks, are described elsewhere in this report (see, for example, "Financial Review - Balance Sheet Analysis"). Factors relating to the regulation and supervision of the holding company and its subsidiaries are also described in our report on Form 10-K for the year ended December 31, 2000. There are factors other than those described in this report or in our Form 10-K that could cause results to differ from expectations. Any factor described in this report or in our Form 10-K could by itself, or together with one or more other factors, adversely affect our business, earnings and/or financial condition. 36 INDUSTRY FACTORS AS A FINANCIAL SERVICES COMPANY, OUR EARNINGS ARE SIGNIFICANTLY AFFECTED BY GENERAL BUSINESS AND ECONOMIC CONDITIONS. Our business and earnings are sensitive to general business and economic conditions in the United States and abroad. These conditions include short-term and long-term interest rates, inflation, monetary supply, fluctuations in both debt and equity capital markets, and the strength of the U.S. economy and the local economies in which we operate. For example, an economic downturn or higher interest rates could decrease the demand for loans and other products and services and/or increase the number of customers who fail to repay their loans. Higher interest rates also could increase our cost to borrow funds and increase the rate we pay on deposits. This could more than offset, in the net interest margin, any increase we earn on new or floating rate loans or short-term investments. We discuss many of these business and economic conditions in more detail elsewhere in this report. OUR EARNINGS ALSO ARE SIGNIFICANTLY AFFECTED BY THE FISCAL AND MONETARY POLICIES OF THE FEDERAL GOVERNMENT AND ITS AGENCIES. The policies of the Board of Governors of the Federal Reserve System impact us significantly. The Federal Reserve Board regulates the supply of money and credit in the United States. Its policies directly and indirectly influence the rate of interest paid on interest-bearing deposits and can also affect the value of financial instruments we hold. Those policies determine to a significant extent our cost of funds for lending and investing. Changes in those policies are beyond our control and are hard to predict. Federal Reserve Board policies can affect our borrowers, potentially increasing the risk that they may fail to repay their loans. For example, a tightening of the money supply by the Federal Reserve Board could reduce the demand for a borrower's products and services. This could adversely affect the borrower's earnings and ability to repay its loan. THE FINANCIAL SERVICES INDUSTRY IS HIGHLY COMPETITIVE. We operate in a highly competitive environment in the products and services we offer and the markets in which we operate. The competition among financial services companies to attract and retain customers is intense. Customer loyalty can be easily influenced by a competitor's new products, especially offerings that provide cost savings to the customer. Some of our competitors may be better able to provide a wider range of products and services over a greater geographic area. We believe the financial services industry will become even more competitive as a result of legislative, regulatory and technological changes and the continued consolidation of the industry. Technology has lowered barriers to entry and made it possible for non-banks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems. Also, investment banks and insurance companies are competing in more banking businesses such as syndicated lending and consumer banking. Many of our competitors have fewer regulatory constraints and lower cost structures. We expect the consolidation of the financial services industry to result in larger, better capitalized companies offering a wide array of financial services and products. The Gramm-Leach-Bliley Act (the Act) permits banks, securities firms and insurance companies to merge by creating a new type of financial services company called a "financial holding company." Financial holding companies can offer virtually any type of financial service, including banking, securities underwriting, insurance (both agency and underwriting) and merchant banking. Under the Act, securities firms and insurance companies that elect to become a financial holding company can acquire banks and other financial institutions. The Act significantly changes our competitive environment. 37 WE ARE HEAVILY REGULATED BY FEDERAL AND STATE AGENCIES. The holding company, its subsidiary banks and many of its non-bank subsidiaries are heavily regulated at the federal and state levels. This regulation is to protect depositors, federal deposit insurance funds and the banking system as a whole, not security holders. Congress and state legislatures and federal and state regulatory agencies continually review banking laws, regulations and policies for possible changes. Changes to statutes, regulations or regulatory policies, including changes in interpretation or implementation of statutes, regulations or policies, could affect us in substantial and unpredictable ways including limiting the types of financial services and products we may offer and/or increasing the ability of non-banks to offer competing financial services and products. Also, our failure to comply with laws, regulations or policies could result in sanctions by regulatory agencies and damage to our reputation. For more information, refer to Notes 3 and 22 to the Financial Statements in this report and to the "Regulation and Supervision" section of our report on Form 10-K for the year ended December 31, 2000. CONSUMERS MAY DECIDE NOT TO USE BANKS TO COMPLETE THEIR FINANCIAL TRANSACTIONS. Technology and other changes are allowing parties to complete financial transactions that historically have involved banks at one or both ends of the transaction. For example, consumers can now pay bills and transfer funds directly without banks. The process of eliminating banks as intermediaries, known as "disintermediation," could result in the loss of fee income, as well as the loss of customer deposits and income generated from those deposits. COMPANY FACTORS MAINTAINING OR INCREASING OUR MARKET SHARE DEPENDS ON MARKET ACCEPTANCE AND REGULATORY APPROVAL OF NEW PRODUCTS AND SERVICES. Our success depends, in part, on our ability to adapt our products and services to evolving industry standards. There is increasing pressure on financial services companies to provide products and services at lower prices. This can reduce our net interest margin and revenues from our fee-based products and services. In addition, the widespread adoption of new technologies, including Internet-based services, could require us to make substantial expenditures to modify or adapt our existing products and services. We may not successfully introduce new products and services, achieve market acceptance of our products and services, and/or develop and maintain loyal customers. THE HOLDING COMPANY RELIES ON DIVIDENDS FROM ITS SUBSIDIARIES FOR MOST OF ITS REVENUE. The holding company is a separate and distinct legal entity from its subsidiaries. It receives substantially all of its revenue from dividends from its subsidiaries. These dividends are the principal source of funds to pay dividends on the holding company's common and preferred stock and interest on its debt. The payment of dividends by a subsidiary is subject to federal law restrictions as well as to the laws of the subsidiary's state of incorporation. Also, the holding company's right to participate in a distribution of assets upon a subsidiary's liquidation or reorganization is subject to the prior claims of the subsidiary's creditors. For more information, refer to "Regulation and Supervision--Dividend Restrictions" and "--Holding Company Structure" in our report on Form 10-K for the year ended December 31, 2000. 38 WE HAVE BUSINESSES OTHER THAN BANKING. We are a diversified financial services company. In addition to banking, we provide insurance, investments, mortgages and consumer finance. Although we believe our diversity helps mitigate the impact to the Company when downturns affect any one segment of our industry, it also means that our earnings could be subject to different risks and uncertainties. For example, our venture capital earnings can be volatile and unpredictable. They depend not only on the business success of the underlying investments but also on when the holdings become publicly-traded and subsequent market conditions. A downturn in the stock market--in particular the market for technology stocks--could reduce our venture capital earnings. The home mortgage industry is subject to special interest rate risks. Loan origination fees and loan servicing fees account for a significant portion of mortgage-related revenues. Changes in interest rates can impact both types of fees. For example, all things being equal, we would expect a decline in mortgage rates to increase the demand for mortgage loans as borrowers refinance existing loans at lower interest rates. When portions of our servicing portfolio pay off, however, we experience lower revenues from our servicing investments unless we add new loans to our servicing portfolio to replace the loans that have been paid off. Conversely, in a constant or increasing rate environment, we would expect fewer loans to be refinanced and fewer early payoffs of our servicing portfolio. We manage the impact of interest rate changes on the dynamic between loan origination revenues and loan servicing revenues with derivative financial instruments and other asset/liability management tools. How well we manage this risk impacts our mortgage-related revenues. For more information, refer to "Balance Sheet Analysis" later in this report. WE HAVE AN ACTIVE ACQUISITION PROGRAM. We regularly explore opportunities to acquire financial institutions and other financial services providers. We cannot predict the number, size or timing of future acquisitions. We typically do not publicly comment on a possible acquisition or business combination until we have signed a definitive agreement for the transaction. Our ability to successfully complete an acquisition generally is subject to some type of regulatory approval, and we cannot be certain when or if, or on what terms and conditions, any required regulatory approvals will be granted. We typically can decide not to complete a proposed acquisition or business combination if we believe any condition under which a regulatory approval has been granted is unreasonably burdensome to us. Difficulty in integrating an acquired company may cause us not to realize expected revenue increases, cost savings, increases in geographic or product presence, and/or other projected benefits from the acquisition. Specifically, the integration process could result in higher than expected deposit attrition (run-off), loss of key employees, the disruption of our business or the business of the acquired company, or otherwise adversely affect our ability to maintain relationships with clients and employees or achieve the anticipated benefits of the acquisition. OUR BUSINESS COULD SUFFER IF WE FAIL TO ATTRACT AND RETAIN SKILLED PEOPLE. Our success depends, in part, on our ability to attract and retain key people. Competition for the best people--in particular individuals with technology experience--is intense. We may not be able to hire people or pay them enough to keep them. OUR STOCK PRICE CAN BE VOLATILE. Our stock price can fluctuate widely in response to a variety of factors including: - - actual or anticipated variations in our quarterly operating results; - - new technology or services by our competitors; - - significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our competitors; - - failure to integrate our acquisitions or realize anticipated benefits from our acquisitions; or - - changes in government regulations. General market fluctuations, industry factors and general economic and political conditions, such as economic slowdowns or recessions, interest rate changes, credit loss trends or currency fluctuations, also could cause our stock price to decrease regardless of our operating results. 39 OPERATING SEGMENT RESULTS COMMUNITY BANKING'S net income was $2,911 million in 2000, compared with $2,978 million in 1999, a decrease of 2%. Net interest income increased by $430 million, or 6%, compared with 1999. The provision for loan losses increased by $171 million from 1999. Noninterest income was up by $718 million in 2000, or 14%, compared with 1999. The increase was due to venture capital gains, partially offset by losses on securities available for sale due to the restructuring of the portfolio, write-downs of auto lease residuals and net losses on sales of loans that were incurred by First Security prior to the FSCO Merger. Noninterest expense increased by $901 million over 1999 due to integration charges associated with the WFC Merger, the FSCO Merger and other acquisitions, as well as expenditures related to online banking enhancements. The increase in tax expense relates to the accrual of deferred taxes of $36 million on undistributed earnings of a foreign subsidiary that the Company now intends to repatriate. WHOLESALE BANKING'S net income was $892 million in 2000, compared with $841 million in 1999, an increase of 6%. Net interest income increased $274 million, or 20%, from 1999, due to growth in loan volumes. Commercial loan balances increased $6 billion, or 17%, from 1999. Noninterest income increased by $32 million, or 3%, compared with 1999, predominantly due to increased institutional trust and investment fees, foreign exchange and other fees. Noninterest expense increased by $209 million, or 18%, compared with 1999 partially due to integration activities and costs associated with increased sales volume. WELLS FARGO HOME MORTGAGE (formerly Norwest Mortgage) earned $310 million in 2000, a 17% increase over the $266 million earned in 1999. Mortgage originations were $67 billion in 2000, compared with $82 billion in 1999. The percentage of originations attributed to mortgage loan refinancings was approximately 14% in 2000, compared with 37% in 1999. The managed servicing portfolio increased to $453 billion at December 31, 2000 from $282 billion at December 31, 1999. During 2000, Wells Fargo Home Mortgage entered into an agreement to subservice GE Capital Mortgage Services' $84 billion mortgage portfolio and acquired the servicing rights to a $35 billion portion of First Union Mortgage Corporation's servicing portfolio. The weighted average coupon of loans in the owned servicing portfolio was 7.52% at December 31, 2000, compared with 7.33% a year earlier. Total capitalized mortgage servicing rights were $5.6 billion, or 1.5% of the owned servicing portfolio, at December 31, 2000. Amortization of capitalized mortgage servicing rights was $537 million in 2000, compared with $683 million in 1999. The decrease in amortization in 2000 compared with 1999 was due primarily to slower prepayment activity. Combined gains on sales of mortgages and servicing rights were $127 million in 2000, compared with $186 million in 1999. WELLS FARGO FINANCIAL (formerly Norwest Financial) reported net income of $258 million in 2000, compared with $243 million in 1999, an increase of 6%. Net interest income increased by 8% from 1999, due to growth in average loans. The provision for loan losses was $328 million in 2000, compared with $288 million in 1999, an increase of 14%. The increase was substantially due to the provision for a credit card portfolio acquired in 2000. EARNINGS PERFORMANCE NET INTEREST INCOME Net interest income is the difference between interest income (which includes yield-related loan fees) and interest expense. Net interest income on a taxable-equivalent basis was $10,930 million in 2000, compared with $10,185 million in 1999. Net interest income on a taxable-equivalent basis expressed as a percentage of average total earning assets is referred to as the net interest margin, which represents the average net effective yield on earning assets. For 2000, the net interest margin was 5.35%, compared with 5.47% in 1999. The decrease was mostly due to the impact of funding strong loan growth with higher costing short- and long-term borrowings, partially offset by improved yields within the investment securities portfolio from the restructuring that occurred during the fourth quarter of 1999 and the first nine months of 2000. Table 4 presents the individual components of net interest income and the net interest margin. Interest income was reduced by hedging expense of $50 million in 2000, compared with hedging income of $171 million in 1999. Interest expense included hedging expense of $32 million in 2000, compared with hedging income of $105 million in 1999. 40 NONINTEREST INCOME Table 3 shows the major components of noninterest income. Table 3
NONINTEREST INCOME - ------------------------------------------------------------------------------------------------------------------- % Change Year Ended December 31, ---------------- --------------------------------------- 2000/ 1999/ (in millions) 2000 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------- Service charges on deposit accounts $1,704 $1,580 $1,448 8% 9% Trust and investment fees: Asset management and custody fees 735 784 706 (6) 11 Mutual fund and annuity sales fees 763 472 308 62 53 All other 126 110 102 15 8 ------ ------ ------ Total trust and investment fees 1,624 1,366 1,116 19 22 Credit card fees 563 570 573 (1) (1) Other fees: Cash network fees 303 285 238 6 20 Charges and fees on loans 347 314 290 11 8 All other 621 495 461 25 7 ------ ------ ------ Total other fees 1,271 1,094 989 16 11 Mortgage banking: Origination and other closing fees 350 406 557 (14) (27) Servicing fees, net of amortization 665 404 15 65 -- Net gains on sales of mortgage servicing rights 159 193 227 (18) (15) Net gains on sales of mortgages 38 117 182 (68) (36) All other 232 287 308 (19) (7) ------ ------ ------ Total mortgage banking 1,444 1,407 1,289 3 9 Insurance 411 395 358 4 10 Net venture capital gains 1,943 1,008 113 93 792 Net (losses) gains on securities available for sale (722) (228) 177 217 -- Income from equity investments accounted for by the: Cost method 170 138 151 23 (9) Equity method 94 81 42 16 93 Net (losses) gains on sales of loans (134) 68 94 -- (28) Net gains on dispositions of operations 23 107 100 (79) 7 All other 452 389 470 16 (17) ------ ------ ------ Total $8,843 $7,975 $6,920 11% 15% ====== ====== ====== === === - -------------------------------------------------------------------------------------------------------------------
The increase in trust and investment fees for 2000 was due to overall growth in mutual fund assets. The Company managed mutual funds with $69 billion of assets at December 31, 2000, compared with $61 billion at December 31, 1999. The Company also managed or maintained personal trust, employee benefit trust and agency assets of approximately $432 billion and $378 billion at December 31, 2000 and 1999, respectively. The increase in net venture capital gains was due to net gains (including write-downs for other-than-temporary impairment of marketable and nonmarketable securities) on various venture capital securities, including a $560 million gain that was recognized on the Company's investment in Siara Systems, Inc. Gains from venture capital securities are generally dependent on the timing of holdings becoming publicly traded and subsequent market conditions, causing venture capital gains to be unpredictable in nature. The net losses on securities available for sale were predominantly due to the restructuring of the portfolio during the first nine months of 2000. "All other" noninterest income included writedowns of auto lease residuals of about $177 million due to continued deterioration in the used auto market, compared with $36 million in 1999. In the third quarter of 2000, the Company obtained a residual loss insurance policy that will cover substantially all additional declines in residual values in the forseeable future for the auto lease portfolio as of June 30, 2000. Net losses on sales of loans were due to sales of loans and securitizations by First Security prior to the FSCO Merger. 41 Table 4
AVERAGE BALANCES, YIELDS AND RATES PAID (TAXABLE-EQUIVALENT BASIS) (1)(2) - ----------------------------------------------------------------------------------------------------------------------------------- 2000 1999 ---------------------------------- --------------------------------- INTEREST Interest AVERAGE YIELDS/ INCOME/ Average Yields/ income/ (in millions) BALANCE RATES EXPENSE balance rates expense - ----------------------------------------------------------------------------------------------------------------------------------- EARNING ASSETS Federal funds sold and securities purchased under resale agreements $ 2,370 6.01% $ 143 $ 1,673 5.11% $ 86 Debt securities available for sale (3): Securities of U.S. Treasury and federal agencies 3,322 6.16 210 6,124 5.51 348 Securities of U.S. states and political subdivisions 2,080 7.74 162 2,119 8.12 168 Mortgage-backed securities: Federal agencies 26,054 7.22 1,903 23,542 6.77 1,599 Private collateralized mortgage obligations 2,379 7.61 187 3,945 6.77 270 -------- ------- -------- ------- Total mortgage-backed securities 28,433 7.25 2,090 27,487 6.77 1,869 Other debt securities (4) 5,049 7.93 261 3,519 7.49 209 -------- ------- -------- ------- Total debt securities available for sale (4) 38,884 7.24 2,723 39,249 6.69 2,594 Mortgages held for sale (3) 10,725 7.85 849 13,559 6.96 951 Loans held for sale (3) 4,915 8.50 418 5,154 7.31 377 Loans: Commercial 45,352 9.40 4,263 38,932 8.66 3,370 Real estate 1-4 family first mortgage 16,356 7.95 1,300 13,315 7.78 1,036 Other real estate mortgage 22,509 8.99 2,023 18,822 8.74 1,645 Real estate construction 6,934 10.02 695 5,260 9.56 503 Consumer: Real estate 1-4 family junior lien mortgage 15,292 10.43 1,595 11,656 9.96 1,161 Credit card 5,867 14.58 856 5,686 13.77 783 Other revolving credit and monthly payment 21,824 12.06 2,631 19,561 11.88 2,324 -------- ------- -------- ------- Total consumer 42,983 11.82 5,082 36,903 11.57 4,268 Lease financing 9,822 7.66 752 8,852 7.81 691 Foreign 1,621 21.15 343 1,554 20.65 321 -------- ------- -------- ------- Total loans (5)(6) 145,577 9.93 14,458 123,638 9.57 11,834 Other 3,206 6.21 199 3,252 5.01 162 -------- ------- -------- ------- Total earning assets $205,677 9.19 18,790 $186,525 8.60 16,004 ======== ------- ======== ------- FUNDING SOURCES Deposits: Interest-bearing checking $ 3,424 1.88 64 $ 3,120 .99 31 Market rate and other savings 63,577 2.81 1,786 60,901 2.30 1,399 Savings certificates 30,101 5.37 1,616 30,088 4.86 1,462 Other time deposits 4,438 5.69 253 3,957 4.94 196 Deposits in foreign offices 5,950 6.22 370 1,658 4.76 79 -------- ------- -------- ------- Total interest-bearing deposits 107,490 3.80 4,089 99,724 3.17 3,167 Short-term borrowings 28,222 6.23 1,758 22,559 5.00 1,127 Long-term debt 29,000 6.69 1,939 24,646 5.90 1,453 Guaranteed preferred beneficial interests in Company's subordinated debentures 935 7.92 74 935 7.73 72 -------- ------- -------- ------- Total interest-bearing liabilities 165,647 4.75 7,860 147,864 3.94 5,819 Portion of noninterest-bearing funding sources 40,030 -- -- 38,661 -- -- -------- ------- -------- ------- Total funding sources $205,677 3.84 7,860 $186,525 3.13 5,819 ======== ------- ======== ------- NET INTEREST MARGIN AND NET INTEREST INCOME ON A TAXABLE-EQUIVALENT BASIS (7) 5.35% $10,930 5.47% $10,185 ===== ======= ===== ======= NONINTEREST-EARNING ASSETS Cash and due from banks $ 13,103 $ 12,252 Goodwill 8,811 7,983 Other 22,597 18,339 -------- -------- Total noninterest-earning assets $ 44,511 $ 38,574 ======== ======== NONINTEREST-BEARING FUNDING SOURCES Deposits $ 48,691 $45,201 Other liabilities 11,000 8,909 Preferred stockholders' equity 266 461 Common stockholders' equity 24,584 22,664 Noninterest-bearing funding sources used to fund earning assets (40,030) (38,661) -------- -------- Net noninterest-bearing funding sources $ 44,511 $ 38,574 ======== ======== TOTAL ASSETS $250,188 $225,099 ======== ======== - ------------------------------------------------------------------------------------------------------------------------------------
(1) The average prime rate of the Company was 9.24%, 8.00%, 8.35%, 8.44% and 8.27% for 2000, 1999, 1998, 1997 and 1996, respectively. The average three-month London Interbank Offered Rate (LIBOR) was 6.52%, 5.42%, 5.56%, 5.74% and 5.51% for the same years, respectively. (2) Interest rates and amounts include the effects of hedge and risk management activities associated with the respective asset and liability categories. (3) Yields are based on amortized cost balances computed on a settlement date basis. (4) Includes certain preferred securities. 42
- ---------------------------------------------------------------------------------------------------------------------- 1998 1997 1996 - ---------------------------------- ------------------------------------ --------------------------------- Interest Interest Interest Average Yields/ income/ Average Yields/ income/ Average Yields/ income/ balance rates expense balance rates expense balance rates expense - ---------------------------------------------------------------------------------------------------------------------- $ 1,770 5.57% $ 99 $ 1,207 5.40% $ 65 $ 1,706 5.45% $ 93 5,916 6.02 353 5,987 6.22 371 4,365 6.00 262 1,855 8.39 148 1,630 8.35 133 1,118 8.59 96 20,079 6.99 1,376 22,173 7.08 1,559 22,076 6.94 1,531 3,072 6.72 205 3,083 6.80 210 2,907 6.54 190 - -------- ------- -------- ------- -------- ------- 23,151 6.95 1,581 25,256 7.05 1,769 24,983 6.89 1,721 1,570 7.94 105 1,192 5.71 71 1,594 4.89 78 - -------- ------- -------- ------- -------- ------- 32,492 6.90 2,187 34,065 6.91 2,344 32,060 6.73 2,157 14,712 6.85 1,008 7,314 7.27 532 7,194 7.74 557 4,876 7.71 376 3,900 8.10 316 3,560 9.21 328 35,805 8.85 3,169 31,939 9.22 2,943 29,607 9.18 2,719 13,870 7.92 1,098 16,924 8.46 1,432 16,690 8.44 1,409 17,539 9.40 1,648 17,603 9.61 1,692 16,721 9.23 1,543 4,270 9.71 415 3,858 10.13 391 3,469 9.97 346 10,708 10.43 1,117 9,882 9.61 950 9,474 9.34 885 6,322 14.99 948 6,960 14.59 1,015 6,819 15.05 1,026 19,992 12.15 2,428 20,188 11.88 2,398 19,022 11.75 2,236 - -------- ------- -------- ------- -------- ------- 37,022 12.13 4,493 37,030 11.78 4,363 35,315 11.74 4,147 7,039 8.13 572 5,467 8.32 455 3,754 8.39 315 1,353 20.65 279 1,042 20.40 212 966 20.39 197 - -------- ------- -------- ------- -------- ------- 116,898 9.99 11,674 113,863 10.09 11,488 106,522 10.02 10,676 3,092 5.86 181 2,558 5.93 152 2,116 5.62 119 - -------- ------- -------- ------- -------- ------- $173,840 8.97 15,525 $162,907 9.16 14,897 $153,158 9.09 13,930 ======== ------- ======== ------- ======== ------- $ 3,034 1.35 41 $ 3,491 1.72 60 $ 7,645 1.56 119 56,724 2.63 1,492 54,753 2.62 1,433 48,032 2.71 1,301 31,905 5.29 1,686 32,143 5.32 1,711 27,666 5.19 1,435 4,565 5.47 250 4,112 5.61 231 6,053 5.77 349 948 4.84 46 1,386 4.83 67 719 4.73 34 - -------- ------- -------- ------- -------- ------- 97,176 3.62 3,515 95,885 3.65 3,502 90,115 3.59 3,238 17,927 5.36 963 14,038 5.36 756 12,749 5.26 671 19,294 6.29 1,214 18,335 6.40 1,173 19,029 6.25 1,190 1,160 8.12 94 1,437 7.89 113 82 7.32 6 - -------- ------- -------- ------- -------- ------- 135,557 4.27 5,786 129,695 4.27 5,544 121,975 4.19 5,105 38,283 -- -- 33,212 -- -- 31,183 -- -- - -------- ------- -------- ------- -------- ------- $173,840 3.34 5,786 $162,907 3.41 5,544 $153,158 3.33 5,105 ======== ------- ======== ------- ======== ------- 5.63% $ 9,739 5.75% $ 9,353 5.76% $ 8,825 ===== ======= ===== ======= ===== ======= $ 11,410 $ 12,297 $ 12,098 8,069 8,325 6,477 14,255 14,689 11,870 - -------- -------- -------- $ 33,734 $ 35,311 $ 30,445 ======== ======== ======== $ 43,229 $ 39,903 $ 36,922 7,314 7,688 5,770 463 555 969 21,011 20,377 17,967 (38,283) (33,212) (31,183) - -------- -------- -------- $ 33,734 $ 35,311 $ 30,445 ======== ======== ======== $207,574 $198,218 $183,603 ======== ======== ======== - ---------------------------------------------------------------------------------------------------
(5) Interest income includes loan fees, net of deferred costs, of approximately $205 million, $210 million, $148 million, $126 million and $103 million in 2000, 1999, 1998, 1997 and 1996, respectively. (6) Nonaccrual loans and related income are included in their respective loan categories. (7) Includes taxable-equivalent adjustments that primarily relate to income on certain loans and securities that is exempt from federal and applicable state income taxes. The federal statutory tax rate was 35% for all years presented. 43 NONINTEREST EXPENSE Table 5 shows the major components of noninterest expense. Table 5
NONINTEREST EXPENSE - ------------------------------------------------------------------------------------------------------------------- % Change Year Ended December 31, ---------------- --------------------------------------- 2000/ 1999/ (in millions) 2000 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------ Salaries $ 3,652 $ 3,307 $ 3,318 10% --% Incentive compensation 846 643 657 32 (2) Employee benefits 989 901 807 10 12 Equipment 948 928 976 2 (5) Net occupancy 953 813 804 17 1 Goodwill 530 459 429 15 7 Core deposit intangible: Nonqualifying (1) 173 186 220 (7) (15) Qualifying 13 20 27 (35) (26) Net (gains) losses on dispositions of premises and equipment (58) (16) 325 263 -- Contract services 536 473 353 13 34 Outside professional services 447 381 398 17 (4) Outside data processing 343 312 293 10 6 Advertising and promotion 316 251 252 26 -- Telecommunications 303 286 269 6 6 Travel and entertainment 287 262 225 10 16 Postage 252 239 241 5 (1) Stationery and supplies 223 191 198 17 (4) Insurance 157 152 132 3 15 Operating losses 179 150 157 19 (4) Security 98 95 90 3 6 All other 643 604 1,140 6 (47) ------- ------- ------- Total $11,830 $10,637 $11,311 11% (6)% ======= ======= ======= === === - -------------------------------------------------------------------------------------------------------------------
(1) Represents amortization of core deposit intangible acquired after February 1992 that is subtracted from stockholders' equity in computing regulatory capital for bank holding companies. The increase in salaries, incentive compensation and employee benefits was due to an increase in active full-time equivalent staff, partially offset by the reversal of $58 million of the remaining severance reserve associated with the WFC Merger due to better than expected results from the Company's employee retention program and higher than expected voluntary terminations due to a robust job market. EARNINGS/RATIOS EXCLUDING GOODWILL AND NONQUALIFYING CORE DEPOSIT INTANGIBLE Table 6 reconciles reported earnings to net income excluding goodwill and nonqualifying core deposit intangible amortization ("cash" earnings) for the year ended December 31, 2000. Table 7 presents the calculation of the ROA, ROE and efficiency ratios excluding goodwill and nonqualifying core deposit intangible amortization and balances for the year ended December 31, 2000. These calculations were specifically formulated by the Company and may not be comparable to similarly titled measures reported by other companies. Also, "cash" earnings are not entirely available for use by management. See the Consolidated Statement of Cash Flows and Note 3 to Financial Statements for other information regarding funds available for use by management. Table 6
EARNINGS EXCLUDING GOODWILL AND NONQUALIFYING CDI - ------------------------------------------------------------------------------------------------------------------- Year ended (in millions, except per share amounts) December 31, 2000 - ------------------------------------------------------------------------------------------------------------------- Amortization ------------------------- Nonqualifying Reported core deposit "Cash" earnings Goodwill intangible earnings Income before income tax expense $6,549 $530 $173 $7,252 Income tax expense 2,523 -- 66 2,589 ------ ---- ---- ------ Net income 4,026 530 107 4,663 Preferred stock dividends 17 -- -- 17 ------ ---- ---- ------ Net income applicable to common stock $4,009 $530 $107 $4,646 ====== ==== === ====== Earnings per common share $ 2.36 $ 2.73 ====== ====== Diluted earnings per common share $ 2.33 $ 2.70 ====== ====== - -------------------------------------------------------------------------------------------------------------------
Table 7
RATIOS EXCLUDING GOODWILL AND NONQUALIFYING CDI - ----------------------------------------------------------------------------------------------------------------- Year ended (in millions) December 31, 2000 - ----------------------------------------------------------------------------------------------------------------- ROA: A / (C-E-F) = 1.94% ROE: B / (D-E-G) = 30.89% Efficiency: (H-I) / J = 56.5% Net income $ 4,663(A) Net income applicable to common stock 4,646(B) Average total assets 250,188(C) Average common stockholders' equity 24,584(D) Average goodwill 8,811(E) Average pretax nonqualifying core deposit intangible 1,182(F) Average after-tax nonqualifying core deposit intangible 733(G) Noninterest expense 11,830(H) Amortization expense for goodwill and nonqualifying core deposit intangible 703(I) Net interest income plus noninterest income 19,708(J) - -------------------------------------------------------------------------------------------------------------------
44 BALANCE SHEET ANALYSIS A comparison between the year-end 2000 and 1999 balance sheets is presented below. SECURITIES AVAILABLE FOR SALE Total securities available for sale averaged $38.9 billion in 2000, compared with $39.2 billion in 1999. Total securities available for sale were $38.7 billion at December 31, 2000, a 12% decrease from $43.9 billion at December 31, 1999. Table 8 provides the components of the estimated unrealized net gain on securities available for sale. Table 8
ESTIMATED UNREALIZED GAINS AND LOSSES ON SECURITIES AVAILABLE FOR SALE - ------------------------------------------------------------------------------------------------------------------- December 31, ------------------------------ (in millions) 2000 1999 - ------------------------------------------------------------------------------------------------------------------- Estimated unrealized gross gains $1,620 $ 2,185 Estimated unrealized gross losses (830) (1,108) ------- ------- Estimated unrealized net gain $ 790 $ 1,077 ======= ======= - -------------------------------------------------------------------------------------------------------------------
The unrealized net gain of $718 million in the debt securities portion of the securities available for sale portfolio at December 31, 2000 was attributable to the restructuring of the portfolio during the year accompanied by a decline in long-term interest rates throughout the year. The Company may decide to sell certain of the securities available for sale to manage the level of earning assets (for example, to offset loan growth that exceeds expected maturities and prepayments of securities). (See Note 4 to Financial Statements for securities available for sale by security type.) The unrealized net gain on securities available for sale is reported on an after-tax basis as a component of cumulative other comprehensive income. At December 31, 2000, the unrealized net after-tax gain was $536 million, compared with an unrealized net after-tax gain of $770 million at December 31, 1999. At December 31, 2000, mortgage-backed securities, including collateralized mortgage obligations (CMOs), were $28.2 billion, or 73% of the Company's securities available for sale portfolio. As an indication of interest rate risk, the Company has estimated the effect of a 200 basis point increase in interest rates on the value of the mortgage-backed securities and the corresponding expected remaining maturities. Based on that rate scenario, mortgage-backed securities would decrease in fair value from $28.4 billion to $26.1 billion and the expected remaining maturity of these securities would increase from 7 years and 6 months to 8 years and 8 months. LOAN PORTFOLIO A comparative schedule of average loan balances is presented in Table 4; year-end balances are presented in Note 5 to Financial Statements. Loans averaged $145.6 billion in 2000, compared with $123.6 billion in 1999, an increase of 18%. Total loans at December 31, 2000 were $161.1 billion, compared with $133.0 billion at year-end 1999, an increase of 21%. The Company's total unfunded loan commitments increased to $92.7 billion at December 31, 2000, from $82.3 billion at December 31, 1999. The actual liquidity requirements or credit risk that the Company will experience will be lower than the contractual amount of commitments to extend credit because a significant portion of those commitments are expected to expire without being drawn upon. NONACCRUAL AND RESTRUCTURED LOANS AND OTHER ASSETS Table 9, on the following page, presents comparative data for nonaccrual and restructured loans and other assets. Management's classification of a loan as nonaccrual or restructured does not necessarily indicate that the principal of the loan is uncollectible in whole or in part. Table 9 excludes loans that are contractually past due 90 days or more as to interest or principal, but are both well-secured and in the process of collection or are real estate 1-4 family first mortgage loans or consumer loans that are exempt under regulatory rules from being classified as nonaccrual. This information is presented in Table 10. Notwithstanding, real estate 1-4 family loans (first and junior liens) are placed on nonaccrual within 120 days of becoming past due and are shown in Table 9. (Note 1 to Financial Statements describes the Company's accounting policy relating to nonaccrual and restructured loans.) 45 Table 9
NONACCRUAL AND RESTRUCTURED LOANS AND OTHER ASSETS - ------------------------------------------------------------------------------------------------------------------ December 31, --------------------------------------------------------------- (in millions) 2000 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------ Nonaccrual loans: Commercial (1) $ 739 $374 $302 $224 $ 295 Real estate 1-4 family first mortgage 127 144 138 177 155 Other real estate mortgage (2) 113 118 204 263 385 Real estate construction 57 11 23 32 34 Consumer: Real estate 1-4 family junior lien mortgage 23 17 17 17 15 Other revolving credit and monthly payment 36 27 41 18 5 ------ ---- ---- ---- ------ Total consumer 59 44 58 35 20 Lease financing 92 24 13 12 18 Foreign 7 9 17 -- -- ------ ---- ---- ---- ------ Total nonaccrual loans (3) 1,194 724 755 743 907 Restructured loans 1 4 1 9 10 ------ ---- ---- ---- ------ Nonaccrual and restructured loans 1,195 728 756 752 917 As a percentage of total loans .7% .5% .6% .6% .8% Foreclosed assets 128 161 152 216 273 Real estate investments (4) 27 33 1 4 4 ------ ---- ---- ---- ------ Total nonaccrual and restructured loans and other assets $1,350 $922 $909 $972 $1,194 ====== ==== ==== ==== ====== - -----------------------------------------------------------------------------------------------------------------
(1) Includes commercial agricultural loans of $44 million, $49 million, $41 million, $32 million and $31 million at December 31, 2000, 1999, 1998, 1997 and 1996, respectively. (2) Includes agricultural loans secured by real estate of $13 million, $17 million, $12 million, $18 million and $13 million at December 31, 2000, 1999, 1998, 1997 and 1996, respectively. (3) Of the total nonaccrual loans, $761 million, $372 million, $389 million, $416 million and $593 million at December 31, 2000, 1999, 1998, 1997 and 1996, respectively, were considered impaired under FAS 114, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN. (4) Represents the amount of real estate investments (contingent interest loans accounted for as investments) that would be classified as nonaccrual if such assets were recorded as loans. Real estate investments totaled $56 million, $89 million, $128 million, $172 million and $154 million at December 31, 2000, 1999, 1998, 1997 and 1996, respectively. The Company anticipates changes in the amount of nonaccrual loans that result from increases in lending activity or from resolutions of loans in the nonaccrual portfolio. The performance of any individual loan can be affected by external factors, such as the interest rate environment or factors particular to a borrower such as actions taken by a borrower's management. In addition, from time to time, the Company purchases loans from other financial institutions that may be classified as nonaccrual based on the Company's policies. The Company generally identifies loans to be evaluated for impairment under FASB Statement No. 114, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN, when such loans are on nonaccrual or have been restructured. However, not all nonaccrual loans are impaired. Generally, a loan is placed on nonaccrual status upon becoming 90 days past due as to interest or principal (unless both well-secured and in the process of collection), when the full timely collection of interest or principal becomes uncertain or when a portion of the principal balance has been charged off. Real estate 1-4 family loans (both first liens and junior liens) are placed on nonaccrual status within 120 days of becoming past due as to interest or principal, regardless of security. In contrast, under FAS 114, loans are considered impaired when it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement, including scheduled interest payments. For a loan that has been restructured, the contractual terms of the loan agreement refer to the contractual terms specified by the original loan agreement, rather than the contractual terms specified by the restructuring agreement. Consequently, not all impaired loans are necessarily placed on nonaccrual status. That is, loans performing under restructured terms beyond a specified performance period are classified as accruing but may still be deemed impaired under FAS 114. For loans covered under FAS 114, the Company makes an assessment for impairment when and while such loans are on nonaccrual, or when the loan has been restructured. When a loan with unique risk characteristics has been identified as being impaired, the Company will estimate the amount of impairment using discounted cash flows, except when the sole (remaining) source of repayment for the loan is the operation 46 or liquidation of the underlying collateral. In such cases, the current fair value of the collateral, reduced by costs to sell, will be used in place of discounted cash flows. Additionally, some impaired loans with commitments of less than $1 million are aggregated for the purpose of estimating impairment using historical loss factors as a means of measurement. If the measurement of the impaired loan results in a value that is less than the recorded investment in the loan (including accrued interest, net deferred loan fees or costs and unamortized premium or discount), an impairment is recognized by creating or adjusting an existing allocation of the allowance for loan losses. FAS 114 does not change the timing of charge-offs of loans to reflect the amount ultimately expected to be collected. If interest that was due on the book balances of all nonaccrual and restructured loans (including loans that were but are no longer on nonaccrual or were restructured at year end) had been accrued under their original terms, $88 million of interest would have been recorded in 2000, compared with $22 million actually recorded. Foreclosed assets at December 31, 2000 were $128 million, compared with $161 million at December 31, 1999. Most of the foreclosed assets at December 31, 2000 have been in the portfolio three years or less. LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING Table 10 shows loans that are contractually past due 90 days or more as to interest or principal, but are not included in Table 9, Nonaccrual and Restructured Loans and Other Assets. Table 10
LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING - ------------------------------------------------------------------------------------------------------------------- December 31, -------------------------------------------------------- (in millions) 2000 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------- Commercial $ 90 $ 27 $ 33 $ 37 $ 86 Real estate 1-4 family first mortgage 66 45 42 58 55 Other real estate mortgage 24 18 18 17 68 Real estate construction 12 4 6 14 11 Consumer: Real estate 1-4 family junior lien mortgage 27 36 65 75 55 Credit card 96 105 145 165 151 Other revolving credit and monthly payment 263 198 171 212 188 ----- ---- ---- ---- ----- Total consumer 386 339 381 452 394 ----- ---- ---- ---- ----- Total $578 $433 $480 $578 $614 ===== ==== ==== ==== ===== - -------------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES An analysis of the changes in the allowance for loan losses, including charge-offs and recoveries by loan category, is presented in Note 5 to Financial Statements. At December 31, 2000, the allowance for loan losses was $3,719 million, or 2.31% of total loans, compared with $3,344 million, or 2.51%, at December 31, 1999 and $3,307 million, or 2.76%, at December 31, 1998. The provision for loan losses totaled $1,329 million in 2000, $1,104 million in 1999 and $1,617 million in 1998. Net charge-offs in 2000 were $1,219 million, or .84% of average total loans, compared with $1,115 million, or .90%, in 1999 and $1,678 million, or 1.44%, in 1998. Loan loss recoveries were $428 million in 2000, compared with $473 million in 1999 and $461 million in 1998. Any loan that is past due as to principal or interest and that is not both well-secured and in the process of collection is generally charged off (to the extent that it exceeds the fair value of any related collateral) after a predetermined period of time that is based on loan category. Additionally, loans are charged off when classified as a loss by either internal loan examiners or regulatory examiners. The Company considers the allowance for loan losses of $3,719 million adequate to cover losses inherent in loans, commitments to extend credit and standby and other letters of credit at December 31, 2000. However, no assurance can be given that the Company will not, in any particular period, sustain loan losses that are sizeable in relation to the amount reserved, or that subsequent evaluations of the loan portfolio, in light of the factors then prevailing, including economic conditions and the ongoing examination process by the Company and its regulators, will not require significant increases in the allowance for loan losses. For discussion of the process by which the Company determines the adequacy of the allowance for loan losses, see Note 5 to Financial Statements. 47 DEPOSITS Comparative detail of average deposit balances is presented in Table 4. Average core deposits funded 58.3% and 61.9% of the Company's average total assets in 2000 and 1999, respectively. Year-end deposit balances are presented in Table 11. Table 11
DEPOSITS - ------------------------------------------------------------------------------------------------------------------- December 31, ----------------------------------- % (in millions) 2000 1999 Change - ------------------------------------------------------------------------------------------------------------------- Noninterest-bearing $ 55,096 $ 45,520 21% Interest-bearing checking 3,699 3,556 4 Market rate and other savings 66,859 60,339 11 Savings certificates 31,056 28,832 8 -------- -------- Core deposits 156,710 138,247 13 Other time deposits 5,137 3,757 37 Deposits in foreign offices 7,712 3,914 97 -------- -------- Total deposits $169,559 $145,918 16% ======== ======== == - -------------------------------------------------------------------------------------------------------------------
MARKET RISK Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, commodity prices and equity prices. The primary market risk to which the Company is exposed is interest rate risk. The majority of the Company's interest rate risk arises from the instruments, positions and transactions entered into for purposes other than trading. They include loans, securities available for sale, deposit liabilities, short-term borrowings, long-term debt and derivative financial instruments used for asset/liability management. Interest rate risk occurs when assets and liabilities reprice at different times as market interest rates change. For example, if fixed-rate assets are funded with floating-rate debt, the spread between asset and liability rates will decline or turn negative if rates increase. The Company refers to this type of risk as "term structure risk". There is, however, another source of interest rate risk which results from changing spreads between asset and liability rates. The Company calls this type of risk "basis risk"; it is a significant source of interest rate risk for the Company and is more difficult to quantify and manage than term structure risk. Two primary components of basis risk for the Company are (1) the spread between prime-based loans and market rate account (MRA) savings deposits and (2) the rate paid on savings and interest-bearing checking accounts as compared to LIBOR-based loans. Interest rate risk is managed within an overall asset/liability framework for the Company. The principal objectives of asset/liability management are to manage the sensitivity of net interest spreads and net income to potential changes in interest rates and to enhance profitability in ways that promise sufficient reward for understood and controlled risk. Funding positions are kept within predetermined limits designed to ensure that risk-taking is not excessive and that liquidity is properly managed. The Company employs a sensitivity analysis in the form of a net interest income simulation to help characterize the market risk arising from changes in interest rates in the other-than-trading portfolio. The Company's net interest income simulation includes all other-than-trading financial assets, financial liabilities, derivative financial instruments and leases where the Company is the lessor. It captures the dynamic nature of the balance sheet by anticipating probable balance sheet and off-balance sheet strategies and volumes under different interest rate scenarios over the course of a one-year period. This simulation measures both the term structure risk and the basis risk in the Company's positions. The simulation also captures the option characteristics of products, such as caps and floors on floating-rate loans, the right to prepay mortgage loans without penalty and the ability of customers to withdraw deposits on demand. These options are modeled directly in the simulation either through the use of option pricing models, in the case of caps and floors on loans, or through statistical analysis of historical customer behavior, in the case of mortgage loan prepayments or non-maturity deposits. The simulation model is used to measure the impact on net income, relative to a base case scenario, of interest rates increasing or decreasing 100 basis points over the next 12 months. The simulation run at December 31, 2000 showing the largest drop in net income relative to the base case scenario over the next twelve months is a 100 basis point increase in rates that will result in a decrease in net income of $61 million. In the simulation that was run at December 31, 1999, the largest drop in net income relative to the base case scenario over the next twelve months was a 100 basis point increase in rates that was projected to result in a decrease in net income of $54 million. The Company uses interest rate derivative financial instruments as an asset/liability management tool to hedge mismatches in interest rate exposures indicated by the net income simulation described above. They are used to reduce the Company's exposure to interest rate fluctuations and provide more stable spreads between loan yields and the rates on their funding sources. The Company also purchases interest rate floors to protect against the loss in interest 48 income on LIBOR-based loans during a declining interest rate environment. Additionally, receive-fixed rate swaps are used to convert floating-rate loans into fixed rates to better match the liabilities that fund the loans. The Company also uses derivatives including floors, swaptions, futures contracts and options on futures contracts to hedge the Company's mortgage servicing rights as well as forwards, swaptions, futures and options on futures and forwards to hedge the Company's 1-4 family real estate first mortgage loan commitments and mortgage loans held for sale. Looking toward managing interest rate risk in 2001, the Company will face risk primarily from the possibility of rising rates. Given the Company's negative one year gap, if rates rise, rate sensitive liabilities will rise faster than asset yields, leading to a decline in the margin. The extent of this decline will depend on the degree to which retail deposits change relative to market rates. Falling rates should benefit the Company's margin, as deposit rates can be expected to fall faster than asset yields. This would particularly be true if short-term rates fall more than long-term rates, and the yield curve returns to a positive slope. In the case of a large rate decline, retail deposit pricing might reach a floor and offset some of the benefit. As mentioned above, the Company has also partially hedged its mortgage serving rights against a falling rate scenario, using primarily floors, futures contracts and options on futures contracts. Based on its current and projected balance sheet, the Company does not expect that a change in interest rates would significantly affect its liquidity position. The Company considers the fair values and the potential near term losses to future earnings related to its customer accommodation derivative financial instruments to be immaterial. DERIVATIVE FINANCIAL INSTRUMENTS The Company uses interest rate derivative financial instruments as asset/liability management tools to hedge the Company's exposure to interest rate fluctuations. The Company also offers contracts to accommodate its customers, but hedges such contracts by purchasing other financial contracts or uses the contracts for asset/liability management. Table 12, below, reconciles the beginning and ending notional or contractual amounts of derivative financial instruments used for asset/liability management purposes for 2000 and shows the expected remaining maturity at year-end 2000. For a further discussion of derivative financial instruments, refer to Note 23 to Financial Statements. Table 12
DERIVATIVE ACTIVITIES - ---------------------------------------------------------------------------------------------------------------------------- Year ended December 31, 2000 ----------------------------------------------------------------------------------------- Weighted average expected Amortization remaining Beginning and Ending maturity (in (in millions) balance Additions maturities Terminations balance yrs.-mos.) - ---------------------------------------------------------------------------------------------------------------------------- Interest rate contracts: Swaps $32,846 $ 11,108 $11,522 $ 6,615 $25,817 2-6 Futures 50,885 63,711 33,513 9,599 71,484 0-10 Floors and caps 41,142 12,863 15,850 18,016 20,139 2-11 Options 11,940 127,838 79,683 39,475 20,620 0-4 Forwards 22,528 317,253 90,385 228,004 21,392 0-1 Foreign exchange contracts: Forwards 138 719 -- 785 72 1-0 - ----------------------------------------------------------------------------------------------------------------------------
Net deferred losses related to interest rate futures contracts were $304 million at December 31, 2000. Net deferred losses on terminated derivative financial instruments were $320 million at December 31, 2000, compared with net deferred losses of $237 million at December 31, 1999. LIQUIDITY AND CAPITAL MANAGEMENT The Company manages its liquidity and capital at both the parent and subsidiary levels. In addition to the immediately liquid resources of cash and due from banks and federal funds sold and securities purchased under resale agreements, asset liquidity is provided by the Company's securities available for sale portfolio. The weighted average expected remaining maturity of the debt securities within this portfolio was 7 years and 8 months at December 31, 2000. Of the $36.1 billion of debt securities in this portfolio at December 31, 2000, $3.8 billion, or 11%, is expected to mature or be prepaid in 2001 and an additional $3.5 billion, or 10%, is expected to mature or be prepaid in 2002. Asset liquidity is further enhanced by the Company's ability to securitize assets such as mortgage loans. Core deposits have historically provided the Company with a sizeable source of relatively stable and low-cost funds. The Company's average core deposits and stockholders' equity funded 68.2% and 72.2% of its average total assets in 2000 and 1999, respectively. 49 The remaining funding of average total assets was mostly provided by long-term debt, deposits in foreign offices, short-term borrowings (federal funds purchased and securities sold under repurchase agreements, commercial paper and other short-term borrowings) and trust preferred securities. Short-term borrowings averaged $28.2 billion and $22.6 billion in 2000 and 1999, respectively. Long-term debt averaged $29.0 billion and $24.6 billion in 2000 and 1999, respectively. Trust preferred securities averaged $.9 billion in 2000 and 1999. Liquidity for the Company is also provided by interest income, deposit-raising activities, potential disposition of readily marketable assets and through its ability to raise funds in a variety of domestic and international money and capital markets. The Company accesses the capital markets for long-term funding through the issuance of registered debt, private placements and asset-based secured funding. In October 2000, the Parent filed a shelf registration statement with the SEC under which the Parent may issue up to $10 billion in debt and equity securities, excluding common stock, except for common stock issuable upon the exercise or conversion of debt and equity securities. That registration statement, together with the $550 million issuance authority remaining on the Parent's registration statement filed in 1999, permits the Parent to issue an aggregate of $10.55 billion in such debt and equity securities as of December 31, 2000. Proceeds from the issuance of the debt securities listed above were, and with respect to any such securities issued in the future, are expected to be used for general corporate purposes. In April 2000, Wells Fargo Financial, Inc. (WFFI) filed a shelf registration statement with the SEC, under which WFFI may issue up to $3 billion in senior or subordinated debt securities. As of December 31, 2000, WFFI had $1.8 billion remaining under the registration statement. In April 1999, WFFI filed a shelf registration statement with the SEC, under which WFFI may issue up to $2 billion in senior or subordinated debt securities. As of December 31, 2000, WFFI had $150 million remaining under the registration statement. Also in 1999, a subsidiary of WFFI filed a shelf registration statement with the Canadian provincial securities authorities for the issuance of up to $1 billion (Canadian) in debt securities. As of December 31, 2000, there was $465 million (Canadian) remaining on that registration statement. In February 2001, WFFI filed a shelf registration statement with the SEC, under which WFFI may issue up to $4 billion in senior or subordinated debt securities. In March and June of 2000, Wells Fargo Bank, N.A. issued $750 million in Floating-Rate Subordinated Notes and $1.75 billion in Subordinated Notes, respectively. In February of 2001, Wells Fargo Bank, N.A. issued $1 billion in Subordinated Notes. These issuances were completed as private placements in accordance with the Office of the Comptroller of the Currency (OCC) rules for securities offerings by banks. Also in February, Wells Fargo Bank, N.A. filed with the OCC an Offering Circular to issue from time to time up to $20 billion in senior and subordinated notes. These issuances will be completed as private placements. To accommodate future growth and current business needs, the Company has a capital expenditure program. Capital expenditures for 2001 are estimated to be approximately $500 million for equipment for stores, relocation and remodeling of Company facilities, routine replacement of furniture and equipment, and servers and other networking equipment related to expansion of the Company's Internet Services business. The Company will fund these expenditures from various sources, including retained earnings of the Company and borrowings of various maturities. The Company and each of the subsidiary banks are subject to various regulatory capital adequacy requirements administered by the Federal Reserve Board and the Office of the Comptroller of the Currency. Risk-based capital (RBC) guidelines establish a risk-adjusted ratio relating capital to different categories of assets and off-balance sheet exposures. (See Note 22 to Financial Statements for additional information.) Since 1986, the Company has repurchased common shares in the open market under a systematic plan to meet the common stock issuance requirements of the Company's benefit plans and for acquisitions accounted for as purchases. In February 2000, the Board of Directors authorized the repurchase of up to 81 million additional shares of the Company's outstanding common stock. In September 2000, the Board of Directors authorized an amendment reducing the February 2000 repurchase authorization to a total of 30 million shares. As of December 31, 2000, the total remaining common stock repurchase authority was approximately 5.5 million shares. 50 COMPARISON OF 1999 TO 1998 Net income in 1999 was $4,012 million, compared with $2,191 million in 1998, an increase of 83%. Diluted earnings per common share were $2.29 in 1999, compared with $1.26 in 1998, an increase of 82%. ROA was 1.78% and ROE was 17.55% in 1999, compared with 1.06% and 10.26%, respectively, in 1998. Diluted earnings before the amortization of goodwill and CDI ("cash" earnings) were $2.62 per share in 1999, compared with $1.59 in 1998. On the same basis, ROA was 2.13% and ROE was 32.85% in 1999, compared with 1.39% and 21.90%, respectively, in 1998. Net interest income on a taxable-equivalent basis was $10,185 million in 1999, compared with $9,739 million in 1998. The Company's net interest margin was 5.47% for 1999, compared with 5.63% in 1998. The decrease in the net interest margin for 1999 was primarily due to higher balances of lower yielding investment securities and lower yields on loans. Noninterest income in 1999 was $7,975 million, compared with $6,920 million in 1998, an increase of 15%. The increase was primarily due to higher net venture capital gains, partly offset by losses on sales of investment securities. Noninterest expense in 1999 was $10,637 million, compared with $11,311 million in 1998. The decrease was primarily due to charges incurred in 1998 related to the WFC Merger. The provision for loan losses was $1,104 million in 1999, compared with $1,617 million in 1998. Net charge-offs in 1999 were $1,115 million, or .90% of average total loans, compared with $1,678 million, or 1.44%, in 1998. The allowance for loan losses was 2.51% of total loans at December 31, 1999, compared with 2.76% at December 31, 1998. Total nonaccrual and restructured loans were $728 million, or .5% of total loans, at December 31, 1999, compared with $756 million, or .6%, at December 31, 1998. Foreclosed assets were $161 million at December 31, 1999, compared with $152 million at December 31, 1998. ADDITIONAL INFORMATION Common stock of the Company is traded on the New York Stock Exchange and the Chicago Stock Exchange. The high, low and end-of-period annual and quarterly prices of the Company's common stock as reported on the New York Stock Exchange Composite Transaction Reporting System are presented in the graphs. The number of holders of record of the Company's common stock was 99,260 as of January 31, 2001. PRICE RANGE OF COMMON STOCK--ANNUAL ($)
- ------------------------------------------------------------------------------------------------------------------- 1998 1999 2000 ------------------------------- High $43.88 $49.94 $56.38 Low 27.50 32.13 31.00 End of period 39.94 40.44 55.69
PRICE RANGE OF COMMON STOCK--QUARTERLY ($)
1999 2000 ------------------------------------------ ------------------------------------------ 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q ------------------------------------------ ------------------------------------------ High $40.44 $44.88 $45.31 $49.94 $43.75 $47.75 $47.13 $56.38 Low 32.13 34.38 36.44 38.38 31.00 37.31 38.73 39.63 End of period 35.06 42.75 39.63 40.44 40.75 38.75 45.94 55.69 - -------------------------------------------------------------------------------------------------------------------
51 WELLS FARGO & COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME
- ------------------------------------------------------------------------------------------------------------------- Year ended December 31, -------------------------------------- (in millions, except per share amounts) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------- INTEREST INCOME Securities available for sale $ 2,671 $ 2,533 $ 2,133 Mortgages held for sale 849 951 1,008 Loans held for sale 418 377 376 Loans 14,446 11,823 11,660 Other interest income 341 250 278 -------- -------- -------- Total interest income 18,725 15,934 15,455 -------- -------- -------- INTEREST EXPENSE Deposits 4,089 3,166 3,515 Short-term borrowings 1,758 1,127 961 Long-term debt 1,939 1,452 1,213 Guaranteed preferred beneficial interests in Company's subordinated debentures 74 73 93 -------- -------- -------- Total interest expense 7,860 5,818 5,782 -------- -------- -------- NET INTEREST INCOME 10,865 10,116 9,673 Provision for loan losses 1,329 1,104 1,617 -------- -------- -------- Net interest income after provision for loan losses 9,536 9,012 8,056 -------- -------- -------- NONINTEREST INCOME Service charges on deposit accounts 1,704 1,580 1,448 Trust and investment fees 1,624 1,366 1,116 Credit card fees 563 570 573 Other fees 1,271 1,094 989 Mortgage banking 1,444 1,407 1,289 Insurance 411 395 358 Net venture capital gains 1,943 1,008 113 Net (losses) gains on securities available for sale (722) (228) 177 Other 605 783 857 -------- -------- -------- Total noninterest income 8,843 7,975 6,920 -------- -------- -------- NONINTEREST EXPENSE Salaries 3,652 3,307 3,318 Incentive compensation 846 643 657 Employee benefits 989 901 807 Equipment 948 928 976 Net occupancy 953 813 804 Goodwill 530 459 429 Core deposit intangible 186 206 247 Net (gains) losses on dispositions of premises and equipment (58) (16) 325 Other 3,784 3,396 3,748 -------- -------- -------- Total noninterest expense 11,830 10,637 11,311 -------- -------- -------- INCOME BEFORE INCOME TAX EXPENSE 6,549 6,350 3,665 Income tax expense 2,523 2,338 1,474 -------- -------- -------- NET INCOME $ 4,026 $ 4,012 $ 2,191 ======== ======== ======== NET INCOME APPLICABLE TO COMMON STOCK $ 4,009 $ 3,977 $ 2,156 ======== ======== ======== EARNINGS PER COMMON SHARE $ 2.36 $ 2.32 $ 1.28 ======== ======== ======== DILUTED EARNINGS PER COMMON SHARE $ 2.33 $ 2.29 $ 1.26 ======== ======== ======== DIVIDENDS DECLARED PER COMMON SHARE $ .90 $ .785 $ .70 ======== ======== ======== Average common shares outstanding 1,699.5 1,714.0 1,688.1 ======== ======== ======== Diluted average common shares outstanding 1,718.4 1,735.4 1,710.6 ======== ======== ======== - -------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. 52 WELLS FARGO & COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
- ------------------------------------------------------------------------------------------------------------------ December 31, ----------------------------------- (in millions, except shares) 2000 1999 - ------------------------------------------------------------------------------------------------------------------ ASSETS Cash and due from banks $ 16,978 $ 14,118 Federal funds sold and securities purchased under resale agreements 1,598 1,722 Securities available for sale 38,655 43,911 Mortgages held for sale 11,812 12,678 Loans held for sale 4,539 5,043 Loans 161,124 133,004 Allowance for loan losses 3,719 3,344 -------- -------- Net loans 157,405 129,660 -------- -------- Mortgage servicing rights 5,609 4,652 Premises and equipment, net 3,415 3,372 Core deposit intangible 1,183 1,299 Goodwill 9,303 8,046 Interest receivable and other assets 21,929 16,552 -------- -------- Total assets $272,426 $241,053 ======== ======== LIABILITIES Noninterest-bearing deposits $ 55,096 $ 45,520 Interest-bearing deposits 114,463 100,398 -------- -------- Total deposits 169,559 145,918 Short-term borrowings 28,989 31,727 Accrued expenses and other liabilities 14,409 11,736 Long-term debt 32,046 26,866 Guaranteed preferred beneficial interests in Company's subordinated debentures 935 935 STOCKHOLDERS' EQUITY Preferred stock 385 344 Unearned ESOP shares (118) (73) -------- -------- Total preferred stock 267 271 Common stock - $1 2/3 par value, authorized 4,000,000,000 shares; issued 1,736,381,025 shares and 1,736,259,632 shares 2,894 2,894 Additional paid-in capital 9,337 9,213 Retained earnings 14,541 12,565 Cumulative other comprehensive income 524 760 Notes receivable from ESOP -- (1) Treasury stock - 21,735,182 shares and 39,840,269 shares (1,075) (1,831) -------- -------- Total stockholders' equity 26,488 23,871 -------- -------- Total liabilities and stockholders' equity $272,426 $241,053 ======== ======== - ------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. 53 WELLS FARGO & COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
- -------------------------------------------------------------------------------------------------------------------------------- Unearned Additional Number of Preferred ESOP Common paid-in Retained (in millions, except shares) shares stock shares stock capital earnings - --------------------------------------------------------------------------------------------------------------------------------- BALANCE DECEMBER 31, 1997 $ 544 $ (80) $2,828 $8,365 $9,358 ------- ------- ------- ------- -------- Comprehensive income Net income-1998 2,191 Other comprehensive income, net of tax: Translation adjustments Net unrealized gains (losses) on securities available for sale arising during the year Reclassification of net (gains) losses on securities available for sale included in net income Total comprehensive income Common stock issued 40,124,541 51 946 (191) Common stock issued for acquisitions 18,099,205 25 71 11 Common stock repurchased 34,300,254 (22) (407) Preferred stock issued to ESOP 35 (37) 2 Preferred stock released to ESOP 33 (1) Preferred stock (31,161) converted to common shares 803,903 (32) 3 Preferred stock dividends (35) Common stock dividends (1,078) Cash payments received on notes receivable from ESOP 2 Change in Rabbi trust assets (classified as treasury stock) ------- ------- ------- ------- -------- Net change 3 (4) 54 616 898 ------- ------- ------- ------- -------- BALANCE DECEMBER 31, 1998 547 (84) 2,882 8,981 10,256 ------- ------- ------- ------- -------- Comprehensive income Net income-1999 4,012 Other comprehensive income, net of tax: Translation adjustments Net unrealized gains (losses) on securities available for sale arising during the year Reclassification of net (gains) losses on securities available for sale included in net income Total comprehensive income Common stock issued 21,793,709 1 119 (269) Common stock issued for acquisitions 11,059,131 11 113 2 Common stock repurchased 48,974,800 Preferred stock redeemed (191) Preferred stock issued to ESOP 75 (80) 5 Preferred stock released to ESOP 91 (5) Preferred stock (86,358) converted to common shares 2,200,716 (87) Preferred stock dividends (35) Common stock dividends (1,401) Cash payments received on notes receivable from ESOP Change in Rabbi trust assets (classified as treasury stock) ------- ------- ------- ------- -------- Net change (203) 11 12 232 2,309 ------- ------- ------- ------- -------- BALANCE DECEMBER 31, 1999 344 (73) 2,894 9,213 12,565 ------- ------- ------- ------- -------- Comprehensive income Net income-2000 4,026 Other comprehensive income, net of tax: Translation adjustments Net unrealized gains (losses) on securities available for sale arising during the year Reclassification of net (gains) losses on securities available for sale included in net income Total comprehensive income Common stock issued 17,614,859 1 295 (458) Common stock issued for acquisitions 75,554,229 (185) (6) Common stock repurchased 78,573,812 (1) (42) Stock appreciation rights 48 Preferred stock repurchased (1) Preferred stock issued to ESOP 170 (181) 11 Preferred stock released to ESOP 136 (8) Preferred stock (122,288) converted to common shares 3,036,660 (128) 5 Preferred stock dividends (17) Common stock dividends (1,569) Cash payments received on notes receivable from ESOP Change in Rabbi trust assets (classified as treasury stock) ------- ------- ------- ------- -------- Net change 41 (45) -- 124 1,976 ------- ------- ------- ------- -------- BALANCE DECEMBER 31, 2000 $ 385 $(118) $2,894 $9,337 $14,541 ======= ======= ======= ======= ======== - ----------------------------------------------------------------------------------------------------------------------------- Notes Cumulative receivable other Total from Treasury comprehensive stockholders' ESOP stock income equity - ----------------------------------------------------------------------------------------------------------------------------- BALANCE DECEMBER 31, 1997 $(10) $(328) $ 487 $21,164 ------- ------- ------- -------- Comprehensive income Net income-1998 2,191 Other comprehensive income, net of tax: Translation adjustments (4) (4) Net unrealized gains (losses) on securities available for sale arising during the year 119 119 Reclassification of net (gains) losses on securities available for sale included in net income (109) (109) -------- Total comprehensive income 2,197 Common stock issued 320 1,126 Common stock issued for acquisitions 134 241 Common stock repurchased (829) (1,258) Preferred stock issued to ESOP -- Preferred stock released to ESOP 32 Preferred stock (31,161) converted to common shares 29 -- Preferred stock dividends (35) Common stock dividends (1,078) Cash payments received on notes receivable from ESOP 7 9 Change in Rabbi trust assets (classified as treasury stock) (66) (66) ------- ------- ------- -------- Net change 7 (412) 6 1,168 ------- ------- ------- -------- BALANCE DECEMBER 31, 1998 (3) (740) 493 22,332 ------- ------- ------- -------- Comprehensive income Net income-1999 4,012 Other comprehensive income, net of tax: Translation adjustments 4 4 Net unrealized gains (losses) on securities available for sale arising during the year 127 127 Reclassification of net (gains) losses on securities available for sale included in net income 136 136 -------- Total comprehensive income 4,279 Common stock issued 781 632 Common stock issued for acquisitions 200 326 Common stock repurchased (2,141) (2,141) Preferred stock redeemed (191) Preferred stock issued to ESOP -- Preferred stock released to ESOP 86 Preferred stock (86,358) converted to common shares 87 -- Preferred stock dividends (35) Common stock dividends (1,401) Cash payments received on notes receivable from ESOP 2 2 Change in Rabbi trust assets (classified as treasury stock) (18) (18) ------ ------- ------- -------- Net change 2 (1,091) 267 1,539 ------ ------- ------- -------- BALANCE DECEMBER 31, 1999 (1) (1,831) 760 23,871 ------ ------- ------- -------- Comprehensive income Net income-2000 4,026 Other comprehensive income, net of tax: Translation adjustments (2) (2) Net unrealized gains (losses) on securities available for sale arising during the year (144) (144) Reclassification of net (gains) losses on securities available for sale included in net income (90) (90) -------- Total comprehensive income 3,790 Common stock issued 716 554 Common stock issued for acquisitions 3,128 2,937 Common stock repurchased (3,195) (3,238) Stock appreciation rights 48 Preferred stock repurchased (1) Preferred stock issued to ESOP -- Preferred stock released to ESOP 128 Preferred stock (122,288) converted to common shares 123 -- Preferred stock dividends (17) Common stock dividends (1,569) Cash payments received on notes receivable from ESOP 1 1 Change in Rabbi trust assets (classified as treasury stock) (16) (16) ------ ------- ------- -------- Net change 1 756 (236) 2,617 ------ ------- ------- -------- BALANCE DECEMBER 31, 2000 $ -- $(1,075) $ 524 $26,488 ====== ======= ======= ========
The accompanying notes are an integral part of these statements. 54 WELLS FARGO & COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS
- ---------------------------------------------------------------------------------------------------------------------------------- Year ended December 31, --------------------------------------- (in millions) 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 4,026 $ 4,012 $ 2,191 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 1,329 1,104 1,617 Depreciation and amortization 1,790 1,971 2,231 Securities available for sale losses (gains) 722 228 (177) Net venture capital gains (1,943) (1,008) (113) Net gains on sales of mortgages (38) (117) (182) Net losses (gains) on sales of loans 134 (68) (94) Net gains on dispositions of operations (23) (107) (100) Net (gains) losses on dispositions of premises and equipment (58) (16) 325 Release of preferred shares to ESOP 128 86 32 Net (increase) decrease in trading assets (1,087) (462) 468 Deferred income tax expense (benefit) 873 1,611 (53) Net increase in accrued interest receivable (230) (113) (11) Net increase (decrease) in accrued interest payable 290 (36) (2) Originations of mortgages held for sale (66,779) (94,988) (124,959) Proceeds from sales of mortgages held for sale 62,873 105,159 114,930 Net increase in loans held for sale (1,498) (874) (822) Other assets, net (2,060) (1,428) (138) Other accrued expenses and liabilities, net 2,436 1,321 621 -------- -------- --------- Net cash provided (used) by operating activities 885 16,275 (4,236) -------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Securities available for sale: Proceeds from sales 23,624 15,150 11,449 Proceeds from prepayments and maturities 6,247 8,757 12,419 Purchases (19,770) (29,917) (27,192) Net cash acquired from (paid for) acquisitions 469 (69) (222) Net increase in banking subsidiaries' loans resulting from originations and collections (31,392) (11,494) (5,126) Proceeds from sales (including participations) of banking subsidiaries' loans 11,898 3,986 2,832 Purchases (including participations) of banking subsidiaries' loans (409) (1,246) (135) Principal collected on nonbank subsidiaries' loans 8,305 4,844 7,788 Nonbank subsidiaries' loans originated (9,300) (9,002) (8,962) Cash proceeds from (paid for) dispositions of operations 13 (731) 484 Proceeds from sales of foreclosed assets 255 234 279 Net decrease (increase) in federal funds sold and securities purchased under resale agreements 124 25 (492) Net increase in mortgage servicing rights (1,460) (2,094) (913) Other, net (4,688) (2,366) (2,956) -------- -------- --------- Net cash used by investing activities (16,084) (23,923) (10,747) -------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in deposits 20,745 (4,868) 7,446 Net (decrease) increase in short-term borrowings (3,511) 11,912 2,912 Proceeds from issuance of long-term debt 15,544 13,325 9,642 Repayment of long-term debt (9,849) (8,981) (5,748) Proceeds from issuance of common stock 422 528 1,115 Redemption of preferred stock -- (191) -- Repurchases of common stock (3,238) (2,141) (1,258) Net decrease in notes receivable from ESOP -- 2 9 Payment of cash dividends on preferred and common stock (1,586) (1,436) (1,113) Other, net (468) (36) 1,444 -------- -------- --------- Net cash provided by financing activities 18,059 8,114 14,449 -------- -------- --------- NET CHANGE IN CASH AND DUE FROM BANKS 2,860 466 (534) Cash and due from banks at beginning of year 14,118 13,652 14,186 -------- -------- --------- CASH AND DUE FROM BANKS AT END OF YEAR $16,978 $ 14,118 $ 13,652 ======== ======== ========= Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 8,150 $ 5,855 $ 5,784 Income taxes $ 817 $ 1,022 $ 1,350 Noncash investing and financing activities: Transfers from mortgages held for sale to loans $ 4,813 $ 67 $ -- Transfers from loans held for sale to loans $ 1,388 $ 1,221 $ -- Transfers from loans to foreclosed assets $ 189 $ 220 $ 223 - ----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. 55 NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Wells Fargo & Company and Subsidiaries (the Company) is a diversified financial services company providing banking, mortgage and consumer finance through stores, the Internet and other distribution channels throughout North America, including all 50 states, and elsewhere internationally. Wells Fargo & Company (the Parent) is a financial holding company and a bank holding company. The accounting and reporting policies of the Company conform with generally accepted accounting principles (GAAP) and prevailing practices within the financial services industry. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and income and expenses during the reporting period. Actual results could differ from those estimates. Certain amounts in the financial statements for prior years have been reclassified to conform with the current financial statement presentation. On October 25, 2000, the merger involving the Company and First Security Corporation (the FSCO Merger) was completed, with First Security Corporation (First Security or FSCO) surviving as a wholly owned subsidiary of the Company. On November 2, 1998, the merger involving Norwest Corporation and the former Wells Fargo & Company (the WFC Merger) was completed. The FSCO Merger and the WFC Merger were accounted for under the pooling-of-interests method of accounting and, accordingly, the information included in the financial statements presents the combined results as if both mergers had been in effect for all periods presented. The following is a description of the significant accounting policies of the Company. CONSOLIDATION The consolidated financial statements of the Company include the accounts of the Parent, and its majority-owned subsidiaries, which are consolidated on a line-by-line basis. Significant intercompany accounts and transactions are eliminated in consolidation. Other subsidiaries and affiliates in which there is at least 20% ownership are generally accounted for by the equity method; those in which there is less than 20% ownership are generally carried at cost. These assets that are accounted for by either the equity or cost method are included in other assets. SECURITIES Securities are accounted for according to their purpose and holding period. SECURITIES AVAILABLE FOR SALE Debt securities that may not be held until maturity and marketable equity securities are classified as securities available for sale and are reported at fair value, with unrealized gains and losses, after applicable taxes, reported as a component of cumulative other comprehensive income. The estimated fair value of a security is determined based on current quotations, where available. Where current quotations are not available, the estimated fair value is determined based primarily on the present value of future cash flows, adjusted for the quality rating of the securities, prepayment assumptions and other factors. Declines in the value of debt securities and marketable equity securities that are considered other than temporary are recorded in noninterest income as a loss on securities available for sale. Realized gains and losses are recorded in noninterest income using the identified certificate method. For certain debt securities (for example, Government National Mortgage Association securities), the Company anticipates prepayments of principal in the calculation of the effective yield. TRADING SECURITIES Securities acquired for short-term appreciation or other trading purposes are recorded in a trading portfolio and are carried at fair value, with unrealized gains and losses recorded in noninterest income. NONMARKETABLE EQUITY SECURITIES Nonmarketable equity securities include the venture capital equity securities that are not publicly traded and securities acquired for various purposes, such as troubled debt restructurings and as a regulatory requirement (for example, Federal Reserve Bank stock). These securities are generally accounted for at cost and are included in other assets. The asset value is reduced when declines in value are considered to be other than temporary and the estimated loss is recorded in noninterest income as a loss from equity investments along with income recognized on these assets. MORTGAGES HELD FOR SALE Mortgages held for sale are stated at the lower of aggregate cost or market value. The determination of market value includes consideration of all open positions, outstanding commitments from investors, related fees paid and related hedging gains and losses. Gains and losses on sales of mortgages are recognized at settlement dates and are determined by the difference between sales proceeds and the carrying value of the mortgages. Gains and losses are recorded in noninterest income. LOANS HELD FOR SALE Loans held for sale include those student loans which are classified as held for sale because the Company does not intend to hold these loans until maturity or sales of the loans are pending. Such loans are carried at the lower of aggregate cost or market value. Gains and losses are recorded in noninterest income, based on the difference between sales proceeds and carrying value. 56 LOANS Loans are reported at the principal amount outstanding, net of unearned income. Unearned income, which includes deferred fees net of deferred direct incremental loan origination costs, is amortized to interest income generally over the contractual life of the loan using an interest method or the straight-line method if it is not materially different. NONACCRUAL LOANS Generally, loans are placed on nonaccrual status upon becoming 90 days past due as to interest or principal (unless both well-secured and in the process of collection), when the full timely collection of interest or principal becomes uncertain or when a portion of the principal balance has been charged off. Real estate 1-4 family loans (both first liens and junior liens) are placed on nonaccrual status within 120 days of becoming past due as to interest or principal, regardless of security. Generally, consumer loans not secured by real estate are placed on nonaccrual status only when a portion of the principal has been charged off. Such loans are entirely charged off when deemed uncollectible or when they reach a predetermined number of days past due depending upon loan product, industry practice, country, terms and other factors. When a loan is placed on nonaccrual status, the accrued and unpaid interest receivable is reversed and the loan is accounted for on the cash or cost recovery method thereafter, until qualifying for return to accrual status. Generally, a loan may be returned to accrual status when all delinquent interest and principal become current in accordance with the terms of the loan agreement or when the loan is both well-secured and in the process of collection and collectibility is no longer doubtful. IMPAIRED LOANS Loans, other than those included in large groups of smaller-balance homogeneous loans, are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement, including scheduled interest payments. For a loan that has been restructured, the contractual terms of the loan agreement refer to the contractual terms specified by the original loan agreement, not the contractual terms specified by the restructuring agreement. This assessment for impairment occurs when and while such loans are on nonaccrual, or the loan has been restructured. When a loan with unique risk characteristics has been identified as being impaired, the amount of impairment will be measured by the Company using discounted cash flows, except when it is determined that the sole (remaining) source of repayment for the loan is the operation or liquidation of the underlying collateral. In such cases, the current fair value of the collateral, reduced by costs to sell, will be used in place of discounted cash flows. Additionally, some impaired loans with commitments of less than $1 million are aggregated for the purpose of measuring impairment using historical loss factors as a means of measurement. If the measurement of the impaired loan is less than the recorded investment in the loan (including accrued interest, net deferred loan fees or costs and unamortized premium or discount), an impairment is recognized by creating or adjusting an existing allocation of the allowance for loan losses. RESTRUCTURED LOANS In cases where a borrower experiences financial difficulties and the Company makes certain concessionary modifications to contractual terms, the loan is classified as a restructured (accruing) loan. Loans restructured at a rate equal to or greater than that of a new loan with comparable risk at the time the contract is modified may be excluded from the impairment assessment and may cease to be considered impaired loans in the calendar years subsequent to the restructuring if they are not impaired based on the modified terms. Generally, a nonaccrual loan that is restructured remains on nonaccrual for a period of six months to demonstrate that the borrower can meet the restructured terms. However, performance prior to the restructuring, or significant events that coincide with the restructuring, are included in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual at the time of restructuring or after a shorter performance period. If the borrower's ability to meet the revised payment schedule is uncertain, the loan remains classified as a nonaccrual loan. ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is a valuation allowance for probable losses inherent in the portfolio as of the balance sheet date. The Company's determination of the level of the allowance for loan losses rests upon various judgments and assumptions, including general economic conditions, loan portfolio composition, prior loan loss experience, evaluation of credit risk related to certain individual borrowers and the Company's ongoing examination process and that of its regulators. The Company considers the allowance for loan losses adequate to cover losses inherent in loans, loan commitments and standby and other letters of credit. TRANSFERS AND SERVICING OF FINANCIAL ASSETS A transfer of financial assets is accounted for as a sale when control is surrendered over the assets transferred. Servicing rights and other retained interests in the assets sold are recorded by allocating the previous recorded investment between the asset sold and the interest retained based on their relative fair values, if practicable to determine, at the date of transfer. Fair values of servicing rights and other retained interests are determined using present value of estimated future cash flows valuation techniques, incorporating assumptions that market participants would use in their estimates of values. The Company recognizes as assets the rights to service mortgage loans for others, whether the servicing rights are 57 acquired through purchases or retained upon sales of loan originations. For purposes of evaluating and measuring impairment of mortgage servicing rights, the Company stratifies its portfolio on the basis of certain risk characteristics including loan type and note rate. Based upon current fair values and considering derivative financial instruments used as hedges, mortgage servicing rights are periodically assessed for impairment. Any such indicated impairment is recognized in income, during the period in which it occurs, in a mortgage servicing rights valuation account which is adjusted each subsequent period to reflect any increase or decrease in the indicated impairment. The current fair values of mortgage servicing rights and other retained interests are determined using present value of estimated future cash flows valuation techniques, incorporating assumptions that market participants would use in their estimates of values. Mortgage servicing rights are amortized over the period of estimated net servicing income and take into account appropriate prepayment assumptions. PREMISES AND EQUIPMENT Premises and equipment are stated at cost less accumulated depreciation and amortization. Capital leases are included in premises and equipment at the capitalized amount less accumulated amortization. Depreciation and amortization are computed primarily using the straight-line method. Estimated useful lives range up to 40 years for buildings, 2 to 10 years for furniture and equipment, and up to the lease term for leasehold improvements. Capitalized leased assets are amortized on a straight-line basis over the lives of the respective leases, which generally range from 20 to 35 years. GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS Goodwill, representing the excess of purchase price over the fair value of net assets acquired, results from purchase acquisitions made by the Company. Substantially all of the Company's goodwill is being amortized using the straight-line method over 25 years. Core deposit intangibles are amortized on an accelerated basis based on an estimated useful life of 10 to 15 years. Certain identifiable intangible assets that are included in other assets are generally amortized using an accelerated method over an original life of 10 to 15 years. The Company reviews its intangible assets periodically for other-than-temporary impairment. If such impairment is indicated, recoverability of the asset is assessed based on expected undiscounted net cash flows. INCOME TAXES The Company files a consolidated federal income tax return. Federal income tax is generally allocated to individual subsidiaries as if each had filed a separate return. Combined state tax returns are filed in certain states. State taxes are also allocated to individual subsidiaries. Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the differences between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws. Foreign taxes paid are applied as credits to reduce federal income taxes payable. EARNINGS PER COMMON SHARE Earnings per common share are presented under two formats: earnings per common share and diluted earnings per common share. Earnings per common share are computed by dividing net income (after deducting dividends on preferred stock) by the average number of common shares outstanding during the year. Diluted earnings per common share are computed by dividing net income (after deducting dividends on preferred stock) by the average number of common shares outstanding during the year, plus the impact of those common stock equivalents (i.e., stock options, restricted share rights and convertible subordinated debentures) that are dilutive. DERIVATIVE FINANCIAL INSTRUMENTS INTEREST RATE DERIVATIVES Prior to the adoption of FASB Statement No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, and FASB Statement No. 138, ACCOUNTING FOR CERTAIN DERIVATIVE INSTRUMENTS AND CERTAIN HEDGING ACTIVITIES, an amendment of Statement 133, on January 1, 2001, the Company used interest rate derivative financial instruments (e.g., futures contracts, forward contracts, swaps, caps, floors and options) primarily to hedge mismatches in the rate maturity of loans and their funding sources and the price risk of interest-rate sensitive assets. Those instruments served to reduce rather than increase the Company's exposure to movements in interest rates. At inception of a hedge, the Company identified an individual asset or liability, or an identifiable group of essentially similar assets or liabilities, that exposed the Company to interest rate risk at the consolidated or enterprise level. Interest rate derivatives were accounted for by the deferral or accrual method only if they were designated as hedges and were expected to be and were effective in substantially reducing the risk arising from the asset or liability identified as exposing the Company to risk. Futures contracts had to meet specific high correlation tests. For caps, floors and swaps that were used to hedge mismatches between interest-bearing assets and liabilities, their notional amount, interest rate index and life had to closely match the related terms of the hedged asset or liability. Floors, swaps and options that hedged mortgage servicing rights had to correlate based on certain duration and convexity 58 parameters. For futures contracts, if the underlying financial instrument differed from the hedged asset or liability, there had to be a clear economic relationship between the prices of the two financial instruments. If periodic assessment indicated that the derivatives no longer provided an effective hedge, hedge accounting was discontinued; previously unrecognized hedge results and the net settlement upon close-out or termination that offset changes in value of the hedged asset or liability were deferred and amortized over the life of the asset or liability with excess amounts recognized in noninterest income or noninterest expense. Gains and losses on futures contracts, which resulted from the daily settlement of open positions, and on forward contracts were deferred and classified on the balance sheet consistent with the hedge strategy. They were recognized in income along with and when the effects of the related changes of the hedged asset or liability were recognized. Gains and losses on options were recognized as a component of the income reported on the hedged asset or liability. Fees associated with these financial contracts were included on the balance sheet at the time that the fee was paid and were classified consistent with the hedge strategy. Those fees were fully recognized by the end of their contractual life. If a hedged asset or liability settled before maturity of the hedging interest rate derivatives, the derivatives were closed out or settled, or were redesignated as hedges of other assets or liabilities. For those contracts that were closed out or settled, previously unrecognized hedge results and the net settlement upon close-out or termination are accounted for as part of the gains and losses on the hedged asset or liability. If interest rate derivatives used in an effective hedge were closed out or terminated before the hedged item settles, previously unrecognized hedge results and the net settlement upon close-out or termination were deferred and amortized over the life of the hedged asset or liability. Cash flows resulting from interest rate derivatives (including any related fees) that were accounted for as hedges of assets and liabilities were classified in the cash flow statement in the same category as the cash flows from the items being hedged and were reflected in that statement when the cash receipts or payments due under the terms of the instruments were collected, paid or settled. Interest rate derivatives entered into as an accommodation to customers, interest rate derivatives used to offset the interest rate risk of those contracts and positions taken based on the Company's market expectations or to benefit from price differentials between financial instruments and markets were carried at fair value with unrealized gains and losses recorded in noninterest income. Losses were recognized currently on put options written when the fair value of the underlying security fell below the contractual price at which the security may have been put to the Company plus the premium received. Premiums received on covered call options written were deferred until the option terminates. If the fair value of the underlying asset was greater than the contractual price at which the Company was required to sell the asset, the option was exercised, at which time the premium was recorded as an adjustment of the gain or loss recognized on the underlying asset. If the option expired, the premium was recognized in other noninterest income. The fair value of interest rate derivative financial instruments with an unrealized gain was included in trading assets (i.e., within other assets) while the fair value of instruments with an unrealized loss was included in other liabilities. Cash flows resulting from instruments carried at fair value were classified in the cash flow statement as operating cash flows and were reflected in that statement when the cash receipts or payments due under the terms of the instruments were collected, paid or settled. Credit risk related to interest rate derivative financial instruments is considered and, if material, provided for separately from the allowance for loan losses. FOREIGN EXCHANGE DERIVATIVES The Company enters into foreign exchange derivative financial instruments (forward and spot contracts and options) primarily as an accommodation to customers and offsets the related foreign exchange risk with other foreign exchange derivatives. Those contracts are carried at fair value, with unrealized gains and losses recorded in noninterest income. Cash flows resulting from foreign exchange derivatives are classified in the cash flow statement as operating cash flows and are reflected in that statement when the cash receipts or payments due under the terms of the foreign exchange derivatives are collected, paid or settled. The Company also uses forward foreign exchange contracts to hedge uncertainties in funding costs related to specific liabilities denominated in foreign currencies. Gains and losses on those contracts are recognized in income and classified on the balance sheet consistent with the hedged item. Cash flows resulting from these foreign exchange derivatives (including any related fees) are classified in the cash flow statement in the same category as the cash flows from the item being hedged and are reflected in that statement when the cash receipts or payments due under the terms of the instruments are collected, paid or settled. Credit risk related to all foreign exchange derivatives is considered and, if material, provided for separately from the allowance for loan losses. FOREIGN CURRENCY TRANSLATION The accounts of the Company's foreign consumer finance subsidiaries are measured using local currency as the functional currency. Assets and liabilities are translated into United States dollars at period-end exchange rates, and income and expense accounts are translated at average monthly exchange rates. Net exchange gains or losses resulting from such translation are excluded from net income and included as a component of cumulative other comprehensive income. 59 2. BUSINESS COMBINATIONS The Company regularly explores opportunities to acquire financial institutions and related businesses. Generally, management of the Company does not make a public announcement about an acquisition opportunity until a definitive agreement is signed. Excluding the FSCO Merger and the WFC Merger, the table below includes transactions completed in the years ended December 31, 2000, 1999 and 1998:
- ----------------------------------------------------------------------------------------------------------------------- Date Assets Method of accounting (in millions) 2000 First Place Financial Corporation, Farmington, New Mexico January 18 $ 733 Purchase North County Bancorp, Escondido, California January 27 413 Purchase Prime Bancshares, Inc., Houston, Texas January 28 1,366 Purchase Ragen MacKenzie Group Incorporated, Seattle, Washington March 16 901 Purchase Napa National Bancorp, Napa, California March 17 188 Purchase Servus Financial Corporation, Herndon, Virginia March 17 168 Purchase Michigan Financial Corporation, Marquette, Michigan March 30 975 Purchase Bryan, Pendleton, Swats & McAllister, LLC, Nashville, Tennessee March 31 12 Purchase Black & Company, Inc., Portland, Oregon May 1 4 Purchase 1st Choice Financial Corp., Greeley, Colorado June 13 483 Purchase First Commerce Bancshares, Inc., Lincoln, Nebraska June 16 2,868 Purchase National Bancorp of Alaska, Inc., Anchorage, Alaska July 14 3,518 Purchase Charter Financial, Inc., New York, New York September 1 532 Purchase Buffalo National Bancshares, Inc., Buffalo, Minnesota September 28 123 Purchase Brenton Banks, Inc., Des Moines, Iowa December 1 2,191 Purchase Paragon Capital, LLC, Needham, Massachusetts December 15 13 Purchase Flagship Credit Corporation, Philadelphia, Pennsylvania December 21 841 Purchase of assets ------- $15,329 ======= 1999 Mid-Penn Consumer Discount Company, Philadelphia, Pennsylvania January 21 $ 11 Purchase Century Business Credit Corporation, New York, New York February 1 342 Purchase Van Kasper & Company, San Francisco, California February 12 20 Purchase Metropolitan Bancshares, Inc., Aurora, Colorado February 23 64 Purchase Mercantile Financial Enterprises, Inc., Brownsville, Texas February 26 779 Pooling of interests* Riverton State Bank Holding Company, Riverton, Wyoming March 12 81 Purchase Comstock Bancorp, Reno, Nevada June 1 208 Purchase Greater Midwest Leasing Company, Minneapolis, Minnesota June 3 24 Purchase XEON Financial Corporation, Stateline, Nevada June 14 122 Purchase Mustang Financial Corporation, Rio Vista, Texas June 25 254 Purchase Eastern Heights Bank, St. Paul, Minnesota July 1 453 Purchase Goodson Insurance Agency, Denver, Colorado August 1 -- Purchase of assets SB Insurance Company, Marshall, Minnesota October 15 -- Purchase Allied Leasing Company, Burnsville, Minnesota November 1 17 Purchase Eastdil Realty Company, L.L.C., New York, New York November 16 9 Purchase Texas Bancshares, Inc., San Antonio, Texas December 16 370 Purchase ------- $ 2,754 ======= - -----------------------------------------------------------------------------------------------------------------------
(continued) 60
- ----------------------------------------------------------------------------------------------------------------------- Date Assets Method of accounting (in millions) 1998 Finvercon S.A. Compania, Financiera, Argentina January 8 $ 57 Purchase Fidelity Bancshares, Inc., Fort Worth, Texas January 13 111 Purchase Rio Grande Bancshares, Inc., Las Cruces, New Mexico February 2 417 Purchase Heritage Trust Company, Grand Junction, Colorado February 20 2 Purchase Founders Trust Company, Dallas, Texas March 2 2 Purchase The T. Eaton Acceptance Company Limited and National Retail Credit Services Limited, Don Mills, Ontario, Canada April 21 370 Purchase WMC Mortgage Corporation, Woodland Hills, California April 30 5 Purchase of assets First Bank, Katy, Texas May 22 310 Pooling of interests* First Bank of Grants, Grants, New Mexico May 28 45 Purchase Spring Mountain Escrow Corporation, Irvine, California May 29 1 Purchase California State Bank, West Covina, California May 30 864 Pooling of interests* Emjay Corporation, Milwaukee, Wisconsin June 15 6 Purchase Six affiliated bank holding companies and related entities, located in Minnesota, Wisconsin, New Mexico, Arizona and Colorado, including MidAmerica July 2,23 1,317 Pooling of interests* First Bancshares of Valley City, Inc., Valley City, North Dakota July 31 96 Purchase Peoples Insurance Agency, Inc., Valley City, North Dakota July 31 -- Purchase Star Bancshares, Inc., Austin, Texas August 31 582 Pooling of interests* Freedom Trailer Leasing, Inc., Chesterfield, Missouri August 31 5 Purchase Little Mountain Bancshares, Inc., Monticello, Minnesota September 8 82 Purchase First National Bank of Missouri City, Missouri City, Texas October 30 91 Purchase Franklin Bancshares, Inc., Franklin, Texas December 1 72 Purchase Marine National Bank, Irvine, California December 21 259 Purchase ------- $ 4,694 ======= - -----------------------------------------------------------------------------------------------------------------------
* Pooling-of-interests transaction was not material to the Company's consolidated financial statements; accordingly, previously reported results were not restated. In connection with the foregoing transactions, the Company paid cash in the aggregate amount of $396 million, $541 million and $413 million in 2000, 1999 and 1998, respectively, and issued aggregate common shares of 75.6 million, 11.1 million and 18.1 million in 2000, 1999 and 1998, respectively. MERGER INVOLVING THE COMPANY AND FIRST SECURITY On October 25, 2000 the merger involving the Company and First Security Corporation was completed. Under the terms of the FSCO Merger agreement, stockholders of First Security received 0.355 shares of common stock of the Company for each share of common stock owned. Each outstanding and unexercised option granted by First Security was converted into an option to purchase common stock of the Company based on the agreed-upon exchange ratio of 0.355. As a condition to the FSCO Merger, the Company was required by regulatory agencies to divest 39 stores in Idaho, New Mexico, Nevada and Utah having aggregate deposits of approximately $1.5 billion. In the fourth quarter of 2000, the Company entered into agreements to sell these stores. These sales are expected to be completed in the first quarter of 2001 and the Company expects to realize net gains of approximately $100 million. Financial information for prior periods for the Company and First Security is shown in the table below.
- ------------------------------------------------------------------------------------------------------------------ Year ended December 31, Nine months ended ------------------------------ (in millions) September 30, 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------ (unaudited) Revenue Wells Fargo $13,683 $16,775 $15,417 First Security 620(1) 1,319 1,178 Net income (loss) Wells Fargo $ 3,119 $ 3,747 $ 1,950 First Security (220)(1) 273 248 - ------------------------------------------------------------------------------------------------------------------
(1) Amount not previously reported 61 The combined financial results of the Company include adjustments to conform the accounting policies of the Company and First Security, including the conformance of the postretirement transition obligation identified with the implementation of FAS 106, Employers' Accounting for Post Retirement Benefits Other than Pension Accounting Treatment and the conformance of the capitalization policies. The effect of these adjustments on the Company's results was not material. MERGER INVOLVING NORWEST AND THE FORMER WELLS FARGO On November 2, 1998, the WFC Merger involving Norwest Corporation and the former Wells Fargo & Company was completed. In connection with that merger, the Company recorded approximately $600 million of restructuring charges in the fourth quarter of 1998. The restructuring plans are evaluated on a regular basis during the integration process. The charges included an accrual for severance-related costs of $250 million associated with the elimination of about 5% of the Company's positions, most of which occurred by December 31, 2000. This accrual was determined based on the Company's existing severance plans for involuntary terminations. In the fourth quarter of 2000, the Company reduced its estimate of severance-related costs by $58 million due to higher retention of employees than originally planned because of better than expected results from the Company's employee retention program and higher than expected voluntary terminations due to a robust job market. About 3,500 employees, representing approximately $170 million in severance benefits, had entered the severance process through December 31, 2000. The restructuring charges also included approximately $250 million related to expected dispositions of leased and owned premises held for remarketing or sale and $100 million of other costs associated with exiting activities due to the WFC Merger. Most of the reserve for those costs was utilized as of December 31, 2000 and the remaining balance at December 31, 2000 was not significant. 3. CASH, LOAN AND DIVIDEND RESTRICTIONS Federal Reserve Board (FRB) regulations require reserve balances on deposits to be maintained by each of the banking subsidiaries with the Federal Reserve Banks. The average required reserve balance was $2.0 billion and $2.1 billion in 2000 and 1999, respectively. Federal law prevents the Company and its nonbank subsidiaries from borrowing from its subsidiary banks unless the loans are secured by specified collateral. Such secured loans by any subsidiary bank are generally limited to 10% of the subsidiary bank's capital and surplus (as defined, which for this purpose represents Tier 1 and Tier 2 capital, as calculated under the risk-based capital guidelines, plus the balance of the allowance for loan losses excluded from Tier 2 capital) and aggregate loans to the Company and its nonbank subsidiaries are limited to 20% of the subsidiary bank's capital and surplus. (For further discussion of risk-based capital, see Note 22 to Financial Statements.) The payment of dividends by subsidiary banks is subject to various federal and state regulatory limitations. Dividends payable by a national bank without the express approval of the Office of the Comptroller of the Currency (OCC) are limited to that bank's retained net profits for the preceding two calendar years plus retained net profits up to the date of any dividend declaration in the current calendar year. Retained net profits are defined by the OCC as net income less dividends declared during the period as determined based on regulatory accounting principles. The Company also has state-chartered subsidiary banks that are subject to state regulations that limit dividends. Under those provisions, the Company's national and state-chartered subsidiary banks could have declared dividends of $650 million and $1,571 million in 2000 and 1999, respectively, without obtaining prior regulatory approval. In addition, the Company's non-bank subsidiaries could have declared dividends of $1,889 million and $1,231 million at December 31, 2000 and 1999, respectively. 62 4. SECURITIES AVAILABLE FOR SALE The following table provides the cost and fair value for the major components of securities available for sale carried at fair value. There were no securities classified as held to maturity at the end of 2000 or 1999.
- ----------------------------------------------------------------------------------------------------------------------------- December 31, ------------------------------------------------------------------------------------------ 2000 1999 ------------------------------------------- ----------------------------------------- ESTIMATED ESTIMATED Estimated Estimated UNREALIZED UNREALIZED ESTIMATED unrealized unrealized Estimated GROSS GROSS FAIR gross gross fair (in millions) COST GAINS LOSSES VALUE Cost gains losses value - ------------------------------------------------------------------------------ ----------------------------------------- Securities of U.S. Treasury and federal agencies $ 2,739 $ 49 $ 5 $ 2,783 $ 6,426 $ 13 $ 348 $ 6,091 Securities of U.S. states and political subdivisions 2,322 90 12 2,400 2,352 50 35 2,367 Mortgage-backed securities: Federal agencies 26,304 838 147 26,995 26,239 110 477 25,872 Private collateralized mortgage obligations (1) 1,455 43 52 1,446 3,747 12 106 3,653 ------- ------ ---- ------- ------- ------ ------ ------- Total mortgage-backed securities 27,759 881 199 28,441 29,986 122 583 29,525 Other 2,588 37 123 2,502 2,544 8 114 2,438 ------- ------ ---- ------- ------- ------ ------ ------- Total debt securities 35,408 1,057 339 36,126 41,308 193 1,080 40,421 Marketable equity securities 2,457 563 491 2,529 1,526 1,992 28 3,490 ------- ------ ---- ------- ------- ------ ------ ------- Total $37,865 $1,620 $830 $38,655 $42,834 $2,185 $1,108 $43,911 ======= ====== ==== ======= ======= ====== ====== ======= - -----------------------------------------------------------------------------------------------------------------------------
(1) Substantially all private collateralized mortgage obligations are AAA-rated bonds collateralized by 1-4 family residential first mortgages. At December 31, 2000, the Company held no securities of any single issuer (excluding the U.S. Treasury and federal agencies) with a book value that exceeded 10% of stockholders' equity. Securities pledged where the secured party has the right to sell or repledge totaled $1.3 billion at December 31, 2000. Securities pledged where the secured party does not have the right to sell or repledge totaled $17 billion at December 31, 2000 and $15 billion at December 31,1999 and are primarily pledged to secure trust and public deposits and for other purposes as required or permitted by law. The Company has accepted collateral in the form of securities that it has the right to sell or repledge of $1.6 billion at December 31, 2000. The table to the right provides the components of the realized net (loss) gain on securities from the securities available for sale portfolio. (Realized gains on marketable equity securities from venture capital investments are reported as net venture capital gains.)
- --------------------------------------------------------------------------------------------- Year ended December 31, ------------------------------------------------- (in millions) 2000 1999 1998 - --------------------------------------------------------------------------------------------- Realized gross gains $ 334 $ 91 $217 Realized gross losses (1,056) (319) (40) ------- ----- ---- Realized net (loss) gain $ (722) $(228) $177 ======= ===== ==== - ---------------------------------------------------------------------------------------------
The table below provides the remaining contractual principal maturities and yields (taxable-equivalent basis) of debt securities available for sale. The remaining contractual principal maturities for mortgage-backed securities were allocated assuming no prepayments. Expected remaining maturities will differ from contractual maturities because borrowers may have the right to prepay obligations with or without penalties.
- ----------------------------------------------------------------------------------------------------------------------------------- December 31, 2000 ------------------------------------------------------------------------------------------ Remaining contractual principal maturity ------------------------------------------------------------------------- After one year After five years Weighted Within one year through five years through ten years After ten years Total average --------------- ------------------ ----------------- --------------- (in millions) Amount yield Amount Yield Amount Yield Amount Yield Amount Yield - ----------------------------------------------------------------------------------------------------------------------------------- Securities of U.S. Treasury and federal agencies $ 2,783 6.61% $ 603 6.52% $1,979 6.63% $ 170 6.68% $ 31 6.95% Securities of U.S. states and political subdivisions 2,400 7.45 159 7.69 462 7.44 637 7.41 1,142 7.44 Mortgage-backed securities: Federal agencies 26,995 7.41 151 7.45 362 7.60 695 7.88 25,787 7.39 Private collateralized mortgage obligations 1,446 9.08 6 6.94 7 8.76 453 7.86 980 9.66 ------- ---- ---- ------ ------- Total mortgage-backed securities 28,441 7.49 157 7.43 369 7.62 1,148 7.87 26,767 7.48 Other 2,502 8.18 206 7.23 748 8.65 1,088 8.21 460 7.79 ------- ---- ---- ------ ------- ESTIMATED FAIR VALUE OF DEBT SECURITIES (1) $36,126 7.47% $1,125 6.94% $3,558 7.26% $3,043 7.83% $28,400 7.48% ======= ==== ====== ==== ====== ==== ====== ==== ======= ==== TOTAL COST OF DEBT SECURITIES $35,408 $1,115 $3,529 $3,041 $27,723 ======= ====== ====== ====== ======= - ------------------------------------------------------------------------------------------------------------------------------------
(1) The weighted average yield is computed using the amortized cost of debt securities available for sale. 63 5. LOANS AND ALLOWANCE FOR LOAN LOSSES A summary of the major categories of loans outstanding and related unfunded commitments is shown in the following table. Unfunded commitments are defined as all legally binding agreements to extend credit, net of all funds lent, and all standby and commercial letters of credit issued under the terms of those commitments. At December 31, 2000 and 1999, the commercial loan category and related unfunded commitments did not have a concentration in any industry that exceeded 10% of total loans and unfunded commitments. At December 31, 2000 and 1999, the real estate 1-4 family first mortgage and junior lien mortgage categories and related unfunded commitments did not have a concentration in any state that exceeded 10% of total loans and unfunded commitments.
- ------------------------------------------------------------------------------------------------------------------- December 31, -------------------------------------------------------------- 2000 1999 ----------------------------- ----------------------------- COMMITMENTS Commitments TO EXTEND to extend (in millions) OUTSTANDING CREDIT Outstanding credit - ------------------------------------------------------------------------------------------------------------------- Commercial $ 50,518 $48,636 $ 41,671 $43,251 Real estate 1-4 family first mortgage 18,464 7,653 13,506 2,323 Other real estate mortgage 23,972 3,134 20,899 1,438 Real estate construction 7,715 6,181 6,067 3,603 Consumer: Real estate 1-4 family junior lien mortgage 18,218 484 12,949 5,912 Credit card 6,616 19,004 5,805 20,004 Other revolving credit and monthly payment 23,974 5,510 20,617 5,356 -------- ------- -------- ------- Total consumer 48,808 24,998 39,371 31,272 Lease financing 10,023 1,847 9,890 308 Foreign 1,624 260 1,600 115 -------- ------- -------- ------- Total loans (1) $161,124 $92,709 $133,004 $82,310 ======== ======= ======== ======= - -------------------------------------------------------------------------------------------------------------------
(1) Outstanding loan balances at December 31, 2000 and 1999 are net of unearned income, including net deferred loan fees, of $3,742 million and $3,378 million, respectively. In the course of evaluating the credit risk presented by a customer and the pricing that will adequately compensate the Company for assuming that risk, management may require a certain amount of collateral support. The type of collateral held varies, but may include accounts receivable, inventory, land, buildings, equipment, income-producing commercial properties and residential real estate. The Company has the same collateral policy for loans whether they are funded immediately or on a delayed basis(commitment). A commitment to extend credit is a legally binding agreement to lend funds to a customer usually at a stated interest rate and for a specified purpose. Such commitments have fixed expiration dates and generally require a fee. The extension of a commitment gives rise to credit risk. The actual liquidity requirements or credit risk that the Company will experience will be lower than the contractual amount of commitments to extend credit shown in the table above because a significant portion of those commitments are expected to expire without being drawn upon. Certain commitments are subject to loan agreements containing covenants regarding the financial performance of the customer that must be met before the Company is required to fund the commitment. The Company uses the same credit policies in making commitments to extend credit as it does in making loans. In addition, the Company manages the potential credit risk in commitments to extend credit by limiting the total amount of arrangements, both by individual customer and in the aggregate; by monitoring the size and maturity structure of these portfolios; and by applying the same credit standards maintained for all of its related credit activities. The credit risk associated with these commitments is considered in management's determination of the allowance for loan losses. Standby letters of credit totaled $5.6 billion and $4.8 billion at December 31, 2000 and 1999, respectively. Standby letters of credit are issued on behalf of customers in connection with contracts between the customers and third parties. Under standby letters of credit, the Company assures that the third parties will receive specified funds if customers fail to meet their contractual obligations. The liquidity risk to the Company arises from its obligation to make payment in the event of a customer's contractual default. The credit risk involved in issuing standby letters of credit and the Company's management of that credit risk is considered in management's determination of the allowance for loan losses. Standby letters of credit are reported net of participations sold to other institutions of $623 million in 2000 and $1.6 billion in 1999. 64 Included in standby letters of credit are those that back financial instruments (financial guarantees). The Company had issued or purchased participations in financial guarantees of approximately $2.3 billion and $2.6 billion at December 31, 2000 and 1999, respectively. The Company also had commitments for commercial and similar letters of credit of $729 million and $766 million at December 31, 2000 and 1999, respectively. Substantially all fees received from the issuance of financial guarantees are deferred and amortized on a straight-line basis over the term of the guarantee. The Company has an established process to determine the adequacy of the allowance for loan losses which assesses the risk and losses inherent in its portfolio. This process provides an allowance consisting of two components, allocated and unallocated. To arrive at the allocated component of the allowance, the Company combines estimates of the allowances needed for loans analyzed individually (including impaired loans subject to Statement of Financial Accounting Standards No. 114 (FAS 114), ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN) and loans analyzed on a pool basis. The determination of allocated reserves for portfolios of larger commercial and commercial real estate loans involves a review of individual higher-risk transactions, focusing on the accuracy of loan grading, assessments of specific loss content, and, in some cases, strategies for resolving problem credits. These considerations supplement the application of loss factors delineated by individual loan grade to the existing distribution of risk exposures, thus framing an assessment of inherent losses across the entire wholesale lending portfolio segment which is responsive to shifts in portfolio risk content. The loss factors used for this analysis have been derived from migration models which track actual portfolio movements from problem asset loan grades to loss over a 5 to 10 year period. In the case of pass loan grades, the loss factors are derived from analogous loss experience in public debt markets, calibrated to the long-term average loss experience of the Company's portfolios. The loan loss reserve allocations arrived at through this factor methodology are adjusted by management's judgment concerning the effect of recent economic events on portfolio performance. In the case of more homogeneous portfolios, such as consumer loans and leases, residential mortgage loans, and some segments of small business lending, the determination of allocated reserves is conducted at a more aggregate, or pooled, level. For portfolios of this nature, the risk assessment process emphasizes the development of rigorous forecasting models, which focus on recent delinquency and loss trends in different portfolio segments to project relevant risk metrics over an intermediate-term horizon. Such analyses are updated frequently to capture the most recent behavioral characteristics of the subject portfolios, as well as any changes in management's loss mitigation or customer solicitation strategies, in order to reduce the differences between estimated and observed losses. A reserve which approximates one year of projected net losses is provided as the baseline allocation for most homogeneous portfolios, to which management will add certain adjustments to help ensure that a prudent amount of conservatism is present in the specific assumptions underlying that forecast. While coverage of one year's losses is often adequate (particularly for homogeneous pools of loans and leases), the time period covered by the allowance may vary by portfolio, based on the Company's best estimate of the inherent losses in the entire portfolio as of the evaluation date. To mitigate the imprecision inherent in most estimates of expected credit losses, the allocated component of the allowance is supplemented by an unallocated component. The unallocated component includes management's judgmental determination of the amounts necessary for concentrations, economic uncertainties and other subjective factors; correspondingly, the relationship of the unallocated component to the total allowance for loan losses may fluctuate from period to period. Although management has allocated a portion of the allowance to specific loan categories, the adequacy of the allowance must be considered in its entirety. The Company's determination of the level of the allowance and, correspondingly, the provision for loan losses rests upon various judgments and assumptions, including general economic conditions, loan portfolio composition, prior loan loss experience and the Company's ongoing examination process and that of its regulators. The Company has an internal risk analysis and review staff that continuously reviews loan quality and reports the results of its examinations to executive management and the Board of Directors. Such reviews also assist management in establishing the level of the allowance. Like all national banks, subsidiary national banks continue to be subject to examination by their primary regulator, the Office of the Comptroller of the Currency (OCC), and some have OCC examiners in residence. These examinations occur throughout the year and target various activities of the subsidiary national banks, including specific segments of the loan portfolio (for example, commercial real estate and shared national credits). In addition to the subsidiary national banks being examined by the OCC, the Parent and its nonbank subsidiaries are examined by the FRB. The Company considers the allowance for loan losses of $3,719 million adequate to cover losses inherent in loans, loan commitments and standby and other letters of credit at December 31, 2000. 65 Changes in the allowance for loan losses were as follows:
- -------------------------------------------------------------------------------------------------------------- Year ended December 31, --------------------------------------- (in millions) 2000 1999 1998 - -------------------------------------------------------------------------------------------------------------- BALANCE, BEGINNING OF YEAR $ 3,344 $ 3,307 $ 3,220 Allowances related to business combinations, net 265 48 148 Provision for loan losses 1,329 1,104 1,617 Loan charge-offs: Commercial (429) (395) (271) Real estate 1-4 family first mortgage (16) (14) (29) Other real estate mortgage (32) (28) (54) Real estate construction (8) (2) (3) Consumer: Real estate 1-4 family junior lien mortgage (34) (33) (31) Credit card (367) (403) (549) Other revolving credit and monthly payment (623) (585) (1,069) ------- ------- ------- Total consumer (1,024) (1,021) (1,649) Lease financing (52) (38) (49) Foreign (86) (90) (84) ------- ------- ------- Total loan charge-offs (1,647) (1,588) (2,139) ------- ------- ------- Loan recoveries: Commercial 98 90 87 Real estate 1-4 family first mortgage 4 6 12 Other real estate mortgage 13 38 79 Real estate construction 4 5 4 Consumer: Real estate 1-4 family junior lien mortgage 14 15 7 Credit card 39 49 59 Other revolving credit and monthly payment 213 243 187 ------- ------- ------- Total consumer 266 307 253 Lease financing 13 12 12 Foreign 30 15 14 ------- ------- ------- Total loan recoveries 428 473 461 ------- ------- ------- Total net loan charge-offs (1,219) (1,115) (1,678) ------- ------- -------- BALANCE, END OF YEAR $ 3,719 $ 3,344 $ 3,307 ======= ======= ======= Total net loan charge-offs as a percentage of average total loans .84% .90% 1.44% ======= ======= ======= Allowance as a percentage of total loans 2.31% 2.51% 2.76% ======= ======= ======= - --------------------------------------------------------------------------------------------------------------
In accordance with FAS 114, the table below shows the recorded investment in impaired loans categorized by the methodology used to measure impairment at December 31, 2000 and 1999:
- ----------------------------------------------------------------------------------- December 31, -------------------------- (in millions) 2000 1999 - ----------------------------------------------------------------------------------- Impairment measurement based on: Collateral value method $174 $188 Discounted cash flow method 331 74 Historical loss factors 257 114 ---- ---- Total (1) $762 $376 ==== ==== - -----------------------------------------------------------------------------------
(1) Includes $345 million and $210 million of impaired loans with a related FAS 114 allowance of $74 million and $48 million at December 31, 2000 and 1999, respectively. The average recorded investment in impaired loans during 2000, 1999 and 1998 was $470 million, $376 million and $456 million, respectively. Total interest income recognized on impaired loans during 2000, 1999 and 1998 was $4 million, $7 million and $13 million, respectively, which was primarily recorded using the cash method. The Company uses either the cash or cost recovery method to record cash receipts on impaired loans that are on nonaccrual. Under the cash method, contractual interest is credited to interest income when received. This method is used when the ultimate collectibility of the total principal is not in doubt. Under the cost recovery method, all payments received are applied to principal. This method is used when the ultimate collectibility of the total principal is in doubt. Loans on the cost recovery method may be changed to the cash method when the application of the cash payments has reduced the principal balance to a level where collection of the remaining recorded investment is no longer in doubt. 66 6. PREMISES, EQUIPMENT, LEASE COMMITMENTS, INTEREST RECEIVABLE AND OTHER ASSETS The following table presents comparative data for premises and equipment:
- ------------------------------------------------------------------------------------ December 31, ----------------------------- (in millions) 2000 1999 - ------------------------------------------------------------------------------------ Land $ 440 $ 409 Buildings 2,553 2,549 Furniture and equipment 2,942 2,670 Leasehold improvements 761 745 Premises leased under capital leases 75 76 ------- ------ Total 6,771 6,449 Less accumulated depreciation and amortization 3,356 3,077 ------- ------ Net book value $3,415 $3,372 ======= ====== - ------------------------------------------------------------------------------------
Depreciation and amortization expense was $560 million, $499 million and $510 million in 2000, 1999 and 1998, respectively. The Company is obligated under a number of noncancelable operating leases for premises (including vacant premises) and equipment with terms, including renewal options, up to 100 years, many of which provide for periodic adjustment of rentals based on changes in various economic indicators. The following table shows future minimum payments under noncancelable operating leases and capital leases, net of sublease rentals, with terms in excess of one year as of December 31, 2000:
- ---------------------------------------------------------------------------------------------- (in millions) Operating leases Capital leases Year ended December 31, 2001 $ 351 $ 5 2002 300 4 2003 243 4 2004 194 3 2005 150 2 Thereafter 685 13 ------ --- Total minimum lease payments $1,923 31 ====== Executory costs (2) Amounts representing interest (2) --- Present value of net minimum lease payments $27 === - ----------------------------------------------------------------------------------------------
Rental expense, net of rental income, for all operating leases was $499 million, $418 million and $504 million in 2000, 1999 and 1998, respectively. The components of interest receivable and other assets at December 31, 2000 and 1999 were as follows:
- ----------------------------------------------------------------------------------------- December 31, ------------------------------------ (in millions) 2000 1999 - ----------------------------------------------------------------------------------------- Nonmarketable equity investments $ 4,142 $ 3,525 Trading assets 3,777 2,690 Interest receivable 1,516 1,286 Government National Mortgage Association (GNMA) pool buy-outs 1,510 1,516 Certain identifiable intangible assets 227 264 Foreclosed assets 128 161 Interest-earning deposits 95 199 Due from customers on acceptances 85 103 Other 10,449 6,808 ------- ------- Total interest receivable and other assets $21,929 $16,552 ======= ======= - -----------------------------------------------------------------------------------------
Noninterest income from nonmarketable equity investments accounted for using the cost method was $170 million, $138 million and $151 million in 2000, 1999 and 1998, respectively. GNMA pool buy-outs are advances made to GNMA mortgage pools that are guaranteed by the Federal Housing Administration or by the Department of Veterans Affairs (collectively, "the guarantors"). These advances are made to buy out government agency-guaranteed delinquent loans, pursuant to the Company's servicing agreements. The Company, on behalf of the guarantors, undertakes the collection and foreclosure process. After the foreclosure process is complete, the Company is reimbursed for substantially all costs incurred, including the advances, by the guarantors. A significant portion of trading assets consists of securities, including U.S. government agency obligations, commercial paper and U.S. Treasury Bills. Interest income from trading assets was $98 million, $81 million and $108 million in 2000, 1999 and 1998, respectively. Noninterest income from trading assets was $238 million, $112 million and $207 million in 2000, 1999 and 1998, respectively. Amortization expense for certain identifiable intangible assets included in other assets was $42 million, $68 million and $87 million in 2000, 1999 and 1998, respectively. A major portion of the increase in "Other" was due to an increase of $1.6 billion in receivables from security sales pending settlement. 67 7. DEPOSITS The aggregate amount of time certificates of deposit and other time deposits issued by domestic offices was $36,207 million and $32,589 million at December 31, 2000 and 1999, respectively. Substantially all of those deposits were interest bearing. The contractual maturities of those deposits are shown in the following table.
- ----------------------------------------------------------------------------- (in millions) December 31, 2000 2001 $28,475 2002 5,509 2003 1,160 2004 444 2005 379 Thereafter 240 ------- Total $36,207 ======= - -----------------------------------------------------------------------------
Of the total above, the amount of time deposits with a denomination of $100,000 or more was $9,741 million and $9,909 million at December 31, 2000 and 1999, respectively. The contractual maturities of these deposits are shown in the following table.
- ----------------------------------------------------------------------------- (in millions) December 31, 2000 Three months or less $4,401 After three months through six months 2,009 After six months through twelve months 2,231 After twelve months 1,100 ------ Total $9,741 ====== - -----------------------------------------------------------------------------
Time certificates of deposit and other time deposits issued by foreign offices with a denomination of $100,000 or more represent substantially all of the foreign deposit liabilities of $7,712 million and $3,914 million at December 31, 2000 and 1999, respectively. Demand deposit overdrafts that have been reclassified as loan balances were $749 million and $903 million at December 31, 2000 and 1999, respectively. 68 8. SHORT-TERM BORROWINGS The table below shows selected information for short-term borrowings. These borrowings generally mature in less than 30 days.
- ------------------------------------------------------------------------------------------------------------------- 2000 1999 1998 ----------------- ----------------- ----------------- (in millions) AMOUNT RATE Amount Rate Amount Rate - ------------------------------------------------------------------------------------------------------------------- AS OF DECEMBER 31, Commercial paper and other short-term borrowings $15,844 6.64% $17,246 6.06% $ 9,579 5.26% Federal funds purchased and securities sold under agreements to repurchase 13,145 5.81 14,481 4.73 10,091 4.41 -------- -------- -------- Total $28,989 6.26 $31,727 5.45 $19,670 4.82 ======== ======== ======== YEAR ENDED DECEMBER 31, AVERAGE DAILY BALANCE Commercial paper and other short-term borrowings $14,375 6.43% $10,272 5.40% $ 7,706 5.60% Federal funds purchased and securities sold under agreements to repurchase 13,847 6.03 12,287 4.69 10,221 5.17 -------- -------- -------- Total $28,222 6.23 $22,559 5.00 $17,927 5.36 ======== ======== ======== MAXIMUM MONTH-END BALANCE Commercial paper and other short-term borrowings (1) $17,730 N/A $17,246 N/A $10,272 N/A Federal funds purchased and securities sold under agreements to repurchase (2) 16,535 N/A 15,147 N/A 13,840 N/A - -------------------------------------------------------------------------------------------------------------------
N/A - Not applicable. (1) Highest month-end balance in each of the last three years appeared in January 2000, December 1999 and October 1998, respectively. (2) Highest month-end balance in each of the last three years appeared in August 2000, August 1999 and April 1998, respectively. At December 31, 2000, the Company had available lines of credit totaling $3.9 billion, of which $1.9 billion was obtained through a subsidiary, Wells Fargo Financial. The remaining $2.0 billion was in the form of a revolving credit facility. A portion of these financing arrangements require the maintenance of compensating balances or payment of fees, which are not material. 69 9. LONG-TERM DEBT The following is a summary of long-term debt (reflecting unamortized debt discounts and premiums, where applicable) owed by the Parent and its subsidiaries:
- --------------------------------------------------------------------------------------------------------------------------------- Maturity Interest (in millions) date rate(s) 2000 1999 - --------------------------------------------------------------------------------------------------------------------------------- WELLS FARGO & COMPANY (PARENT ONLY) SENIOR Global Notes (1) 2002 - 2005 6.5 - 7.25% $ 3,986 $ 2,243 Global Notes 2001 - 2002 Various 1,997 747 Medium-Term Notes (1) 2001 - 2006 5.625 - 8.15% 2,095 3,993 Medium-Term Notes 2002 - 2027 6.75 - 7.75% 620 820 Floating-Rate Medium-Term Notes 2001 - 2002 Various 2,100 2,100 Floating-Rate Euro Medium-Term Notes 2001 Various 300 300 Notes 2004 6.00% 1 1 Notes (1) 2000 6.00% -- 200 Extendable Notes (2) 2005 Various 1,497 -- ------- ------- Total senior debt - Parent 12,596 10,404 ------- ------- SUBORDINATED Notes (1) 2003 6.625% 199 199 Debentures 2023 6.65% 198 198 Other notes (1) 2003 6.625 - 6.75% 1 3 ------- ------- Total subordinated debt - Parent 398 400 ------- ------- Total long-term debt - Parent 12,994 10,804 ------- ------- WFC HOLDINGS CORPORATION SENIOR Medium-Term Notes (1) 2001 - 2002 6.875 - 10.83% 220 221 Medium-Term Notes 2001 - 2002 9.04 - 10.9% 15 15 Notes payable by subsidiaries 48 51 Other notes and debentures 2003 8.5% 3 4 Obligations of subsidiaries under capital leases (Note 6) 11 15 ------- ------- Total senior debt - WFC Holdings 297 306 ------- ------- SUBORDINATED Floating-Rate Notes (3) 2000 Various -- 118 Notes 2002 - 2003 6.125 - 8.75% 732 732 Notes (1) 2004 9.125% 135 133 Notes (1) 2006 6.875 - 7.125% 798 798 Notes (1)(4) 2008 6.25% 199 199 Medium-Term Notes (1)(4) 2001 - 2013 6.5 - 11.25% 173 177 Medium-Term Notes 2002 9.375% 30 30 ------- ------- Total subordinated debt - WFC Holdings 2,067 2,187 ------- ------- Total long-term debt - WFC Holdings 2,364 2,493 ------- ------- WELLS FARGO FINANCIAL, INC. AND ITS SUBSIDIARIES (WFFI) SENIOR Notes 2001 - 2009 5.375 - 8.56% 5,068 4,511 Floating-Rate Notes 2001 - 2002 Various 1,020 571 Medium-Term Notes 2001 - 2008 5.38 - 7.47% 881 832 ------- ------- Total long-term debt - WFFI $6,969 $5,914 ------- ------- - --------------------------------------------------------------------------------------------------------------------------------- (continued)
70
- ---------------------------------------------------------------------------------------------------------------------------------- Maturity Interest (in millions) date rate(s) 2000 1999 - ---------------------------------------------------------------------------------------------------------------------------------- FIRST SECURITY CORPORATION AND ITS SUBSIDIARIES (FSCO) SENIOR Medium-Term Notes 2001 - 2003 6.08 - 6.40% $ 24 $ 24 Floating-Rate Notes 2000 Various -- 200 Floating-Rate Euro Medium-Term Notes (5) 2002 Various 300 300 Floating-Rate Euro Medium-Term Notes 2003 Various 285 285 Federal Home Loan Bank (FHLB) Notes and Advances 2001 - 2020 3.0 - 8.174% 796 2,000 Notes 2003 - 2006 5.875 - 6.875% 475 475 Other notes payable (6) 2001 - 2007 5 7 ------- ------- Total senior debt 1,885 3,291 ------- ------- SUBORDINATED Notes 2002 - 2005 7.0 - 7.50% 200 200 Notes 2006 Various 34 -- ------- ------- Total subordinated debt 234 200 ------- ------- Total long-term debt - FSCO 2,119 3,491 ------- ------- WELLS FARGO BANK, N.A. SUBORDINATED Floating-Rate Notes (7) 2005 Various 750 -- FixFloat Notes (callable 6/15/2005) (1) 2010 7.8% through 2005, Various 996 -- Notes (1) 2010 7.55% 747 -- ------- ------- Total long-term debt - WFB, N.A. 2,493 -- ------- ------- OTHER CONSOLIDATED SUBSIDIARIES SENIOR FHLB Notes and Advances (8) 2001 - 2027 3.15 - 8.38% 367 345 Floating-Rate FHLB Advances (8) 2001 - 2011 6.596 - 6.834% 4,409 3,775 Notes 2000 12.25% -- 1 Other notes and debentures 2001 - 2015 3.00 - 12.00% 316 28 Capital lease obligations (Note 6) 15 15 ------- ------- Total long-term debt - other consolidated subsidiaries 5,107 4,164 ------- ------- Total consolidated long-term debt $32,046 $26,866 ======= ======= - ----------------------------------------------------------------------------------------------------------------------------------
(1) The Company entered into interest rate swap agreements for substantially all of these notes, whereby the Company receives fixed-rate interest payments approximately equal to interest on the notes and makes interest payments based on an average three-month or six-month LIBOR rate. (2) The extendable notes are a floating rate security with an initial maturity of 13 months, which can be extended on a rolling basis, at the investor's option to a final maturity of 5 years. (3) Notes are currently redeemable in whole or in part, at par, or at any time in the event withholding taxes are imposed by the United States. (4) The interest rate swap agreement for these notes is callable by the counterparty prior to the maturity of the notes. (5) The Company entered into an interest rate swap agreement for these notes, whereby the Company receives interest payments based on an average three-month LIBOR rate and makes fixed-rate interest payments ranging from 5.625% to 5.65%. (6) The notes are tied to low-income housing funding. (7) The notes are callable on the interest payment dates at par. (8) The maturities of the FHLB advances are determined quarterly, based on the outstanding balance, the then current LIBOR rate, and the maximum life of the advance. Advances maturing within the next year are expected to be refinanced, extending the maturity of such borrowings beyond one year. 71 At December 31, 2000, the principal payments, including sinking fund payments, on long-term debt are due as noted in the following table.
----------------------------------------------------- (in millions) Parent Company ----------------------------------------------------- 2001 $ 3,047 $ 8,936 2002 1,750 4,053 2003 2,524 5,169 2004 1,500 2,724 2005 2,973 4,820 Thereafter 1,200 6,344 ------- ------- Total $12,994 $32,046 ======= ======= -----------------------------------------------------
The interest rates on floating-rate notes are determined periodically by formulas based on certain money market rates, subject, on certain notes, to minimum or maximum interest rates. Certain of the agreements under which debt has been issued contain provisions that may limit the merger or sale of certain subsidiary banks and the issuance of capital stock or convertible securities by certain subsidiary banks. The Company was in compliance with the provisions of those borrowing agreements at December 31, 2000. 10. GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANY'S SUBORDINATED DEBENTURES The Company established special purpose trusts in 1996 and 1997 for the purpose of issuing trust preferred securities. The proceeds from such issuances, together with the proceeds of the related issuances of common securities of the trusts, were invested in junior subordinated deferrable interest debentures (debentures) of holding companies (WFC Holdings and First Security) that are now direct subsidiaries of the Parent (the holding company subsidiaries). Concurrent with the issuance of the preferred securities by the trusts, the holding company subsidiaries issued guarantees for the benefit of the security holders. These trust preferred securities provide the Company with a more cost-effective means of obtaining Tier 1 capital for regulatory purposes than if the Company itself were to issue additional preferred stock because the Company is allowed to deduct, for income tax purposes, distributions to the holders of the trust preferred securities. The sole assets of these special purpose trusts are the debentures. The holding company subsidiaries own all of the common securities of the six trusts detailed in the table below. The common securities and debentures, along with the related income effects, are eliminated within the consolidated financial statements. The preferred securities issued by the trusts rank senior to the common securities. The obligations of the holding company subsidiaries under the debentures, the indentures, the relevant trust agreements and the guarantees, in the aggregate, constitute a full and unconditional guarantee by them of the obligations of the trusts under the trust preferred securities and rank subordinate and junior in right of payment to all of their other liabilities. At the time of the WFC Merger, the Parent guaranteed the obligations previously issued by the former Wells Fargo & Company. 72 The trust preferred securities are subject to mandatory redemption at the stated maturity date of the debentures, upon repayment of the debentures, or earlier, pursuant to the terms of the Trust Agreement. The table below summarizes the outstanding preferred securities issued by each special purpose trust and the debentures issued by the holding company subsidiaries to each trust as of December 31, 2000:
- ---------------------------------------------------------------------------------------------------------------------------- (in millions) Trust preferred securities and debentures Interest Trust preferred securities Principal ------------------------- payable/ -------------------------- balance of Stated Annualized distribution Trust name Issuance date Amount debentures maturity coupon rate dates (1) - ---------------------------------------------------------------------------------------------------------------------------- Wells Fargo Capital A November 1996 $ 85 $ 94 December 1, 2026 8.13% Semi-annual - June 1 and December 1 Wells Fargo Capital B November 1996 153 159 December 1, 2026 7.95% Semi-annual - June 1 and December 1 Wells Fargo Capital C November 1996 186 194 December 1, 2026 7.73% Semi-annual - June 1 and December 1 Wells Fargo Capital I December 1996 212 224 December 15, 2026 7.96% Semi-annual - June 15 and December 15 Wells Fargo Capital II January 1997 149 155 January 30, 2027 LIBOR + .5% Quarterly - January 30, April 30, July 30 and October 30 First Security Capital I December 1996 150 150 December 15, 2026 8.41% Semi-annual - June 15 and December 15 ----- Total $935 ===== - -------------------------------------------------------------------------------------------------------------------
(1) All distributions are cumulative. On or after December 2006 for Wells Fargo Capital A, Wells Fargo Capital B, Wells Fargo Capital C, Wells Fargo Capital I and First Security Capital I and on or after January 2007 for Wells Fargo Capital II, each of the series of trust preferred securities may be redeemed and the corresponding debentures may be prepaid at the option of the Company, subject to FRB approval, at declining redemption prices with respect to the Wells Fargo Capital securities. Prior to December 2006 for Wells Fargo Capital A, Wells Fargo Capital B, Wells Fargo Capital C, Wells Fargo Capital I, and First Security Capital I and prior to January 2007 for Wells Fargo Capital II, the securities may be redeemed at the option of the Company on the occurrence of certain events that result in a negative tax impact, negative regulatory impact on the trust preferred securities or negative legal or regulatory impact on the appropriate special purpose trust which would define it as an investment company. In addition, the Company has the right to defer payment of interest on the debentures and, therefore, distributions on the trust preferred securities for up to five years. 73 11. PREFERRED STOCK The Company is authorized to issue 20,000,000 shares of preferred stock and 4,000,000 shares of preference stock, both without par value. All preferred shares outstanding rank senior to common shares both as to dividends and liquidation preference but have no general voting rights. No preference shares have been issued under this authorization. The following table is a summary of preferred stock:
- ------------------------------------------------------------------------------------------------------------------------------ Shares issued Carrying amount Dividends declared and outstanding (in millions) (in millions) --------------------- ----------------- Adjustable ----------------------- December 31, December 31, dividend rate Year ended December 31, --------------------- ----------------- ---------------- ---------------------- 2000 1999 2000 1999 Minimum Maximum 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------ Adjustable-Rate Cumulative, Series B (Liquidation preference $50) 1,468,400 1,500,000 $ 73 $ 75 5.5% 10.5% $ 4 $ 4 $ 4 6.59%/Adjustable-Rate Noncumulative Preferred Stock, Series H (Liquidation preference $50) (1) 4,000,000 4,000,000 200 200 7.0 13.0 13 13 13 2000 ESOP Cumulative Convertible (Liquidation preference $1,000) 55,273 -- 55 -- 11.50 12.50 -- -- -- 1999 ESOP Cumulative Convertible (Liquidation preference $1,000) 18,206 22,263 18 22 10.30 11.30 -- -- -- 1998 ESOP Cumulative Convertible (Liquidation preference $1,000) 7,631 8,386 8 8 10.75 11.75 -- -- -- 1997 ESOP Cumulative Convertible (Liquidation preference $1,000) 9,542 10,839 10 11 9.50 10.50 -- -- -- 1996 ESOP Cumulative Convertible (Liquidation preference $1,000) 10,211 12,011 10 12 8.50 9.50 -- -- -- 1995 ESOP Cumulative Convertible (Liquidation preference $1,000) 8,285 11,990 8 12 10.0 10.0 -- -- -- ESOP Cumulative Convertible (Liquidation preference $1,000) 2,656 3,732 3 4 9.0 9.0 -- -- -- Unearned ESOP shares (2) -- -- (118) (73) -- -- -- -- -- $3.15 Cumulative Convertible Preferred Stock, Series A -- 9,000 -- -- -- -- -- -- -- --------- --------- ----- ---- --- --- --- Total 5,580,204 5,578,221 $ 267 $271 $17 $17 $17 ========= ========= ===== ==== === === === - ------------------------------------------------------------------------------------------------------------------------------
(1) Annualized dividend rate is 6.59% through October 1, 2001, after which the rate will become adjustable, subject to the minimum and maximum rates disclosed. (2) In accordance with the American Institute of Certified Public Accountants (AICPA) Statement of Position 93-6, EMPLOYERS' ACCOUNTING FOR EMPLOYEE STOCK OWNERSHIP PLANS, the Company recorded a corresponding charge to unearned ESOP shares in connection with the issuance of the ESOP Preferred Stock. The unearned ESOP shares are reduced as shares of the ESOP Preferred Stock are committed to be released. For information on dividends declared, see Note 12. 74 ADJUSTABLE-RATE CUMULATIVE PREFERRED STOCK, SERIES B These shares are redeemable at the option of the Company at $50 per share plus accrued and unpaid dividends. Dividends are cumulative and payable quarterly on the 15th of February, May, August and November. For each quarterly period, the dividend rate is 76% of the highest of the three-month Treasury bill discount rate, 10-year constant maturity Treasury security yield or 20-year constant maturity Treasury bond yield, but limited to a minimum of 5.5% and a maximum of 10.5% per year. The average dividend rate was 5.6% during 2000 and 5.5% in 1999 and 1998. 6.59%/ADJUSTABLE-RATE NONCUMULATIVE PREFERRED STOCK, SERIES H These shares are redeemable at the option of the Company on or after October 1, 2001 at a price of $50 per share plus accrued and unpaid dividends. Dividends are noncumulative and payable on the first day of each calendar quarter at an annualized rate of 6.59% through October 1, 2001. The dividend rate after October 1, 2001 will be equal to .44% plus the highest of the Treasury bill discount rate, the 10-year constant maturity rate and the 30-year constant maturity rate, as determined in advance of such dividend period, limited to a minimum of 7% and a maximum of 13%. ESOP CUMULATIVE CONVERTIBLE PREFERRED STOCK All shares of the Company's 2000, 1999, 1998, 1997, 1996 and 1995 ESOP Cumulative Convertible Preferred Stock and ESOP Cumulative Convertible Preferred Stock (collectively, ESOP Preferred Stock) were issued to a trustee acting on behalf of the Wells Fargo & Company 401(k) Plan (formerly known as the Norwest Corporation Savings Investment Plan). Dividends on the ESOP Preferred Stock are cumulative from the date of initial issuance and are payable quarterly at annual rates ranging from 8.50 percent to 12.50 percent, depending upon the year of issuance. Each share of ESOP Preferred Stock released from the unallocated reserve of the Plan is converted into shares of common stock of the Company based on the stated value of the ESOP Preferred Stock and the then current market price of the Company's common stock. The ESOP Preferred Stock is also convertible at the option of the holder at any time, unless previously redeemed. The ESOP Preferred Stock may be redeemed at any time, in whole or in part, at the option of the Company at a redemption price per share equal to the higher of (a) $1,000 per share plus accrued and unpaid dividends and (b) the fair market value, as defined in the Certificates of Designation of the ESOP Preferred Stock. 75 12. COMMON STOCK AND STOCK PLANS COMMON STOCK The table below summarizes common stock reserved, issued and authorized as of December 31, 2000:
- -------------------------------------------------------------------------------------------------------------- Number of shares - -------------------------------------------------------------------------------------------------------------- Convertible subordinated debentures and warrants (1) 8,942,372 Acquisition contingencies 169,397 Dividend reinvestment and common stock purchase plans 3,066,921 Director plans 1,459,066 Employee stock plans 218,941,855 ------------- Total shares reserved 232,579,611 Shares issued 1,736,381,025 Shares not reserved 2,031,039,364 ------------- Total shares authorized 4,000,000,000 ============= - --------------------------------------------------------------------------------------------------------------
(1) Includes warrants issued by the Company to subsidiaries in 1996 (expiring in 2001) to purchase 8,928,172 shares of the Company's common stock at $42.50 per share. Each share of the Company's common stock includes one preferred share purchase right. These rights will become exercisable only if a person or group acquires or announces an offer to acquire 15 percent or more of the Company's common stock. When exercisable, each right will entitle the holder to buy one one-thousandth of a share of a new series of junior participating preferred stock at a price of $160 for each one one-thousandth of a preferred share. In addition, upon the occurrence of certain events, holders of the rights will be entitled to purchase either the Company's common stock or shares in an "acquiring entity" at one-half of the then current market value. The Company will generally be entitled to redeem the rights at one cent per right at any time before they become exercisable. The rights will expire on November 23, 2008, unless extended, previously redeemed or exercised. The Company has reserved 1.7 million shares of preferred stock for issuance upon exercise of the rights. DIVIDEND REINVESTMENT AND COMMON STOCK PURCHASE PLANS The Company's dividend reinvestment and common stock direct purchase plans permit participants to purchase at fair market value shares of the Company's common stock by reinvestment of dividends and/or optional cash payments, subject to the terms of the plan. DIRECTOR PLANS Under the Company's director plans, non-employee directors receive stock as part of their annual retainer. These plans provide for annual grants of options to purchase common stock to each non-employee director elected or re-elected at the annual meeting of stockholders. Options granted become exercisable after six months and may be exercised until the tenth anniversary of the date of grant. Compensation expense for the options is measured as the quoted market price of the stock at the date of grant less the exercise price and is accrued over the vesting period. EMPLOYEE STOCK PLANS LONG-TERM INCENTIVE PLANS The Company's stock incentive plans provide for awards of incentive and nonqualified stock options, stock appreciation rights, restricted shares, restricted share rights, performance awards and stock awards without restrictions. Employee stock options can be granted with exercise prices at or above the fair market value (as defined in the plan) of the stock at the date of grant and with terms of up to ten years. The options generally become fully exercisable over three years from the date of grant. Except as otherwise permitted under the plan, upon termination of employment for reasons other than retirement, permanent disability or death, the option period is reduced or the options are canceled. Options also may include the right to acquire a "reload" stock option. If an option contains the reload feature and if a participant pays all or part of the exercise price of the option with shares of stock purchased in the market or held by the participant for at least six months, upon exercise of the option, the participant is granted a new option to purchase, at the fair market value of the stock as of the date of the reload, the number of shares of stock equal to the sum of the number of shares used in payment of the exercise price and a number of shares with respect to related taxes. No compensation expense was recorded for the options granted under the plans, as the exercise price was equal to the quoted market price of the stock at the date of grant. The total number of shares of common stock available for grant under the plans as of December 31, 2000 was 66,691,754. 76 Holders of restricted shares and restricted share rights are entitled at no cost to the related shares of common stock generally over three to five years after the restricted shares or restricted share rights were granted. Upon grant of the restricted shares or restricted share rights, holders generally are entitled to receive quarterly cash payments equal to the cash dividends that would be paid on common stock equal to the number of restricted shares or restricted share rights. Except in limited circumstances, restricted shares and restricted share rights are canceled upon termination of employment. In 2000, 1999 and 1998, 56,636, 204,868 and 371,560 restricted shares and restricted share rights were granted, respectively, with a weighted-average grant-date per share fair value of $40.61, $43.24 and $37.72, respectively. As of December 31, 2000, 1999 and 1998, there were 1,450,074, 2,423,999 and 3,086,500 restricted shares and restricted share rights outstanding, respectively. The compensation expense for the restricted shares and restricted share rights equals the quoted market price of the related stock at the date of grant and is accrued over the vesting period. The total compensation expense recognized for the restricted shares and restricted share rights was $6 million, $21 million and $9 million in 2000, 1999 and 1998, respectively. In connection with various acquisitions and mergers since 1992, the Company converted employee and director stock options of acquired or merged companies into stock options to purchase the Company's common stock based on the terms of the original stock option plan and the agreed-upon exchange ratio. BROAD-BASED PLANS In 1996, the Company adopted the Best Practices PARTNERSHARES-Registered Tradmark- Plan, a broad-based employee stock option plan covering full- and part-time employees who were not participants in the long-term incentive plans described above. The total number of shares of common stock authorized for issuance under the plan since inception through December 31, 2000 was 67,000,000, including 10,077,400 shares available for grant. Options granted under the PARTNERSHARES Plan have an exercise date that generally is the earlier of five years after the date of grant or when the quoted market price of the stock reaches a predetermined price. Those options generally expire ten years after the date of grant. Because the exercise price of each PARTNERSHARES grant has been equal to or higher than the quoted market price of the Company's common stock at the date of grant, no compensation expense is recognized. The following table summarizes the Company's stock option activity and related information for the three years ended December 31, 2000:
- ------------------------------------------------------------------------------------------------------------------ Director Plans Long-Term Incentive Plans Broad-Based Plans (5) ------------------------ ----------------------------- ------------------------- Weighted- Weighted- Weighted- average average average exercise exercise exercise Number price Number price Number price OPTIONS OUTSTANDING AS OF DECEMBER 31, 1997 575,193 $15.77 66,573,661 $21.37 25,241,910 $29.21 -------- ----------- ---------- 1998: Granted 104,030 (1) 40.76 10,174,089 (2)(3) 37.53 21,295,860 (4) 37.29 Canceled -- -- (1,559,438) 27.66 (2,866,310) 31.22 Exercised (116,633) 12.71 (11,057,166) 15.31 (1,865,480) 21.40 -------- ----------- ---------- OPTIONS OUTSTANDING AS OF DECEMBER 31, 1998 562,590 21.02 64,131,146 24.78 41,805,980 33.60 -------- ----------- ---------- 1999: Granted 38,253 (1) 42.60 17,492,150 (2)(3) 39.59 -- -- Canceled -- -- (2,198,973) 28.30 (7,836,842) 34.76 Exercised (75,745) 16.57 (12,817,198) 19.63 (1,454,838) 24.40 -------- ----------- ---------- OPTIONS OUTSTANDING AS OF DECEMBER 31, 1999 525,098 23.24 66,607,125 29.53 32,514,300 33.72 -------- ----------- ---------- 2000: GRANTED 28,080 (1) 42.75 23,183,070 (2)(3) 35.63 23,160,800 46.50 CANCELED (5,005) 25.04 (1,896,001) 35.74 (4,827,800) 36.81 EXERCISED (115,495) 12.94 (13,906,642) 22.93 (390,695) 18.19 ACQUISITIONS -- -- 797,076 20.43 -- -- -------- ----------- ---------- OPTIONS OUTSTANDING AS OF DECEMBER 31, 2000 432,678 $27.23 74,784,628 $32.39 50,456,605 $39.41 ======== ====== =========== ====== ========== ====== Outstanding options exercisable as of: December 31, 1998 475,378 $17.56 38,290,197 $19.55 3,255,200 $22.05 December 31, 1999 511,225 22.06 39,582,781 24.86 1,646,500 17.64 DECEMBER 31, 2000 432,678 27.23 44,893,948 30.36 1,309,005 18.33 - -------------------------------------------------------------------------------------------------------------------
(1) The weighted-average per share fair value of options granted was $12.60, $12.09 and $14.38 for 2000, 1999 and 1998, respectively. (2) The weighted-average per share fair value of options granted was $10.13, $10.16 and $8.18 for 2000, 1999 and 1998, respectively. (3) Includes 2,029,063, 2,285,910 and 2,094,111 reload grants at December 31, 2000, 1999 and 1998, respectively. (4) The weighted-average per share fair value of options granted was $5.42 for 1998. (5) Activity for broad-based plans in 1999 and 1998 includes the options related to the Employee Stock Purchase Plan, which was discontinued in 1999. The Employee Stock Purchase Plan allowed eligible employees of the former Wells Fargo to purchase common stock at a price of the lower of (1) the quoted market price of the stock at the date of grant or (2) 85% of the quoted market price at the end of the one-year option term. 77 The following table is a summary of selected information for the Company's stock option plans described on the preceding page:
- ------------------------------------------------------------------------------------------------------------------- December 31, 2000 -------------------------------------------------------- Weighted- average Weighted- remaining average contractual exercise life (in yrs.) Number price - ------------------------------------------------------------------------------------------------------------------- RANGE OF EXERCISE PRICES DIRECTOR PLANS $0.10-$7.83 Options outstanding/exercisable 1.07 37,390 $ 6.46 $7.84-$13.48 Options outstanding/exercisable 2.68 23,210 11.78 $13.49-$16.00 Options outstanding/exercisable 4.01 70,940 15.22 $16.01-$25.04 Options outstanding/exercisable 4.80 45,572 19.90 $25.05-$38.29 Options outstanding/exercisable 6.36 169,620 30.17 $38.30-$51.00 Options outstanding/exercisable 8.42 85,946 48.45 LONG-TERM INCENTIVE PLANS $3.37-$5.06 Options outstanding/exercisable 6.64 99,394 4.35 $5.07-$7.60 Options outstanding/exercisable 1.19 646,138 7.22 $7.61-$11.41 Options outstanding 2.02 743,242 10.44 Options exercisable 2.01 741,237 10.44 $11.42-$17.13 Options outstanding 2.99 5,824,601 13.99 Options exercisable 2.94 5,659,731 13.94 $17.14-$25.71 Options outstanding 3.59 4,099,854 20.21 Options exercisable 3.73 3,804,553 20.21 $25.72-$38.58 Options outstanding 7.54 54,144,239 33.69 Options exercisable 6.34 27,566,741 32.56 $38.59-$71.30 Options outstanding 7.41 9,227,160 45.63 Options exercisable 6.42 6,376,154 46.51 BROAD-BASED PLANS $16.56-$24.84 Options outstanding/exercisable 5.56 1,173,405 16.56 $24.85-$37.81 Options outstanding 7.26 26,629,000 34.39 Options exercisable 7.13 135,600 33.65 $37.82-$46.50 Options outstanding 9.85 22,654,200 46.50 Options exercisable N/A -- N/A - -------------------------------------------------------------------------------------------------------------------
N/A - Not applicable In accordance with FAS 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, the Company has elected to continue applying the provisions of Accounting Principles Board Opinion 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, in accounting for the stock plans described above. Had compensation cost for those stock plans been determined based on the (optional) fair value method established by FAS 123, the Company's net income and earnings per common share would have been reduced to the pro forma amounts indicated below.
- ------------------------------------------------------------------------------------------------------------------- Year ended December 31, ------------------------------------- (in millions, except per common share amounts) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------- Net income As reported $4,026 $4,012 $2,191 Pro forma (1) 3,914 3,909 2,104 Earnings per common share As reported $ 2.36 $ 2.32 $ 1.28 Pro forma (1) 2.29 2.26 1.23 Diluted earnings per common share As reported $ 2.33 $ 2.29 $ 1.26 Pro forma (1) 2.27 2.23 1.21 - -------------------------------------------------------------------------------------------------------------------
(1) The pro forma amounts noted above only reflect the effects of stock-based compensation grants made after 1995. Because stock options may be granted each year and generally vest over three years, these pro forma amounts may not reflect the full effect of applying the (optional) fair value method established by FAS 123 that would be expected if all outstanding stock option grants were accounted for under this method. The fair value of each option grant is estimated based on the date of grant using an option-pricing model. The following weighted-average assumptions were used in 2000, 1999 and 1998: expected dividend yield ranging from 1.4% to 3.4%; expected volatility ranging from 20.0% to 42.0%; risk-free interest rates ranging from 4.4% to 7.8% and expected life ranging from 0.1 to 6.6 years. 78 EMPLOYEE STOCK OWNERSHIP PLAN The Wells Fargo & Company 401(k) Plan (the 401(k) Plan) is a defined contribution employee stock ownership plan (ESOP) under which the 401(k) Plan may borrow money to purchase the Company's common or preferred stock. Beginning in 1994, the Company has loaned money to the 401(k) Plan which has been used to purchase shares of the Company's ESOP Preferred Stock. As ESOP Preferred Stock is released and converted into common shares, compensation expense is recorded equal to the current market price of the common shares. Dividends on the common shares allocated as a result of the release and conversion of the ESOP Preferred Stock are recorded as a reduction of retained earnings and the shares are considered outstanding for purposes of earnings per share computations. Dividends on the unallocated ESOP Preferred Stock are not recorded as a reduction of retained earnings, and the shares are not considered to be common stock equivalents for purposes of earnings per share computations. Loan principal and interest payments are made from the Company's contributions to the 401(k) Plan, along with dividends paid on the ESOP Preferred Stock. With each principal and interest payment, a portion of the ESOP Preferred Stock is released and, after conversion of the ESOP Preferred Stock into common shares, allocated to the 401(k) Plan participants. In 1989, the Company loaned money to the 401(k) Plan which was used to purchase shares of the Company's common stock (the 1989 ESOP shares). The Company accounted for the 1989 ESOP shares in accordance with AICPA Statement of Position 76-3, ACCOUNTING PRACTICES FOR CERTAIN EMPLOYEE STOCK OWNERSHIP PLANS. Accordingly, the Company's ESOP loan to the 401(k) Plan related to the purchase of the 1989 ESOP shares was recorded as a reduction of stockholders' equity, and compensation expense based on the cost of the shares was recorded as shares were released and allocated to participants' accounts. The loan from the Company to the 401(k) Plan was repaid in 1999. Interest income on this loan was $.1 million in 1999 and $1 million in 1998 and was recorded as a reduction in employee benefits expense. The 1989 ESOP shares were considered outstanding for purposes of earnings per share computations and dividends on the shares are recorded as a reduction to retained earnings. The Company issued Series A and B ESOP Notes in the market place in connection with the purchase of common shares. Series B ESOP matured April 26, 1999 and Series A matured in 1996. Total interest expense on the Series B ESOP Notes was $.1 million in 1999 and $1 million in 1998. Total dividends paid to the 401(k) Plan on ESOP shares were as follows:
- ---------------------------------------------------------------------------------------------- Year ended December 31, ------------------------------------- (in millions) 2000 1999 1998 - ---------------------------------------------------------------------------------------------- ESOP Preferred Stock: Common dividends $11 $ 7 $ 6 Preferred dividends 14 11 9 1989 ESOP shares: Common dividends 11 11 11 --- --- --- Total $36 $29 $26 === === === - ----------------------------------------------------------------------------------------------
The ESOP shares as of December 31, 2000, 1999 and 1998 were as follows:
- ------------------------------------------------------------------------------------------------------------------- December 31, ------------------------------------------------- 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------- ESOP Preferred Stock: Allocated shares (common) 13,716,692 10,784,773 8,592,898 Unreleased shares (preferred) 111,804 69,221 80,362 1989 ESOP shares: Allocated shares 10,988,083 13,016,033 15,018,861 Unreleased shares 39,558 76,070 320,285 Fair value of unearned ESOP shares (in millions) $ 112 $ 69 $ 80 - -------------------------------------------------------------------------------------------------------------------
79 13. EMPLOYEE BENEFITS AND OTHER EXPENSES EMPLOYEE BENEFITS The Company sponsors noncontributory qualified defined benefit retirement plans including the Cash Balance Plan and the First Security Corporation Retirement Plan. The Cash Balance plan is an active plan and it covers eligible employees of the Company except certain subsidiaries. The FSCO Retirement Plan is an inactive plan, which provides benefits to eligible employees of First Security. All benefits under the FSCO Retirement Plan were frozen effective December 31, 2000. Under the Cash Balance Plan, eligible employees' Cash Balance Plan accounts are allocated a compensation credit based on a certain percentage of their certified compensation. The compensation credit percentage is based on age and years of credited service. In addition, participants are allocated at the end of each quarter investment credits on their accumulated balances. Employees become vested in their Cash Balance Plan accounts after completion of five years of vesting service or attainment of age 65, if earlier. Pension benefits accrued prior to the conversion to the Cash Balance Plan are guaranteed. In addition, certain employees are eligible for a special transition benefit comparison. The Company's policy is to fund the actuarially computed retirement cost accrued for the Cash Balance Plan. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. The Company sponsors defined contribution retirement plans including the 401(k) Plan and the First Security Incentive Savings Plan and Trust (the FSCO 401(k) Plan). Under the 401(k) Plan, eligible employees who have completed one month of service are eligible to contribute up to 18% of their pretax certified compensation, although a lower limit may be applied to certain highly compensated employees in order to maintain the qualified status of the 401(k) Plan. Eligible employees who complete one year of service are eligible for matching company contributions, which are generally a dollar for dollar match up to 6% of an employee's certified compensation. The Company's matching contributions are generally subject to a four-year vesting schedule. Under the FSCO 401(k) Plan, eligible employees who were 21 or older with one year of service were eligible to contribute up to 17% of their pretax certified compensation, although a lower limit may be applied to certain employees in order to maintain the qualified status of the FSCO 401(k) Plan. Eligible employees were eligible for matching company contributions, which are generally equal to 50% of the first 6% of an employee's certified compensation. The Company's matching contributions were fully vested upon enrollment. The FSCO 401(k) Plan was merged into the Wells Fargo 401(k) Plan effective January 1, 2001. The Company provides health care and life insurance benefits for certain retired employees and reserves the right to terminate or amend any of the benefits described above at any time. 80 The following table shows the changes in the benefit obligation and the fair value of plan assets during 2000 and 1999 and the amounts included in the Company's Consolidated Balance Sheet as of December 31, 2000 and 1999 for the Company's defined benefit pension and other postretirement benefit plans:
- ----------------------------------------------------------------------------------------------------- December 31, --------------------------------------------------- 2000 1999 ------------------------ ----------------------- PENSION OTHER Pension Other (in millions) BENEFITS BENEFITS benefits benefits - ----------------------------------------------------------------------------------------------------- CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year $2,503 $ 567 $2,653 $ 545 Service cost 154 16 119 25 Interest cost 186 43 143 35 Plan participants' contributions -- 6 -- 6 Amendments -- -- 14 (3) Plan mergers 25 -- 7 -- Actuarial loss (24) (22) (323) (4) Benefits paid (176) (32) (110) (37) Settlement (12) -- -- -- ------ ------ ------ ------ Benefit obligation at end of year $2,656 $ 578 $2,503 $ 567 ====== ====== ====== ====== CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year $2,867 $ 209 $2,699 $ 218 Actual return on plan assets 550 26 244 5 Plan mergers 28 -- 10 -- Employer contribution 13 27 24 17 Plan participants' contributions -- 6 -- 6 Benefits paid (176) (32) (110) (37) Settlement (12) -- -- -- ------ ------ ------ ------ Fair value of plan assets at end of year $3,270 $ 236 $2,867 $ 209 ====== ====== ====== ====== Funded status $ 612 $ (336) $ 364 $ (357) Unrecognized net actuarial gain (667) (29) (392) 1 Unrecognized net transition asset (4) 4 (6) 1 Unrecognized prior service cost 21 (2) 26 (2) ------ ------ ------ ------ Accrued benefit cost $ (38) $ (363) $ (8) $ (357) ====== ====== ====== ====== - -----------------------------------------------------------------------------------------------------
The weighted-average assumptions used in calculating the amounts above were:
- ------------------------------------------------------------------------------------------------------------------- Year ended December 31, -------------------------------------------------------------------------------------- 2000 1999 1998 ------------------------ ------------------------ ------------------------- PENSION OTHER Pension Other Pension Other BENEFITS BENEFITS benefits benefits benefits benefits - ------------------------------------------------------------------------------------------------------------------- Discount rate 7.5% 7.5% 7.5-8.0% 7.5-8.0% 6.5-7.0% 6.5-7.0% Expected return on plan assets 9.0% 9.0% 9.0% 9.0% 8.5-9.0% 9.0% Rate of compensation increase 4.5-5.0% --% 4.5-5.0% --% 4.5-5.0% --% - ------------------------------------------------------------------------------------------------------------------
The following table sets forth the components of net periodic benefit cost for 2000, 1999 and 1998:
- ------------------------------------------------------------------------------------------------------------------- Year ended December 31, ---------------------------------------------------------------- 2000 1999 1998 ------------------- -------------------- ------------------- PENSION OTHER Pension Other Pension Other (in millions) BENEFITS BENEFITS benefits benefits benefits benefits - ------------------------------------------------------------------------------------------------------------------- Service cost $ 154 $ 16 $ 120 $ 25 $ 75 $ 19 Interest cost 186 43 144 35 161 34 Expected return on plan assets (249) (18) (200) (6) (216) (11) Recognized net actuarial (gain) loss (1) (46) (1) (3) (8) 21 (1) Amortization of prior service cost 2 -- 3 -- 2 -- Amortization of unrecognized transition asset (2) -- (2) -- (2) -- Settlement 4 -- -- -- -- -- ------ ----- ------ ---- ------ ----- Net periodic benefit cost $ 49 $ 40 $ 62 $ 46 $ 41 $ 41 ====== ===== ====== ==== ====== ===== - -------------------------------------------------------------------------------------------------------------------
(1) Net actuarial (gain) loss is generally amortized over five years. Accounting for the postretirement health care plans uses a health care cost trend rate to recognize the effect of expected changes in future health care costs due to medical inflation, utilization changes, technological changes, regulatory requirements and Medicare cost shifting. Average annual increases of 8.0% to 8.5% for HMOs and 8.5% for all other types of coverage in the per capita cost of covered health care benefits were assumed for 2000. By 2006 and thereafter, rates were assumed at 5.5% for HMOs and for all other types of coverage. Increasing the assumed health care trend by one percentage point in each year would increase the benefit obligation as of December 31, 2000 by $52 million and the aggregate of the interest cost and service cost components of the net periodic benefit cost for 2000 by $7 million. Decreasing the assumed health care trend by one percentage point in each year would decrease the benefit obligation as of December 31, 2000 by $46 million and the aggregate of the interest cost and service cost components of the net periodic benefit cost for 2000 by $5 million. Expenses for defined contribution retirement plans were $169 million, $155 million and $179 million in 2000, 1999 and 1998, respectively. 81 OTHER EXPENSES The table below shows expenses which exceeded 1% of total interest income and noninterest income and which are not otherwise shown separately in the financial statements or notes thereto.
- ------------------------------------------------------------------------------------------------------------------- Year ended December 31, ----------------------------------------- (in millions) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------- Contract services $536 $473 $353 Outside professional services 447 381 398 Outside data processing 343 312 293 Advertising and promotion 316 251 252 Telecommunications 303 286 269 Travel and entertainment 287 262 225 Postage 252 239 242 Donations 32 49 259 - -------------------------------------------------------------------------------------------------------------------
14. INCOME TAXES The following is a summary of the components of income tax expense applicable to income before income taxes:
- ------------------------------------------------------------------------------------------------------------------- Year ended December 31, ------------------------------------------- (in millions) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------- Current: Federal $1,446 $ 628 $ 1,250 State and local 158 46 278 Foreign 46 53 (1) ------ ------ ------ 1,650 727 1,527 ------ ------ ------ Deferred: Federal 783 1,416 (16) State and local 90 195 (22) Foreign -- -- (15) ------ ------ ------ 873 1,611 (53) ------ ------ ------ Total $2,523 $2,338 $1,474 ====== ====== ====== - -------------------------------------------------------------------------------------------------------------------
The Company's tax benefit related to the exercise of employee stock options that was recorded in stockholders' equity was $112 million, $88 million and $102 million for 2000, 1999 and 1998, respectively. The Company had a net deferred tax liability of $3,297 million and $2,275 million at December 31, 2000 and 1999, respectively. The tax effects of temporary differences that gave rise to significant portions of deferred tax assets and liabilities at December 31, 2000 and 1999 are presented below:
- ------------------------------------------------------------------------------------------------------------------ Year ended December 31, ----------------------- (in millions) 2000 1999 - ------------------------------------------------------------------------------------------------------------------ DEFERRED TAX ASSETS Allowance for loan losses $ 1,414 $ 1,377 Net tax-deferred expenses 747 788 Other 63 169 ------- ------- Total deferred tax assets 2,224 2,334 ------- ------- DEFERRED TAX LIABILITIES Core deposit intangible 376 428 Leasing 1,853 1,398 Mark to market 712 800 Mortgage servicing 1,799 1,291 FAS 115 adjustment 295 366 Other 486 326 ------- ------- Total deferred tax liabilities 5,521 4,609 ------- ------- NET DEFERRED TAX LIABILITY $(3,297) $(2,275) ======= ======= - ------------------------------------------------------------------------------------------------------------------
The Company has determined that a valuation reserve is not required for any of the deferred tax assets since it is more likely than not that these assets will be realized principally through carryback to taxable income in prior years, and future reversals of existing taxable temporary differences, and, to a lesser extent, future taxable income and tax planning strategies. The Company's conclusion that it is "more likely than not" that the deferred tax assets will be realized is based on federal taxable income in excess of $4.3 billion in the carryback period, substantial state taxable income in the carryback period, as well as a history of growth in earnings and the prospects for continued growth. 82 The deferred tax liability related to unrealized gains and losses on securities available for sale had no impact on 2000, 1999 or 1998 income tax expense as these gains and losses, net of taxes, were recorded in cumulative other comprehensive income. The following table is a reconciliation of the statutory federal income tax expense and rate to the effective income tax expense and rate:
- ----------------------------------------------------------------------------------------------------------------------- Year ended December 31, ---------------------------------------------------------------------- 2000 1999 1998 -------------------- -------------------- -------------------- (in millions) AMOUNT % Amount % Amount % - ----------------------------------------------------------------------------------------------------------------------- Statutory federal income tax expense and rate $2,292 35.0% $2,222 35.0% $1,283 35.0% Change in tax rate resulting from: State and local taxes on income, net of federal income tax benefit 161 2.5 158 2.5 168 4.6 Amortization of goodwill not deductible for tax return purposes 165 2.5 133 2.1 129 3.5 Tax exempt income (76) (1.2) (71) (1.1) (63) (1.7) Other (19) (.3) (104) (1.7) (43) (1.2) ------ ----- ------ ---- ------ ---- Effective income tax expense and rate $2,523 38.5% $2,338 36.8% $1,474 40.2% ====== ==== ====== ==== ====== ==== - -----------------------------------------------------------------------------------------------------------------------
15. EARNINGS PER COMMON SHARE The table below shows dual presentation of earnings per common share and diluted earnings per common share and a reconciliation of the numerator and denominator of both earnings per common share calculations.
- ------------------------------------------------------------------------------------------------------------------ Year ended December 31, -------------------------------------------- (in millions, except per share amounts) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------ Net income $ 4,026 $ 4,012 $ 2,191 Less: Preferred stock dividends 17 35 35 -------- -------- -------- Net income applicable to common stock $ 4,009 $ 3,977 $ 2,156 ======== ======== ======== EARNINGS PER COMMON SHARE Net income applicable to common stock (numerator) $ 4,009 $ 3,977 $ 2,156 ======== ======== ======== Average common shares outstanding (denominator) 1,699.5 1,714.0 1,688.1 ======== ======== ======== Per share $ 2.36 $ 2.32 $ 1.28 ======== ======== ======== DILUTED EARNINGS PER COMMON SHARE Net income applicable to common stock (numerator) $ 4,009 $ 3,977 $ 2,156 ======== ======== ======== Average common shares outstanding 1,699.5 1,714.0 1,688.1 Add: Stock options 17.7 19.7 20.4 Restricted share rights 1.2 1.6 2.0 Convertible preferred -- .1 .1 -------- -------- -------- Diluted average common shares outstanding (denominator) 1,718.4 1,735.4 1,710.6 ======== ======== ======== Per share $ 2.33 $ 2.29 $ 1.26 ======== ======== ======== - ------------------------------------------------------------------------------------------------------------------
83 16. COMPREHENSIVE INCOME The following table presents the components of other comprehensive income and the related tax effect allocated to each component:
- ------------------------------------------------------------------------------------------------------------------- Before tax Net of (in millions) amount Tax effect tax - ------------------------------------------------------------------------------------------------------------------- 1998: Translation adjustments $ (6) $ (2) $ (4) ----- ----- ----- Net unrealized gains on securities available for sale arising during the year 196 77 119 Reclassification of net gains on securities available for sale included in net income (182) (73) (109) ----- ----- ----- Net unrealized gains arising during the year 14 4 10 ----- ----- ----- Other comprehensive income $ 8 $ 2 $ 6 ===== ===== ===== 1999: Translation adjustments $ 6 $ 2 $ 4 ----- ----- ----- Net unrealized gains on securities available for sale arising during the year 205 78 127 Reclassification of net losses on securities available for sale included in net income 219 83 136 ----- ----- ----- Net unrealized gains arising during the year 424 161 263 ----- ----- ----- Other comprehensive income $ 430 $ 163 $ 267 ===== ===== ===== 2000: TRANSLATION ADJUSTMENTS $ (3) $ (1) $ (2) ----- ----- ----- NET UNREALIZED LOSSES ON SECURITIES AVAILABLE FOR SALE ARISING DURING THE YEAR (232) (88) (144) RECLASSIFICATION OF NET GAINS ON SECURITIES AVAILABLE FOR SALE INCLUDED IN NET INCOME (145) (55) (90) ----- ----- ----- NET UNREALIZED LOSSES ARISING DURING THE YEAR (377) (143) (234) ----- ----- ----- OTHER COMPREHENSIVE INCOME $(380) $(144) $(236) ===== ===== ===== - -------------------------------------------------------------------------------------------------------------------
The following table presents cumulative other comprehensive income balances:
- ----------------------------------------------------------------------------------------------------------------- Cumulative Net unrealized other Translation gains (losses) on comprehensive (in millions) adjustments securities income - ----------------------------------------------------------------------------------------------------------------- Balance, December 31, 1997 $(10) $ 497 $ 487 ---- ----- ----- Net change (4) 10 6 ---- ----- ----- Balance, December 31, 1998 (14) 507 493 ---- ----- ----- Net change 4 263 267 ---- ----- ----- Balance, December 31, 1999 (10) 770 760 ---- ----- ----- NET CHANGE (2) (234) (236) ---- ----- ----- BALANCE, DECEMBER 31, 2000 $(12) $ 536 $ 524 ==== ===== ===== - -------------------------------------------------------------------------------------------------------------------
84 17. OPERATING SEGMENTS The Company has identified four lines of business for the purposes of management reporting: Community Banking, Wholesale Banking, Wells Fargo Home Mortgage (formerly Norwest Mortgage) and Wells Fargo Financial (formerly Norwest Financial). The results are determined based on the Company's management accounting process, which assigns balance sheet and income statement items to each responsible operating segment. This process is dynamic and somewhat subjective. Unlike financial accounting, there is no comprehensive, authoritative guidance for management accounting equivalent to generally accepted accounting principles. The management accounting process measures the performance of the operating segments based on the management structure of the Company and is not necessarily comparable with similar information for any other financial institution. The Company's operating segments are defined by product type and customer segments. Changes in management structure and/or the allocation process may result in changes in allocations, transfers and assignments. In that case, results for prior periods would be (and have been) restated to allow comparability. THE COMMUNITY BANKING GROUP offers a complete line of diversified financial products and services to individual consumers and small businesses with annual sales up to $10 million in which the owner is also the principal financial decision maker. Community Banking also offers investment management and other services to retail customers and high net worth individuals, insurance and securities brokerage through affiliates and venture capital financing. This includes WELLS FARGO FUNDS-SM-, a family of mutual funds, as well as personal trust, employee benefit trust and agency assets. Loan products include lines of credit, equipment and transportation (auto, recreational vehicle, marine) loans as well as equity lines and loans. Other credit products and financial services available to small businesses and their owners include receivables and inventory financing, equipment leases, real estate financing, Small Business Administration financing, cash management, payroll services, retirement plans, medical savings accounts and credit and debit card processing. Consumer and business deposit products include checking accounts, savings deposits, market rate accounts, Individual Retirement Accounts (IRAs) and time deposits. Community Banking provides access to customers through a wide range of channels, which encompass a network of traditional banking stores, banking centers, in-store banking centers, business centers and ATMs. Additionally, 24-hour telephone service is provided by PHONE BANK-SM- centers and the National Business Banking Center. Online banking services include the Wells Fargo Internet Services Group and BUSINESS GATEWAY-Registered Tradmark-, a personal computer banking service exclusively for the small business customer. THE WHOLESALE BANKING GROUP serves businesses with annual sales in excess of $10 million and maintains relationships with major corporations throughout the United States. Wholesale Banking provides a complete line of commercial and corporate banking services. These include traditional commercial loans and lines of credit, letters of credit, asset-based lending, equipment leasing, international trade facilities, foreign exchange services, cash management and investment management. Wholesale Banking includes the majority ownership interest in the Wells Fargo HSBC Trade Bank, which provides trade financing, letters of credit and collection services and is sometimes supported by the Export-Import Bank of the United States (a public agency of the United States offering export finance support for American-made products). Wholesale Banking also supports the commercial real estate market with products and services such as construction loans for commercial and residential development, land acquisition and development loans, secured and unsecured lines of credit, interim financing arrangements for completed structures, rehabilitation loans, affordable housing loans and letters of credit. Secondary market services are provided through the Capital Markets Group. Its business includes senior loan financing, mezzanine financing, financing for leveraged transactions, purchasing distressed real estate loans and high yield debt, origination of permanent loans for securitization, loan syndications, real estate brokerage services and commercial real estate loan servicing. WELLS FARGO HOME MORTGAGE'S activities include the origination and purchase of residential mortgage loans for sale to various investors as well as providing servicing of mortgage loans for others. 85 WELLS FARGO FINANCIAL includes consumer finance and auto finance operations. Consumer finance operations make direct loans to consumers and purchase sales finance contracts from retail merchants from offices throughout the United States and Canada and in the Caribbean and Latin America. Automobile finance operations specialize in purchasing sales finance contracts directly from automobile dealers and making loans secured by automobiles in the United States and Puerto Rico. Credit cards are issued to consumer finance customers through two credit card banks. Wells Fargo Financial also provides lease and other commercial financing and provides information services to the consumer finance industry. THE RECONCILIATION COLUMN includes goodwill and nonqualifying CDI, the net impact of transfer pricing loan and deposit balances, the cost of external debt, and any residual effects of unallocated systems and other support groups. It also includes the impact of asset/liability strategies the Company has put in place to manage interest rate sensitivity at the consolidated level.
- ------------------------------------------------------------------------------------------------------------------- (income/expense in millions, average balances in billions) Wells Fargo Recon- Consoli- Community Wholesale Home Wells Fargo ciliation dated Banking Banking Mortgage Financial Column (3) Company - ------------------------------------------------------------------------------------------------------------------- 2000 NET INTEREST INCOME (1) $7,737 $1,677 $ 122 $1,424 $ (95) $10,865 PROVISION FOR LOAN LOSSES 880 118 3 328 -- 1,329 NONINTEREST INCOME 5,851 1,226 1,341 304 121 8,843 NONINTEREST EXPENSE 8,120 1,363 970 987 390 11,830 ------ ------ ------ ------ ----- ------- INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT) 4,588 1,422 490 413 (364) 6,549 INCOME TAX EXPENSE (BENEFIT) (2) 1,677 530 180 155 (19) 2,523 ------ ------ ------ ------ ----- ------- NET INCOME (LOSS) $2,911 $ 892 $ 310 $ 258 $(345) $ 4,026 ====== ====== ====== ====== ===== ======= 1999 Net interest income (1) $7,307 $1,403 $ 172 $1,314 $ (80) $10,116 Provision for loan losses 709 102 3 288 2 1,104 Noninterest income 5,133 1,194 1,238 311 99 7,975 Noninterest expense 7,219 1,154 975 952 337 10,637 ------ ------ ------ ------ ----- ------- Income (loss) before income tax expense (benefit) 4,512 1,341 432 385 (320) 6,350 Income tax expense (benefit) (2) 1,534 500 166 142 (4) 2,338 ------ ------ ------ ------ ----- ------- Net income (loss) $2,978 $ 841 $ 266 $ 243 $(316) $ 4,012 ====== ====== ====== ====== ===== ======= 1998 Net interest income (1) $6,838 $1,345 $ 254 $1,303 $ (67) $ 9,673 Provision for loan losses 828 33 4 752 -- 1,617 Noninterest income 4,376 1,015 1,078 303 148 6,920 Noninterest expense 7,811 1,026 986 878 610 11,311 ------ ------ ------ ------ ----- ------- Income (loss) before income tax expense (benefit) 2,575 1,301 342 (24) (529) 3,665 Income tax expense (benefit) (2) 946 521 125 (5) (113) 1,474 ------ ------ ------ ------ ----- ------- Net income (loss) $1,629 $ 780 $ 217 $ (19) $(416) $ 2,191 ====== ====== ====== ====== ===== ======= 2000 AVERAGE LOANS $ 88 $ 41 $ 6 $ 11 $ -- $ 146 AVERAGE ASSETS 156 49 26 12 7 250 AVERAGE CORE DEPOSITS 132 10 4 -- -- 146 1999 Average loans $ 78 $ 35 $ 1 $ 10 $ -- $ 124 Average assets 141 42 23 11 8 225 Average core deposits 125 9 5 -- -- 139 - -------------------------------------------------------------------------------------------------------------------
(1) Net interest income is the primary source of income for most of the operating segments. Net interest income is the difference between actual interest earned on assets (and interest paid on liabilities) owned by a group and a funding charge (and credit) based on the Company's cost of funds. Community Banking and Wholesale Banking are charged a cost to fund any assets (e.g., loans) and are paid a funding credit for any funds provided (e.g., deposits). The interest spread is the difference between the interest rate earned on an asset or paid on a liability and the Company's cost of funds rate. (Wells Fargo Home Mortgage's net interest income was composed of interest revenue of $1,026 million, $869 million and $1,023 million for 2000, 1999 and 1998, respectively, and interest expense of $904 million, $697 million and $769 million for 2000, 1999 and 1998, respectively.) (2) Taxes vary by geographic concentration of revenue generation. Taxes as presented are also higher than the consolidated Company's effective tax rate as a result of taxable-equivalent adjustments that primarily relate to income on certain loans and securities that is exempt from federal and applicable state income taxes. The offsets for these adjustments are found in the reconciliation column. (3) The material items in the reconciliation column related to revenue (i.e., net interest income plus noninterest income) and net income consist of Treasury activities and unallocated items. Revenue includes Treasury activities of $66 million, $83 million and $125 million; and unallocated items of $(40) million, $(64) million, and $(44) million for 2000, 1999 and 1998, respectively. Net income includes Treasury activities of $40 million, $51 million and $72 million; and unallocated items of $(385) million, $(367) million and $(488) million for 2000, 1999 and 1998, respectively. The material items in the reconciliation column related to noninterest expense include goodwill and nonqualifying CDI amortization of $(326) million, $(318) million and $534 million for 2000, 1999 and 1998, respectively. The material items in the reconciliation column related to average assets include goodwill and nonqualifying CDI of $7 billion and $8 billion for 2000 and 1999, respectively. 86 18. MORTGAGE BANKING ACTIVITIES Mortgage banking activities include Wells Fargo Home Mortgage and mortgage banking activities in other operating segments. The following table presents the components of mortgage banking noninterest income:
- ------------------------------------------------------------------------------------------------------------------ Year ended December 31, ---------------------------------------------- (in millions) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------ Origination and other closing fees $ 350 $ 406 $ 557 Servicing fees, net of amortization 665 404 15 Net gains on sales of servicing rights 159 193 227 Net gains on sales of mortgages 38 117 182 All other 232 287 308 ------ ------ ------ Total mortgage banking noninterest income $1,444 $1,407 $1,289 ====== ====== ====== - ------------------------------------------------------------------------------------------------------------------
The managed servicing portfolio totaled $468 billion at December 31, 2000, $308 billion at December 31, 1999 and $264 billion at December 31, 1998, which included loans subserviced for others of $85 billion, $9 billion and $2 billion, respectively. Mortgage loans serviced for others, which are included in the managed servicing portfolio, are not included in the accompanying consolidated balance sheet. The Company routinely originates, securitizes and sells mortgage loans into the secondary market. As a result of this process, the Company typically retains the servicing rights and may retain an interest-only strip from the sales. These securitizations are structured without recourse to the Company and without restrictions on the retained interest. The Company recognized gains of $395 million from sales of financial assets in securitizations in 2000. Additionally, the Company had the following cash flows with the securitization Special Purpose Entity: - - proceeds from new securitizations of $5,381 million, - - servicing fees of $64 million, and - - cash flows on interest-only strips of $115 million. The following table summarizes the changes in capitalized mortgage loan servicing rights:
- ------------------------------------------------------------------------------------------------------------------ Year ended December 31, --------------------------------------------- (in millions) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------ Balance, beginning of year $4,652 $3,294 $3,218 Originations 702 1,110 965 Purchases 1,212 695 720 Sales (58) (172) (478) Amortization (554) (721) (849) Other (principally hedge activity) (345) 446 (282) ------ ------ ------ 5,609 4,652 3,294 Less valuation allowance -- -- 64 ------ ------ ------ Balance, end of year $5,609 $4,652 $3,230 ====== ====== ====== - ------------------------------------------------------------------------------------------------------------------
The key economic assumptions used in determining the fair value of mortgage servicing rights and other retained interests at the date of securitization resulting from securitizations completed in 2000 were as follows:
- ------------------------------------------------------------------------------------------------------------------ Mortgage servicing rights Other retained interests - ------------------------------------------------------------------------------------------------------------------ Prepayment speed (annual CPR) (1) 12.8% 10.2% Weighted average life (in years) 7.9 8.2 Discount rates (1) 10.6% 12.0% CPR - Constant prepayment rate - ------------------------------------------------------------------------------------------------------------------
(1) Discount rates and prepayment speeds represent weighted averages for all retained interests resulting from securitizations completed in 2000. At December 31, 2000, key economic assumptions and the sensitivity of the current fair value of mortgage servicing rights and other retained interests to immediate 10% and 25% adverse changes in those assumptions were as follows:
- ------------------------------------------------------------------------------------------------------------------- ($ in millions) Mortgage servicing rights Other retained interests - ------------------------------------------------------------------------------------------------------------------- Fair value of retained interests $5,669 $2,312 Expected weighted average life (in years) 6.5 6.8 Prepayment speed assumption (annual CPR) 13.3% 11.5% Decrease in fair value from 10% adverse change $ 222 $ 79 Decrease in fair value from 25% adverse change 524 188 Discount rate assumption ranges 8.7 - 14.5% 10.6 - 14.3% Decrease in fair value from 10% adverse change $ 215 $ 80 Decrease in fair value from 25% adverse change 509 189 - -------------------------------------------------------------------------------------------------------------------
These sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in fair value based on a 10% variation in assumptions generally cannot be extrapolated because the relationship of the change in the assumption to the change in fair value may not be linear. Also, in the above table, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated independently without changing any other assumption. In reality, changes in one factor may result in changes in another (for example, changes in prepayment speed estimates could result in changes in the discount rates), which might magnify or counteract the sensitivities. The Company did not retain credit risk on mortgage servicing rights and other retained interests reported herein. 87 19. PARENT COMPANY Condensed financial information of the Parent follows. For information regarding the Parent's long-term debt, see Note 9. CONDENSED STATEMENT OF INCOME
- ------------------------------------------------------------------------------------------------------------------ Year ended December 31, ---------------------------------------- (in millions) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------ INCOME Dividends from subsidiaries: Bank $2,318 $2,378 $1,450 Nonbank 1,139 153 403 Interest income from subsidiaries 701 616 459 Service fees from subsidiaries 45 104 127 Noninterest income 369 95 21 ------ ------ ------ Total income 4,572 3,346 2,460 ------ ------ ------ EXPENSE Interest on: Short-term borrowings 464 350 275 Long-term debt 739 514 341 Noninterest expense 116 380 379 ------ ------ ------ Total expense 1,319 1,244 995 ------ ------ ------ Income before income tax benefit and undistributed income of subsidiaries 3,253 2,102 1,465 Income tax benefit (expense) 114 (161) 105 Equity in undistributed income of subsidiaries 659 2,071 621 ------ ------ ------ NET INCOME $4,026 $4,012 $2,191 ====== ====== ====== - ------------------------------------------------------------------------------------------------------------------
CONDENSED BALANCE SHEET
- ------------------------------------------------------------------------------------------------------------------- December 31, ---------------------------------- (in millions) 2000 1999 - ------------------------------------------------------------------------------------------------------------------- ASSETS Cash and noninterest-bearing balances due from: Subsidiary banks $ -- $ 83 Non-affiliates 50 9 Interest-bearing balances due from subsidiary banks 1,759 6,028 Securities available for sale 1,982 1,765 Loans and advances to subsidiaries: Bank 200 -- Nonbank 10,862 8,114 Investment in subsidiaries (1): Bank 26,393 21,709 Nonbank 4,845 4,922 Other assets 1,257 1,558 ------- ------- Total assets $47,348 $44,188 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Short-term borrowings $ 5,848 $ 7,274 Other liabilities 900 1,737 Long-term debt 12,994 10,804 Indebtedness to subsidiaries 1,111 499 Stockholders' equity 26,495 23,874 ------- ------- Total liabilities and stockholders' equity $47,348 $44,188 ======= ======= - -------------------------------------------------------------------------------------------------------------------
(1) The double leverage ratio, which represents the ratio of the Parent's total equity investment in subsidiaries to its total stockholders' equity, was 118% and 112% at December 31, 2000 and 1999, respectively. 88 CONDENSED STATEMENT OF CASH FLOWS
- ------------------------------------------------------------------------------------------------------------------ Year ended December 31, ------------------------------------------- (in millions) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 4,026 $ 4,012 $ 2,191 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed income of subsidiaries (659) (2,071) (621) Depreciation and amortization 18 26 10 Securities available for sale gains -- -- (3) Release of preferred shares to ESOP 127 86 33 Other assets, net 295 114 (401) Accrued expenses and other liabilities (127) 536 618 -------- ------- -------- Net cash provided by operating activities 3,680 2,703 1,827 -------- ------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Securities available for sale: Proceeds from sales 739 348 185 Proceeds from prepayments and maturities 112 120 665 Purchases (1,067) (872) (1,273) Net advances to non-bank subsidiaries (2,499) 724 (1,210) Principal collected on notes/loans of subsidiaries 1,487 1,108 89 Capital notes and term loans made to subsidiaries (2,007) (505) (1,158) Net increase in investment in subsidiaries (1,804) (1,003) (295) --------- ------- -------- Net cash used by investing activities (5,039) (80) (2,997) --------- ------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net (decrease) increase in short-term borrowings and indebtedness to subsidiaries (743) 1,059 2,773 Proceeds from issuance of long-term debt 6,590 6,574 500 Repayment of long-term debt (4,400) (1,780) (295) Proceeds from issuance of common stock 422 517 171 Repurchases of common stock (3,235) (2,122) (742) Net decrease in ESOP loans -- 2 9 Payment of cash dividends (1,586) (1,436) (1,113) -------- ------- -------- Net cash (used) provided by financing activities (2,952) 2,814 1,303 -------- ------- -------- NET CHANGE IN CASH AND CASH EQUIVALENTS (4,311) 5,437 133 Cash and cash equivalents at beginning of year 6,120 683 550 -------- ------- -------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,809 $ 6,120 $ 683 ======== ======= ======== - ------------------------------------------------------------------------------------------------------------------
20. WFC HOLDINGS CORPORATION WFC Holdings is a wholly owned subsidiary of the Parent and is the sole stockholder of Wells Fargo Bank, N.A. The Parent guarantees the debt obligations of WFC Holdings. In view of this, the summarized assets, liabilities and results of operations of WFC Holdings are presented below and on the following page. Prior year amounts have been restated due to certain legal reorganizations within the Company. SUMMARIZED CONSOLIDATED INCOME STATEMENT
- -------------------------------------------------------------------------------- Year ended December 31, ------------------------------- (in millions) 2000 1999 1998 - -------------------------------------------------------------------------------- Interest income $7,373 $6,829 $7,085 Interest expense 2,970 2,270 2,508 Provision for loan losses 464 655 728 Noninterest income 5,515 4,301 3,925 Noninterest expense 6,605 6,239 5,923 ------ ------ ------ Income before income tax expense 2,849 1,966 1,851 Income tax expense 1,229 889 892 ------ ------ ------ Net income $1,620 $1,077 $ 959 ====== ====== ====== - --------------------------------------------------------------------------------
89 SUMMARIZED CONSOLIDATED BALANCE SHEET
- -------------------------------------------------------------------------------- December 31, --------------------- (in millions) 2000 1999 - -------------------------------------------------------------------------------- ASSETS Cash and due from banks $ 8,939 $ 7,899 Securities available for sale 10,215 12,452 Mortgages held for sale 1,447 1,511 Loans, net 70,796 65,547 Mortgage servicing rights 5,594 4,492 Other assets 29,404 20,381 -------- -------- Total assets $126,395 $112,282 ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY Short-term borrowings $ 17,410 $ 4,306 Long-term debt 6,590 4,148 Other liabilities 87,150 88,729 Guaranteed preferred beneficial interests in Company's subordinated debentures 785 785 Stockholder's equity 14,460 14,314 -------- -------- Total liabilities and stockholder's equity $126,395 $112,282 ======== ======== - --------------------------------------------------------------------------------
21. LEGAL ACTIONS In the normal course of business, the Company is at all times subject to numerous pending and threatened legal actions, some for which the relief or damages sought are substantial. After reviewing pending and threatened actions with counsel, management believes that the outcome of such actions will not have a material adverse effect on the results of operations or stockholders' equity of the Company. The Company is not able to predict whether the outcome of such actions may or may not have a material adverse effect on results of operations in a particular future period as the timing and amount of any resolution of such actions and its relationship to the future results of operations are not known. 22. RISK-BASED CAPITAL The Company and each of the subsidiary banks are subject to various regulatory capital adequacy requirements administered by the FRB and the OCC, respectively. The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) required that the federal regulatory agencies adopt regulations defining five capital tiers for banks: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Quantitative measures, established by the regulators to ensure capital adequacy, require that the Company and each of the subsidiary banks maintain minimum ratios (set forth in the table on the following page) of capital to risk-weighted assets. There are three categories of capital under the guidelines. Tier 1 capital includes common stockholders' equity, qualifying preferred stock and trust preferred securities, less goodwill and certain other deductions (including the unrealized net gains and losses, after applicable taxes, on securities available for sale carried at fair value). Tier 2 capital includes preferred stock not qualifying as Tier 1 capital, subordinated debt, the allowance for loan losses and net unrealized gains on marketable equity securities, subject to limitations by the guidelines. Tier 2 capital is limited to the amount of Tier 1 capital (i.e., at least half of the total capital must be in the form of Tier 1 capital). Tier 3 capital includes certain qualifying unsecured subordinated debt. Under the guidelines, capital is compared to the relative risk related to the balance sheet. To derive the risk included in the balance sheet, one of four risk weights (0%, 20%, 50% and 100%) is applied to the different balance sheet and off-balance sheet assets, primarily based on the relative credit risk of the counterparty. For example, claims guaranteed by the U.S. government or one of its agencies are risk-weighted at 0%. Off-balance sheet items, such as loan commitments and derivative financial instruments, are also applied a risk weight after calculating balance sheet equivalent amounts. One of four credit conversion factors (0%, 20%, 50% and 100%) is assigned to loan commitments based on the likelihood of the off-balance sheet item becoming an asset. For example, 90 certain loan commitments are converted at 50% and then risk-weighted at 100%. Derivative financial instruments are converted to balance sheet equivalents based on notional values, replacement costs and remaining contractual terms. (See Notes 5 and 23 for further discussion of off-balance sheet items.) The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Management believes that, as of December 31, 2000, the Company and each of the significant subsidiary banks met all capital adequacy requirements to which they are subject. Under the FDICIA prompt corrective action provisions applicable to banks, the most recent notification from the OCC categorized each of the significant subsidiary banks as well capitalized. To be categorized as well capitalized, the institution must maintain a total risk-based capital ratio as set forth in the following table and not be subject to a capital directive order. There are no conditions or events since that notification that management believes have changed the risk-based capital category of any of the significant subsidiary banks.
- ----------------------------------------------------------------------------------------------------- To be well capitalized under the FDICIA For capital prompt corrective Actual adequacy purposes action provisions ----------------- ----------------- ----------------- (in billions) Amount Ratio Amount Ratio Amount Ratio - --------------------------------------- ------- ------ ------ ----- ------ ----- As of December 31, 2000: Total capital (to risk-weighted assets) Wells Fargo & Company $23.0 10.43% > $17.7 > 8.00% Wells Fargo Bank Minnesota, N.A. - - (formerly Norwest Bank Minnesota, N.A.) 3.2 11.05 > 2.3 > 8.00 > $2.9 > 10.00% - - - - Wells Fargo Bank, N.A. 11.5 11.93 > 7.7 > 8.00 > 9.6 > 10.00 - - - - Tier 1 capital (to risk-weighted assets) Wells Fargo & Company $16.1 7.29% > $ 8.8 > 4.00% - - Wells Fargo Bank Minnesota, N.A. 2.9 10.16 > 1.1 > 4.00 > $1.7 > 6.00% - - - - Wells Fargo Bank, N.A. 6.8 7.12 > 3.8 > 4.00 > 5.8 > 6.00 - - - - Tier 1 capital (to average assets) (Leverage ratio) Wells Fargo & Company $16.1 6.49% > $ 9.9 > 4.00%(1) - - Wells Fargo Bank Minnesota, N.A. 2.9 5.71 > 2.0 > 4.00 (1) > $2.6 > 5.00% - - - - Wells Fargo Bank, N.A. 6.8 6.77 > 4.0 > 4.00 (1) > 5.1 > 5.00 - - - - - -----------------------------------------------------------------------------------------------------
(1) The leverage ratio consists of Tier 1 capital divided by quarterly average total assets, excluding goodwill and certain other items. The minimum leverage ratio guideline is 3% for banking organizations that do not anticipate significant growth and that have well-diversified risk, excellent asset quality, high liquidity, good earnings, effective management and monitoring of market risk and, in general, are considered top-rated, strong banking organizations. 23. DERIVATIVE FINANCIAL INSTRUMENTS The Company enters into a variety of financial contracts, which include interest rate futures and forward contracts, interest rate floors and caps, options and interest rate swap agreements. The contract or notional amount of a derivative is used to determine, along with the other terms of the derivative, the amounts to be exchanged between the counterparties. Because the contract or notional amount does not represent amounts exchanged by the parties, it is not a measure of loss exposure related to the use of derivatives nor of exposure to liquidity risk. The Company is primarily an end-user of these instruments. The Company also offers such contracts to its customers but offsets such contracts by purchasing other financial contracts or uses the contracts for asset/liability management. To a lesser extent, the Company takes positions based on market expectations or to benefit from price differentials between financial instruments and markets. The Company is exposed to credit risk in the event of nonperformance by counterparties to financial instruments. The Company controls the credit risk of its financial contracts except for contracts for which credit risk is DE MINIMUS through credit approvals, limits and monitoring procedures. Credit risk related to derivative financial instruments is considered and, if material, provided for separately from the allowance for loan losses. As the Company generally enters into transactions only with high quality counterparties, losses associated with counterparty nonperformance on derivative financial instruments have been immaterial. Further, the Company obtains collateral where appropriate and uses master netting arrangements in accordance with FASB Interpretation No. 39, OFFSETTING OF AMOUNTS RELATED TO CERTAIN CONTRACTS, as amended by FASB Interpretation No. 41, OFFSETTING OF AMOUNTS RELATED TO CERTAIN REPURCHASE AND REVERSE REPURCHASE AGREEMENTS. 91 The following table summarizes the aggregate notional or contractual amounts, credit risk amount and estimated net fair value for the Company's derivative financial instruments at December 31, 2000 and 1999.
- ------------------------------------------------------------------------------------------------------------------------------- December 31, ------------------------------------------------------------------------------------ 2000 1999 ----------------------------------------- -------------------------------------- NOTIONAL OR CREDIT ESTIMATED Notional or Credit Estimated CONTRACTUAL RISK NET FAIR contractual risk net fair (in millions) AMOUNT AMOUNT (3) VALUE amount amount (3) value - ------------------------------------------------------------------------------------------------------------------------------ ASSET/LIABILITY MANAGEMENT HEDGES Interest rate contracts: Swaps (1) $25,817 $391 $368 $32,846 $109 $(244) Futures 71,484 -- 141 50,885 -- (2) Floors and caps (1) 20,139 191 191 41,142 110 110 Options (1) (2) 20,620 275 267 11,940 22 43 Forwards (1) 21,392 69 (93) 22,528 108 41 Foreign exchange contracts: Forwards (1) 72 -- (2) 138 1 -- CUSTOMER ACCOMMODATIONS Interest rate contracts: Swaps (1) 40,934 635 58 21,716 158 (10) Futures 17,890 -- -- 22,839 -- -- Floors and caps purchased (1) 14,196 107 107 6,149 52 52 Floors and caps written 15,310 -- (76) 5,823 -- (53) Options purchased (1) 1,205 12 12 741 30 30 Options written 71 -- (3) 1,101 -- (51) Forwards (1) 150 2 (1) 164 6 1 Commodity contracts: Swaps (1) 167 57 1 116 10 -- Floors and caps purchased (1) 58 8 8 30 2 2 Floors and caps written 57 -- (8) 30 -- (2) Foreign exchange contracts: Forwards (1) 7,283 150 31 4,416 62 30 Options purchased (1) 42 1 1 41 -- -- Options written 42 -- (1) 42 -- (1) - ------------------------------------------------------------------------------------------------------------------------------
(1) The Company anticipates performance by substantially all of the counterparties for these contracts or the underlying financial instruments. (2) At December 31, 2000, the purchased option contracts were options on futures contracts, which are exchange traded for which the exchange assumes counterparty risk. (3) Credit risk amounts reflect the replacement cost for those contracts in a gain position in the event of nonperformance by counterparties. 92 Interest rate futures and forward contracts are contracts in which the buyer agrees to purchase and the seller agrees to make delivery of a specific financial instrument at a predetermined price or yield. These contracts may be settled either in cash or by delivery of the underlying financial instrument. Futures contracts are standardized and are traded on exchanges. Gains and losses on futures contracts are settled daily with the exchange based on a notional principal value. The exchange assumes the risk that a counterparty will not pay and generally requires margin payments to minimize such risk. Market risks arise from movements in interest rates and security values. The Company uses futures contracts on Eurodollar deposits and U.S. Treasury notes to reduce the price risk of interest-sensitive assets ($71 billion at December 31, 2000), primarily mortgage servicing rights. Initial margin requirements on futures contracts are provided by investment securities pledged as collateral. Interest rate floors and caps are interest rate protection instruments that involve the payment from the seller to the buyer of an interest differential. This differential represents the difference between a short-term rate (e.g., three-month LIBOR) and an agreed-upon rate (the strike rate) applied to a notional principal amount. By purchasing a floor, the Company will be paid the differential by a counterparty, should the current short-term rate fall below the strike level of the agreement. The Company generally receives cash quarterly on purchased floors (when the current interest rate falls below the strike rate) and purchased caps (when the current interest rate exceeds the strike rate). The primary risk associated with purchased floors and caps is the ability of the counterparties to meet the terms of the contract. Of the total purchased floors and caps for asset/liability management of $20 billion at December 31, 2000, the Company had $8 billion of floors to protect variable-rate loans from a drop in interest rates. The Company also had purchased floors of $12 billion at December 31, 2000 to hedge mortgage servicing rights. Cash flows from the floors offset lost future servicing revenue caused by increased levels of loan prepayments associated with lower interest rates. Interest rate swap contracts are entered into primarily as an asset/liability management strategy to reduce interest rate risk. Interest rate swap contracts are exchanges of interest payments, such as fixed-rate payments for floating-rate payments, based on a notional principal amount. Payments related to the Company's swap contracts are made either monthly, quarterly or semi-annually by one of the parties depending on the specific terms of the related contract. The primary risk associated with all swaps is the exposure to movements in interest rates and the ability of the counterparties to meet the terms of the contract. At December 31, 2000, the Company had $26 billion of interest rate swaps outstanding for interest rate risk management purposes on which the Company receives payments based on fixed interest rates and makes payments based on variable rates (e.g., three-month LIBOR). Included in this amount, $16 billion was used to convert floating-rate loans into fixed-rate assets. The remaining swap contracts used for interest rate risk management of $10 billion at December 31, 2000 were used to hedge interest rate risk of various other specific assets and liabilities. Options are contracts that grant the purchaser, for a premium payment, the right, but not the obligation, to either purchase or sell the underlying financial instrument at a set price during a period or at a specified date in the future. The writer of the option is obligated to purchase or sell the underlying financial instrument, if the purchaser chooses to exercise the option. The writer of the option receives a premium when the option is entered into and bears the risk of an unfavorable change in the price of the underlying financial instrument. Of the total options for asset/liability management of $21 billion at December 31, 2000, the Company had $3 billion of options on futures contracts and $14 billion of options on swaptions contracts hedging mortgage servicing rights. The futures exchange assumes the risk that a counterparty will not pay. Market risks arise from movements in interest rates and/or security values. The remaining options used for interest rate risk management of $4 billion at December 31, 2000 were used to hedge interest rate risk of various other specific assets. The Company has entered into futures contracts and mandatory and standby forward contracts, including options on futures and forward contracts, to reduce interest rate risk on certain mortgage loans held for sale and other commitments. For forward contracts, the primary risk is the exposure to movements in interest rates and the ability of the counterparties to meet the terms of the contracts. The net unrealized gain on these futures and forward contracts at December 31, 2000 was $151 million, compared with an unrealized loss of $136 million at December 31, 1999. These contracts mature within 180 days. 93 24. FAIR VALUE OF FINANCIAL INSTRUMENTS FAS 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, requires that the Company disclose estimated fair values for its financial instruments. Fair value estimates, methods and assumptions set forth below for the Company's financial instruments are made solely to comply with the requirements of this Statement and should be read in conjunction with the financial statements and notes in this Annual Report. The carrying amounts in the table on page 96 are recorded in the Consolidated Balance Sheet under the indicated captions, except for the derivative financial instruments, which are recorded in the specific asset or liability balance being hedged or in other assets if the derivative financial instrument is a customer accommodation. Fair values are based on estimates or calculations using present value techniques in instances where quoted market prices are not available. Because broadly traded markets do not exist for most of the Company's financial instruments, the fair value calculations attempt to incorporate the effect of current market conditions at a specific time. Fair valuations are management's estimates of the values, and they are often calculated based on current pricing policy, the economic and competitive environment, the characteristics of the financial instruments and other such factors. These calculations are subjective in nature, involve uncertainties and matters of significant judgment and do not include tax ramifications; therefore, the results cannot be determined with precision, substantiated by comparison to independent markets and may not be realized in an actual sale or immediate settlement of the instruments. There may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, that could significantly affect the results. The Company has not included certain material items in its disclosure, such as the value of the long-term relationships with the Company's deposit, credit card and trust customers, since these intangibles are not financial instruments. For all of these reasons, the aggregation of the fair value calculations presented herein do not represent, and should not be construed to represent, the underlying value of the Company. FINANCIAL ASSETS SHORT-TERM FINANCIAL ASSETS Short-term financial assets include cash and due from banks, federal funds sold and securities purchased under resale agreements and due from customers on acceptances. The carrying amount is a reasonable estimate of fair value because of the relatively short period of time between the origination of the instrument and its expected realization. SECURITIES AVAILABLE FOR SALE Securities available for sale at December 31, 2000 and 1999 are set forth in Note 4. LOANS The fair valuation calculation process differentiates loans based on their financial characteristics, such as product classification, loan category, pricing features and remaining maturity. Prepayment estimates are evaluated by product and loan rate. The fair value of commercial loans, other real estate mortgage loans and real estate construction loans is calculated by discounting contractual cash flows using discount rates that reflect the Company's current pricing for loans with similar characteristics and remaining maturity. For real estate 1-4 family first and junior lien mortgages, fair value is calculated by discounting contractual cash flows, adjusted for prepayment estimates, using discount rates based on current industry pricing for loans of similar size, type, remaining maturity and repricing characteristics. For credit card loans, the portfolio's yield is equal to the Company's current pricing and, therefore, the fair value is equal to book value. For other consumer loans, the fair value is calculated by discounting the contractual cash flows, adjusted for prepayment estimates, based on the current rates offered by the Company for loans with similar characteristics. For auto lease financing, the fair value is calculated by discounting the contractual cash flows at the Company's current pricing for items with similar remaining terms, not including tax benefits. 94 Commitments, standby letters of credit and commercial and similar letters of credit not included in the previous table have contractual values of $92.7 billion, $5.6 billion and $729 million, respectively, at December 31, 2000, and $82.3 billion, $4.8 billion and $766 million, respectively, at December 31, 1999. These instruments generate ongoing fees at the Company's current pricing levels. Of the commitments at December 31, 2000, 64% mature within one year. NONMARKETABLE EQUITY INVESTMENTS There are restrictions on the sale and/or liquidation of the Company's nonmarketable equity investments, which are generally in the form of limited partnerships; and the Company has no direct control over the investment decisions of the limited partnerships. To estimate fair value, a significant portion of the underlying limited partnerships' investments are valued based on market quotes. FINANCIAL LIABILITIES DEPOSIT LIABILITIES FAS 107 states that the fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, interest-bearing checking and market rate and other savings, is equal to the amount payable on demand at the measurement date. Although the FASB's requirement for these categories is not consistent with the market practice of using prevailing interest rates to value these amounts, the amount included for these deposits in the previous table is their carrying value at December 31, 2000 and 1999. The fair value of other time deposits is calculated based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for like deposits with similar remaining maturities. SHORT-TERM FINANCIAL LIABILITIES Short-term financial liabilities include federal funds purchased and securities sold under repurchase agreements, commercial paper and other short-term borrowings. The carrying amount is a reasonable estimate of fair value because of the relatively short period of time between the origination of the instrument and its expected realization. LONG-TERM DEBT The fair value of the Company's underwritten long-term debt is estimated based on the quoted market prices of the instruments. The fair value of the medium-term note programs, which are part of long-term debt, is calculated based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for new notes with similar remaining maturities. GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANY'S SUBORDINATED DEBENTURES The fair value of the Company's trust preferred securities is estimated based on the quoted market prices of the instruments. DERIVATIVE FINANCIAL INSTRUMENTS The fair value of derivative financial instruments is based on the estimated amounts that the Company would receive or pay to terminate the contracts at the reporting date (i.e., mark-to-market value). Dealer quotes are available for substantially all of the Company's derivative financial instruments. LIMITATIONS These fair value disclosures are made solely to comply with the requirements of FAS 107. The calculations represent management's best estimates; however, due to the lack of broad markets and the significant items excluded from this disclosure, the calculations do not represent the underlying value of the Company. The information presented is based on fair value calculations and market quotes as of December 31, 2000 and 1999. These amounts have not been updated since year end; therefore, the valuations may have changed significantly since that point in time. As discussed above, certain of the Company's asset and liability financial instruments are short-term, and therefore, the carrying amounts in the Consolidated Balance Sheet approximate fair value. Other significant assets and liabilities, which are not considered financial assets or liabilities and for which fair values have not been estimated, include premises and equipment, goodwill and other intangibles, deferred taxes and other liabilities. 95 The following table presents a summary of the Company's remaining financial instruments, as defined by FAS 107:
- ------------------------------------------------------------------------------------------------------------------------ December 31, -------------------------------------------------------- 2000 1999 -------------------------- ------------------------- CARRYING ESTIMATED Carrying Estimated (in millions) AMOUNT FAIR VALUE amount fair value - ------------------------------------------------------------------------------------------------------------------------ FINANCIAL ASSETS Mortgages held for sale $ 11,812 $ 11,812 $ 12,678 $ 12,826 Loans, net (1) 157,396 154,379 129,655 127,140 Nonmarketable equity investments 4,142 4,435 3,525 3,854 FINANCIAL LIABILITIES Deposits $169,559 $169,535 $145,918 $144,737 Long-term debt (2) 32,019 31,869 26,836 26,553 Guaranteed preferred beneficial interests in Company's subordinated debentures 935 967 935 886 DERIVATIVE FINANCIAL INSTRUMENTS (3) Interest rate contracts: Floors and caps purchased $ 184 $ 298 $ 274 $ 162 Floors and caps written (76) (76) (64) (53) Options purchased 106 287 83 76 Options written (13) (11) (55) (55) Swaps 177 427 238 (254) Futures 141 141 -- -- Forwards (245) (94) 18 42 Foreign exchange contracts 31 29 27 29 - ------------------------------------------------------------------------------------------------------------------------
(1) Loans are net of deferred fees on loan commitments and standby letters of credit of $9 million and $5 million at December 31, 2000 and 1999, respectively. (2) The carrying amount and fair value exclude obligations under capital leases of $27 million and $30 million at December 31, 2000 and 1999, respectively. (3) The carrying amounts include unamortized fees paid or received and gains or losses on derivative financial instruments receiving mark-to-market treatment. 96 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders of Wells Fargo & Company: We have audited the accompanying consolidated balance sheet of Wells Fargo & Company and Subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, changes in stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Wells Fargo & Company and Subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP San Francisco, California January 16, 2001 97 QUARTERLY FINANCIAL DATA CONDENSED CONSOLIDATED STATEMENT OF INCOME - QUARTERLY (UNAUDITED)
- --------------------------------------------------------------------------------------------------------------------------------- 2000 1999 QUARTER ENDED Quarter ended ------------------------------------------ -------------------------------------------- (in millions, except per share amounts) DEC. 31 SEPT. 30(1) JUNE 30(1) MAR. 31(1) Dec. 31(1) Sept. 30(1) June 30(1) Mar. 31(1) - ------------------------------------------------------------------------------------------- ------------------------------------ INTEREST INCOME $4,934 $4,870 $4,543 $4,378 $4,173 $4,042 $3,865 $3,852 INTEREST EXPENSE 2,140 2,095 1,879 1,746 1,569 1,465 1,375 1,409 ------ ------ ------ ------ ------ ------ ------ ------ NET INTEREST INCOME 2,794 2,775 2,664 2,632 2,604 2,577 2,490 2,443 Provision for loan losses 352 425 275 276 294 253 271 287 ------ ------ ------ ------ ------ ------ ------ ------ Net interest income after provision for loan losses 2,442 2,350 2,389 2,356 2,310 2,324 2,219 2,156 ------ ------ ------ ------ ------ ------ ------ ------ NONINTEREST INCOME Service charges on deposit accounts 437 435 428 404 418 408 389 366 Trust and investment fees 421 412 394 397 358 346 341 321 Credit card fees 145 154 134 131 151 146 134 139 Other fees 337 340 307 287 283 274 285 253 Mortgage banking 434 341 336 334 306 367 375 359 Insurance 119 80 117 95 87 98 122 88 Net venture capital gains 203 535 320 885 721 162 13 112 Net gains (losses) on securities available for sale 259 (341) (39) (601) (261) (2) 28 7 Other 256 99 138 111 144 149 279 210 ------ ------ ------ ------ ------ ------ ------ ------ Total noninterest income 2,611 2,055 2,135 2,043 2,207 1,948 1,966 1,855 ------ ------ ------ ------ ------ ------ ------ ------ NONINTEREST EXPENSE Salaries 920 945 906 881 867 846 815 779 Incentive compensation 222 271 185 168 164 150 166 164 Employee benefits 247 241 245 255 215 227 238 221 Equipment 307 211 208 221 294 217 203 213 Net occupancy 247 236 233 238 200 217 197 198 Goodwill 141 136 136 117 135 109 107 106 Core deposit intangible 45 46 47 48 51 51 52 53 Net losses (gains) on dispositions of premises and equipment 3 (9) (17) (34) (10) 6 (13) 2 Other 1,086 947 909 842 963 809 820 802 ------ ------ ------ ------ ------ ------ ------ ------ Total noninterest expense 3,218 3,024 2,852 2,736 2,879 2,632 2,585 2,538 ------ ------ ------ ------ ------ ------ ------ ------ INCOME BEFORE INCOME TAX EXPENSE 1,835 1,381 1,672 1,663 1,638 1,640 1,600 1,473 Income tax expense 707 560 635 623 600 608 604 527 ------ ------ ------ ------ ------ ------ ------ ------ NET INCOME $1,128 $ 821 $1,037 $1,040 $1,038 $1,032 $ 996 $ 946 ====== ====== ====== ====== ====== ====== ====== ====== NET INCOME APPLICABLE TO COMMON STOCK $1,124 $ 816 $1,033 $1,036 $1,029 $1,023 $ 987 $ 937 ====== ====== ====== ====== ====== ====== ====== ====== EARNINGS PER COMMON SHARE $ .66 $ .48 $ .61 $ .61 $ .60 $ .60 $ .58 $ .55 ====== ====== ====== ====== ====== ====== ====== ====== DILUTED EARNINGS PER COMMON SHARE $ .65 $ .47 $ .61 $ .61 $ .59 $ .59 $ .57 $ .54 ====== ====== ====== ====== ====== ====== ====== ====== DIVIDENDS DECLARED PER COMMON SHARE $ .24 $ .22 $ .22 $ .22 $ .20 $ .20 $ .20 $ .185 ====== ====== ====== ====== ====== ====== ====== ====== Average common shares outstanding 1,710.5 1,707.7 1,682.8 1,696.7 1,705.1 1,718.0 1,719.3 1,713.9 ======= ======= ======= ======= ======= ======= ======= ======= Diluted average common shares outstanding 1,732.4 1,728.0 1,702.6 1,711.3 1,727.5 1,738.4 1,742.0 1,732.9 ======= ======= ======= ======= ======= ======= ======= ======= - ---------------------------------------------------------------------------------------------------------------------------------
(1) Amounts have been restated to reflect the pooling-of-interests accounting treatment of the FSCO Merger. The restated amounts include adjustments to conform the accounting policies of First Security and Wells Fargo. 98 AVERAGE BALANCES, YIELDS AND RATES PAID (TAXABLE-EQUIVALENT BASIS)--QUARTERLY (1)(2) (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------------- Quarter ended December 31, ------------------------------------------------------------------- 2000 1999 ------------------------------ ------------------------------ INTEREST Interest AVERAGE YIELDS/ INCOME/ Average Yields/ income/ (in millions) BALANCE RATES EXPENSE balance rates expense - ----------------------------------------------------------------------------------------------------------------------------- EARNING ASSETS Federal funds sold and securities purchased under resale agreements $ 2,128 5.48% $ 29 $ 2,162 5.06% $ 27 Debt securities available for sale (3): Securities of U.S. Treasury and federal agencies 2,808 6.60 46 6,070 5.55 90 Securities of U.S. states and political subdivisions 1,984 7.31 36 2,106 8.09 43 Mortgage-backed securities: Federal agencies 24,981 7.35 454 23,706 6.82 412 Private collateralized mortgage obligations 1,333 10.01 34 3,595 6.86 64 -------- ------ -------- ------ Total mortgage-backed securities 26,314 7.48 488 27,301 6.82 476 Other debt securities (4) 4,205 8.00 65 4,588 7.62 62 -------- ------ -------- ------ Total debt securities available for sale (4) 35,311 7.45 635 40,065 6.76 671 Mortgages held for sale (3) 11,895 7.74 232 11,132 7.12 202 Loans held for sale (3) 4,410 8.59 95 4,844 7.62 93 Loans: Commercial 48,576 9.48 1,157 40,420 8.92 909 Real estate 1-4 family first mortgage 18,293 7.97 365 13,467 7.89 266 Other real estate mortgage 23,597 8.86 525 19,895 8.59 430 Real estate construction 7,576 10.01 191 5,945 9.53 143 Consumer: Real estate 1-4 family junior lien mortgage 17,510 10.67 468 12,579 10.11 319 Credit card 6,160 15.14 233 5,603 13.66 191 Other revolving credit and monthly payment 22,576 12.25 692 20,327 12.23 623 -------- ------ -------- ------ Total consumer 46,246 12.04 1,393 38,509 11.75 1,133 Lease financing 9,984 7.46 186 9,520 7.98 190 Foreign 1,588 21.18 84 1,572 20.87 83 -------- ------ -------- ------ Total loans (5) 155,860 9.98 3,901 129,328 9.71 3,154 Other 3,049 6.64 51 4,085 4.43 45 -------- ------ -------- ------ Total earning assets $212,653 9.33 4,943 $191,616 8.72 4,192 ======== ------ ======== ------ FUNDING SOURCES Deposits: Interest-bearing checking $ 3,664 2.24 21 $ 3,062 1.13 9 Market rate and other savings 65,404 3.02 497 61,399 2.27 351 Savings certificates 30,923 5.66 440 29,020 4.84 354 Other time deposits 4,932 5.98 73 3,833 4.98 48 Deposits in foreign offices 6,327 6.38 102 2,244 5.12 29 ------- ------ -------- ------ Total interest-bearing deposits 111,250 4.05 1,133 99,558 3.15 791 Short-term borrowings 27,253 6.54 448 24,930 5.48 344 Long-term debt 31,336 6.88 540 27,233 6.11 416 Guaranteed preferred beneficial interests in Company's subordinated debentures 935 7.97 19 935 7.83 18 ------- ------ -------- ------ Total interest-bearing liabilities 170,774 4.99 2,140 152,656 4.09 1,569 Portion of noninterest-bearing funding sources 41,879 -- -- 38,960 -- -- ------- ------ -------- ------ Total funding sources $212,653 4.03 2,140 $191,616 3.26 1,569 ======== ------ ======== ------ NET INTEREST MARGIN AND NET INTEREST INCOME ON A TAXABLE-EQUIVALENT BASIS (6) 5.30% $2,803 5.46% $2,623 ==== ====== ==== ====== NONINTEREST-EARNING ASSETS Cash and due from banks $ 13,758 $ 13,075 Goodwill 9,215 7,953 Other 24,345 19,045 -------- -------- Total noninterest-earning assets $ 47,318 $ 40,073 ======== ======== NONINTEREST-BEARING FUNDING SOURCES Deposits $ 51,856 $ 45,408 Other liabilities 11,028 10,050 Preferred stockholders' equity 266 461 Common stockholders' equity 26,047 23,114 Noninterest-bearing funding sources used to fund earning assets (41,879) (38,960) -------- -------- Net noninterest-bearing funding sources $ 47,318 $ 40,073 ======== ======== TOTAL ASSETS $259,971 $231,689 ======== ======== - ---------------------------------------------------------------------------------------------------------------------
(1) The average prime rate of the Company was 9.50% and 8.37% for the quarters ended December 31, 2000 and 1999, respectively. The average three-month London Interbank Offered Rate (LIBOR) was 6.69% and 6.14% for the same quarters, respectively. (2) Interest rates and amounts include the effects of hedge and risk management activities associated with the respective asset and liability categories. (3) Yields are based on amortized cost balances computed on a settlement date basis. (4) Includes certain preferred securities. (5) Nonaccrual loans and related income are included in their respective loan categories. (6) Includes taxable-equivalent adjustments that primarily relate to income on certain loans and securities that is exempt from federal and applicable state income taxes. The federal statutory tax rate was 35% for both quarters presented. 99 EX-21 10 a2040410zex-21.txt EXHIBIT 21 EXHIBIT 21 SUBSIDIARIES OF THE COMPANY The following is a list of subsidiaries of the Company as of December 31, 2000. The Company's bank subsidiaries which have the words "National Association" (N.A.), "National", or "Federal Savings Bank" (FSB) in their respective titles are organized under the laws of the United States; and all state bank subsidiaries are incorporated under the laws of the state in which each is domiciled. Each non-bank subsidiary is incorporated or organized in the jurisdiction appearing opposite its name. BANK SUBSIDIARIES ALASKA National Bank of Alaska ARIZONA Wells Fargo Bank Arizona, N.A CALIFORNIA Wells Fargo Bank, N.A. Wells Fargo Bank, Ltd. Wells Fargo Central Bank Wells Fargo HSBC Trade Bank, N.A. COLORADO Wells Fargo Bank West, N.A. Wells Fargo Bank Grand Junction, N.A. Wells Fargo Bank Grand Junction-Downtown, N.A. ILLINOIS Wells Fargo Bank Illinois, N.A. INDIANA Wells Fargo Bank Indiana, N.A. IOWA Brenton Bank Brenton Savings Bank, FSB Wells Fargo Bank Iowa, N.A. Wells Fargo Financial National Bank MICHIGAN Wells Fargo Bank Michigan, N.A. 1 MINNESOTA The Buffalo National Bank Wells Fargo Bank Minnesota, N.A. WF National Bank South Central MONTANA Wells Fargo Bank Montana, N.A. NEBRASKA Wells Fargo Bank Nebraska, N.A. NEVADA First Security Bank of Nevada Wells Fargo Bank Nevada, N.A. NEW MEXICO First Security Bank of New Mexico, N.A. Wells Fargo Bank New Mexico, N.A. NORTH DAKOTA Wells Fargo Bank North Dakota, N.A. OHIO Wells Fargo Bank Ohio, N.A. SOUTH DAKOTA Wells Fargo Financial Bank Wells Fargo Bank South Dakota, N.A. TEXAS Wells Fargo Bank Texas, N.A. UTAH First Security Bank, N.A. WISCONSIN Wells Fargo Bank Wisconsin, N.A. WYOMING Wells Fargo Bank Wyoming, N.A. EDGE ACT CORPORATIONS Wells Fargo Bank International 2 NON-BANK SUBSIDIARIES
JURISDICTION OF INCORPORATION OR DIRECTLY OWNED: ORGANIZATION - --------------- ------------ 1st Choice Financial Corp. Colorado American Community Bank Group Service Corporation Minnesota Bancdata Processing Corporation Minnesota Blackhawk Bancorporation Iowa Brenton Banks, Inc. Iowa Buffalo National Bancshares, Inc. Minnesota Bryan, Pendleton, Swats & McAllister, LLC Tennessee Charter Bancorporation, Inc. Arizona Credisol, S.A. Costa Rica Emjay Corporation Wisconsin Farmers National Bancorp, Inc. Delaware Fidelity Bancorporation, Inc. Delaware Financiera El Sol, S.A. Panama First Bancshares of Valley City, Inc. North Dakota First Commerce Bancshares, Inc. Nebraska First Place Financial Corporation New Mexico First Security Corporation Delaware First Valley Delaware Financial Corporation Delaware GST Co. Delaware Goldenrod Asset Management Delaware International Bancorporation, Inc. Minnesota Island Finance (Aruba) N.V. Aruba Island Finance (Bonaire) N.V. Netherlands Antilles Island Finance (Curacao) N.V. Netherlands Antilles Island Finance (St. Maarten) N.V. Netherlands Antilles Island Finance Puerto Rico, Inc. Delaware Island Finance Virgin Islands, Inc. Delaware Little Mountain Bancshares, Inc. Minnesota Lowry Hill Investment Advisors, Inc. Minnesota Mercantile Financial Enterprises, Inc. Delaware Metropolitan Bancshares, Inc. Colorado Michigan Financial Corporation Michigan MidAmerica Bancshares, Inc. South Dakota Midwest Credit Life Insurance Company Arizona Minnesota Bancshares, Inc. Minnesota Mountain Bancshares, Inc. Colorado Mustang Financial Corporation Texas Napa National Bancorp California National Bancorp of Alaska, Inc. Delaware National Bancorp of Alaska Insurance Services, LLC Alaska Nero Limited, LLC Delaware North County Bancorp California
3
JURISDICTION OF INCORPORATION OR DIRECTLY OWNED: ORGANIZATION - --------------- ------------ Northern Prairie Indemnity Limited Cayman Islands, BWI Norwest Auto Receivables Corporation Delaware Norwest Escrow Funding, Inc. Delaware Norwest Equity Capital, L.L.C. Minnesota Norwest Home Improvement, Inc. Texas Norwest Venture Capital Management, Inc. Minnesota Packers Management Company, Inc. Nebraska Peoples Mortgage and Investment Company Iowa Prime Bancshares, Inc. Texas Primrose Asset Management, Inc. Delaware Ragen MacKenzie Group Incorporated Washington Riverton State Bank Holding Company Wyoming Servus Financial Corporation Delaware Star Bancshares, Inc. Texas Texas Bancshares, Inc. Texas The Bank of New Mexico Holding Company New Mexico The First National Bankshares, Inc. New Mexico The Foothill Group, Inc. Delaware Wells Fargo Asia Limited Hong Kong Wells Fargo Audit Services, Inc. Minnesota Wells Fargo Credit, Inc. Minnesota Wells Fargo Financial Services, Inc. Delaware Wells Fargo Insurance, Inc. Minnesota Wells Fargo Properties, Inc. Minnesota Wells Fargo Services Company Minnesota Wells Fargo Trust Company, Cayman Islands Cayman Islands, BWI WFC Holdings Corporation Delaware Wisconsin Bancshares, Inc. Wisconsin
4
JURISDICTION OF INCORPORATION OR INDIRECTLY OWNED: ORGANIZATION - ----------------- ------------ Allied Business Systems, Inc. Iowa All-Time ATM, Inc. Utah AMAN Collection Service 1, Inc. Nevada AMAN Collection Service, Inc. South Dakota Amber Asset Management, Inc. Maryland American Securities Company California American Securities Company of Nevada Nevada ATC Realty Fifteen, Inc. California ATC Realty Nine, Inc. California ATC Realty Sixteen, Inc. California ATI Foreclosure Services, Inc. California Augustus Ventures, L.L.C. Nevada Azalea Asset Management, Inc. Delaware Bancshares Insurance Company Vermont Blue Jay Asset Management, Inc. Delaware Blue Spirit Insurance Company Vermont Blueberry Funding Corporation Nevada Bluebonnet Asset Management, Inc. Delaware Brenton Insurance, Inc. Iowa Brenton Investments, Inc. Iowa Brenton Realty Services, Ltd. Iowa Brenton Mortgages, Inc. Iowa Cabela's Card, L.L.C. Nebraska Cardinal Asset Management, Inc. Delaware Central Pacific Corporation California Century Business Credit Corporation New York Century Data Services, Inc. New York Centurion Agencies, Co. Iowa Centurion Agency Nevada, Inc. Nevada Centurion Casualty Company Iowa Centurion Life Insurance Company Missouri CGT Insurance Company, LTD. Barbados Charter Equipment Lease 1999-1, LLC Delaware Charter Financial Company Nova Scotia Charter Funding Corporation V New York Charter Holdings, Inc. Nevada Chestnut Asset Management, Inc. Delaware Clinton Street Garage Company, Inc. Indiana CMC Capital, Inc. Utah Collin Equities, Inc. Texas Columbine Asset Management, Inc. Delaware Commonwealth Leasing Corporation Minnesota Community Casualty Co. Vermont Copper Asset Management, Inc. Delaware
5
JURISDICTION OF INCORPORATION OR INDIRECTLY OWNED: ORGANIZATION - ----------------- ------------ Crane Asset Management, Inc. Delaware Crocker Grande, Inc. California Crocker Life Insurance Company California Crocker Properties, Inc. California Crossland Mortgage Acquisition Company Delaware Crossland Mortgage Corp. Utah DAG Management, Inc. Colorado Dial National Community Benefits, Inc. Nevada Ellis Advertising, Inc. Iowa Eastdil Advisors, Inc. Delaware Eastdil Broker Services, Inc. Delaware Eastdil Equities, Inc. Delaware Eastdil Realty Company, L.L.C. New York Eastdil U.S., Inc. California Eastdil, Inc. Delaware Elleven Corp. Nebraska Falcon Asset Management, Inc. Delaware FCC Holdings Limited California FF Capital Corp. Delaware Fidelity Acceptance Holding, Inc. Nevada Fidelity National Life Insurance Company Arizona Finvercon S.A. Compania Financiera Argentina (Delaware domestication) Finvercon USA, Inc. Nevada First City Life Insurance Company Arizona First Commerce Bancshares of Colorado, Inc. Colorado First Commerce Investors, Inc. Nebraska First Commerce Mortgage Company Nebraska First DialWest Escrow Company, Inc. California First Interstate Bancorporation, Inc. Kansas First Interstate Commercial Mortgage Company Delaware First Security Business Investment Corporation Utah First Security Hong Kong Agreement Corp. Utah First Security Information Technology, Inc. Utah First Security Insurance of New Mexico, Inc. New Mexico First Security Investment Services, Inc. Utah First Security Investment Management, Inc. Utah First Security Investor Services of Wyoming, Inc. Wyoming First Security Leasing Company Utah First Security Leasing Company of Nevada Nevada First Security Life Insurance Company of Arizona Arizona First Security Processing Services, Inc. Utah First Security Service Company Utah First Security Specialized Services, Inc. Utah First Security Trade Services, Ltd. First Security Trust Company of Nevada Nevada
7
JURISDICTION OF INCORPORATION OR INDIRECTLY OWNED: ORGANIZATION - ----------------- ------------ First Security Services of Nevada, Inc. Nevada First Security Van Kasper, Inc. Utah Foothill Capital Corporation California Fremont Properties, Inc. Colorado FS Capital I Delaware FSVK Investment, Inc. Utah Galliard Capital Management, Inc. Minnesota Garces Water Company, Inc. California Golden Asset Management, Inc. Delaware Golden Funding Company Cayman Islands Golden Pacific Insurance Company Vermont Great Plains Insurance Company Vermont Gwaltney & Gwaltney, Inc. Alaska IBID, Inc. Delaware Intermountain Insurance Agency, Inc. Washington IntraWest Asset Management, Inc. Delaware IntraWest Insurance Company Arizona Iris Asset Management, Inc. Delaware Las Vegas Building Corporation New Mexico Lilac Asset Management, Inc. Delaware Lily Asset Management, Inc. Delaware Lincoln Building Corporation Colorado Lowry Hill Investment Advisors, Inc. Minnesota Magnolia Asset Management, Inc. Delaware Maier/Hauswirth Investment Advisors, L.L.C. Wisconsin Marigold Asset Management, Inc. Delaware MidAmerica Financial Corporation Minnesota Montgomery Estates, Inc. Texas Mulberry Asset Management, Inc. Delaware Mustang Holdings, Inc. Delaware National Bank of Alaska Leasing Corporation Alaska National Letter Service Co., Inc. Minnesota NB Aviation, Inc. Alaska NEP VII - SBIC, LLC Minnesota NETS Electronic Tax Service, LLC Delaware NISI Nevada Insurance, Inc. Nevada NISI Wyoming Insurance Wyoming North Star Mortgage Guaranty Reinsurance Company Vermont Northland Credit Corporation Alaska Northland Escrow Services, Inc. Alaska Northland Mortgage Corporation Delaware Norwest Asset Acceptance Corporation Delaware Norwest Auto Finance, Inc. Minnesota Norwest do Brasil Servicos LTDA. Brazil Norwest Financial Canada Company Nova Scotia Norwest Financial Canada DE, Inc. Ontario
7
JURISDICTION OF INCORPORATION OR INDIRECTLY OWNED: ORGANIZATION - ----------------- ------------ Norwest Financial Canada DE 1, Inc. Delaware Norwest Financial Coast, Inc. California Norwest Financial Investment 1, Inc. Nevada Norwest Financial Investment 2, Inc. Nevada Norwest Financial Investment 6, Inc. Nevada Norwest Financial Investment, Inc. Nevada Norwest Investment Management, Inc. Minnesota Norwest Mortgage of New York, Inc. New York Old Henry, Inc. Illinois Orchid Asset Management, Inc. Delaware Osprey Asset Management, Inc. Delaware Paragon Capital LLC New York Pelican Asset Management, Inc. Delaware Peregrine Capital Management, Inc. Minnesota Pheasant Asset Management, Inc. Delaware Premium Service/Norwest Financial Coast, Inc. South Carolina Ragen MacKenzie Investment Services, LLC Delaware Raspberry Funding LLC Cayman Islands Raven Asset Management, Inc. Delaware Regency Insurance Agency, Inc. Minnesota REI Investors, Inc. Delaware Residential Home Mortgage Investment, L.L.C. Delaware Residential Home Mortgage, L.L.C. Delaware Ruby Asset Management, Inc. Maryland Rural Community Insurance Agency, Inc. Minnesota Rural Community Insurance Company Minnesota Sagebrush Asset Management, Inc. Delaware Saguaro Asset Management, Inc. Delaware Sapphire Asset Management, Inc. Maryland Scott Life Insurance Company Arizona Silver Asset Management, Inc. Delaware Spring Cypress Water Supply Corporation Texas Stagecoach Insurance Agency, Inc. California Star Bancshares of Nevada, Inc. Nevada Statewide Acceptance Corporation Texas Superior Asset Management, Inc. Delaware Superior Guaranty Insurance Company Vermont Superior Health Care Management, Inc. Delaware Telegraph Hill Capital, LLC Delaware Texas Bancshares Subsidiary Corporation Delaware The United Group, Inc. North Carolina Tiberius Ventures, L.L.C. Nevada Topaz Asset Management, Inc. Maryland United California Bank Realty Corporation California United New Mexico Real Estate Services, Inc. New Mexico UFS Life Reinsurance Company Arizona
8
JURISDICTION OF INCORPORATION OR INDIRECTLY OWNED: ORGANIZATION - ----------------- ------------ Valley Asset Management, Inc. Delaware Van Kasper Advisors, Inc. California Wells Fargo Asset Company Iowa Wells Fargo Asset Securities Corporation Delaware Wells Fargo Asset Management Corporation Minnesota Wells Capital Management Incorporated California Wells Fargo Bill Presentment Venture Member, LLC Delaware Wells Fargo Brokerage Services, LLC Delaware Wells Fargo Business Credit, Inc. Minnesota Wells Fargo Capital A California Wells Fargo Capital B California Wells Fargo Capital C California Wells Fargo Capital I California Wells Fargo Capital II California Wells Fargo Card Services, Inc. Iowa Wells Fargo Cash Centers, Inc. Nevada Wells Fargo Corporate Services, Inc. California Wells Fargo Corporation Oregon Wells Fargo Energy Capital, Inc. Texas Wells Fargo Escrow Company, LLC Iowa Wells Fargo Equipment Finance, Inc. Minnesota Wells Fargo Equity Capital, Inc. California Wells Fargo Financial Retail Services, Inc. Iowa Wells Fargo Financing Corporation California Wells Fargo Financial Information Services, Inc. Iowa Wells Fargo Financial Investment 7, Inc. Nevada Wells Fargo Financial Leasing, Inc. Iowa Wells Fargo Financial Preferred Capital, Inc. Iowa Wells Fargo Financial Puerto Rico, Inc. Delaware Wells Fargo Financial Resources, Inc. Iowa Wells Fargo Financial Security Services, Inc. Iowa Wells Fargo Financial, Inc.1 Iowa Wells Fargo Fleet Services, Inc. Minnesota Wells Fargo Funding, Inc. Minnesota Wells Fargo Home Mortgage of New Mexico, Inc. New Mexico Wells Fargo Home Mortgage, Inc. California Wells Fargo Housing Advisors, Inc. California
- ---------------------- (1) Wells Fargo Financial, Inc. is the parent and directly or indirectly beneficially owns all the voting securities of certain subsidiaries operating as consumer finance companies, using a version of the name Wells Fargo Financial, Island Finance, Mercury Marine, Reliable Financial and Norwest Financial, in the United States, Canada, Guam and Saipan. (129 subsidiaries as of February 26, 2001). Such subsidiaries were incorporated or otherwise organized in: Alaska, Arizona, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Washington, West Virginia, Wisconsin, Wyoming, Canada, Guam and Saipan. 9
JURISDICTION OF INCORPORATION OR INDIRECTLY OWNED: ORGANIZATION - ----------------- ------------ Wells Fargo Insurance Nevada, Inc. Nevada Wells Fargo Insurance New Mexico, Inc. New Mexico Wells Fargo Insurance Texas Agency, Inc. Texas Wells Fargo Insurance Wyoming, Inc. Wyoming Wells Fargo International Commercial Services Limited Hong Kong Wells Fargo International Limited Cayman Islands Wells Fargo Investment Group, Inc. Delaware Wells Fargo Investments, LLC Delaware Wells Fargo Leasing Corporation California Wells Fargo Mondex, Inc. Arizona Wells Fargo Private Client Funding, Inc. Delaware Wells Fargo Rural Insurance Agency, Inc. Minnesota Wells Fargo Securities, Inc. California Wells Fargo Small Business Investment Company, Inc. California Wells Fargo Van Kasper, LLC Delaware Wells Fargo Ventures, LLC Delaware Wells Fargo Ventures, Inc. Delaware Wells Fargo West Community Development Corporation Colorado Wells Fargo, Ltd. Hawaii WFFI Auto Loan Funding LLC 1999-I Delaware WFFI Auto Loan Funding LLC 1999-II Delaware WFFI Auto Loan Funding LLC 2000-A Delaware WFFI Manager, Inc. Delaware WFS Insurance Agency, Inc. Montana WFS Insurance Agency, Inc. Nevada WFS Insurance Agency, Inc. Oregon WFS Insurance Agency, Inc. Washington WFS Insurance Agency, Inc. Wyoming WFS Insurance Agency New Mexico, Inc. New Mexico Yucca Asset Management, Inc. Delaware
NOTE: Not included in the above list of subsidiaries of the Company are inactive subsidiaries, certain subsidiaries formed solely for the purpose of reserving a name, joint ventures, limited partnerships, or foundations managed by the Company or its subsidiaries. 10 EX-23 11 a2040410zex-23.txt EXHIBIT 23 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS The Board of Directors of Wells Fargo & Company: We consent to the incorporation by reference in the registration statements noted below on Forms S-3, S-4 and S-8 of Wells Fargo & Company of our report dated January 16, 2001, with respect to the consolidated balance sheet of Wells Fargo & Company and Subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, changes in stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2000, which report is incorporated by reference in the December 31, 2000 Annual Report on Form 10-K of Wells Fargo & Company.
Registration Statement Number Form Description - ---------------- ---- ----------- 333-09489 S-3 Wells Fargo Direct Purchase and Dividend Reinvestment Plan 333-79493 S-3 Universal Shelf 1999 333-47336 S-3 Universal Shelf 2000 333-53219 S-4 Acquisition Registration Statement 333-55272 S-4 SCI Financial Group, Inc. 033-57904 S-4/S-8 Financial Concepts Bancorp, Inc. 333-02485 S-4/S-8 Benson Financial Corporation 333-63247 S-4/S-8 Former Wells Fargo & Company 333-96511 S-4/S-8 Ragen MacKenzie Group Incorporated 333-37862 S-4/S-8 First Security Corporation 333-45384 S-4/S-8 Brenton Banks, Inc. and Brenton Bank 033-42198 S-8 1985 Long-Term Incentive Compensation Plan 033-50309 S-8 1985 Long-Term Incentive Compensation Plan 033-65007 S-8 Stock Direct Purchase Plan 333-12423 S-8 Long-Term Incentive Compensation Plan 333-62877 S-8 Long-Term Incentive Compensation Plan 333-74655 S-8 PartnerShares Plan 333-79777 S-8 401(k) Plan 333-33800 S-8 1999 Directors Stock Option Plan 333-52600 S-8 Wells Fargo Financial Thrift and Profit Sharing Plan 333-54354 S-8 Deferred Compensation Plan and 1999 Deferral Plan for Directors
/s/ KPMG LLP San Francisco, California March 16, 2001 EX-24 12 a2040410zex-24.txt EXHIBIT 24 EXHIBIT 24 WELLS FARGO & COMPANY Power of Attorney of Director KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of WELLS FARGO & COMPANY, a Delaware corporation, does hereby make, constitute, and appoint PHILIP J. QUIGLEY, a director and Chairman of the Audit and Examination Committee of the Board of Directors, and CYNTHIA H. MILLIGAN, a director and member of the Audit and Examination Committee of the Board of Directors, and each or either of them, the undersigned's true and lawful attorneys-in-fact, with power of substitution, for the undersigned and in the undersigned's name, place, and stead, to sign and affix the undersigned's name as such director of said Company to an Annual Report on Form 10-K for the fiscal year ended December 31, 2000, and all amendments thereto, to be filed by said Company with the Securities and Exchange Commission, Washington, D.C. under the Securities Exchange Act of 1934, and the rules and regulations of said Commission, and to file the same, with all exhibits thereto and other supporting documents, with said Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted. IN WITNESS WHEREOF, the undersigned has executed this power of attorney this 27th day of February, 2001. /s/ Les S. Biller /s/ Richard D. McCormick /s/ Michael R. Bowlin /s/ Cynthia H. Milligan /s/ David A. Christensen /s/ Benjamin F. Montoya /s/ Spencer F. Eccles /s/ Philip J. Quigley /s/ Susan E. Engel /s/ Donald B. Rice /s/ Paul Hazen /s/ Judith M. Runstad /s/ Robert L. Joss /s/ Susan G. Swenson /s/ Reatha Clark King /s/ Michael W. Wright /s/ Richard M. Kovacevich
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