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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-2979
NORWEST CORPORATION
A Delaware Corporation - I.R.S. No. 41-0449260
Norwest Center
Sixth and Marquette
Minneapolis, Minnesota 55479
Telephone (612) 667-1234
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock ($1 2/3 par value) New York Stock Exchange
Chicago Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Chicago Stock Exchange
Depositary Shares Representing New York Stock Exchange
10.24% Cumulative Preferred Stock
Depositary Shares Representing New York Stock Exchange
Cumulative Convertible Preferred
Stock, Series B
6 3/4% Convertible Subordinated New York Stock Exchange
Debentures Due 2003
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. [ X ]
On January 31, 1994, 311,212,676 shares of common stock were outstanding,
of which 281,972,855 shares were held by non-affiliates. At that date,
the aggregate market values of these shares, based upon a closing price
of $26.375 per share, were $8,208.2 million and $7,437.0 million,
respectively.
Documents Incorporated by Reference
Portions of the corporation's Notice of Annual Meeting and Proxy
Statement for the annual meeting of stockholders to be held April
26, 1994, are incorporated by reference into Part III.
PART I
ITEM 1. BUSINESS
Norwest Corporation (the corporation) is a regional bank holding company
organized under the laws of Delaware in 1929 and registered under the
Bank Holding Company Act of 1956, as amended (the "BHC Act"). As a
diversified financial services organization, the corporation operates
through subsidiaries engaged in banking and in related businesses. The
corporation provides retail, commercial, and corporate banking services
to its customers through banks located in Arizona, Colorado, Illinois,
Indiana, Iowa, Minnesota, Montana, Nebraska, New Mexico, North Dakota,
Ohio, South Dakota, Texas, Wisconsin, and Wyoming. The corporation
provides additional financial services to its customers through
subsidiaries engaged in various businesses, principally mortgage banking,
consumer finance, equipment leasing, agricultural finance, commercial
finance, securities brokerage and investment banking, insurance, computer
and data processing services, trust services, and venture capital
investments.
At December 31, 1993, the corporation and its subsidiaries employed
approximately 35,000 persons, had consolidated total assets of $50.8
billion, total deposits of $32.6 billion, and total stockholders' equity
of $3.6 billion. Based on total assets at December 31, 1993, the
corporation was the 14th largest bank holding company in the United
States.
As a holding company, the corporation's role is to coordinate the
establishment of goals, objectives, policies and strategies, to monitor
adherence to policies and to provide capital funds to its subsidiaries.
In addition, the corporation provides its subsidiaries with strategic
planning support, asset and liability management services, investment
administration and portfolio planning, tax planning, new product and
business development support, advertising, administrative services and
human resources management. The corporation derives substantially all
its income from investments in and advances to its subsidiaries and
service fees received from its subsidiaries.
The Financial Review, which begins on page 17 in the Appendix, discusses
developments in the corporation's business during 1993 and provides
financial and statistical data relative to the business and operations of
the corporation. A brief description of the primary business lines of the
corporation follows. Refer to Footnote 14 of the corporation's financial
statements for additional information about the corporation's business
segments.
Banking
The corporation's subsidiary banks, serving 15 states with 578 locations,
offer diversified financial services including corporate and community
banking, trust, capital management, data processing and credit card
services. Investment services are provided to customers through Norwest
Investment Services, Inc., which operates in 15 states with 111 offices,
primarily in banking locations. In addition, Norwest Insurance, Inc. and
its subsidiaries operate insurance agencies in 19 states with 102 offices
offering complete lines of commercial and personal coverages to
customers.
Norwest Bank Minnesota, N.A. is the largest bank in the group with total
assets of $15.3 billion at December 31, 1993. Eight other banks in the
group equaled or exceeded $1.0 billion in total assets: Norwest Bank Iowa,
N.A. ($6.3 billion), Norwest Bank South Dakota, N.A. ($2.9 billion),
Norwest Bank Nebraska, N.A ($2.9 billion), Norwest Bank Arizona, N.A.
($2.2 billion), Norwest Bank Denver, N.A. ($2.0 billion), Norwest Bank
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Wisconsin, N.A. ($1.5 billion), Norwest Bank North Dakota, N.A ($1.1
billion) and Norwest Bank Fort Wayne, N.A. ($1.0 billion).
Norwest Venture Capital consists of a group of four affiliated companies
engaged in making and managing investments in start-up businesses,
emerging growth companies, management buy-outs, acquisitions and
corporate recapitalizations. Norwest Venture Capital has supported the
formation of nearly 300 new businesses with investments of nearly $400
million. Norwest Venture Capital's investments typically range from
$750,000 to $5,000,000; however, larger sums may be invested in a single
company, sometimes through syndication with other venture capitalists.
Most Norwest Venture Capital emerging growth company clients are engaged
in technology-related businesses, such as information processing,
microelectronics, biotechnology, computer software, medical products,
health care delivery, telecommunications, industrial automation,
environmental related businesses and non-technology businesses, such as
specialty retailing and consumer related business. Financing of
management buy-outs is done for a variety of businesses.
Mortgage Banking
The corporation, through its mortgage banking operations, originates and
purchases residential first mortgage loans for sale to various investors
and provides servicing of mortgage loans for others where servicing
rights have been retained. Income is primarily earned from origination
fees, loan servicing fees, interest on mortgages held for sale, and the
sale of mortgages and servicing rights. Norwest Mortgage offers a wide
range of FHA, VA and conventional loan programs through a network of 633
offices in 577 communities in all 50 states. Approximately 49 percent of
the mortgages are FHA and VA mortgages guaranteed by the federal
government and sold as GNMA securities. In 1993 the company funded $33.7
billion of mortgages, with the average loan being approximately $97,500.
This compares with $21.0 billion of fundings in 1992 and $13.2 billion in
1991. As of December 31, 1993 the mortgage banking servicing portfolio
totaled $45.7 billion with a weighted average coupon of 7.22 percent. In
1993 mortgage banking retained $24.1 billion in servicing, or 71.5
percent of fundings, as compared with $13.0 billion or 61.9 percent of
fundings and $4.2 billion or 31.8 percent of fundings in 1992 and 1991,
respectively.
Consumer Finance
Consumer finance activities, provided through the corporation's
subsidiary, Norwest Financial, Inc. and its subidiaries ("Norwest
Financial"), include providing direct installment loans to individuals,
purchasing of sales finance contracts, private label and lease accounts
receivable and other related products and services. Norwest Financial
provides consumer finance products and services through 954 stores in 794
communities in 46 states and in all 10 Canadian provinces. At December
31, 1993, consumer finance receivables accounted for 89 percent of
Norwest Financial's total receivables. Direct installment loans to
individuals constitute the largest portion of the consumer finance
business and, in addition, sales finance contracts are purchased from
retailers. The average installment loan made during 1993 was
approximately $2,799 while sales finance contracts purchased during the
year averaged approximately $976. Comparable amounts in 1992 and 1991
were $2,700 and $900, and $2,500 and $900, respectively.
Norwest Financial also has insurance subsidiaries which are primarily
engaged in the business of providing, directly or through reinsurance
arrangements, credit life and credit disability insurance as a part of
Norwest Financial's consumer finance business and the consumer finance
business of subsidiaries of the corporation. Property, involuntary
unemployment and non-filing insurance is sold as part of Norwest
Financial's consumer finance business directly or through a reinsurance
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arrangement by one of its insurance subsidiaries or on an agency basis.
Competition
Legislative and regulatory changes coupled with technological advances
have significantly increased competition in the financial services
industry. The corporation's banks and financial services subsidiaries
compete with other commercial banks and financial institutions including
savings and loan associations, credit unions, finance companies, mortgage
banking companies, brokerage houses and insurance agencies.
Government policies, supervision and regulation
General
As a bank holding company, the corporation is subject to the supervision
of the Federal Reserve Board. The corporation's banking subsidiaries are
subject to supervision and examination by applicable federal and state
banking agencies. All of the corporation's banking subsidiaries are
insured, and therefore are subject to regulation, by the FDIC. In
addition to the impact of regulation, commercial banks are affected
significantly by the actions of the Federal Reserve Board affecting the
money supply and credit availability.
The corporation is a legal entity separate and distinct from its banking
and nonbanking subsidiaries. Accordingly, the right of the corporation,
and thus the right of the corporation's creditors, to participate in any
distribution of the assets or earnings of any subsidiary is necessarily
subject to the prior claims of creditors of such subsidiary, except to
the extent that the corporation may be a creditor.
Dividend Restrictions
Various federal and state statutes and regulations limit the amount of
dividends the subsidiary banks can pay to the corporation without
regulatory approval. The approval of the OCC is required for any dividend
by a national bank if the total of all dividends declared by the bank in
any calendar year would exceed the total of its net profits, as defined
by regulation, for that year combined with its retained net profits for
the preceding two years less any required transfers to surplus or a fund
for the retirement of any preferred stock. In addition, a national bank
may not pay a dividend in an amount greater than its net profits then on
hand after deducting its losses and bad debts. For this purpose, bad
debts are defined to include, generally, loans which have matured and are
in arrears with respect to interest by six months or more, other than
such loans which are well secured and in the process of collection. Under
these provisions the corporation's national bank subsidiaries could have
declared, as of December 31, 1993, without obtaining prior regulatory
approval, aggregate dividends of $483.2 million. The payment of dividends
by any subsidiary bank may also be affected by other factors, such as the
maintenance of adequate capital for such subsidiary bank.
If, in the opinion of the applicable regulatory authority, a bank under
its jurisdiction is engaged in an unsafe or unsound practice (which,
depending on the financial condition of the bank, could include the
payment of dividends), such authority may require, after notice and
hearing, that such bank cease and desist from such practice. The Federal
Reserve Board, the OCC, and the FDIC have issued policy statements which
provide that insured banks and bank holding companies should generally
pay dividends only out of current operating earnings.
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Holding Company Structure
The corporation's banking subsidiaries are subject to restrictions under
federal law which limit the transfer of funds by the subsidiary banks to
the corporation and its non-bank subsidiaries, whether in the form of
loans, extensions of credit, investments, or asset purchases. Such
transfers by any subsidiary bank to the corporation or any non-bank
subsidiary are limited in amount to 10% of the bank's capital and surplus
and, with respect to the corporation and all non-bank subsidiaries, to an
aggregate of 20% of the bank's capital and surplus. Further, such
loans and extensions of credit are required to be secured in specified
amounts.
The Federal Reserve Board has a policy to the effect that a bank holding
company is expected to act as a source of financial and managerial
strength to each of its subsidiary banks and to commit resources to
support each subsidiary bank. This support may be required at times when
the corporation may not have the resources to provide it. Any capital
loans by the corporation to any of the subsidiary banks are subordinate
in right of payment to deposits and to certain other indebtedness of the
subsidiary bank. In addition, the Crime Control Act of 1990 provides that
in the event of a bank holding company's bankruptcy, any commitment by
the bank holding company to a federal bank regulatory agency to maintain
the capital of a subsidiary bank will be assumed by the bankruptcy
trustee and entitled to a priority of payment.
A depository institution insured by the FDIC can be held liable for any
loss incurred by, or reasonably expected to be incurred by, the FDIC
after August 9, 1989, in connection with (i) the default of a commonly
controlled FDIC-insured depository institution or (ii) any assistance
provided by the FDIC to a commonly controlled FDIC-insured depository
institution in danger of default. "Default" is defined generally as the
appointment of a conservator or receiver and "in danger of default" is
defined generally as the existence of certain conditions indicating that
a "default" is likely to occur in the absence of regulatory assistance.
Federal law (12 U.S.C. Section 55) permits the OCC to order the pro
rata assessment of shareholders of a national bank whose capital stock
has become impaired, by losses or otherwise, to relieve a deficiency in
such national bank's capital stock. This statute also provides for the
enforcement of any such pro rata assessment of shareholders of such
national bank to cover such impairment of capital stock by sale, to the
extent necessary, of the capital stock of any assessed shareholder
failing to pay the assessment. Similarly, the laws of certain states
provide for such assessment and sale with respect to banks chartered by
such states. The corporation, as the sole shareholder of certain of its
subsidiary banks, is subject to such provisions.
Capital Requirements
In January 1989, the Federal Reserve Board issued final risk-based
capital guidelines for bank holding companies, such as the corporation.
The new guidelines, which became effective December 31, 1990, were phased
in over two years. The minimum ratio of total capital to risk-adjusted
assets (including certain off-balance sheet items, such as stand-by
letters of credit) is 8%. At least half of the total capital is to be
composed of common equity, retained earnings, and a limited amount of
noncumulative perpetual preferred stock ("Tier 1 capital"). The remainder
("Tier 2 capital") may consist of hybrid capital instruments, perpetual
debt, mandatory convertible debt securities, a limited amount of
subordinated debt, other preferred stock, and a limited amount of
allowance for credit losses. The Federal Reserve Board has adopted
changes to its risk-based and leverage ratio requirements applicable to
bank holding companies and state chartered member banks that require that
all intangibles, including core deposit intangibles, purchased mortgage
5
servicing rights ("PMSRs"), and purchased credit card relationships
("PCCRs") be deducted from Tier 1 capital. The changes, however,
grandfather identifiable assets (other than PMSRs and PCCRs) acquired on
or before February 19, 1992, and permit the inclusion of readily
marketable PMSRs and PCCRs in Tier 1 capital to the extent that (i) PMSRs
and PCCRs do not exceed 50% of Tier 1 capital and (ii) PCCRs do not
exceed 25% of Tier 1 capital. For such purposes, PMSRs and PCCRs each
would be included in Tier 1 capital only up to the lesser of (a) 90% of
their fair market value (which must be determined quarterly) and (b) 100%
of the remaining unamortized book value of such assets. The OCC has
adopted substantially similar regulations. In addition, the Federal
Reserve Board approved in August 1990 final minimum "leverage ratio" (the
ratio of Tier 1 capital to quarterly average total assets) guidelines for
bank holding companies and state member banks. These guidelines provide
for a minimum leverage ratio of 3% for bank holding companies and state
member banks that meet certain specified criteria, including that they
have the highest regulatory rating. All other bank holding companies and
state member banks will be required to maintain a leverage ratio of 3%
plus an additional cushion of 1% to 2%. The tangible Tier 1 leverage
ratio is the ratio of a banking organization's Tier 1 capital, less all
intangibles, to total assets, less all intangibles. Each of the
corporation's banking subsidiaries is also subject to capital
requirements adopted by applicable regulatory agencies which are
substantially similar to the foregoing. At December 31, 1993, the
corporation's Tier 1 and total capital (the sum of Tier 1 and Tier 2
capital) to risk-adjusted assets ratios were 9.84% and 12.60%,
respectively, and the corporation's leverage ratio was 6.60%. Neither the
corporation nor any subsidiary bank has been advised by the appropriate
federal regulatory agency of any specific leverage ratio applicable to
it.
Federal Deposit Insurance Corporation Improvement Act of 1991
In December 1991, Congress enacted the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"), which substantially
revises the bank regulatory and funding provisions of the Federal Deposit
Insurance Act and makes revisions to several other federal banking
statutes.
Among other things, FDICIA requires the federal banking agencies to take
"prompt corrective action" in respect of depository institutions that do
not meet minimum capital requirements. FDICIA establishes five capital
tiers: "well capitalized", "adequately capitalized", "undercapitalized",
"significantly undercapitalized", and "critically undercapitalized". A
depository institution's capital tier will depend upon where its capital
levels are in relation to various relevant capital measures, which will
include a risk-based capital measure and a leverage ratio capital
measure, and certain other factors.
A depository institution is well capitalized if it significantly exceeds
the minimum level required by regulation for each relevant capital
measure, adequately capitalized if it meets each such measure,
undercapitalized if it fails to meet any such measure, significantly
undercapitalized if it is significantly below any such measure, and
critically undercapitalized if it fails to meet any critical capital
level set forth in regulations. The critical capital level must be a
level of tangible equity equal to not less than 2% of total assets and
not more than 65% of the minimum leverage ratio to be prescribed by
regulation (except to the extent that 2% would be higher than such 65%
level). An institution may be deemed to be in a capitalization category
that is lower than is indicated by its actual capital position if, among
other things, it receives an unsatisfactory examination rating.
Under regulations adopted pursuant to the foregoing provisions, for an
institution to be well capitalized it must have a Tier 1 risk-based
capital ratio of at least 6%, a total risk-based capital ratio of at
6
least 10%, and a leverage ratio of at least 5%, and not be subject to any
specific capital order or directive. For an institution to be adequately
capitalized it must have a Tier 1 risk-based capital ratio of at least
4%, a total risk-based capital ratio of at least 8%, and a leverage ratio
of at least 4% (and in some cases 3%). As of December 31, 1993, all of
the corporation's banking subsidiaries were well capitalized.
FDICIA generally prohibits a depository institution from making any
capital distribution (including payment of a dividend) or paying any
management fee to its holding company if the depository institution would
thereafter be undercapitalized. Undercapitalized depository institutions
are subject to a wide range of limitations on operations and activities,
including growth limitations, and are required to submit a capital
restoration plan. The federal banking agencies may not accept a capital
plan without determining, among other things, that the plan is based on
realistic assumptions and is likely to succeed in restoring the
depository institution's capital. In addition, for a capital restoration
plan to be acceptable, the depository institution's parent holding
company must guarantee that the institution will comply with such capital
restoration plan. The aggregate liability of the parent holding company
is limited to the lesser of (i) an amount equal to 5% of the depository
institution's total assets at the time it became undercapitalized and
(ii) the amount which is necessary (or would have been necessary) to
bring the institution into compliance with all capital standards
applicable with respect to such institution as of the time it fails to
comply with the plan. If a depository institution fails to submit an
acceptable plan, it is treated as if it were significantly
undercapitalized.
Significantly undercapitalized depository institutions may be subject to
a number of requirements and restrictions, including orders to sell
sufficient voting stock to become adequately capitalized, requirements to
reduce total assets, and cessation of receipt of deposits from
correspondent banks. Critically undercapitalized institutions are subject
to the appointment of a receiver or conservator.
FDICIA directs that each federal banking agency prescribe standards for
depository institutions and depository institution holding companies
relating to internal controls, information systems, internal audit
systems, loan documentation, credit underwriting, interest rate exposure,
asset growth, compensation, a maximum ratio of classified assets to
capital, minimum earnings sufficient to absorb losses, a minimum ratio of
market value to book value for publicly traded shares, and such other
standards as the agency deems appropriate. Although the corporation
believes it is in compliance with the above FDICIA standards, the
ultimate impact, if any, of such standards on the corporation cannot be
ascertained.
FDICIA also contains a variety of other provisions that may affect the
operations of the corporation, including new reporting requirements,
revised regulatory standards for real estate lending, "truth in savings"
provisions, and the requirement that a depository institution give 90
days' notice to customers and regulatory authorities before closing any
branch.
Under other regulations promulgated under FDICIA a bank cannot accept
brokered deposits (that is, deposits obtained through a person engaged in
the business of placing deposits with insured depository institutions or
with interest rates significantly higher that prevailing market rates)
unless (i) it is "well capitalized" or (ii) it is "adequately
capitalized" and receives a waiver from the FDIC. A bank is defined to be
well capitalized if it maintains a leverage ratio of at least 5%, a ratio
of Tier 1 capital to risk-adjusted assets of at least 6%, and a ratio of
total capital to risk-adjusted assets of at least 10%, and is not
otherwise in a "troubled condition" as specified by the appropriate
7
federal regulatory agency. A bank is defined to be "adequately
capitalized" if it meets all of its minimum capital requirements. A bank
that cannot receive brokered deposits also cannot offer "pass-through"
insurance on certain employee benefit accounts, unless it provides
certain notices to affected depositors. In addition, a bank that is
"adequately capitalized" and that has not received a waiver from the FDIC
may not pay an interest rate on any deposits in excess of 75 basis points
over certain prevailing market rates. There are no such restrictions on a
bank that is "well capitalized". At December 31, 1993, all of the
corporation's banking subsidiaries were well capitalized and, therefore,
were not subject to these restrictions.
FDIC Insurance
Effective January 1, 1993, the deposit insurance assessment rate for the
Bank Insurance Fund ("BIF") and the Savings Association Insurance Fund
("SAIF") increased as part of the adoption by the FDIC of a transitional
risk-based assessment system. In June 1993, the FDIC published final
regulations making the transitional system permanent effective January 1,
1994, but left open the possibility that it may consider expanding the
range between the highest and lowest assessment rates at a later date. An
institution's risk category is based upon whether the institution is well
capitalized, adequately capitalized, or less than adequately capitalized.
Each insured depository institution is also to be assigned to one of the
following "supervisory subgroups": Subgroup A, B, or C. Subgroup A
institutions are financially sound institutions with few minor
weaknesses; Subgroup B institutions are institutions that demonstrate
weaknesses which, if not corrected, could result in significant
deterioration; and Subgroup C institutions are institutions for which
there is a substantial probability that the FDIC will suffer a loss in
connection with the institution unless effective action is taken to
correct the areas of weakness. Based on its capital and supervisory
subgroups, each BIF or SAIF member institution will be assigned an annual
FDIC assessment rate ranging from 0.23% per annum (for well capitalized
Subgroup A institutions) to 0.31% (for undercapitalized Subgroup C
institutions). Adequately capitalized institutions will be assigned
assessment rates ranging from 0.26% to 0.30%. The corporation incurred
$66.2 million of FDIC assessment expense in 1993 as compared with $62.5
million in 1992 and $57.4 million in 1991. Because of decreases in the
reserves of the BIF and SAIF due to the increased number of bank failures
in recent years, it is possible the BIF and SAIF premiums will be further
increased and it is possible that there may be a special assessment. Any
such further increase or special assessment would also decrease net
income, and a special assessment could have a material adverse effect on
the results of operations of the corporation.
ITEM 2. PROPERTIES
The corporation operates 578 commercial banking locations, of which 382
are owned directly by subsidiary banks and 196 are leased from outside
parties. The mortgage banking operation leases its headquarters
facilities and servicing center in Des Moines, Iowa, leases a servicing
center in Minneapolis, Minnesota, owns an additional servicing center
located in Springfield, Ohio, and leases all mortgage production offices
nationwide. Norwest Financial owns its headquarters in Des Moines, Iowa,
and leases all consumer finance branch locations. The corporation and
Norwest Bank Minnesota, N.A. lease their offices in Minneapolis,
Minnesota.
8
The accompanying notes to consolidated financial statements on pages 57
and 70 in the Appendix contain additional information with respect to
premises and equipment and commitments under noncancellable leases for
premises and equipment.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The principal trading markets for the corporation's common equity
are presented on the cover page of the Form 10-K. The high and low
sales prices for the corporation's common stock for each quarter
during the past two years and information regarding cash dividends
is set forth on pages 62, 82, and 92 in the Appendix. The number of
holders of record of the common equity securities of the corporation
at January 31, 1994 were:
Title of Class Number of Holders
6 3/4 % convertible
subordinated debentures due 2003 10
Depositary Shares Representing Cumulative
Convertible Preferred Stock, Series B 91
Common stock, par value $1 2/3 per share 25,999
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data begins on page 86 in the Appendix.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The discussion and analysis is presented beginning on page 17 in the
Appendix and should be read in conjunction with the related financial
statements and notes thereto included under Item 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the corporation and its
subsidiaries begin on page 36 in the Appendix. The report of independent
certified public accountants on the corporation's consolidated financial
statements is presented on page 84 in the Appendix.
Selected quarterly financial data is presented on pages 92 and 93 in the
Appendix.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
10
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required to be submitted in response to this item is
omitted because a definitive proxy statement containing such information
will be filed with the Securities and Exchange Commission pursuant to
Regulation 14A and such information is expressly incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required to be submitted in response to this item is
omitted because a definitive proxy statement containing such information
will be filed with the Securities and Exchange Commission pursuant to
Regulation 14A and such information is expressly incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required to be submitted in response to this item is
omitted because a definitive proxy statement containing such information
will be filed with the Securities and Exchange Commission pursuant to
Regulation 14A and such information is expressly incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required to be submitted in response to this item is
omitted because a definitive proxy statement containing such information
will be filed with the Securities and Exchange Commission pursuant to
Regulation 14A and such information is expressly incorporated herein by
reference.
11
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements - See Item 8 above.
(2) Financial Statement Schedules
All schedules to the consolidated financial statements
normally required by Form 10-K are omitted since they
are either not applicable or the required information
is shown in the financial statements or the notes
thereto.
(b) Reports on Form 8-K
(1) The corporation filed Current Reports on Form 8-K
dated October 25, 1993, filing certain documents in
connection with the offering of 6.65% Subordinated
Debentures Due 2023, and dated December 29, 1993,
filing certain documents in connection with the
offering of Medium-Term Notes, Series D.
(c) Exhibits Page
2. Pro forma combined financial information for the
corporation and pending acquisitions at December
31, 1993 and for the years ended December 31,
1993, 1992 and 1991.................................... 94
3(a). Restated Certificate of Incorporation, as amended,
incorporated by reference to Exhibit 3(b) to
the corporation's Current Report on Form 8-K dated
June 28, 1993.
3(b). Certificate of Designations of powers, preferences
and rights relating to the corporation's 10.24%
Cumulative Preferred Stock incorporated by
reference to Exhibit 4(a) to the corporation's
Registration Statement No. 33-38806.
3(c). Certificate of Designations of powers, preferences
and rights relating to the corporation's Cumulative
Convertible Preferred Stock, Series B incorporated
by reference to Exhibit 2 to the corporation's
Form 8-A, dated August 8, 1991.
3(d). By-Laws, as amended, incorporated by
reference to Exhibit 4(c) to the corporation's
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1991.
4(a). See 3(a), 3(b), 3(c), and 3(d) of Item 14(c), above.
4(b). Rights Agreement, dated as of November 22, 1988,
between the corporation and Citibank, N.A.
incorporated by reference to Exhibit 1 to
the corporation's Form 8-A, dated December 6, 1988,
and Certificates of Adjustment pursuant to Section
12 of the Rights Agreement incorporated by
reference to Exhibit 3 to the corporation's Form 8,
dated July 21, 1989, and to Exhibit 4 to the
corporation's Form 8-A/A dated June 29, 1993.
4(c). Copies of instruments with respect to long-term
debt will be furnished to the Commission upon
request.
*10(a). 1983 Stock Option and Restricted Stock Plan
incorporated by reference to Exhibit 28(b) to the
corporation's Registration Statement No. 2-95331.
12
*10(b). 1985 Long-Term Incentive Compensation Plan, as
amended, incorporated by reference to Exhibit
99(a) to the corporation's Registration Statement
No. 033-50309.
*10(c). Employees' Stock Deferral Plan incorporated by
reference to Exhibit 10(c) to the corporation's Annual
Report on Form 10-K for the year ended December 31, 1992.
*10(d). Executive Incentive Compensation Plan incorporated
by reference to Exhibit 19(a) to the corporation's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1988. Amendment to Executive Incentive
Compensation Plan incorporated by reference to
Exhibit 19(b) to the corporation's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1989.
*10(e). Supplemental Savings-Investment Plan, as amended,
incorporated by reference to Exhibit 10(e) to the
corporation's Annual Report on Form 10-K for the year
ended December 31, 1992.
*10(f). Executive Financial Counseling Plan incorporated
by reference to Exhibit 10(f) to the corporation's
Annual Report on Form 10-K for the year
ended December 31, 1987.
*10(g). Supplemental Long Term Disability Plan incorporated
by reference to Exhibit 10(f) to the corporation's
Annual Report on Form 10-K for the year ended
December 31, 1990. Amendment to Supplemental Long
Term Disability Plan incorporated by reference
to Exhibit 10(g) to the corporation's Annual Report
on Form 10-K for the year ended December 31, 1992.
*10(h). Deferred Compensation Plan for Non-Employee
Directors incorporated by reference to
Exhibit 10(g) to the corporation's Annual Report on
Form 10-K for the year ended December 31, 1987.
*10(i). Retirement Plan for Non-Employee Directors
incorporated by reference to Exhibit 10(h)
to the corporation's Annual Report on Form 10-K
for the year ended December 31, 1987. Amendment to
Retirement Plan for Non-Employee Directors incorporated
by reference to Exhibit 19 to the corporation's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1990.
*10(j). Directors' Formula Stock Award Plan, as amended,
incorporated by reference to Exhibit 19 to the
corporation's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993.
*10(k). Directors' Stock Deferral Plan incorporated
by reference to Exhibit 19 to the corporation's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1992.
*10(l). Agreement between the corporation and Lloyd P.
Johnson dated March 11, 1991, incorporated
by reference to Exhibit 19(c) to the corporation's
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1991.
*10(m). Agreement between the corporation and Richard M.
Kovacevich dated March 18, 1991, incorporated
by reference to Exhibit 19(e) to the corporation's
Quarterly Report on Form 10-Q for the
quarter ended March 31, 1991.
13
*10(n). Form of agreement executed in March 1991, between
the corporation and 13 executive officers including
two directors, incorporated by reference to
Exhibit 19(f) to the corporation's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1991.
Amendments dated March 16, 1992 to the agreements
between the corporation and Lloyd P. Johnson and
Richard M. Kovacevich incorporated by reference to
Exhibit 19(a) to the corporation's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1992.
*10(o). Lincoln Financial Corporation Directors' Stock
Compensation Plan incorporated by reference to
Exhibit 10 to the corporation's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993.
*10(p). Employees' Deferred Compensation Plan incorporated
by reference to Exhibit 99 to the corporation's
Registration Statement No. 033-50307.
*10(q). Consulting Agreement between the corporation and
Gerald J. Ford dated January 19, 1994.................. 102
*10(r). First United Bank Group, Inc. Incentive Stock
Option Plan incorporated by reference to the
corporation's Registration Statement No. 033-50495.
11. Computation of Earnings Per Share...................... 106
12(a). Computation of Ratio of Earnings to Fixed Charges...... 107
12(b). Computation of Ratio of Earnings to Fixed Charges
and Preferred Stock Dividends.......................... 108
21. Subsidiaries of the Corporation........................ 109
23. Consent of Experts..................................... 115
24. Powers of Attorney..................................... 116
______________________
* Management contract or compensatory plan or arrangement.
Stockholders may obtain a copy of any Exhibit, Item 14(c), none of which
are contained herein, upon payment of a reasonable fee, by writing
Norwest Corporation, Office of the Secretary, Norwest Center, Sixth and
Marquette, Minneapolis, Minnesota 55479-1026.
14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, on
the 22nd day of February 1994.
Norwest Corporation
(Registrant)
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 on the 22nd day of February, 1994, by the
following persons on behalf of the registrant and in the capacities
indicated.
By /s/JOHN T. THORNTON
John T. Thornton
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
By /s/MICHAEL A. GRAF
Michael A. Graf
Senior Vice President and Controller
(Principal Accounting Officer)
The Directors of Norwest Corporation listed below have duly executed
powers of attorney empowering William A. Hodder to sign this document on
their behalf.
David A. Christensen Richard S. Levitt
Pierson M. Grieve Richard D. McCormick
Charles M. Harper Cynthia H. Milligan
N. Berne Hart John E. Pearson
George C. Howe Ian M. Rolland
Lloyd P. Johnson Stephen E. Watson
Reatha Clark King Michael W. Wright
Richard M. Kovacevich
By /s/WILLIAM A. HODDER
William A. Hodder
Director and Attorney-in-Fact
February 22, 1994
15
Appendix
NORWEST CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations, Financial
Statements, Report of Independent Auditors
and Selected Financial Data
Forming a Part of the Annual Report
on Form 10-K for the
Year Ended December 31, 1993
Contents
Page
Financial Review ......................................... 17
Financial Statements ..................................... 36
Independent Auditors' Report ............................. 84
Management's Report ...................................... 85
Six-Year Consolidated Financial Summary .................. 86
Consolidated Average Balance Sheets
and Related Yields and Rates ............................. 87
Quarterly Condensed Consolidated Financial Information.... 92
16
FINANCIAL REVIEW
This financial review should be read with the consolidated financial
statements and accompanying notes presented on pages 36 through 83 and
other information presented on pages 86 through 93.
EARNINGS PERFORMANCE
Norwest Corporation (the "corporation") reported record net income of
$653.6 million in 1993, an increase of 79.5 percent over earnings of
$364.1 million in 1992 and 63.0 percent over the $400.9 million earned in
1991. Net income per common share was $2.13 in 1993, compared with $1.16
in 1992 and $1.34 in 1991, an increase of 84.4 percent and 59.3 percent,
respectively. Return on common equity was 20.9 percent and return on
assets was 1.38 percent for 1993, compared with 12.4 percent and 0.85
percent in 1992, respectively, and 15.5 percent and 0.99 percent in 1991,
respectively.
The 1992 results include a one-time special charge of $76.0 million after
tax, or 26 cents per common share, related to the corporation's early
adoption of Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions"
(FAS 106). Excluding the cumulative effect of the change in accounting
for postretirement medical benefits, 1992 net income was $440.1 million,
or $1.42 per common share, return on common equity was 15.2 percent and
return on assets was 1.03 percent.
Net income per common share amounts for periods prior to 1993 have been
restated to reflect the two-for-one split of the outstanding shares of
common stock of the corporation effected in the form of a 100 percent
stock dividend distributed on June 28, 1993.
The corporation's results for periods prior to 1993 have been restated to
include the results of Lincoln Financial Corporation (Lincoln) which was
acquired by the corporation effective February 9, 1993 and has been
accounted for using the pooling of interest method of accounting.
Included in 1992 earnings are Lincoln's $60.0 million of additional
provision for credit losses for the purpose of conforming Lincoln's
credit loss practices and policies to those of the corporation and $33.5
million of merger and transition related expenses and restructuring
costs, together totaling $93.5 million before income taxes.
17
Norwest Corporation and Subsidiaries
CONSOLIDATED INCOME SUMMARY
5 Year
Growth
In Millions 1993 Change 1992 Change 1991 1990 1989 Rate
Interest income
(tax-equivalent
basis) $3,766.7 3.9% $3,623.8 (5.8)% $3,847.5 $3,748.0 $3,501.4 4.5%
Interest expense 1,358.0 (10.0) 1,509.2 (25.5) 2,024.2 2,201.2 2,100.9 (4.4)
Net interest
income 2,408.7 13.9 2,114.6 16.0 1,823.3 1,546.8 1,400.5 12.8
Provision for
credit losses 140.1 (47.5) 266.7 (33.6) 401.9 428.3 225.5 (5.3)
Net interest
income after
provision for
credit losses 2,268.6 22.8 1,847.9 30.0 1,421.4 1,118.5 1,175.0 14.8
Non-interest
income 1,542.5 25.5 1,228.8 19.2 1,031.2 872.1 711.3 20.6
Non-interest
expenses 2,840.8 16.6 2,436.6 25.6 1,939.5 1,666.9 1,454.7 15.9
Income before
income taxes 970.3 51.6 640.1 24.8 513.1 323.7 431.6 20.5
Income tax
expense 284.1 74.1 163.2 144.3 66.8 110.1 96.0 58.5
Tax-equivalent
adjustment 32.6 (11.6) 36.8 (18.9) 45.4 57.3 60.7 (14.2)
Income before
cumulative effect
of a change in
accounting for
postretirement
medical benefits 653.6 48.5 440.1 9.8 400.9 156.3 274.9 18.2
Cumulative effect
on years ended
prior to
December 31, 1992
of a change in
accounting for
postretirement
medical benefits - NM (76.0) NM - - - -
Net income $ 653.6 79.5% $ 364.1 (9.2)% $ 400.9 $ 156.3 $ 274.9 18.2%
NM - Not meaningful
18
ORGANIZATIONAL EARNINGS
BANKING
The Banking Group reported record earnings of $397.2 million in 1993,
74.5 percent over 1992 earnings of $227.7 million and 61.5 percent over
1991 earnings of $246.0 million. Included in the 1992 Banking Group
results are Lincoln's additional provision for credit losses, merger and
transition related expenses and restructuring costs totaling $93.5
million before income taxes. The Banking Group earnings increases over
1992 and 1991 reflect 7.0 percent and 16.3 percent growth in tax-
equivalent net interest income, respectively, primarily due to increases
in average earning assets and net interest margin, and 80.5 percent and
87.5 percent decreases in the provision for credit losses, respectively,
reflecting continued decreases in net credit losses and non-performing
assets. Non-interest income in the Banking Group incresed 11.4 percent
over 1992 and 24.5 percent over 1991 primarily due to continued increases
in trust fee income, service charges on deposits and insurance revenues.
The Banking Group non-interest expense increases of 5.8 percent and 25.7
percent over 1992 and 1991, respectively, are primarily a result of
acquisition related charges, writedowns of excess facilities and other
assets, and increased charitable contributions.
The venture capital subsidiaries realized $59.5 million of net gains in
1993, compared with net gains of $29.7 million in 1992 and net losses of
$4.6 million in 1991. Virtually all appreciated securities included in
the $59.5 million venture capital gains were contributed to the Norwest
Foundation. Contribution amounts of these appreciated securities, which
included cost basis, were $69.8 million in 1993. Net unrealized
appreciation in the venture capital investment portfolio was $118.3
million at December 31, 1993, an increase of 26.1 percent over December
31, 1992.
MORTGAGE BANKING
Mortgage banking operations earned $56.3 million in 1993, a 5.5 percent
increase over 1992 earnings of $53.4 million, and 79.4 percent over 1991
earnings of $31.4 million. The increase in earnings reflects a 60.2
percent and 155.7 percent increase in residential mortgage fundings over
1992 and 1991, respectively. Fundings were $33.7 billion in 1993,
compared with $21.0 billion in 1992 and $13.2 billion in 1991.
Approximately 55 percent of the 1993 fundings were due to new loan
originations with refinancings accounting for approximately 45 percent.
Net gains on the sale of mortgages was $140.5 million in 1993, compared
with $19.8 million in 1992 and $13.0 million in 1991. Net servicing
retained during 1993 was $24.1 billion, compared with $13.0 billion in
1992 and $4.2 billion in 1991. The servicing portfolio increased to
$45.7 billion at December 31, 1993, compared with $21.6 billion at
December 31, 1992. In 1993, sales of servicing rights were $2,948
million, under an obligation in a long-term contract, with gains on sales
of $61.7 million compared with $7,213 million and $62.4 million,
respectively, during 1992 and $9,047 million and $76.5 million,
respectively, in 1991.
NORWEST FINANCIAL SERVICES
Norwest Financial Services, Inc. (Norwest Financial) reported record
earnings of $200.1 million in 1993, a 25.9 percent increase over the
$159.0 million earned in 1992, and a 62.0 percent increase over the
$123.5 million earned in 1991. The increases are primarily due to
increases in tax-equivalent net interest income of 27.1 percent and 52.9
percent, respectively, over 1992 and 1991. The increase in tax-
equivalent net interest income was due to 17.8 percent and 26.0 percent
increases in average finance receivables over 1992 and 1991,
respectively, and an increase in net interest margin of 107 basis points
over 1992 and 232 basis points over 1991. The increase in net interest
19
margin reflects lower short-term borrowing rates and benefits from
refinancing long-term debt at lower interest rates. Norwest Financial's
non-interest expenses increased 21.5 percent and 45.6 percent over 1992
and 1991, respectively, primarily due to the acquisition of the consumer
finance business of Trans Canada Credit Corporation Limited during the
fourth quarter of 1992.
Norwest Corporation and Subsidiaries
ORGANIZATIONAL EARNINGS*
In millions
Year ended December 31 1993 1992 1991 1990 1989
Banking $397.2 227.7 246.0 33.0 189.6
Mortgage banking 56.3 53.4 31.4 17.0 5.8
Norwest Financial Services
Inc., and subsidiaries 200.1 159.0 123.5 106.3 79.5
Consolidated income before
cumulative effect of
a change in accounting
for postretirement
medical benefits 653.6 440.1 400.9 156.3 274.9
Cumulative effect on
years prior to December
31, 1992 of a change
in accounting for
postretirement
medical benefits - (76.0) - - -
Net income $653.6 364.1 400.9 156.3 274.9
* Earnings of the entities listed are impacted by intercompany revenues
and expenses, such as interest on borrowings from the parent company,
corporate service fees and allocation of federal income taxes.
CONSOLIDATED INCOME STATEMENT ANALYSIS
NET INTEREST INCOME
Net interest income on a tax-equivalent basis is the difference between
interest earned on assets and interest paid on liabilities, with
adjustments made to present yields on tax-exempt assets as if such income
was fully taxable. Changes in the mix and volume of earning assets and
interest-bearing liabilities, their related yields and overall interest
rates have a major impact on earnings. In 1993, tax-equivalent net
interest income provided 61.0 percent of the corporation's net revenues,
compared with 63.2 percent in 1992 and 63.9 percent in 1991.
Total tax-equivalent net interest income was $2,408.7 million in 1993, a
13.9 percent increase over the $2,114.7 million reported in 1992. Growth
in tax-equivalent net interest income over 1992 was primarily due to an
11.3 percent increase in average earning assets and a 13 basis point
increase in net interest margin. The increase in average earning assets
is primarily due to an increase in average mortgages held for sale
resulting from growth in residential mortgage fundings and an increase in
average loans and leases, partially offset by a slight decrease in
average total investment securities. The 1992 increase of 16.0 percent
over the $1,823.2 million reported in 1991 was due to a 5.9 percent
increase in average earning assets and a 47 basis point increase in net
20
interest margin. The increase in earning assets reflects increases in
mortgages held for sale and increases in total investment securities.
Non-accrual and restructured loans reduced net interest income by $12.3
million in 1993, compared with $17.2 million in 1992 and $24.8 million in
1991. Detailed analysis of net interest income appear on pages 87, 88
and 89.
Net interest margin, the ratio of tax-equivalent net interest income
divided by average earning assets, was 5.59 percent in 1993, compared
with 5.46 percent in 1992 and 4.99 percent in 1991. The increase over
1992 reflects the downward repricing of core deposits, refinancing of
long-term debt at lower interest rates and the repurchase of securitized
credit card receivables, partially offset by lower yields on earning
assets. The 1992 increase over 1991 reflects the downward repricing of
core deposits, the refinancing of long-term debt at lower interest rates
and the issuance of approximately $412 million of preferred and common
stock during 1991, partially offset by an increase in average mortgages
held for sale and an increase in average total investment securities on
which narrower spreads are earned.
PROVISION FOR CREDIT LOSSES
The provision for credit losses reflects management's judgment of the
cost associated with credit risk inherent in the loan and lease
portfolio. The consolidated provision for credit losses was $140.1
million in 1993, a decrease of $126.6 million from 1992 and a decrease of
$261.8 million from 1991. The provision for credit losses was 0.56
percent of average loans and leases in 1993, compared with 1.22 percent
in 1992 and 1.87 percent in 1991. The decrease from 1992 reflects the
continued reduction in the corporation's net credit losses and
non-performing assets which are down $89.6 million from December 31,
1992. Also, as previously discussed, the 1992 provision for credit
losses includes $60.0 million in additional provisions for credit losses
taken by Lincoln. The 1992 decrease from 1991 reflects the reduction in
the corporation's net charge-offs and non-performing assets.
Net credit losses for 1993 were $173.6 million, a decrease of $44.0
million from 1992, and a decrease of $139.0 million from 1991. Net
credit losses as a percentage of average loans and leases were 0.70
percent in 1993, compared with 1.00 percent in 1992 and 1.45 percent in
1991. The decrease in net credit losses in 1993 from 1992 reflects
significantly lower commercial, consumer, construction and land
development and real estate loan charge-offs resulting from lower levels
of non-performing loans. These decreases were partially offset by higher
foreign loan charge-offs as a result of Norwest Financial's fourth
quarter 1992 acquisition of the consumer finance business of Trans Canada
Credit Corporation Limited and higher credit card charge-offs. The
decrease in 1992 from 1991 is primarily due to lower commercial and real
estate loan charge-offs.
NON-INTEREST INCOME
Non-interest income is a significant source of the corporation's revenue,
representing 39.0 percent of tax-equivalent net revenues in 1993,
compared with 36.8 percent in 1992 and 36.1 percent in 1991.
Consolidated non-interest income increased 25.5 percent in 1993 to
$1,542.5 million, primarily due to increased mortgage banking revenues,
venture capital gains and growth in various fee-based services, partially
offset by a decrease in credit card fees, trading account gains and net
gains on investment/mortgage-backed securities available for sale.
During 1993 securities held for investment with a total amortized cost of
$29.5 million were sold since they had been called by the issuers,
resulting in gains on sales of $0.1 million. Excluding
investment/mortgage-backed securities gains, venture capital gains and
gains on investment/mortgage-backed securities available for sale,
21
non-interest income was up 26.1 percent from 1992 and 41.4 percent from
1991. The growth in mortgage banking revenues reflects the continued
growth in mortgage loan fundings and the servicing portfolio. Credit card
revenues decreased $19.9 million from 1992 primarily due to the
repurchase of $525 million of credit card receivables from the
securitized credit card receivable trusts during 1993 and a reduction in
the number of credit card accounts by 19,000 to 1,896,000 as of December
31, 1993. The corporation expects to have repurchased the remaining $333
million of credit card receivables from the securitized credit card
receivable trusts by the end of the second quarter of 1994. Revenues on
securitized credit card receivables are recorded in non-interest income
rather than net interest income. Other non-interest income increased
$43.0 million from 1992 primarily due to increases of $36.1 million in
trading account securities gains and $9.9 million in gains on sales of
student loans available for sale.
Consolidated non-interest income increased 19.2 percent in 1992 from
1991, primarily due to growth in mortgage banking revenues, gains on
sales of investment/mortgage backed securities available for sale,
venture capital gains and growth in various fee-based services, partially
offset by a decrease in credit card fees. The 48.1 percent growth in
mortgage banking revenues is due to the increase in mortgage fundings
over 1991, partially offset by an 18.4 percent decrease in gains on sales
of servicing rights. The decrease in credit card fees is primarily due
to the repurchase of $254 million of credit card receivables from the
securitized credit card receivable trusts during 1992 and a reduction in
the number of credit card accounts of 174,000 to 1,915,000 as of December
31, 1992.
NON-INTEREST EXPENSES
Consolidated non-interest expenses increased 16.6 percent to $2,840.8
million in 1993. The increase is primarily due to increased salaries and
benefits at both the mortgage banking operations, to support the large
origination and servicing increases in that business, and at Norwest
Financial due to its fourth quarter 1992 acquisition of the consumer
finance business of Trans Canada Credit Corporation Limited, as well as
increased salaries and benefits due to numerous acquisitions completed by
the corporation during 1993. Excluding the growth in mortgage banking
operations, Norwest Financial, businesses acquired during the year and
the impact of the 1993 change in retirement plan assumptions, salaries
and benefits expense increased 4.0 percent from 1992. The increase in
non-interest expenses also reflects the impact of shortening of
depreciable lives on mainframe computers, capping the amortizable life of
goodwill at 15 years, increased and accelerated amortization of other
intangibles, writedowns of excess facilities and other assets, a $47.1
million increase in charitable contributions and acquisition related
charges.
Non-interest expenses increased $497.1 million in 1992 over 1991. This
increase is primarily attributable to increased salaries and benefits in
the mortgage banking operations, reflective of large volume increases in
originations and servicing, excess facility and other asset writedowns of
approximately $82.0 million, writedowns of intangible assets of
approximately $68.0 million, merger and transition related expenses and
certain restructuring charges related to the Lincoln acquisition of
approximately $33.5 million, a $19.3 million loss on prepayment of
Norwest Financial debt and an $18.3 million increase in charitable
contributions.
POSTEMPLOYMENT BENEFITS
In l992, the Financial Accounting Standards Board issued Statement of
FInancial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" (FAS 112). Beginning in 1994, FAS 112 requires
22
employers to accrue the cost of postemployment benefits during the
employees active service, if the amount of the benefits can be reasonably
estimated and payment is probable. Management believes the adoption of
FAS 112 will not have a material effect on the consolidated financial
statements of the corporation.
INCOME TAXES
The corporation's income tax planning is based upon the goal of
maximizing long-term, after-tax profitability. Income tax expense is
significantly impacted by the mix of taxable versus tax-exempt revenues
from investment securities and the loan portfolio and the utilization of
net operating loss carryforwards.
In 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes",
(FAS 109) effective January 1, 1993. The corporation adopted FAS 109 as
of January 1, 1993, with no material impact on the corporation's
consolidated financial statements. Prior to adoption of FAS 109, the
corporation accounted for income taxes under Statement of Financial
Accounting Standards No. 96.
The effective income tax rate was 30.3 percent in 1993, compared with
24.5 percent in 1992 and 14.3 percent in 1991. The increase in the
effective tax rate in 1993 from 1992 is primarily due to the fact that in
1993 there were no net operating loss tax benefits related to United
Banks of Colorado, Inc's. 1990 net operating loss as compared with $31.2
million of benefits in 1992. The increase in the effective tax rate in
1992 from 1991 is primarily due to $31.2 million in net operating loss
tax benefits in 1992 as compared with $49.3 million in 1991 related to
United. For more information on income taxes see Footnote 12 on page 69.
CONSOLIDATED BALANCE SHEET ANALYSIS
EARNING ASSETS
At December 31, 1993, earning assets were $46.5 billion, compared with
$42.4 billion at December 31, 1992. This increase is primarily due to a
$4.3 billion increase in loans and leases, and student loans and
mortgages held for sale, including $2.6 billion of loans and leases
acquired in acquisitions completed during 1993. This increase is
partially offset by a $0.4 billion decrease in total investment
securities.
Average earnings assets were $43.1 billion in 1993, an increase of 11.3
percent over 1992. This increase is primarily due to a 14.4 percent
increase in average loans and leases, and a 35.5 percent increase in
mortgages held for sale due to increased residential mortgage fundings,
partially offset by a 6.6 percent decrease in average total investment
securities.
Leverage, the ratio of average assets to average stockholders' equity,
was 14.2 times during 1993 versus 14.1 times during 1992. This increase
is due to a 10.7 percent increase in average assets, partially offset by
a 9.6 percent increase in average stockholders' equity.
In 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," which will be adopted by the
corporation in the first quarter of 1994. The Statement requires that
investments classified as available for sale be reported at fair value
with unrealized gains and losses reported, net of tax, as a separate
component of stockholders' equity. The corporation currently accounts for
23
investments classified as available for sale using the lower of cost or
market accounting method. As of December 31, 1993, net unrealized gains
related to investments and mortgage-backed securities available for sale
were $482.7 million before income taxes.
In Footnote 16 to the consolidated financial statements on page 74 the
corporation has disclosed the estimated fair values of all on and
off-balance sheet financial instruments and certain non-financial
instruments in accordance with Statement of Financial Accounting
Standards No. 107, "Disclosures About Fair Value of Financial
Instruments".
As of December 31, 1993, the fair value of net financial instruments
totaled $3.9 billion, an increase of $1.0 billion from December 31, 1992.
This increase was primarily due to growth in mortgages held for sale and
loans and leases, which were partially offset by reductions in investment
securities, including securities available for sale. During the same
period, the net fair value of certain non-financial instruments
increased $1.2 billion to $7.1 billion as of December 31, 1993. The fair
value of the consumer finance network increased $0.8 billion. The fair
value of the mortgage servicing portfolio and the mortgage loan
origination/wholesale network increased $0.4 billion in 1993 due to
increases in the servicing portfolio, as previously discussed, and growth
in the origination and wholesale network.
As of December 31, 1992, the fair value of net financial instruments
totaled $2.9 billion, an increase of $0.2 billion from December 31, 1991.
This increase was primarily due to growth in mortgages held for sale and
loans and leases, which were partially offset by reductions in investment
securities and mortgage-backed securities, including securities available
for sale. During the same period, the net fair value of certain
non-financial instruments increased $1.3 billion to $5.9 billion as of
December 31, 1992. The fair value of the consumer finance network
increased $0.4 billion due to growth in accounts and a widened interest
spread on such loans. The fair value of the mortgage servicing portfolio
and mortgage loan origination/wholesale network increased $0.6 billion in
1992, due to increases in the servicing portfolio and growth in the
origination and wholesale network.
CREDIT RISK MANAGEMENT
The corporation manages exposure to credit risk through loan portfolio
diversification by customer, product, industry and geography. As a
result, there is no undue concentration in any single sector. Credit
risk management also includes pricing loans to cover anticipated future
credit losses, funding and servicing costs and to allow for a profit
margin. Loans and leases by type appear in Footnote 5 on page 56.
As of December 31, 1993, the corporation's commercial real estate
portfolio of loans to investors, developers and builders, including
construction and land development loans (development loans), was $1,632.3
million, of which $40.0 million or 2.5 percent, were non-performing,
compared with $1,559.0 million at December 31, 1992, of which $76.4
million, or 4.9 percent, were non-performing. These loans do not include
loans on owner-occupied real estate which the corporation views as having
the same general credit risk as commerical loans.
Development loans represent 5.8 percent of the corporation's total loan
portfolio. The total number of development loans is approximately 4,000
with an average loan size of approximately $0.3 million. The largest
development loan is $16.4 million. The industry composition of
development loans consists of office/warehouse (23 percent), retail (23
percent), residential (32 percent) and other (22 percent).
24
The construction and commercial real estate loan problems of many
regional bank holding companies in some other parts of the United States
have not been as severe in the Midwest. Geograpically, over 96 percent
of the development loan portfolio is within the thirteen state area where
the corporation has its principal banking franchise. Approximately 43
percent of the total portfolio is secured by property located in the
Minneapolis/St. Paul, Minnesota area and Colorado. Within the 13 state
area, the Minneapolis/St. Paul area has the largest concentration of
developer activity. As noted above, the corporation has spread its
construction and commercial real estate loans among numerous borrowers
and has limited the size of loans retained on its books. Accordingly,
the corporation believes its exposure to future commercial real estate
loan losses is limited.
The corporation is not aware of any loans classified for regulatory
purposes at December 31, 1993, that are expected to have a material
impact on the corporation's future operating results, liquidity or
capital resources. The corporation is not aware of any material credits
about which there is serious doubt as to the ability of borrowers to
comply with the loan repayment terms. There are no material commitments
to lend additional funds to customers whose loans were classified as non-
accrual or restructured at December 31, 1993.
ALLOWANCE FOR CREDIT LOSSES
At December 31, 1993, the allowance for credit losses was $744.9 million,
or 2.76 percent of loans and leases outstanding, compared with $742.7
million or 3.07 percent at December 31, 1992. The ratio of the allowance
for credit losses to the total non-performaning assets and 90-day past
due loans and leases was 260.9 percent at December 31, 1993, compared
with 199.3 percent at December 31, 1992.
Although it is impossible for any lender to predict future credit losses
with complete accuracy, management monitors the allowance for credit
losses with the intent to provide for all losses that can reasonably be
anticipated based on current conditions. The corporation maintains the
allowance for credit losses as a general allowance available to cover
future credit losses within the entire loan and lease portfolio and other
credit-related risks. However, management has prepared an allocation of
the allowance based on its views of risk characteristics of the
portfolio. This allocation of the allowance for credit losses does not
represent the total amount available for actual future credit losses in
any single category nor does it prohibit future credit losses from being
absorbed by portions of the allowance allocated to other categories or by
the unallocated portion. The table on page 90 presents the allocation of
the allowance for credit losses to major categories of loans.
NON-ACCRUAL, RESTRUCTURED AND PAST DUE LOANS
AND LEASES AND OTHER REAL ESTATE OWNED
The table on page 27 presents data on the corporation's non-accrual,
restructured and 90-day past due loans and leases and other real estate
owned. Generally, the accrual of interest on a loan or a lease is
suspended when the credit becomes 90 days past due unless fully secured
and in the process of collection. A restructured loan is generally a
loan that is accruing interest, but on which concessions in terms have
been made as a result of deterioration in the borrower's financial
condition.
Non-performing assets, including non-accrual, restructured and other real
estate owned, and 90-day past due loans and leases, total $285.5 million,
or 0.6 percent of total assets, at December 31, 1993, compared with
$372.7 million, or 0.8 percent of total assets at December 31, 1992.
This decline is due to decreases in real estate and commercial non-
accrual loans of $29.6 million and $23.5 million, respectively, and a
25
$36.2 million decrease in other real estate owned, partially offset by a
$5.0 million increase in restructured loans. The reduction in primary
earnings per share due to total non-accrual and restructured loans was
four cents in 1993, compared with eight cents in 1992 and 12 cents in
1991.
In 1993, the Financial Acounting Standards Board issued Statement of
Financial Accounting Standards No. 114, "Accounting by Creditors for
Imparement of a Loan,"(FAS 114) which must be adopted for the
corporation's 1995 financial statements. It requires that impared loans,
as defined within FAS 114, be measured based on the present value of
expected future cash flow discounted at the loan's effective rate, at the
loan's market price, or the fair value of the collateral if the loan is
collateral dependent. The adoption of FAS 114 is not expected to have a
material effect on the corporation's consolidated financial statements.
26
Norwest Corporation and Subsidiaries
NON-ACCRUAL, RESTRUCTURED AND PAST DUE LOANS
AND OTHER REAL ESTATE OWNED
In millions, except per share amounts
At December 31 1993 1992 1991 1990 1989 1988
Non-accrual loans
and leases
Domestic $172.9 231.3 334.5 375.2 268.0 210.1
Foreign - - - - - 11.6
Total non-accrual
loans and leases 172.9 231.3 334.5 375.2 268.0 221.7
Restructured loans
and leases 7.9 2.9 15.6 11.8 22.4 31.8
Total non-accrual
and restructured
loans and leases 180.8 234.2 350.1 387.0 290.4 253.5
Other real estate
owned 54.7 90.9 108.2 149.5 117.5 119.8
Total non-performing
assets 235.5 325.1 458.3 536.5 407.9 373.3
Loans and leases
past due 90 days
or more* 50.0 47.6 77.7 86.5 68.1 89.1
Total non-performing
assets and 90-day
past due loans
and leases $285.5 372.7 536.0 623.0 476.0 462.4
Interest income
as originally
contracted on
non-accrual and
restructured loans
and leases $ 17.3 24.5 38.7 48.5 31.2 29.6
Interest income
recognized on
non-accrual and
restructured
loans and leases (5.0) (7.3) (13.9) (19.3) (8.8) (7.5)
Reduction of interest
income due to
non-accrual and
restructured loans
and leases $ 12.3 17.2 24.8 29.2 22.4 22.1
Reduction in primary
earnings per share
due to non-accrual
and restructured
loans and leases $ .04 .08 .12 .14 .11 .11
*Excludes non-accrual and restructured loans and leases.
27
FUNDING SOURCES
INTEREST BEARING-LIABILITIES
At December 31, 1993, interest-bearing liabilities totaled $36.8 billion,
an increase of $1.8 billion over December 31, 1992. The increase is
principally due to a $2.3 billion increase in interest bearing deposits
primarily as a result of the Citibank (Arizona) and Columbia Savings
acquisitions and a $2.3 billion increase in long-term debt, partially
offset by a $2.9 billion decrease in short-term borrowings.
Average interest-bearing liabilities were $35.7 billion in 1993, compared
with $32.9 billion in 1992, primarily due to a 3.5 percent increase in
average interest bearing deposits, a 3.7 percent increase in short-term
borrowings and a 44.7 percent increase in average long-term debt.
CORE DEPOSITS
In the corporation's banking subsidiaries, demand deposits, regular
savings and NOW accounts, money market checking and savings accounts and
consumer savings certificates provide a stable source of low-cost
funding. These funds accounted for approximately 61 percent of the
corporation's total funding sources during 1993 and approximately 63
percent in 1992. This is a high level of core deposits by industry
standards. In the corporation's Banking Group, where these funds are
utilized, average core deposits accounted for approximately 64 percent of
total funding sources during 1993 compared with 67 percent in 1992.
PURCHASED DEPOSITS
In addition to core deposits, purchased deposits are an important source
of funding for the corporation's banking subsidiaries. Purchased
deposits include certificates of deposit with denominations of more than
$100,000 and foreign time deposits. Purchased deposits represented
approximately 4 percent of the corporation's total funding sources in
1993 and 1992.
SHORT-TERM BORROWINGS
Short-term borrowings include federal funds purchased, securities sold
under agreements to repurchase and commercial paper issued by the
corporation and Norwest Financial. Commercial paper is used by the
corporation to fund the short-term needs of its subsidiaries, consisting
primarily of funding of Norwest Mortgage's inventory of mortgages held
for sale which are typically held for 60 to 90 days. Norwest Financial
utilizes funds generated through its own commercial paper sales program
to fund approximately 23 percent of its average earnings assets in 1993
compared with 22 percent in 1992.
On January 6, 1994, Standard & Poor's upgraded the corporation's
commercial paper rate from A1 to A1+. In its initial rating of the
corporation and Norwest Financial, Fitch Investors Service, Inc. assigned
an F-1+ to both the corporation's and Norwest Financial's commercial
paper. The corporation's commercial paper/short-term debt is rated A1+,
Duff 1+, TBW-1, and P1 by IBCA, Duff & Phelps, Thomson BankWatch, and
Moody's, respectively. Norwest Financial's commercial paper/short-term
debt is also rated A1+, Duff 1+, TBW-1 and P1 by Standard & Poor's, Duff
& Phelps, Thomson BankWatch and Moody's, respectively. On average, total
short-term borrowings represented approximately 15 percent of the
corporation's total funding sources during 1993 and approximately 17
percent during 1992.
At December 31, 1993, the corporation had available lines of credit
totaling $1,172.7 million, including lines of credit totaling $972.7
28
million at Norwest Financial. These financing arrangements require the
maintenance of compensating balances or payment of fees, which are not
material.
LONG-TERM DEBT
Long-term debt represents an important funding source for the corporation
and for Norwest Financial. Total long-term debt represented
approximately 13 percent of the corporation's consolidated average
funding sources during 1993 compared with approximately 10 percent in
1992. The corporation utilizes long-term debt primarily to meet the
long-term funding requirements of its subsidiaries, with outstandings of
$4,060.7 million as of December 31, 1993 compared with $2,083.7 million
as of December 31, 1992. Five banking subsidiaries are members of the
Federal Home Loan Bank allowing them to receive long-term advances
secured by certain loans and investment securities. As of December 31,
1993, these banking subsidiaries had advances outstanding totaling
$2,446.6 million, an increase of $1,027.5 million from December 31, 1992.
Long-term debt plays an even more significant role at Norwest Financial,
which utilizes this source of financing to fund approximately 55 percent
of its average earning assets. At December 31, 1993, Norwest Financial's
long-term debt outstanding was $2,741.7 million. The table on page 59
presents the corporation's outstanding consolidated long-term debt as of
December 31, 1993 and 1992.
On January 6, 1994, Standard & Poor's upgraded the corporation's senior
debt rating from A+ to AA-, subordinated debt rating from A to A+ and
preferred stock rating from A- to A. In addition, on November 3, 1993,
Thomson BankWatch upgraded the corporation's senior debt rating from AA
to AA+, subordinated debt rating from AA- to AA and preferred stock
rating from A+ to AA-. In its initial rating of Norwest Financial,
Thomson BankWatch assigned a senior debt rating of AA+ and a subordinated
debt rating of AA and also assigned Norwest Financial Thomson BankWatch's
highest issuer rating, which is A. Also in November 1993, Fitch Investors
Service, Inc., in its initial rating of the corporation's debt, assigned
a shelf registration and senior debt rating of AA, a subordinated debt
rating of AA- and a preferred stock rating of A+. Duff & Phelps, IBCA and
Moody's have currently rated the corporation's senior debt AA-, AA- and
A1, respectively. Norwest Financial's senior debt is currently rated AA+
by Thomson BankWatch and Fitch Investors Service, Inc., AA by Duff &
Phelps, AA- by Standard & Poor's and Aa3 by Moody's. In early 1993,
Thomson BankWatch assigned their highest issuer rating to the
corporation, an A rating, which is shared by only four others among the
35 largest domestic bank holding companies, Banc One Corporation,
SunTrust Banks, Inc., J.P.Morgan & Co. Incorporated and Wachovia
Corporation.
ASSET AND LIABILITY MANAGEMENT
The goal of the asset and liability management process is to manage the
structure of the balance sheet to provide the maximum level of net
interest income while maintaining acceptable levels of interest
sensitivity risk (as defined below) and liquidity. The focal point of
this process is the corporate Asset and Liability Management Committee
(ALCO). This committee which meets weekly, forms policies governing
investments, funding sources, off-balance sheet commitments, overall
interest sensitivity risk and liquidity. These policies form the
framework for management of the asset and liability process at the
corporate, regional and affiliate levels, and compliance with such
policies is monitored at regular intervals by ALCO.
DEFINITION OF INTEREST SENSITIVITY RISK
Interest sensitivity risk is the risk that future changes in interest
rates will reduce net interest income or the market value of the
corporation's balance sheet. There are two basic ways of defining
interest rate risk in the financial services industry; the risk to
29
reported earnings, sometimes referred to as the accounting perspective,
and the risk to the market value of the balance sheet, sometimes referred
to as the economic perspective.
The accounting perspective focuses on the risk to reported net income
over a particular time frame. Differences in the timing of interest rate
repricing (repricing or "gap" risk), changing market rate relationships
(basis risk) and option positions determine the exposure of net income to
changes in interest rates.
The economic perspective focuses on the market value of the corporation's
balance sheet, the net of which is referred to as the market value of
balance sheet equity. The sensitivity of the market value of balance
sheet equity to changes in interest rates is an indicator of the level of
interest rate risk inherent in an institution's current position and an
indicator of longer horizon earnings trends. Assessing interest rate
risk from the economic perspective focuses on the risk to net worth
arising from all repricing mismatches (gaps) and other interest rate
sensitive positions, such as options, across the full maturity spectrum.
Both perspectives have their advantages and disadvantages. The
corporation believes that the two perspectives are complementary, and
should be used together to provide a more complete picture of interest
rate risk than would be provided by either perspective alone.
MEASUREMENT OF INTEREST RATE RISK
Measurement of interest rate risk from the accounting perspective has
traditionally taken the form of the gap report, which represents the
difference between assets and liabilities that reprice in a given time
period. While providing a rough measure of rate risk, the gap report has
a number of drawbacks, including the fact that it is a static (i.e.
point-in-time) measurement, it does not capture basis risk, and it does
not capture risk that varies either asymmetrically or non-proportionately
with rate movements, such as option risk.
Because of the drawbacks of gap reports, the corporation uses a
simulation model as its primary method of measuring earnings risk. The
simulation model, because of its dynamic nature, can capture the effects
of future balance sheet trends, different patterns of rate movements, and
changing relatonships between rates (basis risk). In addition, it can
capture the effects of embedded option risk by taking into account the
effects of interest rate caps and floors, and varying the level of
prepayment rates on assets as a function of interest rates. An example
of the difference between the two methods of measurement was the interest
rate floors that the corporation purchased in prior years to hedge
securities with prepayment options against a decline in rates. The
effect of these floors was easy to measure with a simulation model, but
difficult to show in a gap report. Another example is the tendency of
money market deposit rates to lag substantially behind changes in market
interest rates. The lag relationship may depend on a number of factors,
such as the direction and speed of rate of movements and the absolute
level of rates. This relationship is difficult to show in a gap report,
but easy to capture in a simulation model.
Measurement of interest rate risk from the economic perspective is
accomplished with a market valuation model. The market value of each
asset and liability is calculated by computing the present value of all
cash flows generated by it. In each case the cash flows are discounted
by a market interest rate chosen to reflect as closely as possible the
characteristics of the given asset or liability.
30
MANAGEMENT OF INTEREST RATE RISK
The managment of interest rate risk is governed by an interest
sensitivity policy. The policy places a limit on the amount of earnings
that may be put at risk to rate movements. While this determines the
limits of the corporation's sensitivity position, the position that is
maintained at any given time is a function of balance sheet trends, asset
opportunities, and interest rate expectations. The sensitivity position
at any given time is normally well within the policy limits, which is the
case with the current position.
The simulation model is used to determine the one year and three year gap
levels which correspond to the limit in which the corporation has placed
earnings at risk to interest rate movement, and these gap levels
constitute the limits within which the corporation will manage its
interest sensitivity position. Thus, gap reports are used, in
conjunction with the simulation model, to monitor rate risk, but gaps are
not used as the primary measure of rate risk.
With regard to market valuation risk, the market valuation model is used
to measure the sensitivity of the market value of equity to a wide range
of interest rate changes. These results are reviewed with ALCO on a
quarterly basis. No specific policy limits have yet been set on market
valuation risk. The process of modeling market valuation risk is new to
the financial services
industry, and no standards exist within the industry for structuring the
modeling process or using the results to define policy limits. The
process of developing an understanding of all the issues raised in the
measurement and interpretation of this risk is still evolving.
CHANGES IN INTEREST SENSITIVITY
The table on page 32 presents the corporation's interest sensitivity gaps
for December, 1993. The cumulative gap within one year was positive
$2,126 million, or 4.2 percent of assets. This compares with a one year
gap of negative $985 million, or 2.2 percent of assets, in December,
1992. The cumulative gap within three years was positive $1,915 million,
or 3.7 percent of assets, in December 1993, compared to negative $1,283
million, or 2.8 percent of assets, in December, 1992. The movement of
the gap from negative to a positive was due to a shift in the investment
portfolio from fixed rate to variable rate securities, as well as
increases in retail deposits and demand deposits, part of which have
fixed rate sensitivity. The effect of the current interest sensitivity
position is to effectively eliminate vulnerability of the corporation's
earnings to rising interest rates while allowing it to benefit from
stable rates. The current sensitivity position is well within the risk
limits set by the corporation's interest sensitivity policy.
31
Norwest Corporation and Subsidiaries
INTEREST RATE SENSITIVITY
Repricing or Maturing
In millions
Within 6 Months 1 Year 3 Years After
6 Months -1 Year -3 Years -5 Years 5 Years
Average Balances
for December, 1993
Loans and leases $12,296 3,044 4,744 2,630 3,971
Investment securities 61 73 170 111 408
Investment securities
available for sale - 51 193 294 988
Mortgage-backed securities
available for sale 2,241 2,239 1,550 918 1,311
Student loans available
for sale 1,435 - - - -
Mortgages held for sale 6,023 - - - -
Other earning assets 809 - - 399 210
Other assets - - - - 4,948
Total assets $22,865 5,407 6,657 4,352 11,836
Non-interest bearing
deposits $ 2,921 35 133 91 5,473
Interest bearing
deposits 11,512 2,453 5,675 1,545 3,528
Short-term borrowings 6,041 - - - -
Long-term debt 2,873 295 884 960 1,763
Other liabilities/equity - - 342 - 4,593
Total liabilities
/equity $23,347 2,783 7,034 2,596 15,357
Swaps and options $ (516) 500 166 (49) (101)
Gap* $ (998) 3,124 (211) 1,707 (3,622)
Cumulative gap $ (998) 2,126 1,915 3,622 -
Gap as a percent of total
assets 2.0% 4.2% 3.7% 7.1% -
* [Assets - (liabilities + equity) + swaps and options]
The gap includes the effect of off-balance sheet instruments on the
corporation's interest sensitity, with the exception of purchased interest
rate floors, whose downside risk is limited.
LIQUIDITY MANAGEMENT
Liquidity management involves planning to meet anticipated funding needs
at a reasonable cost, as well as contingency plans to meet unanticipated
funding needs or a loss of funding sources. Liquidity management for the
corporation is governed by policies formulated and monitored by ALCO,
which take into account the marketability of assets, the sources and
stability of funding, and the level of unfunded commitments. While each
affiliate is responsible for managing its own liquidity position within
overall guidelines, ALCO monitors the overall liquidity position.
32
The corporation has a significant liquidity reserve in its
investment/mortgage-backed securities portfolio: approximately 88
percent of the $11.3 billion portfolio consists of Treasury or federal
agency securities. These securities are highly marketable and currently
have a market value well in excess of book value. Several other factors
provide a favorable liquidity position for the corporation compared with
most large bank holding companies, including the large amount of funding
that comes from consumer deposits, which are a more stable source of
funding than purchased funds, as well as the geographic diversity of the
customer base.
CAPITAL MANAGEMENT
The corporation believes that a strong capital position is vital to
continued profitability and to promote depositor and investor confidence.
The corporation's consolidated capital levels are a result of its capital
policy which establishes guidelines for each subsidiary based on industry
standards, regulatory requirements, perceived risk of the various
businesses, and future growth opportunities. The corporation requires
its bank affiliates to maintain capital levels above regulatory minimums
for Tier 1 capital, total capital (Tier 1 plus Tier 2) to risk-based
assets and leverage ratios. The primary source of equity capital
available for the affiliates is earnings, with other forms of capital
available from the corporation as needed. Earnings above levels required
to meet capital policy requirements are paid to the corporation in the
form of dividends and are used to support capital needs of other
affiliates, the payment of corporate dividends or to reduce the
corporation's borrowings.
Through the implementation of its capital policies, the corporation has
achieved a strong capital position. The corporation's Tier 1 capital
ratio at December 31, 1993 was 9.84 percent and its total capital to
risk-based assets ratio was 12.60 percent, compared with 10.03 percent
and 12.85 percent at December 31, 1992, respectively. The corporation's
leverage ratio was 6.60 percent at December 31, 1993, compared with 6.76
percent at December 31, 1992. These ratios compare favorably to the
regulatory minimums of 4.0 percent for Tier 1, 8.0 percent for total
capital to risk-based assets, and 3.0 percent for leverage ratio.
The corporation's common equity capital continued to grow in 1993.
Common stockholders' equity increased to $3.2 billion as of December 31,
1993, a 15.3 percent increase over year-end 1992. The corporation's
internal capital growth rate (ICGR) in 1993 was 14.7 percent. The ICGR
represents the rate at which the corporation's average common equity grew
as a result of earnings retained (net income less dividends paid).
Since 1986 the corporation has repurchased common stock in the open
market in a systematic pattern to meet the common stock issuance
requirements of the corporation's Dividend Reinvestment Plan, the
Savings-Investment Plans, the 1985 Long Term Incentive Compensation Plan,
and other stock issuance requirements other than acquisitions accounted
for as a pooling of interests. In January, 1994, the corporation's board
of directors authorized additional purchases, at management's discretion,
of 8,000,000 shares of the corporation's common stock, bringing the total
common stock purchase authority to 12,200,000 shares.
In 1992, the corporation stated its intention to engage in open market or
privately negotiated purchases of depository shares representing its
10.24% Cumulative Preferred Stock and its Cumulative Convertible
Preferred Stock, Series B. The corporation has not established any
specific objectives for the amount of the depository shares that it may
repurchase. In 1993, the corporation repurchased 25,800 depository shares
33
(representing 6,450 shares of stock), or 0.6 percent of total outstanding
shares of the 10.24% Cumulative Preferred Stock. Total depository shares
repurchased since 1992 include 75,000, or 1.6 percent of total
outstanding shares, and 25,000, or 0.5 percent of total outstanding
shares, of the 10.24% Cumulative Preferred Stock and Cumulative
Convertible Preferred Stock, Series B, respectively.
In the second quarter of 1993, the corporation increased the quarterly
cash dividend paid to common stockholders form 14.5 cents per share to
16.5 cents per share. This represents a 13.8 percent increase in the
quarterly dividend rate and reflects the corporation's continuing record
of strong earnings performance and the corporation's policy of
maintaining the dividend payout ratio in a range of 30 to 35 percent.
Also during the second quarter 1993, the corporation declared a two-for-
one stock split in the form of a 100 percent stock dividend payable June
28, 1993 to holders of record as of June 4, 1993. In January 1994, the
corporation increased its dividend 12.1 percent to 18.5 cents per common
share.
ACQUISITIONS
The corporation regularly explores opportunities for acquisitions of
financial institutions and related businesses. Generally, management of
the corporation does not make a public announcement about an acquisition
opportunity until a definitive agreement has been signed.
On January 14, 1994, the corporation completed its acquisition of First
United Bank Group, Inc. (First United), a multibank holding company
headquartered in Albuquerque, New Mexico, with total assets of $3.9
billion. The corporation issued 17,784,916 shares of its common stock in
connection with the acquisition. The acquisition will be accounted for
using the pooling of interests method.
On January 1, 1994, the corporation completed its acquisition of St.
Cloud National Bank & Trust Co., a $119 million bank, and on January 6,
1994, closed on St. Cloud Metropolitan Agency, Inc., an insurance agency
and issued 1,105,820 and 32,969 common shares, respectively.
On December 10, 1993, the corporation completed its acquisition of Winner
Banshares, Inc., a $99 million bank holding company headquartered in
Winner, South Dakota and issued 530,737 common shares. On October 29,
1993, the corporation completed its acquisition of FirstAmerican Bank,
N.A., a $47.6 million bank, located in Colorado Springs, Colorado. On
October 7, 1993, the corporation completed its acquisition of Ralston
Bancshares, Inc., a $101.1 million bank holding company headquartered in
Ralston, Nebraska, and issued 548,981 common shares. October 1, 1993, the
corporation completed its acquisition of M & D Holding Company, a $57.1
million bank holding company headquartered in Spring Lake Park,
Minnesota, and issued 536,084 common shares. On September 10, 1993,
Norwest Bank Denver, N.A., a banking subsidiary of the corporation,
completed its acquisition of $1.1 billion in assets of the Columbia
Savings division of First Nationwide Bank, a Federal Savings Bank. On
September 1, 1993, Norwest Bank Arizona, N.A., a subsidiary of the
corporation, completed its acquisition of the $2.1 billion banking
business of Citibank (Arizona), a subsidiary of Citicorp. On April 1,
1993, the corporation completed its acquisition of Financial Concepts
Bancorp, Inc., a $175.5 million bank holding company headquartered in
Green Bay Wisconsin, and issued 847,416 common shares. On February 1,
1993, the corporation completed its acquisitions of Merchants & Miners
Bancshares, Inc., a $57 million bank holding company headquartered in
Hibbing, Minnesota, and BORIS Systems, Inc., a $6 million data
processing/transmission service, headquartered in East Lansing, Michigan,
which provides services to more than 100 boards of realtors located
throughout the United States, and issued 343,050 and 691,210 common
34
shares, respectively. On January 8, 1993, the corporation completed its
acquisition of Rocky Mountain Bankshares, Inc., a $105 million bank
holding company with a bank in Aspen, Colorado, and issued 557,084 common
shares.
The acquisitions of St. Cloud National Bank & Trust Co., Winner
Banshares, Inc., Ralston Bancshares, Inc. and Financial Concepts Bancorp,
Inc. were accounted for using the pooling of interests method of
accounting; however, the financial results of the corporation have not
been restated because the effect of these acquisitions on the
corporation's financial statements was not material. The acquisitions of
St. Cloud Metropolitan Agency, Inc., FirstAmerican, N.A., M & D Holding
Company, Columbia Savings, Citibank (Arizona), Merchants & Miners
Bancshares, Inc., BORIS Systems, Inc. and Rocky Mountain Bankshares, Inc.
were accounted for using the purchase method.
On February 9, 1993, the corporation completed its acquisition of Lincoln
Financial Corporation (Lincoln), a $2.0 billion bank holding company
headquartered in Fort Wayne, Indiana. The corporation issued 8,529,242
shares of its common stock in connection with the acquisition. The
acquisition was accounted for using the pooling of interests method of
accounting and, accordingly, the corporation's financial statements have
been restated for all periods prior to the acquisition to include the
accounts and operations of Lincoln.
As of January 19, 1994, the corporation had eight other pending
acquisitions with total assets of approximately $1.3 billion. The
corporation expects to issue approximately 10.4 million common shares
upon completion of these acquisitions. These acquisitions, subject to
approval by the regulatory agencies, are expected to be completed during
1994 and are not significant to the financial statements of the
corporation, either individually or in the aggregate.
35
Norwest Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEET
In millions, except shares
At December 31, 1993 1992
ASSETS
Cash and due from banks $ 2,600.7 2,528.6
Interest-bearing deposits with banks 52.9 54.9
Federal funds sold and resale agreements 405.6 409.6
Total cash and cash equivalent 3,059.2 2,993.1
Trading account securities 279.1 132.0
Investment securities (market value $860.5
in 1993 and $950.6 in 1992) 813.4 897.6
Investment securities available for sale
(market value $1,958.2 in 1993 and
$1,787.7 in 1992) 1,698.0 1,547.6
Mortgage-backed securities available for sale
(market value $9,032.6 in 1993 and
$9,525.5 in 1992) 8,810.1 9,318.3
Total investment securities 11,321.5 11,763.5
Student loans available for sale 1,351.3 1,158.6
Mortgages held for sale 6,090.7 4,727.8
Loans and leases 27,952.8 25,198.8
Unearned discount (1,007.8) (1,003.1)
Allowance for credit losses (744.9) (742.7)
Net loans and leases 26,200.1 23,453.0
Premises and equipment, net 756.5 663.4
Interest receivable and other assets 1,723.9 1,765.8
Total assets $50,782.3 46,657.2
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing $ 8,338.9 6,785.0
Interest-bearing 24,234.3 21,919.4
Total deposits 32,573.2 28,704.4
Short-term borrowings 5,805.1 8,669.4
Accrued expenses and other liabilities 2,033.2 1,661.7
Long-term debt 6,802.4 4,481.0
Preferred stock-authorized 5,000,000 shares
without par value:
1,131,250 and 1,137,700 shares outstanding
in 1993 and 1992,respectively,
at $100 stated value,
10.24% cumulative dividends 113.2 113.8
1,143,750 shares outstanding in 1993 and 1992, at
$200 stated value, 7.00% cumulative dividends and
convertible 228.7 228.7
Common stock, $1 2/3 par value-authorized
500,000,000 shares:
Issued 294,131,670 and 290,816,252 shares
in 1993 and 1992, respectively 490.2 242.4
Surplus 413.0 616.0
Retained earnings 2,394.4 2,002.8
Notes receivable from ESOP (16.3) (19.5)
Treasury stock-1,956,803 and 2,066,950 common shares
in 1993 and 1992, respectively (51.5) (43.2)
Foreign currency translation (3.3) (0.3)
Total common stockholders' equity 3,226.5 2,798.2
Total stockholders' equity 3,568.4 3,140.7
Total liabilities and stockholder's equity $50,782.3 46,657.2
See Notes to consolidated financial statements.
36
Norwest Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
In millions, except per share amounts
Year ended December 31, 1993 1992 1991
INTEREST INCOME ON
Loans and leases $2,505.9 2,314.6 2,555.9
Investment securities 69.0 172.9 245.3
Mortgage-backed securities - 573.1 740.9
Investment securities available for sale 116.0 14.7 -
Mortgage-backed securities available for sale 588.6 164.5 -
Student loans available for sale 85.3 24.2 -
Mortgages held for sale 326.8 279.4 192.1
Money market investments 13.6 20.6 57.2
Trading account securities 28.9 23.0 10.7
Total interest income 3,734.1 3,587.0 3,802.1
INTEREST EXPENSE ON
Deposits 777.5 925.9 1,373.0
Short-term borrowings 234.3 273.5 342.6
Long-term debt 346.2 309.8 308.6
Total interest expense 1,358.0 1,509.2 2,024.2
NET INTEREST INCOME 2,376.1 2,077.8 1,777.9
Provision for credit losses 140.1 266.7 401.9
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES 2,236.0 1,811.1 1,376.0
NON-INTEREST INCOME
Trust 179.8 162.2 143.8
Service charges on deposit account 190.2 170.3 156.7
Mortgage banking 472.3 275.3 185.9
Data processing 65.5 66.1 64.2
Credit card 114.3 134.2 152.4
Insurance 176.8 155.1 140.6
Other fees and service charges 157.3 139.6 125.9
Net investment and mortgage-backed
securities gains 0.1 8.9 22.3
Net investment and mortgage-backed securities
available for sale gains 50.0 53.7 -
Net venture capital gains (losses) 59.5 29.7 (4.6)
Other 76.7 33.7 44.0
Total non-interest income 1,542.5 1,228.8 1,031.2
NON-INTEREST EXPENSES
Salaries and benefits 1,416.5 1,124.8 937.8
Net occupancy 178.5 172.8 154.4
Equipment rentals, depreciation and maintenance 192.9 167.7 143.1
Business development 146.9 113.5 90.3
Communication 162.1 140.1 124.1
Data processing 100.0 94.1 90.4
FDIC assessment and regulatory examination fees 72.7 68.9 62.8
Intangible asset amortization 72.0 73.6 62.2
Other 499.2 481.1 274.4
Total non-interest expenses 2,840.8 2,436.6 1,939.5
(CONTINUED ON PAGE 38)
37
Norwest Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME (CONTINUED FROM PAGE 37)
In millions, except per share amounts
Year ended December 31, 1993 1992 1991
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT
OF A CHANGE IN METHOD OF ACCOUNTING FOR
POSTRETIREMENT MEDICAL BENEFITS 937.7 603.3 467.7
Income tax expense 284.1 163.2 66.8
Income before cumulative effect of a change in
accounting for postretirement medical benefits 653.6 440.1 400.9
Cumulative effect on years ended prior to
December 31, 1992, of a change in accounting
for postretirement medical benefits,
net of tax - (76.0) -
NET INCOME $653.6 364.1 400.9
Average Common and Common Equivalent Shares 293.3 290.6 285.4
PER COMMON SHARE
NET INCOME
Primary:
Before cumulative effect of a change in
accounting for postretirement medical
benefits $ 2.13 1.42 1.34
Cumulative effect on years ended prior to
December 31, 1992 of a change in accounting
for postretirement medical benefits - (0.26) -
Net Income $ 2.13 1.16 1.34
Fully Diluted:
Before cumulative effect of a change in
accounting for post retirement medical
benefits $ 2.10 1.41 1.33
Cumulative effect on years ended prior
to December 31, 1992 of a change in
accounting for postretirement medical
benefits - (0.25) -
Net Income $ 2.10 1.16 1.33
DIVIDENDS $0.640 0.540 0.470
See notes to consolidated financial statements
38
Norwest Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
In millions
Year ended December 31, 1993 1992 1991
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 653.6 364.1 400.9
Adjustments to reconcile net income
to net cash flows used for operating
activities:
Cumulative effect on years prior to
December 31, 1992 of a change in
accounting for postretirement
medical benefits, net of tax - 76.0 -
Writedown of intangible and other
assets 79.8 150.0 -
Provision for credit losses 140.1 266.7 401.9
Depreciation and amortization 194.8 169.0 155.2
(Gains) Losses on other real
estate owned, net (8.0) (5.9) 16.6
Losses on sales of premises and
equipment 4.3 29.5 3.7
Gains on sales of mortgages held
for sale (140.5) (18.9) (12.9)
Gains on sales of investment,
mortgage-backed and venture
capital securities (0.1) (36.1) (17.7)
Gains on sales of investment,
mortgage-backed and venture
capital securities available
for sale (109.5) (56.2) -
Gains on sales of student loans
available for sale (12.4) (0.3) -
Trading account securities gains (22.0) (2.3) (12.8)
Purchases of trading account
securities (64,057.2) (30,912.7) (26,713.6)
Proceeds from sales of trading
account securites 63,932.1 30,940.9 26,756.9
Origination of mortgages
held for sale (34,285.9) (21,037.7) (13,184.0)
Proceeds from sales of
mortgages held for sale 33,063.5 19,338.3 12,031.6
Proceeds from sales of investment
and mortgage-backed securities
available for sale 2,344.0 2,455.5 -
Purchases of investment and mortgage-
backed securities available
for sale (4,521.7) (67.0) -
Proceeds from maturities and
paydowns of investment and
mortgage-backed securities
available for sale 3,068.2 691.1 -
(CONTINUED ON PAGE 40)
39
Norwest Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED FROM PAGE 39)
In millions
Year ended December 31, 1993 1992 1991
Originations of student loans
available for sale (1,035.7) - -
Proceeds from sales of student loans
available for sale 855.4 172.0 -
Deferred income taxes 4.5 (119.8) 24.8
Interest receivable 31.9 4.5 53.0
Interest payable 37.1 (41.2) (12.3)
Other assets, net (47.3) (118.6) (165.2)
Other accrued expenses and
liabilities, net 220.4 108.0 97.1
Net cash flows from (used for)
operating activities 389.4 2,348.9