LETTER TO SHAREHOLDERS

from $,75 to $'90 per share, or

from hoo to h60 on an an­

nual basis, while adding $402.5

million of retained earnings to

our capital base. At year-end,

our capital position was in ex­

cess of current Federal Reserve

Board guidelines, as well as the

more stringent rules scheduled

to be phased in over the next

two years.

C<Orrilc<elilaIr'<illainilg

OIl1lIr'

_____~t).-----

Practically all of Wells Fargo's

earnings are derived from our

four core businesses: retail or

branch banking, commercial

and corporate banking, real

estate lending and investment

management.Our branch system contrib­

utes the bulk of our $36,4 billion

in deposits and generates the

majority of consumer, small

business and home mortgage

loans that make up nearly 40%

of Wells Fargo's $4I.7 billion

loan portfolio.

Our commercial, corporate

and real estate banking busi­

nesses account for the balance

CARL E. REICHARDT

CHAIRMAN

--"4f/P)-­

[

PRESIDENT

PAUL HAZEN

WE HAVE MANY ABLE COMPETITORS,

AND MORE TO COME IN THE YEARS

AHEAD. To BE THE BEST, WE KNOW

WE MUST HAVE THE BEST PEOPLE AND

CONCENTRATE THEIR EFFORTS ON THOSE

BUSINESSES IN WHICH WE HAVE THE

EXPERIENCE AND ABILITY TO EXCEL.

WLSFARGOWANTS TO BECOME, SIMPLY, THE BEST

BANK IN THE WEST - BEST IN SERVING

THE FINANCIAL NEEDS OF CALIFORNIA

CONSUMERS AND BUSINESSES NATION­

WIDE, BEST TO WORK FOR, BEST IN

CREATING VALUE FOR OUR INVESTORS.

____~t).----­

Cre<ill\ting

Sh<illIr'e~<oMell"

V<ill[Il1I<e

For Wells Fargo, 1989 was a

period of increased concentra­

tion on our profitable core

banking businesses and on

strengthening ties with custo­

mers and communities.

In a turbulent year for the

financial services industry, our

continuing emphasis on cus­

tomers and meeting their needs

produced Wells Fargo's best

overall results to date.

Wells Fargo generated $II.02 of

earnings per common share in

1989, an increase of 20% in com­

p3l"ison with last year's $9.20

per share. Over the past five

years, the Company's earnings

per share have compounded

at an annual rate of approxi­

mately 26%.

Our 1989 return on average

assets and average common

equity, 1.26% and 24.49%, re­

spectively, were the highest in

Wells Fargo's history.

The Company's performance

permitted us to raise the com­

mon stock quarterly dividend

--",,-­

2--t;,#'-­

J

17th earthquake, they worked

long hours helping stricken

communities get back on their

feet with the aid of a $1 million

community relief fund estab­

lished by the bank. Within 10

days following the earthquake,

the entire fund had been dis­

tributed by Wells Fargo volun­

teers to the Red Cross and

some 65 local charitable organi­

zations and municipal service

agencies in seven counties. In

addition to outright aid, our

branches made more than $4

million of low-interest recovery

loans to customers and em­

ployees whose homes and

businesses were damaged

by the quake.

Our people have been par­

ticularly successful this year

in financing a wide variety of

housing projects designed for

low-income families, including

the largest new development to

get underway in the Watts neigh­

borhood or'Los Angeles in 25

years. We've financed several

self-help projects in rural com­

munities where the owners in­

vest their time and talent to keep

the price of their new homes

reasonable. Among the $122 mil­

lion committed through our

Community and Economic De­

velopment program are loans to

finance small group care homes

for homeless teenagers and the

rehabilitation of a historic res­

idential hotel in Oakland.

fortunate in being able to offer

relationships encompassing a

range and quality that few in­

dependent community banks

can match-not only loans and

business checkirtg, but a variety

of investment accounts, payroll

services, retirement plan options

and merchant card services.

We believe success in small

business and consumer banking,

as in most other banking ac­

tivities, calls for decentralized

authority and short, clear lines

of communication. Our branch

officers are surely among the

most entrepreneurial, most in­

dependent and outspoken in

the California financial services

industry. And, according to one

industry analyst, they are also

among the best paid.

Occasionally, local initiative

takes a somewhat surprising

turn. For example, it was sev­

eral of our Sacramento people

who first requested or, rather,

insisted upon the 9 to 6 week­

day banking hours that are

now standard throughout our

branch system.

Community service is actively

encouraged and, wherever

possible, supported by the Com­

pany. As the "town bankers:'

Wells Fargo people often get

involved in staging events and

fund raising drives for the bene­

fit of local charities-United

Way, scholarship funds for de­

serving high school graduates,

the restoration of a local land­

mark, support for a low-income

housing project or a new per­

forming arts center. In the af­

termath of the powerful October

CmJm!luniay

illlvolvement

(fixed-initial-rate mortgage)

loan-a 5- to 1O-year fixed-rate

mortgage loan that converts

to an adjustable-rate mortgage

for the remaining' term. In 1989,

we also offered home borrowers

an optional Certificate of Home

Buying Power with preapproved

credit authority and limits and

-a gift from Wells Fargo-no

first month's mortgage pay­

ment. Advantages like these

encouraged more than 70,000

California families to do their

horne financing with Wells

Fargo in 1989, our biggest year

as a home mortgage lender.

Another 1989 retail product

offering, our Portfolio Maxi­

mizer, offers investors with ac­

counts of $250,000 or more the

advantages of full securities

brokerage and advisory services,

cash management and securities

safekeeping-all within the

framework of a Wells Fargo­

administered custodial account.

Wells Fargo's branches cater

especially to community busi­

nesses and trades-enterprises

whose banking needs have

traditionally been under-served

by small, locally owned banks

and larger regional banks.

1\vo years ago, we established

a separate Business Banking

Division for the sole purpose

of penetrating and, we hope,

filling this gap in the retail

market. We now have 400 small

business banking specialists

operating out of our branches

throughout the state. In 1989,

they increased our small busi­

ness loan portfolio more than

40% and added several thousand

merchants, business owners

and professionals to the list of

satisfied Wells Fargo customers.

Community business banking

is, quintessentially, relationship

banking, and Wells Fargo is

rather than ours. 1\vo years

ago, we became the first major

California bank to offer 24-hour

person-to-person telephone

banking service. In 1989, our

Express Agents handled more

than 24 million customer in­

quiries and transactions, roughly

a third of them during non­

banking hours. We also ex­

panded our 24-hour ATM

service through a hookup with

Plus System's 25,000 unit nation­

wide ATM network. And, we

began offering a home com­

puter on-line banking service

through an exclusive marketing

arrangement with Prodigy

Services Company.

For customers who prefer or

need to do their banking face­

to-face with their banker, we

led the major California banks

in introducing extended 9 a.m.

to 6 p.m. banking hours, Mon­

day through Friday, and in

offering extended Saturday

banking hours from 10 a.m. to

4 p.m.-the hours we find

our customers prefer to bank

on weekends.

Whatever hour or day of the

week they banked with us, our

"Five Minute Max" service guar­

anteed Wells Fargo customers

a short wait in the teller line

or a $5 credit to their check­

ing accounts.

One of the most popular

products we have introduced

in recent years is our new FIRM

The dependability and drive

symbolized by the famous Wells

Fargo stagecoach is more than

advertising imagery. Our Cali­

fornia heritage-our history of

coming through for the people

and communities we serve-is

something we take seriously

and mean to perpetuate.

In these hurried times, one

of the best ways we can come

through for our 2-3 million re­

tail customers is simply to make

it possible for them to bank

with us at their convenience,

lBUlilJmgOlll!r Catforlnia

rJr.aJrnc~:i!Oe

in cash. When completed, the

gain on this transaction will

result in about $65 million of

net income to Wells Fargo.

Nikko is one of Japan's, and

the world's, leading securities

trading, investment banking

and investment management

firms. Our affiliation will give

Wells Fargo new and valuable

ties with the worldwide invest­

ment community. It will provide

sponsorship and increased access

to Japan's capital markets. And

it will produce economies of

scale in operations and secut'i­

ties trading that we believe will

benefit WFIA's institutional

clients in the U.S., as well.

Shanghai Banking Corporation

that now gives Wells Fargo and

its commercial and corporate

customers access to Hongkong­

Bank's network of more than

1,300 overseas offices in 50 coun­

tries-and to a range of inter­

national trade financing, cash

management and business liai­

son services generally considered

to be without peer in the Pa­

cific Rim.

We believe this unique rela­

tionship, the first of its kind

between a major u.S.-owned

and a major foreign-owned fi­

nancial institution, establishes

a model for how global banking

will be done in the 199os. Hong­

kongBank gets a substantial

volume of new, directed business

from our San Francisco-based

International Group. Our cus­

tomers gain access to Hongkong­

Bank's extensive worldwide

banking network. And Wells

Fargo, without cost to our share­

holders, adds an international

capability that substantially

strengthens its relationships

with California's trade-oriented

middle-market and corporate

banking customers.

We are about to establish a

joint venture with Nikko Secur­

ities Co., Ltd. that will trans­

form Wells Fargo Investment

Advisors (WFIA) into a truly

global investment management

firm and introduce the modern

quantitative investment tech­

niques WFIA pioneered and

championed in the United

States to the world's other

major institutional invest­

ment markets.

Under the agreement, we will

contribute WFIA and related trust

operations to the joint venture

in exchange for approximately

a 50% interest in the venture

plus approximately $125 million

~t~ _

StrelllgdnemJrng

CaIHl>!omelI" Ties

At the same time we began dis­

posing of offices abroad, we

reached a cooperative agree­

ment with The Hongkong and

trade-related financial services

to domestic customers.

Last summer we acquired

the Bank of Paradise, adding

three branches in Butte County.

Shortly after year-end, we com­

pleted the acquisition of Valley

National Bank of Glendale. And

this spring, we expect to com­

lete the previously announced

acquisitions of Central Pacific

Corporation and its American

National Bank of Bakersfield,

and the Torrey Pines Group

of San Diego County. These

three acquisitions had com­

bined assets of approximately

$1.7 billion at year,end 1989

and have 42 branch offices in

areas where Wells Fargo already

enjoys strong commercial or

agribusiness banking relation­

ships. Up to now, however, we

have lacked the retail penetra­

tion of these prime Southern

California and Central Valley

growth markets we think they

deserve, and we intend to in­

crease that penetration.

During 1989, we sold sub­

stantially all of our general

equipment leasing business and

agreed to dispose of offices in

Hong Kong, Tokyo, Seoul and

Singapore. While the disposal

of these foreign offices might be

regarded as a further example

of "concentrating our resources:'

the real import of this move,

and the event that precipitated

it, comes under the next

chapter heading.

of the portfolio. These groups

also provide their customers

cash management and other

fee-related services.

Our investment management

businesses include Wells Fargo

Investment Advisors, the largest

index fund manager in the coun­

try, with more than $80 billion

of assets under management,

and the trust and investment

services of our Private Banking

Group, which is responsible for

about $34 billion of personal,

agency and employee benefit

trust assets.

Wells Fargo's domestic loan

portfolio grew by $4.6 billion,

or 12%, in 1989' Mortgage loans

to California homeowners ac­

counted for the bulk of that

increase; by year-end, we had

jumped from 28th to 5th place

among the state's leading home

mortgage lenders. A few other

indices of our California com­

mitment: Wells Fargo is now the

state's largest bank lender to

agriculture, it largest real estate

construction lender and its third

largest credit card issuer.

On the other hand, we rank

at the bottom of the list of

major California and u.s. banks

in terms of foreign credits. Dur­

ing 1989, we sold or charged

off the last of our medium- and

long-term outstandings to de­

veloping countries. Our inter­

national banking business is

essentially now confined to

FINANCIAL REVIEW

OVERVIEW

Year ended Decemher I,

1989 '988 '987

1.26% 1.14% .11°0

24·49 2}99 1.47

21.88 21.06 2.21

5·°4% 4·6Mb 4. 17%5.87 5·53 5.098.19 8'°5 8,9°II.81 12·°9 14.01

4.90 4.52 4. 23

5·75 5·43 5. 138.08 8.80 8.26

1I'97 1}51 1}57

3°% 27% 321 "0

$48.08 $41.38 $34'93

$ 87'/8 S7034 $ 59'

59 433/; 37%74% 603 43

(1) Based on regulatory concepts, primary capital (>4.053 million ar December 31• 1989)is defined as stockholders' equity (52,86, million). qualifying mandatory convertible

debt (5453 million. net of nore fund and dedicated stockholders' equity discussed on

page 33) anel allowance for loan losses (5739 million).

(2) Based on regulatory concepts, toral capital ($5,844 million at December 3'. '989) is

defined as primary capital and certain senior and subordinared debt of the Parent

(51,791 million).

(3) Dividends declared per common shnre <15 <I percentage of nee income per common sh<.lrc~.

(4) Based on daily closing prices reported on the New York Stock Exchange Composite

Transaction Reponing System.

TabJe [.RATIOS AND PER COMMON SHARE DATA

CAPITAL RATIOS

At year end:Common stockholders' equity

to assetsStockholders' equity to assets

Primary capital to assets (1)

Toral capital to assets (2)

Average balances:Common stockholders' equity

to assetsStockholders' equity to assets

Primary capital to assets

Total capital to assets

PER COMMON SHARE DATA

Dividend payour (3)

Book value

Market prices (4):

HighLoll'

Year end

At December JI, 1989, common equity to total assets was5.04%, compared with 4.66% at December 31, 1988; primarycapital was 8.19% of total assets at December 31,1989, comparedwith 8.05% a year earlier; and total capital was II.81%, com­pared with 12.09%' The Company's risk-based capital ratios

at December JI, 1989 exceeded the minimum 1992 guidelines.A discussion of risk-based capital guidelines is on page 18.

PROFITABILITY RATIOS

Net income to average total assets (ROA)

Net income applicable to common stockto average common stockholders'

equity (ROE)

Net income to averagestockholders' equity

Nt ;ncom, ;n '989 w", $60u milHon, ,n 'nm", of '7%over 512.5 million in 1988. Net income per share was $II.02,up 20% from $9.20 in 1988.

Return on average assets (ROA) was 1.26% and return on

average common equity (ROE) was 24-49% in 1989, up from1.14% and 2J99%, respectively, in 1988.

Earnings in 1989 benefited from increased net interest income,which primarily resulted from growth in domestic loans. Netinterest income on a taxable-equivalent basis rose 9% to

$2,188.2 million in 1989 and the net interest margin increasedIS basis points to 5·II%.

Average earning assets grew 6% in 1989 compared with 1988,substantially due to an increase in average loans. The average

volume of loans in 1989 was $39.4 billion, 7% higher than 1988,mostly due to increases of 14% in commercial, financial andagricultural (commercial) loans and 19% in real estate mortgageloans, partially offset by an 84% decrease in foreign loans.

The average volume of core deposits in 1989 was $32'9 billion,5% higher than 1988. Core deposits, which consist of non­interest-bearing deposits, interest-bearing checking accounts,

savings accounts and savings certificates, funded 69% of theCompany's average total assets in 1989, compared with 70%in 1988.

Noninterest income was $778,7 million in 1989, compared with$682.2 million in 1988. Noninterest expense was $1,574-5 mil­

lion in 1989, compared with $1,519.1 million in 1988.The Company's 1989 provision for loan losses was $362 mil­

lion, compared with $300 million in 1988. During 1989, domesticnet charge-offs were $175'9 million, or .45% of average domes­tic loans, compared with $196-5 million, or '55% of averagedomestic loans, during 1988. The allowance for loan losseswas 1.77% of total loans at December jI, 1989, compared with2.00% of total loans at December jI, 1988.

At December jI, 1989, the Company had no medium- andlong-term cross-border outstandings to developing countries,as the remaining outstandings of $245 million were eliminatedin the first quarter of 1989 through loan sales and charge-offs.Short-term cross-border outstandings to developing countries

at December 31, 1989 totaled $II4 million, and related com­mitments to lend additional funds were $29 million. Suchoutstandings at year-end 1988 totaled $212 million, and therewere no related commitments to lend additional funds.

Total nonaccrual and restructured loans and other real

estate (ORE) were $I,15J7 million, or 2.7% of total loans andORE, at December 31, 1989, compared with $1,028.0 million,also 2.7%, at December jI, 1988. The entire 1989 amount of$I,15J7 million was attributable to the domestic portfolio,compared with $924.4 million at year-end 1988.

--C=---'L 2- .ro .. Q.~Carl E. ReichardtChairman

Paul HazenPresident

March 6, 1990

Our sincere thanks to Mary E.Lanigar for her 17 years of ser­vice to the Company, and toJames K. Dobey who has helpedguide our organization, firstas an officer of the bank andthen as a director, for morethan 40 years. Both will be­come directors emeriti uponretirement.

Secondly, we wish to welcometo the Wells Fargo team theemployees and customers ofthe Bank of Paradise and ValleyNational Bank of Glendale, andthe two other fine bankingorganizations, Central PacificCorporation and the TorreyPines Group, who will be join­ing us soon after this report

is published.Finally, a word of acknowl­

edgment and thanks to ouremployees for "coming through"in the Wells Fargo traditiononce again; to our customersfor their patronage and loyalty;to our directors for their guid­ance; and to our shareholdersfor their continued support.

-----!$}-----

AcllmmAeJgmmell1h<i

We honor four directors of WellsFargo who have provided guid­ance and counsel to the Com­pany. We are grateful to Roger D.Lapham, Jr., who retired fromthe Board of Directors in 1989after 14 years of service andwas elected a director emeritus.We also thank Donald B. Ricewho was appointed Secretaryof the Air Force by PresidentBush during 1989, after nineyears as a director of Wells Fargo.Two long-time directors will re­tire from the board this year:

about whether it makes eco­nomic sense to the companydoing the restructuring. Look­ing back over five years of HLTlending, it would appear thatthe vast majority of the trans­actions we have helped struc­ture have "made sense" for allparties, including the borrow­ing companies' employees,customers and small investors.

We have generally avoidedtaking large positions with oneborrower, preferring to diversifyour HLT portfolio among manysmall- to medium-sized trans­actions. In most instances, theinterests of our shareholdersand depositors have been pro­tected by senior or securedlending positions. Even so, wemonitor our highly leveragedloans with special care.

There can be no assurancethat Wells Fargo's HLT portfoliowill continue to perform as wellas it has in the past. And wewould expect that the volumeof HLT loans will be lower thanWells Fargo has generated inpast years. What we can saywith certainty is that we willcontinue to evaluate our HLTloans and lending opportunitieson their individual merits.

economy and our own role inhelping it grow. All the same,we have expended a good dealof effort in the past year pre­paring to deal with whateverchanges in the economic andcompetitive environment thebeginning of the new decademight bring.

Mainly, we have managed themix in our loan portfolio alonglines that we believe will reducethe likelihood of unpleasantsurprises, should the economymove into a recession.

The removal of $1.7 billion ofdeveloping country outstand­ings over the past two yearshas been a major accomplish­ment; in addition to reducingour risk profile, it has increasedportfolio yields by eliminatinga substantial burden of non­accruing assets. We have alsoaltered the mix of our real estateloan portfolio by substantiallyincreasing our investments inhome mortgages.

Highly leveraged transaction(HLT) lending has been one ofthe more controversial subjectsin the banking industry in re­cent years. Basically, the con­troversy centers around twoissues: first, has leveraged bor­rowing been good for the com­panies themselves and for thenational economy? And second,is it safe for banks to engagein HLT lending?

The only conclusion we havedrawn on these issues-theonly conclusion we feel it ispossible to draw from the weightof conflicting evidence-is thatevery prospective transaction,and every bank's experience,must be judged on its ownmerit. There are no simple,pat answers.

Wells Fargo's record in HLTlending is a good one. In evalua­ting a prospective restructuring,we are primarily concerned

reil"sp,ectiwes

The 1980s will surely be remem­bered by bankers as the era ofdeveloping country and energyloans, industry deregulation,the S&L crisis and the firstsignificant efforts to reformour antiquated deposit insur­ance system.

For Corporate America, the'80S were a time of hostiletakeovers and preemptive re­structurings, junk bonds andleveraged buyouts, shrinkingcapital bases and rising cor­porate debt.

Some Californians will fondlyrecall the '80S as a period ofvigorous economic growth, ris­ing employment, soaring prop­erty values and the addedbuying power of a two-wage­earner income. For others, ithas meant critical shortages ofaffordable "close-in" housing,rising college costs and a mount­ing burden of personal debt.

No one can foresee preciselyhow these legacies of the '80Swill affect the future of oureconomy. Nor can we visualizewhat new challenges the '90Swill hold. All we know is thatthe new decade is likely to beas full of challenges and sur­prises as the old one-andthat we had best be preparedfor them.

At Wells Fargo, we are opti­mistic about the long-termoutlook for the California

--""-­4

--~-­

5

"<)''''-;:;;;;;';::;;;;;:;;'':'::::====:::;;;;;;:::;;;;;;:::;;;;;;:::;;;;;;:::;;;;;;:::;;;;;;''============:::;;;;;;:::;;;;;;:::;;;;;;:::;;;;;;:::;;;;;;:::;;;;;;:::;;;;;;:::;;;;;;:::;;;;;;'''''''=========;;'''''========::====:::;;;;;:::;;;;;;;:::;;;;;;1.~ ,1(>.,

6

9

12

.15.11,!

4.96,.14.63,

1.9,\'7'-----------------3

• Rare ontotal fundingsources

! Netinterest

, margin

,--------------15%

• Yield onearningassets

The majority of the growth in trust and investment services

income in 1989 compared with 1988 was due to additional fundsinvested by new and existing customers and higher stock

market prices, as fees are generally based on the value of

assets managed.

In 1989 and 1988, the majority of the income from equityinvestments, which are accounted for using the cost method,resulted from gains on sales of and special distributions from

equity positions related to highly leveraged transactions.If it were not for the net-oF-tax accounting related to Crocker

National Corporation (Crocker), "all other" noninterest income

would have been $41.9 million in 1989 and $25.0 million in1988. Income tax expense would have been correspondinglyaffected, resulting in no effect on net income.

47

f1' 1 Ch:lllg~

19u.

19 7

2%

5

5

14

16

12

122

(roo)

(10'5)(./7.0)

600.0

$~78.~ ,270.8

21 9.6 ,80.6

153-7 '56'5

16.1 2+5

16,9 18.5

(3·[) [9·5

(d (1~'9)

5682.2

l~

Year cnd..:J Dccemhcr )',

17·7

(33. 1)

50 •1

$778.7

TaMeJ.NONINTEREST INCOME

Domestic rees andcornmissions

S~rvice charges on depositaccounts

Trust and investmentservices income

Income from equityinvcsrmcnts

Imernational fces,commissions andforeign exch,mge

lj'adi ng accoum profits(losses) andcommissions

In\'~stmem securitieslosses

Losses on dispositionof premises andequipment

All othcr

Total

--~,--

~t~

NONINTEREST INCOME

1111 millions}

The two largest components of domestic fees and commis­

sions were credit card merchant fees (including interchange

fees), which were $69.2 million and $65-4 million in 1989 and1988, respectively, and credit card membership fees, which

were $3}0 million and $3I.7 million in 1989 and 1988, respec­tively. There were 2.1 million cardholder accounts at year-end

1989, a 24% increase over 1.7 million a counts at year-end 1988.The increase was mostly due to a December 1989 acquisition

of a credit card portfolio.

l'ablc 3 shows the major components of noninterest income.

gin was s.n%, a IS basis point increase over 1988 that wasprimariJy due to sales and charge-offs of low-yielding devel­oping country loans and a higher spread between prime-based

loans and their funding sources. Individual components ofnet interest income and net interest margin are presented

in Table 4·

======== ===- ====~% Change Five-year

19891t988 compoundgrowth rate

9% 15%21 13

14 24

4 12

17 29

20 26

35 25

II% 13%(2) 23

5 12

4 13(25) (16)

(7) 13II 16

1986

1988. Net interest income on a taxable-equivalent basis is higher

than net interest income on the consolidated statement of

income because it reflects taxable-equivalent adjustments thatmostly relate to income on certain securities and loans thatis exempt from federal income taxes. The taxable-equivalent

adjustments are based on the federal statutory tax rate (34%for both 1989 and 1988) and applicable state taxes.

The 9% improvement in net interest income was primarily

due to a 6% growth in earning assets. Loans averaged $39·4 bil­

lion during 1989, an increase of 7% over 1988. Increases of14% in commercial loans and 19% in real estate mortgage loanswere partially offset by an 84% decrease in foreign loans, (See

additional discussion in the Loan Portfolio section.)Net interest income on a taxable-equivalent basis expressed

as a percentage of average total earning assets is referred toas the net interest margin, which represents the average net

effective yield on earning assets. For 1989, the net interest mar-

PERFORMANCE

36,791 $36,771 $24,614 $22,894

1,357 734 417 260

44,183 44,577 29,429 28, 184

32,320 32,993 19,501 20,201

1,574 2,019 2,130 I,7°9

2,250 2,392 2,057 11012

2,248 2,343 1,458 1,344

-- -- -- --

37.670

752

46,6'7

35,06992 3

1,9942,579

EARNINGS

$41,727

73948,73736,430

6951,8462,861

$2,158.6 $1,972.1 $1,801.6 $1,49l7 $1 1220.2 $1,069,5

362.0 300.0 892.0 36l.7 371.8 '94.6

778,7 682.2 600.0 574.8 395·7 270.6

1,574,5 1,519. 1 1,520 .5 1,315. 2 94J8 886.6

601.1 512.5 50.8 27J5 190.0 [69·3

11.02 9.20 .52 5.03 4. 15 ).42

3.30 2·45 1.67 1.41 1.24 1.08

Net interest income is the difference between interest income

(which includes yield-related loan fees) and interest expense.Net interest income on a taxable-equivalent basis was $2,188.2million in 1989, an increase of 9% over $2,007.6 million in

NET INTEREST INCOME

W, F,",o & Comp,ny (Pa",m) i, , b,nk holding com·pany whose principal subsidiary is Wells Fargo Bank, N.A.

(Bank). In addition, the Parent, through its nonbank sub­sidiaries, provides agricultural financing and manages fundsfor pension plans, institutions and foundations. In this AnnualReport, Wells Fargo & Company and its subsidiaries are re­

fet'red to as the Company. Over 98% of the consolidated net

income for 1989 was contributed by the Bank.

(,) RefleCls the acquisi[ion or Crocker National Corporation beginning June I, '986.(2) Due 10 the loan ree reclassification discussed in Nore 14 to the Financial Statemems, net in[eres[ income decreased while nanimeresr income increased by 5'29·7 million in 19

87 and

$115.2 million in 1986. YeaTS prior [Q J~6 have nOI been reclassified ns complete information is nor ilvailablc.

LoansAllowance for loan losses

Assets

Deposits

Senior debt

Subordinated debt

Stockholders' equity

Table Z.SIX - YEA R SUM MAR Y 0 F S E L E C TED FIN AN CIA L D AT A (1)

--r4fPJ--

6

-- --- -- - -- -- -- -- --- --

BALANCE SHEET

Nct intetest income (2)

Provision for loan losses

Noninterest income (2)

Noninterest expense

Net income

Per common share

Net income

Dividends declared

INCOME STATEMENT

la~~<e 4.AVERAGE BALANCES, YIELDS AND RATES PAID (TAXABLE-EQUIVALENT BASIS)

(in millions)

Averagebalance

1989---y'---ie"""lds/ -------:-In-t-...:.eresl

rates income/expense

Averagebalance

Yields/rates

I~

Imerestincome/expense

Averagebola nee

Yields/ratcs

Aver:lgcb"I"nce

Yields/Tatcs

Imerestincome/eXI~nSl'

A\'cmgeb"I"nce

Yiellslrares

Imer~Sl

income/expense

EARNING ASSETS

Interest'earning depositsInvestment securities:

U.S. Treasury securitiesSecurities of other U.S. government

agencies and corporationsObligations of states and political

subdivisionsOther securities

Total investment securitiesTt'ading account securitiesFederal funds soldLoans:

Commercial, financial and agriculturalReal estate construction (I)Real estate mortgage (I)ConsumerLease financingForeignFees and sundry interest

Total loans (2) (3)

Total earning assets

FUNDING SOURCES

Interest·bearing liabilities:Deposits:

Savings depositsNOW accountsMarket rme checkingMarkct rate savingsSavings certificatcsCertificates of dcpositOther time depositsDeposits in foreign offices

Total interest·bearing depositsCommercial paperOther short-term borrowi ngsScnior and subordinated dcbt:

Senior dcbtSubordinatcd debt

Total scnior and subordinatcd debt

Total imerest·bearing liabilitiesPortion of nonintercst-bearing funding sources

Total funding sources

Net interest margin and net intcrest incomeon a taxable·equivalent basis (2)

NONINTEREST-EARNING ASSETS

Cash and due from banksOthcr (4)

Total noninterest-earning assets

NONINTEREST-BEARING FUNDING SOURCES

DepositsOthcr liabilitiesPreferred stockholders' equitYCommon stockholders' equityNonintercst.bearing funding sources uscd to

fund earning asscts

Net noninterest·bearingfunding sources

TOTAL ASSETS

7°315

3,347[

31

$ 4,0643>310

2838,[55

10,161436[59654

27.2222,8234,216

815[,943

2,758

37,0195.8)4

$42 ,853

$ 2,6232,287

$ 4.910

$ 6.8771,120

4°52,342

7·43

8.81

7.51

10.63

8.679.2 99·33

n.66n·7°10.7813.44

H~

n.66

4·973.92

4.00

6.677.91

8'998,769.02

6.629.189.16

5·n %

5. 2

33·52 9°.0

.1

2·9

1,65°,5512.9

1,257,51,026.0

127.921.1

202.0129.7

s:;:~8°4.1

39.2

14. 0

59.0

1,802,92 59.3386.0

2.7°4·4

2,70 4.4

$2,188.2

134

860

36'986

$4°.5°6

1,2°42. 124

3.328

34,9525·554

$40 .506

$ 2.4781.869

$ 4,347

$ 6.3861.082

4°52,028

$ 4,347

7.66%

7.52

8.72

7.41

10.66

8'587.067.0 9

10.12

10·5°10.)112.839-5°6.04

9. 177-768.27

6.28

10.2

6.237.2

1.259·4482.6

l.ol}8928.7126.2

9}3

22l.7124.8

14.3444·3610·747.612-474. 1

1·549·9186.1184. 1

110-3

164.8

275. 1

2.195.2

1,866

101499

3,182121123

'2,2624,35 1

8.7987,239r,2582,126

41 111

2.914432

7,8478.145876193

1.247

25.7653,1342,03'

1,8192.316

4. 135

35,0655,313

$40 .378

, 2.5691,9°7

S .j,476

, 6.3°°1. 1874°5

1,897

(5,313)

8.61

7-7610.24

8,536'336.26

9-319·93

,o·°712·5910.72

5·75

10.07

9·94

9·557. 11

8.18

6.12

5-31

99·4

52 .0

160·7

7.851.1

271.67.67·7

1.[41.1

432 . 1

886.19"·413+8122.2

2°5·9115·517.4

396.0529.6

75·315.5

86.0

1,441.22°9.8155. 0

2.144·3

2,144 -3

17°

135332

10.°914.8265,9686.408

11Jl52,101

2,3932, 1°7

442

6.8837.6°9

8073°8717

21.2661,6191,245

2,2352,225

4.460

28.59°4,739

$ 33.329

$ 2.3531,692

S 4.045

S 5.4631.275

3191.727

$ 37·374

7.88

8.66

8.6712.16

(,).246.886,71

9.46'lO.Of

10·75'P9r2.238'96

10.67

1°,44

5.30

4. 815·°55· 47.4 2

9.00

8.067.52

6.276.766-30

9. 687. 10

8.39

6.63

4·75"0

14-7

3,255.0

3.478.2

126'9IOf·3

22-3367.9564-772 .62 4.85 ·9

1,334-41°9·478,5

216-4157.9

374-3

1.896.6

5°9

882

20

210

7,8403.7464,7603.69°

9152 142 7

23,378

$ 25.716

1.381r,42 9

3265,3275,920

278265

1,'35

16,0611.951

1,321

1.7971.562

3.359

22.692

3.0242 5.7 16

S 1,6391,214

S 2.853

3.3661.1°3

15°1.258

$ 2.853

9. 17°.

9.71

7·7°

8·715. 12

11.0611.6411.[0

'4.7-\'4.2011.2

12.28

12.06

5·5°5. 125·756.639. 2 41}949'989.88

7-758.237.62

10.648,73

9·758.08

7. 13

4'93"0

5.6

..6

14. 2

4}6

145. 0

22.817.4

866.8436.0528.544.013°.0

27}79..8

2.870 .6

75·97}1

18·735}0547-238.826·4112.2

J ,245-3r60'5roo·7

. 1,268.6

The average prime rate of Wells Fnrgo Bank was 10.87%, 9'32%, 8.21%, 8-33% and 9·93% for 1989, 1988, 1987. 1986 and 1985, respectively.(I) Effective December 31• 1989, standing loans. which are loans secured primarily by complered and operational real estare with rerms generally not in excess of five years, arc included

in [he real cs(;](e mOHgage loan cmcgory. In prior ycars, these bnlnnccs were included in the real esw.tc construction \o:m cmcgory. Years prior to 1987 have not been recltlssified as

cornplcrc infonmuion is not :lvnil3ble.

--~--

§

I

(2) Due to rhe loan fcc reelassificarion discussed in Narc 14 to the Financial Statements, interest income on loans for 1987 ond 1986 decreosed by $129.7 million and S"5'" million.respcctively, and the net interest Inargin dccrcrl5cd b~, )2 bnsis poims and 34 bnsis poims, respcCfivcly. Lonn fees :Ind sundry interest are shown separmely for 1985 as complcreinformation is nor nvnilnble to rcclassify thm year.

(,) Nonnccrual and restructured loans and relared income nrc included in thcir respcctive loan ciltcgorics.(4) Includes rhe overage allowance for loon losses of 5695 million, 51,149 million, SI,020 million, S587 million and S336 million in 1989, 1988, 1987. 1986 and 1985, respectively.

---~,--

9

BALANCE SHEET ANALYSIS

Although average consumer loans did not increase signifi­cantly in 1989 compared with 1988, the consumer portfolioof $8-4 billion at year-end 1989 increased by $'9 billion fromyear-end 1988, substantially due to growth in real estate juniorlien mortgage loans and the purchase of a credit card portfolio.

Included in the commercial portfolio were agricultural loans

of $641 million and $683 million at December 31, 1989 and 1988,respectively. Agricultural loans include loans to finance agri­cultural production, fisheries and forestries and other loansto farmers. Agricultural loans that are primarily secured byreal estate are included in real estate mortgage loans; such loanswere $215 million and $200 million at December y, 1989 and1988, respectively.

The Company's total commercial real estate loans were$n,827 million at December 31, 1989 and included (I) loansto real estate developers Of$1,720 million included in commercialloans, (2) real estate construction loans of $4,088 million and(3) real estate mortgage loans, other than those secured by1-4 family residential properties, of$6,019 million. Table 6 sum­marizes real estate construction loans by state and project type.

34 35 35

13 12 10

lOOY.

2428 33

1920 20

4 46 1 2

______!tl__ -- ----

NONINTEREST EXPENSE

Table 5 shows the major components of noninterest expense.

laUe:).NONINTEREST EXPENSE

{in millions) YC<lr ended December ]1, o~ Chnngc

1989 '988 '987 1989/ '988/1988 '987

Salaries 631.3 S 19.8 599·3 2% 3%

Employee bcnefits 149.2 '52 -4 '51.5 (2)

Net occupancy 178'5 ,66.8 '78.7 7 (7)

Equipment 137·3 135.8 1)2·9

Advertising andpromotion 57-4 41.-\ ~7'0 39 53

Postage, stationcry andsupplics 57-3 52.6 56'5 9 (7)

Operating losses 38 '3 25.0 35·9 53 (3°)

Telecommunications 36.2 4}7 5[.9 (17) (16)

Professional services 35.0 38.8 34.2 (10) '4

Contract services 29·9 2)-4 24·7 18 3Federal deposit insurance 27·4 ~4'5 ~5·1 12 (2)

Travel and cntertainment 25.0 24. 2 21.4 3 13

Goodwill amortiwrion 21.2 22·7 22·4 (6)

Outside data processi ng 15·5 16,3 19.0 (4) ('4)

Donatioll5 15.0 6.8 1.7 120 300

Escrow and collectionagcncy fees 14·7 15·7 ,}6 (6) '5

Insurance 13·9 '4·5 20·3 (4) (29)

Protection 13·4 III ,6., 2 (19)

Other real estate 11.7 20.6 37-4 (43) (45)

All other 66,3 59.0 5°·9 12 ,6

Total $1,574·5 $t.5'9·' $1,520 -5 4

Most of the 1989 increase in salaries expense resulted from

bonuses related to retail banking activities. The Company'sfull-time equivalent staff, including hourly employees, wasapproximately 19,500 at December 31, 1989, compared with

approximately 19,700 at December 31, 1988.Most of the increase in advertising and promotion expense

in 1989 compared with 1988 related to consumer products

and services.The increase in operating losses in 1989 compared with

1988 was primarily due to an increase in legal settlements.

_______ __!tl _ _ ---INCOME TAXES

The Company's effective income tax rates for 1989 and 1988

were 40% and 39%, respectively. (For additional information,

refer to Note 10 to the Financial Statements.)The Financial Accounting Standards Board (FASB) issued

Statement of Financial Accounting Standards No. 96 (FAS96), Accounting for Income laxes, in December 1987. ThisStatement changes the method of computing income taxes forfinancial statement purposes by adopting the liability (or bal­ance sheet) method under which the net deferred tax liabilityor asset is based on the tax effeccs of the differences betweenthe book and tax bases of the various balance sheet assetsand liabilities. Under this method, the computation of thenet deferred tax liability or asset gives current recognitionto changes in tax laws and rates. The Statement supercedesAccounting Principles Board Opinion (APB) No. n, Accountingfor Income Taxes, under which the net deferred tax liabilityor asset was an accumulation of annual adjustments basedon the tax effects of the book and tax income statementdifferences and was not adjusted for subsequent changes

in tax rates.In 1989, the FASB delayed the effective date of FAS 96 to

1992; earlier implementation is permitted. Financial statementsfor years prior to the year of adoption may be restated toconform with the requirements of the Statement. The effect

of applying FAS 96 on the amount of the net deferred taxasset or liability at the beginning of the year adopted or theearliest year restated is to be reflected as an adjustment to

earnings for that year.The Company has not yet determined whether to adopt

FAS 96 before 1992 or whether to restate any prior financialstatements. The Company estimates that, if the principles ofthe Statement had been applied in its present form at Decem­ber 31, 1989, the Company's net deferred tax asset of $238 mil­lion would be reduced by not more than $70 million. This

adjustment would correspondingly be recorded as an expenseof either the current or prior periods, due to the Statement'sm re restrictive criteria for the recognition of deferred taxassets than under current APB Opinion No. II principles.

Presently, the FASB is considering requests to amend FAS 96,which could significantly alter its application. In addition,

certain interpretations of FAS 96 made by the Company toestimate the effect of adoption could change if an amendmentis made or further guidance is ultimately issued by the FASB.However, based on the requests currently being consideredby the FASB, the Company anticipates that an amendmentmade to FAS 96 would not result in a significant increase, ifany, in the above estimated maximum adjustment of $70 mil-

lion.

Acomp,,;"''' b"w"" ,h, y,,,~,,d '98g ,,,d '988 b,l,,,,,sheets is presented below. Excluding intercompany balances,the Bank, nonbank subsidiaries and Parent represented ap­proximately 93%, 4% and 3%, respectively, of consolidated

total assets at December 31, 1989'

INVESTMENT SECURITIES

Investment securities were $1.7 billion at December y, 1989,a 56% decrease from $4.0 billion at December y, 1988. Mostof the decrease was due to sales of Government NationalMortgage Association securities and U.S. 1i:easury securities.Sales of investment securities resulted in negligible losses in1989' The securities were sold primarily to accommodate un­foreseen growth in higher-yielding assets, particularly realestate first mortgage loans secured by 1-4 family residentialproperties. Sales of investment securities in 1989 did not andare not expected to have an adverse effect on the net inter­est margin. Management has no current plans to sell addi­tional securities.

At December 31, 1989, the investment securities portfoliohad a net unrealized loss of $33 million, which reflected grossunrealized losses of $39 million, or 2-3% of the book value ofinvestment securities. This amount is not considered materialin relation to future income, liquidity or capital resources trends,nor is this amount expected to have a material impact onfuture yields of investment securities. At December 31, 1988,the investment securities portfolio had a net unrealized lossof $171 million, or 4-3% of book value. (Note 3 to the FinancialStatements shows the book and market values of the invest­ment portfolio by type of issuer.)

________!tl _

LOAN PORTFOLIO

A comparative schedule of average loan balances is presentedin Table 4; year-end balances are presented in Note 4 to theFinancial Statements.

Loans averaged $39-4 billion in 1989, an increase of 7% over1988. Commercial loans increased 14%, primarily due to growthin corporate and middle-market loans. Real estate mortgageloans increased 19%, with a majority of the increase occurringin the 1-4 family first mortgage loan portfolio. Foreign loansdecreased 84%, substantially due to sales and charge-offs ofdeveloping country loans.

• Commercial

• Real esrateconsrrucrion

• Relll estatemortgage

• Consumer

• Lease financing

• Foreign(less rh:m It~o atycof'cnd 1989)

/,9S7 /JiSS

--~--

RO

'<dP>--

nn

lil Orh~r Strltes consists of 21 SUl{eS~ loans in each of these stares WC'I'C less than SIOO million i1t December 31, 1989-

TilIb[e6.

REAL ESTATE CONSTRUCTION LOANS (RECL) BY STATE AND TYPE

Deccmb<r 31, 1989(in millions)

lliinois Florid" Texas Olher Tonti .,Cnlifurni::l Arizuna Colorado Virginiil stales (,) by lype of lOWI

RECl

$ 5° $- $ 5° $ - $ 5° $ 20 $220 960 23%Office buildings 570 10 760 '91-4 family structures and land 74° 10

760 19Shoppi ng centers 320 20 5° 10 9° 4° 4° 19°

3° 20 10 110 59° '4Land (excluding 1-4 family) 260 4° 7° 5° 420 10Industrial 35° 10 10 50

160 10 10 10 '9°Apartments

5° 3°20 5° 15°

Secured lines of credit 60 7°Hotels/ motels lO

-----'.2<: ---.2ther -----'.2<:

$700 $4,°9° roo%Total by state $2,600 $180 $15° $13° $,20 $1I0 $100

64% 4% 4% 3% 3% 3% 2% [7% 100%"0 of total RECl

Nonaccrual loans included above $ 5° $ 20 $- $ - $ 10 $ 20 $ 20 $ 17°5°

6.0% '9·3% }o% 4.2%~u of total by state 1.8% 29-5% 15. 1% -% -%

(in millions) December 3'. 1989Torol NUlnber

;)lllOUIH ofLoan rilngc outstanding transnc[ions

$ [-20 $ 543 5°21-40 910 32.j1-60 966 1961-80 646 9

1-100 175 2Over $100 974 6

Total $4, 214 ,,8

of HLTs shown in Table 7 provide fees and interest rates thatare comparable with other corporate and commercial loans.The Company docs not aggregate fees relating to HLT loansseparately from its other corporate financing activities. How­ever, the Company estimates that during [989 it received feesof approximately $70 million related to all HLT loans and thatapproximately $65 million of HLT loan fees, which were re­ceived prior to and during [989, were recognized in 1989 asgross revenues (interest income and non interest income). HLTfees that have been received prior to and during [989 and thathave not yet been recognized as income (deferred loan fees)totaled approximately $50 million at December 31, 1989.

HLT loans under the previous definition contributed higherrevenues than that which would have been earned if the re­sources had been redeployed to other corporate loans. Basedon an assumption that other corporate loans, on average, gen­erate approximately 50% less in loan fees and bear interest ratesthat are ISO basis points lower than most HLT loans, the Com­pany estimates that 1989 gross revenues and net income wouldhave been approximately 1% and 6% lower, respectively, ifresources used for HLT loans had been redeployed to othercorporate loans. The net income effect would be less if non­interest expenses unique to HLTs were considered.

In addition to the $4.2 billion in senior loans, the Companyhad both mezzanine (subordinated, high-yielding debt) invest­m nts and equity investments relating to HLTs. At Decem­ber 31, 1989, mezzanine investments consisted of subordinatedloans of $71 million included in the Company's loan portfolioand marketable bonds of $39 million (market value of $37 mil­lion) includ d in the Company's investment securities port­folio. Equity investments of $183 million were included in otherassets. The largest single investment was an equity investmentof $25 million. The Company had no mezzanine investmentson nonaccrual status at December 31, 1989 and had negligiblewrite-offs of mezzanine and equity investments during 1989'Gains on sales of and special distributions from mezzanineand equity investments during 1989 were approximately $25million. Based on the new definition, mezzanine investmentstotaled $85 million and equity investments totaled $103 mil­lion at December 31, 1988. These investments are subject tothe saIne approval and review process as senior HLT loans.

[1.6%8'98.18.08.04·54·5H4-43-5}4}2joo2.82·42·42.02.0

12·9

liilMeS.

HIGHLY LEVERAGED TRANSACTION

LOAN PORTFOLIO BY INDUSTRY

At December }I, 1989, the Company had approximately$150 million of HLT loans on nonaccrual status and approxi­mately $20 million of HLT loans past due 90 days and stillaccruing. There were no HLT loans on restructured status orresulting in ORE at year-end [989. The Company charged offapproximately $30 million of HLT loans in 1989' Should aneconomic downturn or a sustained period of rising interestrates occur, HLT borrowers may experience a decrease in theirfinancial performance greater than that of non-HLT borrowers.

Fees and interest rates on HLTs vary because of differentmarket influences on various types or segments of HLTs. How­ever, HLTs under the previous definition generally provide fees(typically 1%-2% of the commitment) and interest rates (typi­cally prime plus 1.5% or LIBOR plus 2'5%) that are higher thanmost other corporate loans. The remaining three categories

TaMe 9.HIGHLY LEVERAGED TRANSACTION LOAN

PORTFOLIO BY LOAN RANGE AMOUNT

Medin and broadcastingManufacturing-textile and apparelServices-health CareManufactLlfing-industrial and commercinl mnchineryManufacturing-paperRetail-miscellaneousRetail-furniture and furnishingsManu factu ri ng-c1ectricalTransportati nRetail-food storesServices-fi nancialWholesale-foodCable televisionManufacturing-fabricated metal productsManufacturing-printing and publishingManufaeturing- foodRetail-restaurantsManufacturing-glass and concreteOther (12 industries)

Total

outstandings and commitments allowed based on the Com­pany's primary capital. Management ensures the HLT loan port­folio is broadly diversified by industry, as shown in Table 8.The range of loan amounts of the HLT portfolio at year-end[989 is summarized in Table 9. The Company was originat­ing agent for $2.[ billion, representing 50 transactions, of theamount outstanding at December 31, [989 shown in Table 9and $1.8 billion, representing 42 transactions, of the amountoutstanding at December 31,1988. After syndication, the Com­pany has typically retained a commitment amount not ex­ceeding approximately $100 mUlion. At December 31, 1989, thelargest single HLT loan outstanding was $251 million and theaverage HLT loan outstanding was $36 million.

HIGHLY LEVERAGED

TRANSACTION LOAN PORTFOLIO

Loans in connection with

The HLT loan portfolio is subject to both a formal approvalprocess and an ongoing review by senior management andcommittees of the Company. In addition, the Company hasestablished limitations regarding the maximum amount of HLT

(I) Prior [0 the "doption in Ocrober 1989 of the joint definition issued by the bonkingl'cgulators, the Cornpany defined an HLT as rhe purchase or recapiraliwtlon of acompany by a fin"ncing package CDnsiSling largely of deb" The Company's previousdefinition indudcd all senior loans 1O such COIl'lpanies, including working Ci.lpimlloalls.

(2) Excludes amounts "lready classified as HlTs under the previous definition above.(3) California assc{~bascdl secured lending consists of middle~mnrkC',t compl~nies \Vhos~

loans arc collmerolized by receivables, inventories, plam ;:lod cqlllpmcnl: 111 conforllllry

with tht:: Company's borrowing requirements.

Buyours Acquisidons Recapitalizations Total

Previous definition (I) $1,929 7'3 $2l8 $2,860

Media and broadcasting/cable television (2) 542 542

California asset-based,68secured lending (j) 77 57 202

Other 108 497 5 610

Total $ 2,"4 $[,809 $291 $ 4, 214

(in millions)

lion and $2.0 billion relating to HLTs at year-end 1989 and1988, respectively, and had other HLTs at various stages ofdiscussion or preliminary commitment subject to documen­

tation and other conditions.

l-iigMy lew<el"iJlgeJ 11'iillJ;)§uc'lion!§

The Company's loan portfolio includes loans made to companiesinvolved in highly leveraged transactions (HLTs). As joindyapproved in October 1989 and clarified in February 1990 bythe Federal Reserve Board, Office of the Comptroller of theCurrency and Federal Deposit Insurance Corporation (bankingregulators), an HLT is defined as a financing transaction thatinvolves the buyout, acquisition or recapitalization of an ex­isting business. In addition to this purpose test, one of thefollowing criteria must be met for the transaction to be con­sidered an HLT: (I) the transaction at least doubles the subjectcompany's liabilities and results in a leverage ratio higher than5°%, (2) the transaction results in a leverage ratio higher than75% 01' (3) the transaction is design~ted an HL~ .by a sYl:dlca­tion agent. The HLT leverage ratio IS total liabIlitIes dIVidedby total assets. A loan is considered HLT-related until the credithas performed satisfactorily for approximately two years andmeets certain criteria as set forth by the banking regulators.The Company's previous definition contained both leverageand source of repayment criteria. As a result of the new defi­nition, a broader array of transactions are being reported asHLT-related, as summarized in Table 7, which shows a break­down of the Company's senior HLT loan portfolio at year-end1989 by HLT category and loan type. The Co~pany's subor­diluted HLT loans are included in mezzanine Ll1vestments andare discussed in the last paragraph of this section.

Using the new definition, the Company's senior HLT loansoutstanding, including working capital loans, totaled $4.2 billionand $}9 billion at December 31, 1989 and 1988, respectively.Approximately 20% of the year-end 1989 HLT loan portfohowas contractually scheduled to be repaid within one year. TheCompany was also committed to lend an additional $2·5 bil-

--"4JPJ-­

III

--"4!FJ--

(i" millions)

(I) Includes npproxim:1rcly S16) million of ORE resulring from IOilns other than l"e,-ll cstmc construcrion and real est;)[c mortgage.

T.-ilile llll.OTHER REAL ESTATE (ORE) BY STATE AND TYPE

TCXHS Colifor;;;;-Dt:'ccmber )1, 1989

Ari:onu Georgia Colorado OIher TO/oj l'lI

s(arc~ by 'ype of (nt[l!

ORE

Agricultural • 80 SIO $- 5- $- ~3°1lLand (cxcluding 1--/ family) 90Hotels/ motels

-/0 20 10 70 185° 10

Office buildi ngs 60 15-/0 '01--/ family '0 IJ20 20Apartmcnts 1O -/0 10Other

10 1030 81O 10 10 10 10 50 '3Toml bl' state 51 70 $1)0 5-/0 20 .. 20 $10 $)90 (I) loatlo

"" of total ORE 44('0 )300 lOOo 500 -.JO 3"0 JOOOo

approximately 15 million of properties acquired in settlementof agricultural16ans. 1able IT summarizes ORE by state and type.

Most of the increase in ORE at December JI' 1989 comparedwith a year earlier was due to an increase of approximately

35 million in land and commercial properties in Texas and

of industries and included approximately $150 million ofHLT loans.

The increase in real estate construction nonaccrualloans at

December 31, 1989 compared with 1988 was primarily due to anincrease in loans used to finance residential developments lo­cated in Arizona and Colorado. The majority of the increase

in real estate mortgage nonaccrual loans at December )I, 1989compared with a year earlier was due to loans used to finance

office buildings in California. Substantially all of the real

estate mortgage nonaccrual loans at year-end 1989 and 1988were loans other than those secured by 1-4 family residentialproperties. Further increases in these real estate nonaccrual

categories may occur until economic conditions and occupancy

rates in different regional markets improve.All of the decrease in foreign nonaccrual loans at year-end

1989 compared with 1988 was due to sales and charge-offs ofdeveloping country loans.

Interest on nonaccrual and restructured loans that was rec­ognized as income amounted to $10.6 million and $16,7 million

in 1989 and 1988, respectively.

NONACCRUAL LOANS, RESTRUCTURED

LOANS AND OTHER REAL ESTATE

- !~l---------

Table 10 presents comparative data for nonaccrual loans, re­

structured loans and ORE. Management's classification of aloan as nonaccrual or restructured does not necessarily indicatethat the principal of the loan is uncollectible in whole or in

part. (Note I to the Financial Statements describes the Com­

pany's policies relating to nonaccrual and restructured loans

and ORE.)Commercial nonaccruals increased at December )I, 1989

compared with a year earlier, substantially due to additional

loans placed on nonaccrual status during 1989 of approximately$380 million, partially offset by repayments of approximately$140 million, charge-offs of approximately $110 million and

transfers to ORE of approximately $50 million. Most of the

transfers to ORE and a significant portion of repayments wererelated to nonaccrual agricultural loans. The additional com­mercialloans placed on nonaccrual status related to a variety

(,) Effective December 31. 1989, sr"nding loans. which arc loans secured prim.rill' bycompleted and operation;]l renl cstme with tams generally nOi in excess of five years,

arc included in rhe fC'-lIl:srmc mortgage 10:111 ca(ecor~l. In prior years. these bnl:mces

were included in the renl cstntc cons£rucrion loan category. Ycar~ prior ro 1989 hnvcnut heen recl;.lssificd as complete informarion is nm avail~lbl('. The swnding 10:111

amount included in real csrm(' mongage loan:, :u D~cC,;.'mber )1. '9t~9 \\Ins ilnlrlfl(crinl.

1able 12 shows loans contractually past due 90 days or moreas to interest or principal, but not included in the nonaccrualor restructured categories. All loans in this category are bothwell secured and in the process of collection or are consumer

loans Or 1-4 family residential real estate loans that are exempt

under regulatory rules from being classified as nonaccrual.

Commcrcial, financial

and agri ultural $ 46.4 5 )4.6 ~ 51-5 5 71.1 $ 46.1Real cstate construction (I) 2·3 3°·7 6.1 11.2 14·)Real esrate mortgagc (,) 28.6 26'9 -/1.) 65·-/ -/2.0Consumer 47.8 )5·9 )5,) 62'9 -/3-5Lease financing I.7 2.1 1.3 1.7 .2Foreign

3·7 1.5Total $126.8 513°.2 ·'35·5 5216.0 ''-17.6

Table HOl.NONACCRUAL LOANS, RESTRUCTURED LOANS AND OTHER REAL ESTATE (ORE)

(in millions) December )'.

Ig~ I~8 1987 1986 1985

Domestic nonaccrual loans:Commercial, financial and agriculrural (,) (2) $ 389.2 335·7 4' 7.9 500.5 546JOReal estate construction (3) 171.4 101.3 24-3 115·4 51.0Real estate mortgage (3) (4) 183.7 119·4 84.8 68.8 49·5Consumer 13·9 18.2 15·4 4.0 J6Lease financing .8 4-8 6.) 12.8 9·5

Total domestic nonaccrual loan, 759. 0 579·4 548.7 701.5 576.6Restructured loans (all domestic) 4·3 10-3 11.7 1}8 18·4

Domestic nonaccrual and restructured loans 763'3 589.7 560.4 715-3 595.0As a percenrage of cotal dome'tic loans I.8% 1.6% 1.6% 2.1% 2.6%

ORE (j) 39°·4 334·7 Jl7.) )19.6 169-3

Domestic nonaccrual loans, restructured loans and ORE 1,15}7 924.4 8n7 1,0)4·9 764-3As a percenrage of total domestic loans and ORE 2·7% 2'5°0 2-5% }o% J4%

Foreign nonaccrual loans 10}6 711 .4 255·4 194.8

Total nonaccrual loans, restructured loans and ORE $1,153,7 51,028.0 $1,589. 1 51,29°.) 959.1

As a percenrage of total loans and ORE 2·7% 2·7% 4-]% J5% }9~0

(I) Includes loans to real estale developers of s,6 million at December 31. 1989'(2) Includes agriculluralloans of ~j6 million. S134 million, SI57 million, S223 million and s,80 million m December 3', '989. 1988, 1987, 1986 and 1985, respeclively.(31 Effective December 31, J~91 smnding loan I which are lo~ns secured primarily by cornplctcd and opcrariol'131 real es[;)[c with terms generally nor in excess of five ye:lrs, are included

in rhe real esrate mongage lonn Gllegory. In prior years, rhrsc balnnces were included in rhe real eSli1te construction loan cmcgory. Years prior [Q [987 hnve nor bern redtlssificd :.'IS

comp!l·te information is nor :.lvililablc.

(.) Includes agrieultllml 103IlS secured by real e"Ole of S27 million. >'4 million, SI2 million. ,'g million and $24 million al December 31, 1989, '988, 1987, 1986 and 1985, respecrively.(5) Includes agricullllml.rel3Ied properri.s of S107 million, S94 million, SI08 million, SI12 milli nand S94 million at December 31. 1989, 1~8, 1987, Ig86 ond Ig85. respecrivcly.

LOANS

PAST DUE

(in millions)

1iilM,!" lll.90 DAYS OR MORE

AND STILL ACCRUING

December 3',

It) 5

ALLOWANCE FOR LOAN LOSSES

An analysis of the changes in the allowance for loan lossesincluding net charge-offs by loan category, is presented in 'Note 4 to the Financial Statements. At December )I, 1989,the allowance for loan losses was $738.6 million, or 1.77%of total loans, compared with 752.1 million, or 2.00%, atDecember 31, 1988.

The Company's determination of the level of the allowanceand, correspondingly, the provision for loan losses rests uponvarious judgments and assumptions including, but not nec­essarily limited to, general economic conditions, loan portfoliOcomposition and prior loan loss experience. The Companyconsiders the allowance for loan losses of $738.6 million ade­quate to cover losses inherent in loans, commercial and realestate loan commitments and standby letters of credit out­standing at December 31, 1989. No assurance can be given thatthe Company will not in any particular period sustain loanlosses that are sizable in relation to the amount reserved, orthat subsequent evaluations of the loan portfolio, in light ofconditions and factors then prevailing, will not require sig­nificant changes in the allowance for loan losses.

--'<df/P'--

~4/.-- 'i4!JP;--

4

20

10

30

1.98.9

33.0

I.YS7 1.9J'J'

30.0

:::::4==.6~6~:::::::=:::::::::=::335.044.17~

1.987 I.9SS

35.6

8.90~ 8:::::.•0!:=:5======3~ .8.19 8

14.01~ ":~.09

E=========~~}11.81 12

'--------'l.I JlL__-----.lll.-_o

r------------ $40

,--------------16%

'----------------0

• Savingscertificates

• SavingsacCOuntS

• Non interest­bearingdeposits

• Total capital/assets

• Primarycapital/assets

• Interest­bearingcheckingaccountS

• Commonstock holders'equityhssets

$ 7,112·53,72 9.8

t2,65°·59,549.0

33,041.8487. 1

16}91,376.0

$35, 68.8

De 'emher J',

1988

$ 8,003.2

3.75°·412,945,510,9°8,3

35,60704406,5143.0

273·4

$36.43°'3

laMeft4.DEPOSITS

(in millions)

Noninterest-bearing deposits

lnterest-bearing checking accounts

Savings accounts

Savings certifi mes

Core deposits

Certificates of deposit

Orher time del osits

Interest-bearing deposits-foreign

Total depositS

Average core deposits and average total deposits increased5% and 3%, respectively, in 1989 compared with 1988, mostlydue to an ll1crease in savings certificates and noninterest-bearingdepOSIts. Average core deposits funded 69% and 70% of theCompany's average total assets in 1989 and 1988, respectively.Average core deposits funded 74% of the Bank's average totalassets in both 1989 and 1988.

DEPOSITS

----!~~-

CAPITAL ADEQUACY

_ _ ~*l

--~f4P\--

[Ii'

Comparative detail of average deposit balances is presentedin lable 4; year-end balances are presented in Table 14·

The Company utilizes a variety of measures to evaluate capitaladequacy. Common equity was 5.04% of total assets at De­ceI~ber 3T, 1989, compared with 4.66% at year-end 1988. PrimarycapItal was 8.19% of total assets at December 31, 1989, com­pared WIth 8.05% at the end of 1988. Total capital was 11.81%of total assets, compared with 12.09% at the end of 1988. Thetotal capItal ratlo decreased slightly in 1989 compared with1988 due to a greater percentage increase in total assets than111 total capital.

Management reviews the various capital measures monthlyand takes appropriate action to ensure that they are withinestablished internal and external guidelines. Management be­lieves that the Company's current capital and liquidity positionsare strong and that its capital position, which exceeds guide­lines established by industry regulators, is adequate to supportItS various businesses. Management also monitors the extentand ~erm of standby letters of credit relative to its capitalPOSition. At December 31, 1989, standby letters of credit were$1.4 billion, or 35% of primary capital.

At December 31, 1989, the Company had no medium- orlong-term cross-border outstandings to developing countries,as the remaining outstandings of $245 million were eliminatedin the first quarter of 1989 through loan sales and charge-offs.All of the Company's short-term cross-border outstandingsto developing countries at December 31, 1989 were to Brazil,which is shown in Table 13, and there were related commit­ments to lend additional funds of $29 million. Short-termcross-border outstandings to developing countries totaled $212million at year-end 1988, and there were no related commit­ments to lend additional funds. There were no Brazilian loanson nonaccrual status at December 31, 1989, compared with$54 million and $416 million at December 31, 1988 and 1987,respectively. Mexican loans on nonaccrual status were $12 mil­lion and $70 million at year-end 1988 and 1987, respectively.

(I) u[sr:mdings are defined as loans, intt:rcsr·carning titnc deposits with orher b3nks,

other intcrcsr~L'arnil1g ilWCStlllcnt5, iH..:CfllCd interest rcccivnble, i.1cccpmnccs, Olher

monetary assets [hm nre dcnomin.::ltcd in dollars or Olher nonloca! C\lrrCIKY [lntl loc[l!currency out~tandings Ihm are neither hedged nOr fuml~d by local currency liabilities.COUfU ry distributions arc bascd on the !ocnrion of the obligor or ilweSll11ent, except(I) (or cross.horder outstandings gunramccd by n third P[lrtYl in which case rhecountry is lhnt of "he guarantor, (lnd (:,!) when wngiblc liquid collaternl is held outsidethe country of tht' obligor, in which case rhe coumry is thm in which the collat~f(ll

is locmeJ. Loans made or deposits placed with il brl'il1ch of:l bank outside the bank's

home counrry arc considered ourstandings of [he horne couner)'.(2) Includes commercial cmcrpriscs thar are rnajorit y.owned by l:enrral gnvernmenrs.

rab~,eB.

CRoss-BoRDER OUTSTANDINGS

AT YEAR END (I)..(in millions) Governments Banks and Commercial Totol 0" or

and official other and tOI',,1

insrinnions(:.!) fimmcial industrial ass~tS

insliwriol1s

BRAZIL

1989 $ 46 $ 68 $- $ 114 .2%

I 88 129 102 231 -5

1987 414 167 II 592 1.3

MEXICO

19891988 45 20 15 80 .2

'987 39° 34 180 604 1.4

~-------_!$~--------

CRoss-BoRDER OUTSTANDINGS

--~-­

[6

There were no countries in which the Company had cross­border outstandings that accounted for more than .25% and.50%of total assets at December 31, 1989 and 1988, respectively.At December 31,1987, the Company had cross-border outstand­ings to borrowers in countries that accounted for more than.75% of total assets; as required by the Securities and ExchangeCommission, such outstandings are shown in Table 13, alongwith comparative amounts for year-end 1989 and 1988.

The provision for loan losses in 1989 was $362 million, com­pared with $300 million in 1988. Domestic net charge-offs in1989 were $175.9 million, compared with $196,5 million in 1988.Net charge-offs of real estate construction loans of h9 mil­lion decreased by $15-4 million in 1989 compared with 1988,mostly due to an increase in recoveries. As a percentage ofaverage domestic loans outstanding, domestic net charge-offswere -45% in 1989 and '55% in 1988. Total net charge-offs in1989 were $266.6 million, compared with $299.0 million in1988. As a percentage of average total loans outstanding, netcharge-offs were .6?,Yo in 1989 and .80% in 1988. The decreasesin both the domestic and total net charge-off ratios wereprimarily due to an increase in loan loss recoveries.

Loan loss recoveries were $120'5 million in 1989, comparedwith $84.8 million in 1988, with most of the increase resultingfrom a $16.0 million increase in foreign loan recoveries and a$12.2 million increase in real estate construction loan recov­eries. Net recoveries of agricultural-related loans (included inboth the commercial and real estate mortgage loan portfolios)

were $1.9 million in 1989 and $4-7 million in 1988.Net charge-offs of foreign loans in 1989 were $90.7 million,

compared with $I02'5 million in 1988. In March 1989, theCompany charged off its remaining medium- and long-termloans to developing countries of $I06'9 million. In 1988, theCompany charged off those loans to developing countries thatwere covered by allocated transfer risk reserves of $77.8 million.

Any loan that is past due as to principal or interest andthat is not both well secured and in the process of collectionis generally charged off (to the extent that it exceeds the netrealizable value of any related collateral) after a predeterminedperiod of time that is based on loan category. Additionally,loans are charged off when classified as a loss by either internal

loan examiners or regulatory examiners.

--6diPJ-­

ft§

Averages fn,. December '989

Assets Liabilities Net nssc[s Nct assetsand (Iiabilitie') (Iiahiliries) as a",

cquiql (column I minlls or lOwl asselscolumn :!)

laMell5.INTEREST RATE SENSITIVITY

Rt.:ll1ninillgil1tl'rl.'st rate

maturity

(in billions)

[-29 dnys 5 J7 $ 10·7 $(7.0) ('4-3)°"Prime-based 15. 2 15. 2 31.2Market ratc savings S.S (S.8) (,S.l)

30-'79 days 6.1 6'4 (-3) (·7)

[80-364 dnys 1.8 I.' ·7 I.41-5 years 8.8 "·3 6,5 } 'J3Over 5 ycars 5.0 ·5 4·5 5.2 9·3 '5~0

Nonmnrker 8-3 '9. 1 (10.8) (22.')

Toral $4S'9 $48'9

Table 15 shows the Company's interest rate sensitivity basedon average balances for December 1989' Interest rate sensitivitymeasures the interval of time before earning assets and interest­bearing liabilities respond to changes in market rates of inter­est. Assets and liabilities are categorized by remaining interestrate maturities rather than by principal maturities of obliga­tions. For example, a new five-year loan with a rate that isadjusted every 180 days would have a remaining interest ratematurity of 180 days. In 60 days, the same loan would havea remaining interest rate maturity of 120 days.

Management has made certain judgments and approximationsin assigning assets and liabilities to rate maturity categories:(I) the remaining maturities of fixed-rate loans have been es­timated based on recent repayment patterns rather than oncontractual maturity; (2) "nonmarket" assets include non interest­earning assets, credit card loans and nonaccrual and restruc­tured loans; "nonmarket" liabilities include savings deposits,Il1terest-bearing checking accounts, noninterest-bearing deposits,other noninterest-bearing liabilities and common stockholders'equity; and (3) asset and liability maturities reflect the effectsof those interest rate swaps Llsed to (a) hedge mismatches inthe rate maturity of certain loans and their funding sourcesand (b) convert interest ratcs on senior and subordinated debtfrom fixed to floating.

The one-year-and-over net asset position was $.2 billion forDecember 1989 (.5% of total assets), compared with a net liabil­ity position of $l.4 billion for December 1988 (Jo% of totalassets). Most of the change for December 1989 compared withDecember 1988 was due to an increase in fixed-rate mortgages,partially offset by a reduction in fixed-rate investment securities.

ASSET/LIABILITY MANAGEMENT

--~,--

The principal objectives of asset/liability management areto manage the sensitivity of net interest spreads to potentialchanges in interest rates and to enhance profitability in waysthat promise sufficient reward for understood and controlledrisk. Specific asset/liability strategies are chosen to achieve anappropriate trade-off between average spreads and the variabilityof spreads. Funding positions are kept within predeterminedlimits designed to ensure that risk-taking is not excessive andthat liquidity is properly maintained.

The Company hedges primarily to reduce mismatches inthe rate maturity of loans and their funding sources throughthe use of interest rate futures and other financial contracts.Deferred gains and losses on these interest rate futures con­tracts are included in loans and are amortized over the expectedloan or funding source holding period.

Approximately 60% of the Company's prime-based loanportfolio is funded by market rate savings. The remainder isfunded by various short-term borrowings and other deposits.The Company uses interest rate futures and other financialcontracts to better match the average effective interest ratematurities of prime-based loans with their funding sourcesIl1 order to provide more stable and more profitable spreadsbetween the yields on these loans and the rates on theirfunding sources.

19

-----t~l--------

or adjustable rates and $9-3 billion has fixed rates. Of the $9-3billion of fixed-rate loans that mature in Over one year, ap­proximately $Jl billion represents fixed-initial-rate mortgages(FIRMs). FIRMs carry fixed rates during the first 5 to 10 yearsof the loan term and carry adjustable rates thereafter. Theestimated net income impact of fixed-rate mortgage loans ma­turing beyond one year that carry rates below market at De­cember )1, 1989 is not material.

Under shelf registration statements filed with the Securitiesand Exchange Commission, the Company had registered butunissued debt securities of $740 million at December )1, 1989'(Refer to Note 6 to the Financial Statements for a scheduleof outstanding senior and subordinated debt as of December)1,

1989 and 1988.)To accommodate future growth and current business needs,

the Company has a capital expenditure program. Capital ex­penditures for 1990 are estimated at $200 million for addi­tional automation equipment for branches, relocation andremodeling of Company facilities and routine replacement offurniture and equipment. The Company will fund these ex­penditures from various sources, including retained earningsof the Company and borrowings of various maturities.

LIQUIDITY MANAGEMENT

!t~ _

Liquidity refers to the Company's ability to maintain a cash flowadequate to fund operations and meet obligations and other com­mitments on a timely and cost-effective basis.

In recent years, core deposits have provided the Company witha sizable source of relatively stable and low-cost funds. The Com­pany's average core deposits and stockholders' equity

funded 75% of its average total assets in both 1989 and 1988.Most of the remaining funding was provided by short-term

borrowings and senior and subordinated debt. In 1989, short­term borrowings averaged $7.0 billion, compared with $5.0

billion in 1988. The increase in short-term borrowings, alongwith a 5% increase in average core deposits, funded the 6%growth in average toral assets and allowed the Company toretire certain higher-cost funding sources. During 1989, seniordebt of$217 million matured or was redeemed, of which $7 mil­lion was previously included in total capital. Subordinated debtof $145 million was redeemed in 1989, all of which was previ­ously included in total capital. Refer to the Consolidated State­ment of Cash Flows for further information.

Other sources of liquidity include maturity extensions ofshort-term borrowings, confirmed lines of credit from banks andsale or runoff of assets. The Company believes that liquidityis further provided by its ability to raise funds in a variety ofdomestic and international money and capital markets.

Commercial and real estate loans totaled $32.2 billion atDecember )1, 1989' Of these loans, $14'9 billion matures in oneyear or less, $8.0 billion matures in over one year through fiveyears and $9-3 billion matures in over five years. Of the $17-) bil­lion that matures in over one year, $8.0 billion has floating

total capital in the form of Tier I capital. Based on the 1992

guidelines, the Company's Tier 1 risk-based capital ratio atDecember 31, 1989 was 4.95% and its total risk-based capitalratio was 9'91%; the ratios at December 31, 1988 were 4-57%

and 9.15%, respectively.In early 1990, the FRB proposed a new minimum leverage

ratio of 3%, which would represent the minimum capital tototal assets standard for banking organizations. The new lev­erage ratio would consist of Tier r capital based on the 1992

risk-based capital guidelines, divided by average total assets(excluding intangible assets that were deducted to arrive atTier 1 capital). The leverage ratio is expected to be used intandem with the risk-based capital ratios, thereby eliminatingthe current 5.50% pri mary and 6.00% total capital to assetsratios as the minimum capital standards for banking organi­zations after year-end 1990. The Company's leverage ratio was

approximately 4.90% at December JI, 1989'

Rislk.BaseJ Carita[ i'mJ Lew~il"age Ratios

In January 1989, the Federal Reserve Board (FRB) and the Officeof the Comptroller of the Currency (Oee) issued final risk­based capital guidelines for bank holding companies and na­tional banks, respectively. The FRB is the primary regulatorfor the Company and the aee is the primary regulator forthe Bank. The FRB's guidelines are based on a frameworkdeveloped jointly by authorities from the 12 leading industrialcountries for application to banking organizations in thosecountries. The guidelines, which establish a risk-adjusted ratiorelating capital to different categories of assets and off-balancesheet exposures, require minimum risk-based capital ratiosby December 31, 1990 and more restrictive ratios by year-end1992. Under transition rules, the guidelines for computing ther<Jtio (for example, items allowed to be counted as capital) alsobecome more restrictive by 1992. The discussion below is based

on the FRB's 1992 guidelines.There are two categories of capital under the guidelines.

Tier 1capital includes common stockholders' equity and quali­fying preferred stock, less certain intangible assets ( ubstantiallygoodwill). Tier 2 capital generally includes preferred stock notqualifying as Tier 1 capital, mandatory convertible debt, sub­ordinated and unsecured senior debt and the allowance for loanlosses, all subject to limitations by the guidelines. Tier 2 capitalis limited to the amount of Tier 1 capital. The Company'sTier 1 and Tier 2 capital at December )1, 1989 were each$2-] billion, resulting in total capital of $4.6 billion.

Under the guidelines, one of four risk weights is applied tothe different balance sheet assets, primarily based on the rela­tive credit risk of the counterparty. Off-balance sheet items,such as loan commitments, are also applied a risk weight, afterapplying one of four credit conversion factors to these itemsto determine a balance sheet equivalent amount. The creditconversion factors are primarily based on the likelihood ofthe off-balance sheet item becoming an asset. The risk weightsand credit conversion factors are 0%, 20%, 50% and 100%.

At December 31, 1989, the Company's risk-weighted assetswere $46'9 billion, consisting of risk-weighted balance sheetassets of $40.8 billion and risk-weigh ted off-balance sheet itemsof $6.1 billion. Risk-weighted balance sheet assets were $7·9billion less than total assets of $48,7 billion on the consoli­dated balance sheet as a result of weighting certain types ofassets at less than 100%; such assets substantially consisted of1-4 family first mortgage loans, cash and due from banks andclaims on or guaranteed by the u.s. government or its agencies.The risk-weighted off-balance sheet amount substantially con­sisted of commitments to make or purchase loans (risk-weighted$4'9 billion) and standby letters of credit (risk-weighted $LI bil­lion). (Refer to Note 13 to the Financial Statements for further

discussion of off-balance sheet items.)The guidelines require a minimum total risk-based capital

ratio of 8.00% by the end of 1992, with at least half of the

ADDITIONAL INFORMATION

40

40

80

60

60

59

/.988

43Y.

70Y.

37%

59%

III

1,f)r\'7

87%

80

'" 'f 8~7Y.70Y. ~ 5

68 ~. 68\(\ I~ 7m m 67% 67%

59% ill ill56 ~ 58 Yz 58Y. 59

~ 50>

43Y.

,----------------$100

L-------------20IQ zQ sQ 4Q IQ £'Q .JQ 4Q

1.?88 1.98.9

L- 20

,-------------$100

mIndicatesc10si ng priceot end oryenr

mIndicatesclosing priceat end orquarter

Common ,w,k of ,h, Comp,ny i, '"d,d on th, N,wYork Stock Exchange, the Pacific Stock Exchange, the LondonStock Exchange and the Frankfurter Borse. The high, lowand end-of-period annual and quarterly closing prices of theCompany's stock as reported on the New York Stock ExchangeComposite u'ansaction Reporting System are presented in thegraphs. The number of holders of record of the Company'scommon stock was 28,219 as of January JI, 1990.

Common dividends declared per share totaled $3jO in 1989,$2.45 in 1988 and $1.67 in 1987. The common stock quarterlydividend was last increased in the third quarter of 1989 from".75 to $'90 per share. The Company, with the approval of theBoard of Directors, intends to continue its present policy ofpaying quarterly cash dividends to stockholders. The levelof future dividends will be determined by the Board of Di­rectors in light of the earnings and financial condition ofthe Company.

In 1989, the Company repurchased 2.0 million shares ofcommon stock at an average price of $76 per share. Additionalrepurchases will be made from time to time pursuant to auth­orizations from the Board of Directors that allow shares tobe repurchased in relation to the number of shares issued orexpected to be issued under various benefit plans and theCompany's dividend reinvestment plan, and that allow sharesto be repurchased for other corporate purposes.

In June 1989, the Company announced an agreement to forma joint venture investment management firm with Nikko Se­curities Co., Ltd. The Company agreed to contribute its sub­sidiary, Wells Fargo Investment Advisors, and its Wells FargoBank Advisors Trust division to the joint venture in exchangefor approximately a 50% interest in the joint venture and $125million in cash. Based on receiving $125 million, the Com­pany expects to realize an estimated pretax gain of about$1l0 million. The transaction is subject to appropriate regula­tory approvals and certain closing conditions. The joint ven­ture is expected to be formed in early 1990.

During late 1989, the Company signed definitive agreementsto acquire Valley National Bank (Valley) of Glendale, CentralPacific Corporation of Bakersfield and the Torrey Pines Groupof Solana Beach, all of which are in California, for a combinedpurchase price of approximately $290 million. The combinedassets of the companies were approximately $1.7 billion atDecember )I, 1989' The Company acquired Valley in January1990. The remaining transactions, which are expected to becompleted by early 1990, are subject to certain closing con­ditions. The acquisitions are not expected to have a materialeffect on the Company's net income in 1990.

On October 17, 1989, a major earthquake hit the SanFrancisco Bay Area, where the Company is headquartered.The Company immediately implemented its business resump­tion plan, which it had created to deal with such emergencies.Early on October 18, the Company announced that its keycomputer systems were operational and that most brancheswould be open for normal business hours that day. The Com­pany's financial loss from the earthquake was immaterial.

related to Crocker, 1988 and 1987 "all other" noninterest incomewould have been $25.0 million and $16'5 million, respectively.

Noninterest expense was $1,519.1 million and $1,520'5 millionin 1988 and 1987, respectively. Salaries expense increased 3%in 1988; approximately $9 million of the increase was due to

the Company's "We're in Good Company" program, whichrewarded employees with a $500 cash bonus in 1988, and an­other $9 million was due to the additional personnel resultingfrom the acquisition of Barclays. The slight increase of 1% inemployee benefits expense reflected a $14 million increase inhealth and other types of employee benefits expense that wasmostly offset by a $13 million decrease in expenses relatingto executive stock option plans. Advertising and promotionexpense increased 53% to $41.4 million in 1988, primarily dueto higher consumer product advertising. ORE expense de­creased 45% to $20.6 million in 1988, reflecting a $15 milliondecrease in ORE write-downs and an $8 million increase in

gains on sales of ORE.If it were not for net-of-tax accounting, the Company's 1988

effective income tax rate would have been 42%, and the 1987

rate would have been 43%'The provision for loan losses was $300 million in 1988. The

1987 provision was $892 million, reflecting special additionstotaling $589 million that were made in connection with loansto developing countries. Domestic net charge-offs in 1988 were$196'5 million, compared with $247.0 miJIion in 1987. As apercentage of average domestic loans outstanding, domesticnet charge-offs were '55% in 1988 and .72% in 1987. The de­crease was primarily due to a lower ratio of commercial netcharge-offs to average commercial loans in 1988. Net charge­offs of commercial loans decreased by $37·4 million in 1988

compared with 1987, substantially due to a decline in netcharge-offs of agricultural loans. Foreign net charge-offs were$102.5 million in 1988, compared with $16,5 million in 1987.The 1988 amount included a $77.8 million charge-off of pre­viously mandated allocated transfer risk reserves for loans todeveloping countries. In addition to net charge-offs, theCompany substantially reduced its ross-border outstandingsto developing countries through loan sales in 1988. These salesresulted in a charge of$620.8 million against the allowance forloan losses. Loan sales were substantially responsible for a netreduction of $1.4 billion in the Company's medium- and long­term cross-border outstandings to developing countries, result­ing in $245 million of such outstandings at December 31, 1988.

The allowance for loan losses at the end of 1988 was $752.1

million, or 2.00% of total loans, compared with $1,357.2 mil­lion, or }69% of total loans, at the end of 1987. The declinein this ratio was substantially due to the significant reductionof medium- and long-term cross-border outstandings to de­veloping countries during 1988. At December 31, 1988, theallowance could have been viewed as covering 60% of theCompany's medium- and long-term cross-border outstandingsto developing countries, which were $245 million, and approxi­mately 1.6% of the Company's remaining loans.

Net incom' in '988 w"' $5"-5 million, 0' $9-'0 pO' ,h""compared with $50.8 million, or $,52 per share, in 1987. The1987 amounts reflected two special additions, totaling $589 mil­lion, to the allowance for loan losses made in connection withloans to developing countries. Without the effect of the specialadditions and their related tax benefits, net income wouldhave been $382.6 million, or $6.69 per share.

Return on average assets (ROA) was I.l4% and return onaverage common equity (ROE) was 2}99% in 1988, up from.n% and 1.47%, respectively, in 1987. Excluding the after-taximpact of the special additions, ROA would have been .85%and ROE would have been 17-39% in 1987.

Several major factors contributed to the 1988 earnings gains.Unlike 1987, there were no special additions to the allowancefor loan losses. Net interest income on a taxable-equivalentbasis increased 7% to $2,007.6 million in 1988, as the net in­terest margin increased 33 basis points to 4'96%. The increasein net interest margin resulted from continued favorable bus­iness conditions in California and an improvement in the mixof earning assets and funding sources. The change in mixreflected higher domestic loan volumes, sales of developingcountry loans on nonaccrual status and the acquisition ofBarclays Bank of California (Barclays). The Company alsocontinued its efforts to control costs; noninterest expense in1988 was essentially unchanged from 1987.

Average earning assets were relatively unchanged in 1988

compared with 1987, reflecting an increase in average loansthat was mostly offset by a decrease in interest-earning de­posits. The average volume of loans in 1988 was $37.0 billion,3% higher than 1987, mostly due to increases of 12% in realestate mortgage loans and 6% in real estate construction loans,partially offset by a 27% decrease in foreign loans. A signifi­cant portion of the increase in real estate mortgage loans wasdue to loans secured by 1-4 family residential properties. Thereal estate construction loan increase primarily resulted fromloans made to finance the construction of commercial andsingle-family residential properties. The foreign loan decreasewas substantially due to sales and charge-offs of developing

country loans.The average volume of core deposits in 1988 was $31j billion,

5% higher than 1987, mostly due to increases in savings cer­tificates and savings accounts. (A schedule of average loan anddeposit balances for 1988 and 1987 is shown in Table 4')

Noninterest income was $682.2 million in 1988, comparedwith $600.0 million in 1987. Service charges on deposit ac­counts increased 22% to $219.6 million in 1988, mostly dueto rate increases on certain items, which increased income byapproximately $18 million, and an increase in the number ofchecking account customers, which increased income by ap­proximately $10 million. The increase in customers partiallyresulted from the acquisition of Barclays. Trading account profits(losses) and commissions were (hI) million in 1988, comparedwith $19.5 million in 1987. The decline resulted substantiallyfrom the Company's decision to discontinue most of its tradingaccount activity. If it were not for the net-of-tax accounting

--'4!fF-l----<>&!PI--

CONSOLIDATED STATEMENT OF INCOME

(in millions)Year ended December 3',

CONSOLIDATED BALANCE SHEET

(in millions) December 31,

1988

INTEREST INCOMELoansInterest-earning deposits

Investment securitieslI'ading account securities

Federal funds sold

Total interest income

INTEREST EXPENSEDepositsShort-term borrowingsSenior and subordinated debt

Total intere t expense

NET INTEREST INCOMEProvision for loan losses

Net interest income after provision for loan losses

NONINTEREST INCOMEDomestic fees and commissions

Service charges on deposit accountslI'ust and investment services income

Investment securities losses

Other

Total non interest income

NONINTEREST EXPENSESalariesEmployee benefits

Net occupancy

Equipment

Other

Total noninterest expense

INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT)

Income tax expense (benefit)

NET INCOME

NET INCOME APPLICABLE TO COMMON STOCK

PER COMMON SHARENet income

Dividends declared

Average common shares outstanding

The accompanying notes are an integral part of these statements.

--f4!P'--

$ 4,582,5

3·7281.0

.1

2·9

1,810.1

645'3256 .2

2,711.6

2,158.6

362.0

1,796.6

283.7

246.7178.2

(2·7)

72 .8

778,7

631.3

149.2

178,5137-3

478.2

1,574,5

1,000.8

399·7

$ 601.1

$ 573-6

$ 11.02

$ 3-3°

52 . 1

$),889'5IO.2

268·7}8

__5_j

4,177-5

1,56o j

37°·2274·9

_ 2,205.4

1,972.1

3°0.0

1,672.1

278.2

219.615}7k3)

~682.2

619.8

152 -4166.8

135.8

444·3---~

835.2

322 .7

$ 512.5

486.7

$ 9. 20

$ 2·45

52 .9

$J,602.0

99·4250 .8

7. 6

7·7

1,46}5364.8

337.6

2,165'9

1,801.6

892 .0

90 9.6

270 .8180.6

156'5(12'9)

5. 0

600.0

5993151.5178.7

132 .9458.1

1,52°,5

(10'9)(61.7)

$ 5°·8

$ 28.0

ASSETS

Cash and due from banksInterest-earning depositsInvestment securities (market value $1,7°4'9 and $3,799.8)Federal funds sold

LoansAllowance for loan losses

Net loans

Premises and equipment, netDue from customers on acceptancesGoodwillAccrued interest receivableOther assets

Total assets

LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits:Noninterest-bearing-domesticNoninterest-bearing-foreignInterest-bearing-domesticInterest-bearing-foreign

Total deposits

Short-term borrowi ngs:Federal funds borrowed and repurchase agreementsCommercial paper outstandingOther

Total short-term borrowings

Acceptances outstandingAccrued interest payableSenior debtOther liabilities

Subordinated debt

Total liabilities

Stockholders' equity:Preferred stockC~mmon stock-$5 par value, authorized 150,000,000 shares;

Is~u.ed and ~utstanding 51,074,971 shares and 52,546,310 sharesAdditional patd-in capitalRetained earningsCumulative foreign currency translation adjustments

Total stockholders' equity

Total liabilities and stockholders' equity

The ac' 'Icompanyll1g notes are an 1I11egra part of these statements.

--f4FJ-­

23

$ 2,929.8 $ 2,S6p5.1 322.1

1,737·7 3,970 -46,3 27.0

41,726'9 37,67°.0

738.6 752.1

40 ,988 -3 36,917'9

679.6 688.0211.0 244·9352.6 373·4389'9 365.7

1,436 '3 1,14}9

$48>736 .6 $46 ,616'5

$ 8,003.2 $ 7, I05·57.0

28,153-7 26,58o j

273·4 1,376.0

36,43°'3 35,068.8

2,7°6 .7 2,207.2

3,°9°·4 2,747·744·3 47·4

5,841.4 5,002,3

211.0 244·9100.8 110.1

695.2 92}0751.2 693-9

44,029.9 42,04}01,845.8 1,994.1

45,875·7 44,037. 1

405.0 405.0

255·4 262·7274.1 389.7

1,930 .7 1,528.2

(4'3) (6.2)

2,86°,9 2,579·4

$48>736.6 $ 46,616'5

OF

CONSOLIDATED STATEMENT

CHANGES IN STOCKHOLDERS' EQUITY CONSOLIDATED STATEMENT OF CASH FLOWS

Year ended December 3',

'989 1988

$ 601.1 $ 512.5

362.0 300.0

153.6 142.7(209.6) 168.6

46j36.2 (25-4)

(24.2) (40 .7)(9'3) (26.2)

62·7 24·9

972.5 1,102·7

1,809.1 197·51,213.7 1,106.0(792.8) (1,58}7)

(5,856.6) (2,232.0)2,019.2 1,609.0

(631.2) (316.6)115.8

(227.1) (137. 1)

(2,465,7) (1,241.1)

1,361.5 1,636'5839.1 221.0

(362.1) (877-9)28'9 2}5

(151.8) (49'9)(191.2) (141.5)

(2'3) (80.8)

1,522.1 730.9

28'9 592.52,912,3 2,319.8

$ 2,941.2 $ 2,912-3

$ 2,720,9 $ 2,2JI.6

$ 472.9 $ 2[7.2

$ $ l,jI7·6(125.7)

$ $ 1,191.9

(in millions)

Income taxes

In connection with the acquisition of BaI"c1ays:Fair value of assets acquiredCash paid

Fair value of liabilities assumed

Cash flows from operating activities:Net income

Adjustments to reconcile net income to net cash provided by operating activities:Provision for loan lossesDepreciation and amortizationProvision for deferred taxesNet decrea e in trading account securitiesNet increase (decrease) in net deferred loan feesNet increase in accrued interest receivableNet decrease in accrued interest payableOther, net

Net cash provided by operating activities

Cash flows from investing activities:Proceeds from sales of investment securitiesProceeds from maturities of investment securitiesPurchases of investment securities

Net increase in loans resulting from loan originations and principal collectionsProceeds from sales of loansPurchases of loans

Cash and cash equivalents acquired from purchase of BaI'c1ays, net of cash paidOther, net

Net cash used by investing a tivities

Cash flows from financing activities:Net increase in depositsNet increase in short-term borrowingsRepayment of senior and subordinated debtIssuance of common stockRepurchase of common stockCash dividends paidOther, net

Net cash provided by financing activities

Net change in cash and cash equivalents (due from banks, interest-earningdeposits and federal funds sold)

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Supplemental disclosures of cash flow information:Cash paid during the year for:

Interest

22·7.8

(49'9)(25.8)

(129'5)

.6(55.6)(22.8)

(89-4)

23·95.0

(151.8)

(27·5)(171. I)

2,579·4

601.1

21.7

1.0

1.9

281.5----$2,860'9

331.8---

Taralstockholders'

equiry

1.0

1.0

(6.2)

Foreigncurrency

rranslation

Rerainedearnings

(28.8) (6I.4)---

415.0 1,171.0

512 .5

20j

-5(46.1)

(25. 8)

(129'5)

---(25-3) 357-2

389.7 1,528.2

601.1

21.5

4·7(141.8)

(27·5)(171.1)

$44}8 $ 1,232.4 $(6.8)

50.8

19·4

-4(48.6)

(22.8)

(89·4)

Addirionalpaid·incapital

2·4

·3(10.0)

(1.1)

262·7

Commonsrnck

Preferredsrock

The accompanying narcs are an integral parr of rhese sraremenrs.

BALANCE DECEMBER 31, 1986

Net income-1987Common stock issued under employee benefit

and dividend reinvestment plansExercise of warrants and conversion of

convertible notesCommon stock repurchasedPreferred stock dividendsCommon stock dividendsForeign currency translation adjustments

(net of income tax benefit of $-3)

Net change

BALANCE DECEMBER 31, 1987

Net income-1988Common stock issued under employee benefit

and dividend reinvestment plansExercise of warrantsCommon stock repurchasedPreferred stock dividendsCommon stock dividendsForeign currency translation adjustments

(net of income tax expen e of $-4)

Net change

BALANCE DECEMBER 31, 1988

Net income-1989Common stock issued under employee benefit

and dividend reinvestment plansCommon stock issued for acquisitionsCommon stock repurchasedPreferred stock dividendsCommon stock dividendsForeign currency translation adjustments

(net of income tax expense of $.6)

Net change

BALANCE DECEMBER 31, 1989

(in millions)

The accompanying nores are an integral parr of rhese srarements.

--f4iJP>-­

24--~-­

25

CONSOLIDATED STATEMENT

CHANGES IN FINANCIAL POSITION NOTES TO FINANCIAL STATEMENTS

No:le [.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(in millions)

Financial resources provided by (applicd to):

Operations:Net incomeNoncash charges (credits):

Provision for loan lossesDepreciation and amortization

Provision for deferred taxes

Financial resources provided by operations

Cash dividends declared

Net financial resourceS provided by operations

Deposits and other financing activities:

Noninterest-bearing deposits

Interest-bearing depositsShort-term borrowingsSenior and subordinated debtCommon stock issued under employec bencfit and dividend

reinvestment plansExercise of warrants and conversion of convertible notes

Common stock repurchased

Financial resources applied to deposits and

other financing activities

Othcr activities:Cash and due from banksNet additions to premises and equipment

Net change in goodwill

Other assetsOther liabilities

Other, net

Financial resources provided by other activities

Increase in financial resources investcd in earning assets

Increase (decrease) in earning assets:

Intercst-earning depositsInvestment securitiesll'ading account securities

Federal funds sold

Net loans

Increase in earning assets

---------------------- ---------

The accompanying notes arc an integral parr of these swtemCl1ts.

Ycor ended Dccember )1, 1987

$ 50.8

892.011}2

(329. 6)

726-4(II2.2)

614- 2

(q11-4)

1,038,41,211.8

(587.8)

21.7.6

(55.6)

(82-])

1,008.0

(128'5)

78'9(272-])

87. 6

5. 2

778'9

$ 1,)10.8

$ 93-91,010-3

(71.8)

(10·4)288.8

$ 1,yo.8

I, "w"ndng 'nd copocting pold" of W,ll, F".o &Company and Subsidiaries (Company) conform with generallyaccepted accounting principles and prevailing practices withinthe banking industry. Certain amounts in the financial state­

ments for prior years have been reclassified to conform withthe current financial statement presentation. The following

is a description of the more significant policies.

______~tl----__CONSOLIDATION

The consolidated financial statements of the Company includethe accounts of Wells Fargo & Company (paJ'end, Wells FargoBank, N.A. (Bank) and the nonbank subsidiaries of the Parent.

Foreign branches and significant majority-owned subsidiariesare consolidated on a line-by-line basis. Significant intercom­

pany accounts and transactions are eliminated in consolidation.Other subsidiaries and affiliates in which there is at least 20%ownership are generally accounted for by the equity method.

Equity investments in which there is less than 20% owner­sh ip are carried at cost.

_____~tl-------

SECURITIES

Securities are accounted for according to their purpose. Realized

and, if applicable, unrealized gains and losses are recorded bysecurities category in non interest income.

Securities acquired for investment purposes, including debtsecurities acquired with the intent to hold for the foreseeable

future, are recorded at historical cost, adjusted for amortiza­tion of premium and accretion of discount, where appropriate.If a decision is made to dispose of securities or should the

Company become unable to hold securities to maturity, theywould be recorded at the lower of cost or market. Declines

in value that are considered other than temporary are recorded

as losses on investment securities. Upon sale, gains and losseson investment securities are recorded using the identifiedcerti ficate method.

Nonmarketable equity securities are acquired for variousreasons, such as troubled debt restructurings and investments

made to finance corporate purchases or restructurings. Thesesecurities are accounted for at cost and are included in other

assets as they do not have the investment intent and market­

ability characteristics of an investment portfolio.

Securities acquired for short-term appreciation or othertrading purposes, if any, are recorded in a trading portfolioand are carried at market value.

__~tl_

PREMISES AND EQUIPMENT

Premises and equipment are stated at cost less accumulated

depreciation and amortization. Capital leases are includedin premises and equipment at the capitalized amount lessaccumulated amortization.

Depreciation and amortization are computed primarily using

the straight-line method. Estimated useful lives range up to

40 years for buildings, 3-10 years for furniture and equipmentand up to the lease term for leasehold improvements. Capi­

talized leased assets are amortized on a straight-line basisover the lives of the respective leases, which generally range

from 20-35 years.

-~~l----

LOANS

Loans are reported at the principal amount outstanding, netof unearned income. Unearned income, which includes de­ferred fees net of deferred direct incremental loan origination

costs, is amortized to interest income generally over the con­tractual life of the loan using an interest method or the

straight-line method if it is not materially different.

Unless both well secured and in the process of collection,

loans, other than consumer loans for which no portion of

the principal has been charged off, are placed on llonaccrual

status when a loan becomes 90 days past due as to interestor principal, when the full timely collection of interest or

principal becomes uncertain or when a portion of the principal

balance has been charged off. Real estate 1-4 family loans

originated in the Company's consumer lending units are placedon nonaccrual status when they become 180 days past due

as to interest or principal, regardless of security. When a loanis placed on nonaccrual status, the accrued and unpaid interestreceivable is reversed and the loan is accounted for on the

cash or cost recovery method thereafter, until qualifying forreturn to accrual status.

--~--

Z6--<>4!iFJ-­

'It

ND'l,eZ.

CASH, LOAN AND DIVIDEND RESTRICTIONS

The following table provides the major components of investment securities and a comparison of book and market values:

NOlle).

INVESTMENT SECURITIES

(in millions) December JI,

1989 1988 1987

Book value Market value Book v"lue Market \·"llIe Book V(lJtI~ Mnrkt.:t value

U.S. Ti'easury securitieS $ 363.0 $ 357.1 S 858..1 S 829.0 $ 861.0 S 846.7Securities of other U.S. government agencies and corporations 1,°49,5 1,°3°.3 2,487-5 2 1 57·7 1,967.8 1,856.6Obligations of swres and political subdivisions 66'9 63.8 73·5 67-7 92.5 81-4Othcr bonds, noteS and dcbcntures 57.6 55.8 61.5 61.9 132 .9 132 .6Corporate and Federal Reserve l3ank srock 200·7 197·9 4895 ~ S°I.l 497. 1

Total inVestment securities $ 1,737,7 $1,7°4'9 $3,970.4 $3,799.8 $ 3'555'} $3,414,4

ReSlliI"lJlC'lllre~ LDiM]l'>

In cases where a borrower experiences financial difficultiesand the Company makes certain concessionary modificationsto contractual terms, the loan is classified as a restructured loan.If the borrower's ability to meet the revised payment schedule

is uncertain, the loan is classified as a nonaccrual loan.

A]l[owillillce ror tOillill iOllses

The Company's determination of the level of the allowance forloan losses rests upon various judgments and assumptions in­cluding, but not necessarily limited to, general economic condi­tions, loan portfolio composition and prior loan loss experience.The Company considers the allowance for loan losses adequateto cover losses inherent in loans, commercial and real estateloan commitments and standby letters of credit outstanding.

OTHER REAL ESTATE

Other real estate, consisting of real estate acquired as a resultof troubled debt restructurings and excess real estate, is carriedat the lower of cost or fair value and is included in otherassets. When the property is acquired, any excess of the loanbalance over fair value of the property is charged to the allow­ance for loan losses. Subsequent write-downs, if any, and dis­position gains and losses are included in non interest expense.

---------!~}----------

GOODWILL

Goodwill, representing the excess of purchase price over thefair value of net assets acquired, results from acquisitions madeby the Company. Substantially all of the Company's goodwillis being amortized using the straight-line method over 20 years.The remaining period of amortization, on a weighted average

basis, approximated 17 years at December 31, 1989'

------ !~}-------

INCOME TAXES

The Company files a consolidated federal income tax return.Consolidated or combined state tax returns are filed in cer­tain' states, including California. Income taxes are generallyallocated to individual subsidiaries as if each had filed aseparate return. Payments are made to the Parent by thosesubsidiaries with net tax liabilities on a separate return basis.Subsidiaries with net tax losses and excess tax credits receive

payment for these benefits from the Parent.Deferred income tax assets and liabilities are determined in

accordance with Accounting Principles Board Opinion No. II,

Accounting for Income Taxes, and result from certain itemsbeing accounted for in different time periods for financial

reporting purposes than for income tax purposes.

!~}--------

INTEREST RATE FUTURES AND

OTHER FINANCIAL CONTRACTS

The Company hedges primarily to reduce mismatches in therate maturity of loans and their funding sources through theuse of interest rate futures and other financial contracts. De­ferred gains and losses on these interest rate futures contracts

are included in loans and are amortized over the expeccedloan or funding source holding period. The amortization is

included in interest income on loans.

------ !~}------­

NET INCOME PER COMMON SHARE

Net income per common share is computed by dividing netincome (after deducting dividends on preferred stock) by theaverage number of common shares outstanding during theyear. The impact of common stock equivalents, such as stockoptions, and other potentially dilutive securities is not ma­terial; therefore, they are not included in the computation.

Federal Reserve Board regulations require reserve balances ondeposits to be maintained by the Bank with a Federal ReserveBank. The average required reserve balance was approximately$1.2 billion and $I.I billion in 1989 and 1988, respectively.

The Bank is subject to certain restrictions under the Federal

Reserve Act, including restrictions on any extension of creditto its affiliates. In particular, the Bank is prohibited from lend­ing to the Parent and its nonbank subsidiaries unless theloans are secured by specified collateral. Such secured loansand other regulated investments made by the Bank are limited

in amount as to the Parent or to any of its nonbank subsid­iaries to 10% of the Bank's capital and surplus (as defined)and, in the aggregate to all such entities, to 20% of the Bank'scapital and surplus. The Bank's capital and surplus at Decem­

ber 31, 1989 was $}4 billion.

The market value of investment securities is determinedbased on current quotations, where available. Where currentquotations are not available, market value is determined basedprimarily on the present value of future cash flows, adjustedfor the quality rating of the securities and other factors.

Dividend income of$19,2 million, $25-3 million and $29.2 mil­lion in 1989, 1988 and 1987, respectively, is included in interest

Dividends payable by the Bank to the Parent without theexpress approval of the Office of the Comptroller of the Cur­rency are limited to the Bank's net profits (as defined) for thepreceding two years plus net profits up to the date of anydividend declaration. Under this formula, the Bank can declaredividends in 1990 of approximately $410 million of its undis­tributed net profits at December 31, 1989 plus undistributednet profits for 1990 up to the date of any such dividend dec­laration. Dividends declared by the Bank to the Parent in

1989 were $218'9 million.

income on investment securities in the consolidated statementof income. Substantially all income on investment securitiesis taxable.

The book value of investment securities pledged to secure

trust and public deposits and for other purposes as required

or permitted by law was $655 million, $684 million and$1,603 million at December 31,1989,1988 and 1987, respectively.

--c,,4PJ--

28

--"d!P'--

29

No'1e 4.

LOANS AND ALLOWANCE FOR LOAN LOSSES

Note 5.

PREMISES AND EQUIPMENT

Depreciation and amortization expense was $II7.4 million,

$I04'9 million and 90.8 million for the years ended Decem­ber 31, 1989, 1988 and 1987, respectively.

(I) Docs nor include interesl received in 19 ;md 1987 of $49 million ilnd SID million,

I'C pccrivdy, on mcdiull1* and long*rcrm Br<lzilinn loans. <The 1988 :llTIounr includedimerc~l earncd in 1987,) Such interesl was rccogni:ed in 19 8 as n rcdunion of rhe

I(J:'~, OIl :';]I~ o~ loan:" which is chargeJ against the nllowancc ror JOLIn losses, or ilpplil.J:lgalllsl prinCIpal.

Year ended December 3'.

1989 188 1~7

$89·5 560·3 $ 60.-49. 2 7·-4 1}9

80'3 52.9 -46'5

J[ 5}0 69'51.4 9·3 JI.2

1.7 4'·7 -8'3

$82.0 596.6 $10+8

FOREIGN

Total domesric foregone interesr

DOMESTIC

(in millions)

Interest that would have been recordedunder original rerms

Gross inrerest recorded

Imeresr rhat would h,we been recordedunder original rerms

Gross interesr recorded (,)

Toral foreign foregone inreresr

Total (oregone Interest

Nona crual and restructured loans were $76}3 million at

December y, 1989, of which the entire amount was attributableto the domestic portfolio; related commitments to lend addi­tional funds were approximately $JI5 million. At December y,1988, domestic nonaccrual and restructured loans were $589.7mrllion and foreign nonaccrual loans were $IO}6 million.

Other real estate was $39004 million and $334.7 million atDecember 31, 1989 and 1988, respectively.

If interest due on all nonaccrual and restructured loans hadbeen accrued at the original COntract rates, it is estimated thatincome before income taxes would have been greater by theamounts shown in the table at right.

The following table presents comparative data for premisesand equipment:

(in millions) Dc ember 31.

1989 1988

Land $ 84.1 48.1l3uildillgs 280'9 30 1.6Furnirure nnd equipment 474·0 -47J9Lmsehold improvemems 220·5 210.0Prcmises leased under capital leases lI8.8 121.1

Total 1,178'3 1,15-4·7Less accumulatcd depreciation

and amortization 498,7 466.7

Ncr book value $ 679.6 _ 688.0

(I) Effective December 31, 1~91 standing loans. which ~rc loalls sccured primarily bycompleted ::Jnd opcration:1! real estate wjrh rerms generally nor in excess or five years,

arc included in the other real cswrc mortgage loan (megory. In prior years, these

balances were included in rhe real estare construction loan c8rcgory. All years pre­

semed have been reclassified.(2) Ne' of recoveries of S120'5 million, 584.8 million and 73-5 million in 1989, ,~8 and

'987, respcclivcly.

(in millions) Year ended December 31,

1989 1~8 1987

Balance, beginning of year $752.1 $',357.2 $ 734.0

Allowance of acquired companies ·5 14·7

Provision for loan losses 362.0 300.0 ~2.0

Nct loan charge-offs:Commercial, financial and

agriculrural 74·7 67'5 104.9Real estate construcrion (I) Jo9 19·3 6.6

Real esrare 1-4 family firstmortgage loans ·4 l.3 1.2

Other real estate mortgage loans (I) 12·4 __9_.1 10.1

Total real estate mortgage loans 12.8 10·4 1l.3

Credir card 67·7 76.2 90.1

Other revolving credit 5·3 7-7 10.6

Momhl\' payment 2·3 6j 12.0

Real estate '-4 family junior lienmortgage loans 1.8 -----.::.:2 4.0

Toral consumer 77.1 93-3 ,,6·7

Lease financing H 6.0 7·5

Total dome tic net loan charge-offs 175·9 196'5 247.0

Foreign 90.7 ~16j

Toral ncr loan charge-offs (2) 266.6 299.0 263.5Losses on the sale or swap of

developing counrry loans 98.1 620.8

Orher deductions II·3 5-3

Balance, end of year $738.6 $ 752.1 $1,357-2

Domestic net loan charge-offs as apcrcentage of average domestic loans ·45% '55% .72%

Total net loan charge.offs as apercentage of average total loans .67% .80% ·73%

Allowance as a percentage of total loans 1.77% 2.00% 3'~9%

Credit card merchant fees (including interchange fees) repre­

sented the largest component of domestic fees and commissions

and amounted to $69.2 million, $65.4 million and $64-5 mil­

lion in 1989, 1988 and 1987, respectively.Changes in the allowance for loan losses were as follows:

(I) Include loons to reol esrate developers of ",720 million at December 31, Ig&;.

(2) Effective December 3', 1989, slanding loons, which arc loans secured primarily bycOlnplCled i1nd operaciOl1nl n:al esrme widl terms g.enel':JlIy nor in excess or rive years,

are included in the other real est<!te mortgage loan category. In prior years, thesebahmces were included in the real cSlare consrrucrion IOill1 cmegory. All years pre­

sented have been recla sified.(3) Includes commercial enterprises thm are m::Ijori(y·own~d by celHnll governmcnts.

Certain directors and executive officers of the Company,

certain entities to which they are related and certain of theirrelatives are loan customers of the Company. Such loans aremade in the ordinary course of business on normal credit

terms, including interest rate and collateralization, and nonerepresent more than a normal risk of collection. Such loans

were $211.3 million and $202-4 million at December y, 1989 and1988, respectively. During 1989, additional loans of $67.2 mil­lion were made and payments of $58-3 million were received.

(in millions) December 31,

[989 1988

DOMESTIC

Commercial, financial and agriculrural (I) $14,490'9 S 13,126-]

Real estate cons[J'uction (2) 4,088.1 40436-]

Rea I esrare fi rsr mortgage loans secured by1-4 family residemial properties 7,628.2 5ol3J09

Orhcr real esrate mortgage loans (2) 6,018'7 5,492-3

Toral real esrate mortgage loans 13,646,9 10,626.2

Credir card 2,504. 2 2, 105.4

Other revolving credir 614.7 619.7Momhly paymem 1,333.6 1,369.2

Real eSrare junior lien mortgage loans secured by1-4 family residential properties 3,946.0 3,417.4

Toral consumer 8,398,5 7,5"·7

Lease financing 1,°52.6 1,374.2

FOREIGN

Governmems and official insrirurions 7·3 202.0

Banks and other financial insrirurions JI·4 7}8

Commercial and indumial (3) 11.2~

Toral foreign ~ ~

Toral loans (ncr of unearned income,including ncr deferred loan fees,

of $394.6 and $465.9) $41,726 '9 $37,67°.0

The following is a summary of the major categories of the

loan portfolio at the end of the last two years:

--<4P.--

30--"'d!!JPJ--

31

NDle6.

SENIOR AND SUBORDINATED DEBT

The following is a summary of the major categories of senior and subordinated debt (reflecting unamortized debt discount and

premium where applicable). Notes to the summary are on the next page.

The principal payments, including sinking fund payments, on senior and subordinated debt are due as follows:

(in millions) 1990 (I) '991 '992 '993 '994 Thereafter Total

Parent '19°·8 $ 23+1 51 39. 1 210.0 , 184. 1 $1,4 18'5 $2,376.6Company '97. 2 24°'~ 145·' 216.0 188.1 1,471.9 2,4'8,7

(,) Initially redeemable in whole or in part, at par, at various dates Ihrough March 1993-(2) The Comprll1y has entered inm an interest rate swnp agreement whereby the Company receives fixcd~rme interest payments approximately equal to interest on the Nares and makes

interest payments based on OJ no;lting rmc.(3) Initially redeemable in whole or in part, al par, through January I, '99} On January" '990, the Company redeemed all of the no'es at par.(.,) Repayable in whole or in part, at par. during '989 ar Ihe option of rhe holder.(s) Assumed from Crocker National Corp ration.(6) May be rcdcerned in whole, at par, at' any time in the event widlholding raxes ilre iJnposed in the United Stales.(7) The Company has entered inro a swap agreement whereby the Company receives pound!'> sterling sufficienr to cover noaring-rare interesr :md principal on the Notes and makes

pnymcms in U.S. dollnrs covering interesr and principnl. The mmsacrion amount at the dare of issue and swap was 574.0 million. The differences of $22.8 million und $34'5 millionat December I, 1989 and 1988. respectively, were due m the foreign currency transaction ::Idjusrmelll.

(8) These notes are subject to a maximum interest rarc of 8%. The Company has sold this interest rate cap under an agreement whereb~f it receives fixed payments in deutschc milrksand makes payments based on the amuuIU by which a naming rate exceeds 8%. The Comprmy has also entered inro a sw~p agreement whereby the Company receives dcmschc

marks ilpproximarel~, equnllo interest and principal on the Notes and mtlkes p;lymenrs in U.S. dQllars. The transaction amount at the dare of issue and swap wa $117.7 million. Thedirferences of $59.8 million and $51.4 million at December 31, 198sl ~nd 1988. rcspecrivcly, were due to the foreign currency tmns~ction adjustment.

(9) Equity Commitmelll Notes.('0) Mondatory Equity Notes.(II) Subject to il maximum interesr rme of '3°1,).

Certain of the agreements under which debt has been issuedcontain provisions that may restrict the payment of dividends,the disposition of assets, the creation of property liens andthe sale or merger of the Bank. The Company was in com­pliance with the provisions of the borrowing agreements at

December 31, 1989.

(I) Includes $100.0 million princip<Ii redemplion discussed in note (3) above.

The interest rates on floating rate notes are determinedperiodically by formulas based on certain money marketrates, subject, on certain notes, to minimum or maximuminterest rates.

The Company's mandatory convertible debt, which is iden­tified by notes (9) and (10) to the table on the preceding page,qualifies as primary capital, subject to certain regulatory lim­itations. The terms of the Equity Commitment Notes, which

totaled . roo million (face amount) at December 31, 19891 re­quire the Company to deposit proceeds from the issuance ofcapital securities into a note fund. The cumulative minimumproceeds to be deposited will be $67 million by 1992 and $roo

million by 1996. As of December 31, 1989, $33 million hadbeen deposited in a note fund and $64 million of stockholders'equity had been dedicated for future deposit to the note fund.The terms of the Mandatory Equity Notes require the Com­pany to sell or exchange with the noteholder the Company'scommon stock, perpetual preferred stock or other capital securi­ties at maturity or earlier redemption of the note.

$ 61.8

100.0 100.0

99·9 99·999·7 99.6

15·5 64.2

II3·5 :lIS·2

·9 +5

429.5 645.2

54.0 53-9124.6 '31.3

4.0 +1--182.6 189-3

5·9 6,4

77-2 82.1

83.1 88'5

695-2 92}O

101.0 102·4100.0

99·9 99·9100.0 100.0[16,3 116.2

96.8 108'5

99·7 99·7177·5 ,~.I

99·7 99.6

150 .0 '50 .0

187.0 187.0

99·9 99·9100.0 100.0

100.0 100.0

200.0 200.0

t,72 7·8 1,8)2-3

n8.0 lI8.04}8

n8.0 16..8

1,845.8 1,994. 1

$2,541.0 52,917. 1

December 3'.-----------

Intermediate-term (original maturities from 1-12 years)

Parcnc12%% Notes due 1991 (SIOO.O face amount) (2) (6)I2'A,·. Notes due 1991(,)'3%q. Notes due 199' (5100.0 face amount) (2) (6)8\,·0 Notes due 1996 (,)Floating Rate Notes due 1992 (I) (6)Floating Rate Notes due 1994 (U.K. pounds sterling denominated £60.0 face amount) (I) (6) (7)

Floating Rate Notes due 1994 (,) (6)Deutsche Mark Floaring Rare Nores due 1995 (OM 300.0 face amount) (6) (8)Floating Rare Notes due 1996 (5100.0 face amount) (,) (9)Floaring Rare Capital Notes due 1996 (,) (10)

Floating Rate Notes due '997 (,) (6)Floating Rate Notes due June 1997 ($100.0 face amount) (,) (II)

Floating Rate Notes due July 1997 (,) (6) (II)

Floaring Rare Capiral Nores due 1997 (,) (6) (10)

Floaring Rate Capital Notes due '998 (I) (6) (10)

Total intermediare-rerm subordinated debt

Long-term (original maturities of more than 12 years)

Parent:Floating Rate Notes due ~ooo (,) (6)

lotes payable by subsidiaries

Total long-term subordi nated debt

Toeal subordinated debt

Toeal senior and subordinated debt

SUBORDINATED

Obligations under capital \cases (Note (3):

Parentubsidiaries

Total obligations under capital leases

Total senior debt

SENIOR

Intermediate-term (original maturities from 1- 12 years)

Parent:16\~% Nell' Zealand Dollar Notes due 19898% Notes due 1993 (I)8% Notes due July IS. 1993 ($100.0 face amount) (2)

9'/,q. Notes due 1993 (5100.0 face amount) (3)Floating Rate Extendable Notes due 1992 (4)7. 15% to "'50% Medium-Term Notes due 1989 through 1996

'otes payable by subsidiaries

Total intermediate-term senior debt

Long-term (original maturities of more than 12 years)

Parent:8.60% Debentures due 2002 (554·4 face amount) (5)

Other notesotes payable by subsidiaries

Total long-term senior debt

(in millions)

--I4fA--

32

--~-­

33

No1e if.

PREFERRED STOCK

Note 8.

COMMON STOCK AND EMPLOYEE STOCK PLANS

The following table summarizes common stock reserved andauthorized as of December JI, 1989:

--~~l _

EMPLOYEE STOCK PLANS

!tl _

COMMON STOCK

Eerily Incentive PUalll illlllJ Oallnelr Plallls

The Equity Incentive Plan (ElP) provides for the granting tokey employees of incentive stock options as defined undercurrent tax laws, nonqualified stock options and restrictedshare rights. The options may be exercised for periods of upto 10 years from grant date, at the fair market value at timeof grant. Options generally become fully exercisable three yearsfrom grant date. The total number of shares of common stockissuable under the EIP is 3,500,000 in the aggregate and 700,000in anyone calendar year.

Numher of shares

Equiry InccnI ivc PI:m Other Plans

1989 1')S8 1989 1988

Oprions ourstanding,

beginning of year 1,27°,434 1,067,320 7.152 29,044Grallted 333,000Cancelled (9,95°) (lO,330)Surrendered (10,020)Share wirhholding (6,102) (2,694) (367) (1,232)Exercised (149,448) (106,842) (6,785) (20,660)

Oprions oursranding,

end of year 1,104,934 ,,270,434 7,'52=

Oprions exercisable,

end of year 762,839 596,762 71'52Shares available for

grant, end of year 59°,981 7;8,606Price range of oprions:

Ourstanding $9·44-$54'5° $9.44-'.54.5° 5'3. 13Surrendered or

exercised $9·44-$54'5° 59·44- 55.38 $13. 13 $1 -75-$'4.06

In conjunction with the adoption of the EIP in 1982, otherstock plans (Other Plans) were amended such that no addi­tional awards or grants will be issued.

Tt-ansactions involving options of the ElP and Other Plansare summarized as follows:

The terms of the ElP include a stock withholding feature toenable optionees to satisfy the minimum federal and state taxobligations arising from the exercise of nonqualified options.The holders of the options may elect to have the Company

make a cash payment directly in satisfaction of such tax with­holding obligations in lieu of issuing shares.

Loans may be made, at the discretion of the Company, toassist the participants of the ElP in the acquisition of sharesunder options.

The holders of share rights that were issued after 1987 underthe EIP are entitled at no cost to 30% of the shares of commonstock represented by the share rights held three years afterthe share rights were granted, an additional 30% after fouryears and the final 40% after five years. The holders of theshare rights issued prior to 1988 are entitled at no cost to theshares of common stock represented by the share rights heldby each person five years after the share rights were granted.Upon receipt of the share rights, holders are entitled to re­ceive quarterly cash payments equal to the cash dividendsthat would be paid on the number of common shares equal

2,894> 1892,629,037',64' ,3791,296,358

74,6'1325'5,6

8'561"n

9°,363,9°75',°74,97'

15°,000,000

Numba o( shares

U1X advantage plan

Equiry incemive plan

Dividend reinvesrmem plan

Employee stock purchase plan

Director oprion plan

Stock bonus plan

Toml shares reserved

Shares nor reserved

Shares issued and oursmnding

Toml shares aurhorized

Under the terms of mandatory convertible debt, the Com­pany must exchange with the noteholder, or sell, variouscapital securities of the Company as described in Note 6to the Financial Statements.

The Director Option Plan allows participating directors tofile an irrevocable election to receive stock options in lieu oftheir retainer fees to be earned in the calendar year. The op­tions may be exercised for a period of 10 years from date ofreceipt; options become exercisable after one year at an exer­cise price of $1.00 per share. At December JI, 1989, 2,121options were outstanding and I,II9 options were exercisableunder the plan.

---------!~).--------

ADJUSTABLE RATE CUMULATIVE

PREFERRED STOCK, SERIES B

MARKET AUCTION PREFERRED STOCK,

SERIES I, II AND III

At December 31, 1989 and 1988, there were 1,800 shares, or$180 million, of this preferred stock with a liquidation prefer­ence of $100,000 per share issued and outstanding. Theseshares are redeemable at the option of the Company on div­idend payment dates at a redemption price of $100,000 per

share plus accrued and unpaid dividends. Dividends are cu­mulative and payable every 49 days on specified dividend pay­ment dates. Rates are determined every 49 days by auctionand will generally not be greater than 1I0% of the "AI\' Com­posite Commercial Paper Rate. The average dividend rate was

7.2%, 6.1% and 4.8% during 1989, 1988 and 1987, respectively.Dividends of $I}O million, $II.O million and 8.6 million

were declared in 1989, 1988 and 1987, respectively.

At December 31, 1989 and 1988, there were 1,500,000 shares,or $75 million, of Series B preferred stock with a liquidationpreference of $50 per share issued and outstanding. Theseshares are redeemable at the option of the Company between

May IS, 1991 and May 14, 1996 at a redemption price of $51.50

per share and, thereafter, at $50.00 per share plus accrued andunpaid dividends. Dividends are cumulative and payablequarterly on the 15th of February, May, August and November.For each quarterly period, the dividend rate is 76% of thehighest of the three-month Tt-ea ury bill discount rate, TO-year

constant maturity Tt-easury security yield or 2o-year constantmaturity Treasury bond yield, but limited to a minimum of5'5% and a maximum of 10-5% per annum. The average divi­

dend rate was 6,7%,6'9% and 6.4% during 1989,1988 and 1987,respectively. Dividends of$5'0 million, $5.2 million and $4.8 mil­

lion were declared in 1989, 1988 and 1987, respectively.

- -----!~).--------

ADJUSTABLE RATE CUMULATIVE

PREFERRED STOCK, SERIES A

At December 31, 1989 and 1988, there were 3,000,000 shares,or $150 million, of Series A preferred stock with a liquidationpreference of $50 per share issued and outstanding. Theseshares are redeemable at the option of the Company through

March JI' 1993 at a redemption price of $51.50 per share and,thereafter, at $50.00 per share plus accrued and unpaid divi­dends. Dividends are cumulative and payable on the last dayof each calendar quarter. For each quarterly period, the divi­dend rate is 2.75 0 less than the highest of the three-monthTt'easury bill discount rate, 1O-year constant maturity Treasury

security yield or 20-year constant maturity Tt-easury bond yield,but limited to a minimum of 6% and a maximum of 12% per

annum. The average dividend rate was 6-3%' 6·4% and 6-3%during 1989, 1988 and 1987, respectively. Dividends of $9.5 mil­lion, $9.6 million and $9.4 million were declared in 1989, [988

and 1987, respectively.

At December 31, 1989, 25,000,000 shares of preferred stockwere authorized and 4,501,800 shares were issued and out­standing as described below. All preferred shares rank seniorto common shares both as to dividends and liquidation pref­

erence but have no general voting rights.

--------!~).--------

--""'-­34J.

--"""--35

.,

Transactions involving the Employee Stock Purchase Planare summarized as follows:

For information on employee stock ownership through theTax Advantage Plan, see Note 9.

HEALTH' CARE AND LIFE INSURANCE

The Company provides certain health care and life insurancebenefits for active and retired employees. The Company re­serves its right to terminate these benefits at any time. The

health care and similar benefits for active and retired cmployeesare self-funded by the Company or provided through HealthMaintenance Organizations (HMOs). The Company recognizedthe cost of health care benefits by expensing the annual claimsand HMO premiums totaling $45.2 million, $46.8 million and$37.8 million in 1989, 1988 and 1987, respectively. of which$36,9 million and $40'9 million was incurred for active em­ployees in 1989 and 1988, respectively. Life insurance andsimilar benefits for active and retired employees are providedthrough an insurance company. The Company recognizes thecost of these benefits by expensing the annual insurance pre­miums, which were $'9 million, $1.0 million and $r.l million

in 1989, 1988 and 1987. respectively, of which $.8 million and$'9 million were incurred for active employees in 1989 and1988, respectively. At December y. 1989, the Company hadapproximately 18,400 active eligible employees and 5,375 re­tirees. For 1987, the cost of providing health and lifc insurancebenefits for retirees wa not separable from the cost ofproviding benefits for active employecs.

------!~~-----INVESTMENT PLAN

All salaried employees who have at least one year of serviceare eligible to contribute up to w% of their pretax covered

compensation to TAP through salary deductions under Section40I(k) of the Internal Revenue Code. The Company makesmatching contributions of up to 4% of an employee's coveredcompensation for those who have at least three years of serviceand who elect to contribute under the plan. The Company'scontributions are immediately vested and are tax deductibleby the Company.

Employees direct the investment of their TAP funds and mayelect to invest up to 50% in the Company's common stock.

As a result of the Crocker National Corporation (Crocker)acquisition in 1986, the Company assumed the Crocker Na­tional Bank Savings Plan, for which all balances were trans­ferred to TAP by the end of 1989'

116,117,,8.468(,8,063)

(102,497)

Number or options

1I4,025

II4.656(17.747)

(102.400)

108.534

Options outstanding, beginning of year

GrantedCancelled

Exercised ($60.8) in '989 and $SI.70 in '988)

Options outstanding, end of year

Options available for grant. end of year

to the number of share rights. Except in limited circumstances,share rights are cancelled upon termination of employment.As of December 31, 1989, the ElF had 916,077 share rights out­standing to 718 employees.

The amount of expense accrued for the ElF and Other Plans

was $4-3 million. $.8 million and $14-3 million in 1989. 1988 .and 1987, respectively. The lower 1989 and 1988 expenses pri­marily resulted from the termination in late 1987 of an appre­ciation feature relating to options granted.

ElIillr~oyee Stoclk PUTcbase Plan

Under the Employee Stock Purchase Plan, employees of theCompany with at least one year of service are eligible to par­ticipate, except certain hourly employees and other employeesas determined by the Compensation Committee of the Boardof Directors. The plan provides for an option price of thelower of market value at grant date or 85% to 100% (as deter­mined by the Board of Directors for each option period) offair market value at the end of the option period, 12 monthsafter the date of grant. For the current option period ending

on July 31, 1990, the Board approved a closing option priceof 85% of fair market value. The plan is noncompensatoryand results in no expense to the Company.

Note 9.

I ND OTHER BENEFITSEMPLOYEE RETIREMENT) NVESTMENT ANot.ell(()).

INCOME TAXES

Expenses relating to the retirement and investment plans wereas follows:

(in millions) Year ended December 3',

1989 1988 '987

Retirement plan $25,) $29·4 $27.2

Investment plan $13.1 $ 12·9 $12·5

------- -!~~------RETIREMENT PLAN

The Company has a defined contribution retirement plan withbasic Company contributions of 4% of the total of employeebase salary plus payments from certain bonus plans (coveredcompensation ). The Company also makes special transition con­tributions related to the termination of a prior defll1ed benefitplan of the Company ranging from .5% to 5% of covered com­pensation for certain employees. The plan covers salariedemployees with at least one year of service and contains a

vesting schedule graduated from 3-7 years of service.. .In addition, the Company makes retirement contributions

to the Tax Advantage Plan (TAP) of 2% of employee coveredcompensation. All salaried employees with at least one y.earof service are eligible to receive these Company contnbUtions,which are immediately vested.

Current and deferred income tax provisions were as follows:

-=-(in millions)

'br ended Decemher 3',

'989 1988 '987

Current:

Federal $ 478,9 $101.0 $ '94.2"State and local 128.8 4+8 58.8Foreign 1.6

~ _'_+9

609.3 '5+' 267-9Deferred:

Federal (191.0) 122,4 (270.8)State and local (18.6) 46.2 (58.8)

(209.6) ,68.6 ()29·6)Toml

$ 399·7 $322.7 $ (61.7)

The Company's income tax provision for 1989, 1988 and 1987included a tax benefit of $r.l million. $1.8 million and $5.1mil­lion, respectively. related to investmcnt securities losses.

The Company had deferred tax assets of $237-5 million,$39.6 million and $183.6 million at December 31, 1989. 1988and 1987, respectively.

Amounts for the currcnt year are based upon cstimates andassumptions as of the date of this report and could vary sig­nificantly from amounts shown on the tax returns as filed.Accordingly, the variances from the amounts previously re­portcd for prior years are primarily the result of adjustmentsto onform to the tax returns as filed.

--~)--

36--G4JF--

Tl

No[,e UU.

FOREIGN ACTIVITIES

-----------------------------------

The following is a reconciliation of the statutory federal income tax provision and rate to the effective income tax provision

and rate:

(rl Effecrive January I, '987, the Company changed from the use of Ihe cash merhod of

computing r:n: return income to rhe accrual method due to enactment of tht:: TaxReform An of 1986, The cumulative difference between the cash basis and accrual

bnsis uf flCcollnting will be included in tax return income over a {om-year period.

Yem ended Decemher 3',

1989 1988 1987

6.1 $ 674'5 $ 80.1

183. 0 54·9 610'9 (3)

II7'9 (1) 1I}7 (2) 21.8

(27. 2) (11.2) (5'3)

90 .7 102·5 16'5

98 .1 620.8

$ ·3 6.1 $674'5

Net lo~n ch~rgc-offs

Ln~ses on (he sale or swap of

developing country loans

Balance, bcginning of year

Provision for loan losses

Although management has allocated a specific portion ofthe allowance to foreign loans, the unallocated portion andany unabsorbed portion of the allocated allowance are avail­able foJ' any loan category. Changes in the allowance wereas follows:

(in millions)

Gross charge·offs

Recoveries

(I) In March 1989, the Company charged nff its remaining medium- and long-rerm Joan'to dt:veloping countries. of ~lo6'9 million.

(") In June 1988. the Company charged off those loans 10 developing countries Ihar werecovered by allocated nnns(cr risk reserves of $77.8 million.

(,) In 1987, lWO special additions tot:.lling S589 million were rnadc in connection withIOiln~ to dc.:veloping (ounnies (subsuJntinll)J allocated (Q Larin Amcric:l).

Total Incol11e Ner Assetsrevenue (\0") income [II year

before (\oss) endincome

taxexpense(benefit)

1989 6'9 $ (186.0) $(110.0) 114.0

1988 70 .6 (84·1) (5°-3) 452.1

1987 9 2 .9 (61 4'5) (33°'5) l,210·4

1989 14·7 (5. 1) (3. 0 ) 32.4

'988 28'9 . 9-3 5. 6 4°l31987 87-7 24-8 Il3 692.6

1989 2·9 1.2 ·7 19.8

1988 2·9 ('3) (.~) 220.0

1987 6}9 48 -3 26.0 '17·7

1989 -3 .1 .1 2.6

'988 1.3 .6 ·4 .1

1987 2.6 (2-3) (1.2) 7·7

1989 24.8 (189.8) (112.2) 168.8

t988 '°3·7 (74·5) (44'5) 1,075·5

1987 247-' (54}?) (292.4) 2,0~8·4

1989 5,624.1 1,190 .6 713.3 48 ,567.8

1988 4,756.0 909.7 557. 0 45,541.0

'987 4,32 °-4 532.8 34}2 42,154,9

1989 $5,648 '9 $1,000.8 $ 601.1 $48 ,736.6

1988 4,859,7 835. 2 512.5 46,616'5

1987 4,567-5 (10'9) 5°·8 44,183-3

Asia and

Pacific Basin

(in millions)

~rin America

(including Mcxico) (I)

Europe

The Company reports its foreign activities on the ba is of thedomicile of the customer, as required by the Securities andExchange Commission. Because the Company's foreign anddomestic activities are integrated, an identification of foreignactivities necessarily involves certain assumptions. For the yearspresented, such assumptions include:

(a) cost for capital funds is charged based on the amount andnature of the assets funded;

(b) adjustments are made for the difference between hostcountry and U.S. tax rates;

(c) income and expenses are primarily allocated based on thedistribution of assets;

(d) the provision for loan losses is based on actual net charge­offs during the year and an allocation of the Company'sallowance to a level management deems appropriate forforeign loans; and

(e) foreign exchange trading activities in domestic and foreignoffices are included in foreign activities.

Selected financial data by geographic area at December y,1989, 1988 and 1987 and for the years then ended follows:

Toral foreign

Other

-..~---

Domestic

Toral foreign

and domestic

The Company has not provided federal income taxes on$1I}8 million of undistributed earnings of a foreign subsidiaryand an affiliate, because the earnings are indefinitely reinvestedin those companies. If the earnings were distributed to theParent, federal income taxes on them, less credit for foreign

taxes, would be provided at that time.The Company's pretax income or loss includes income (losses)

recorded by its subsidiaries and branches located outside ofthe u.s. of approximately $(132.4) million, $(244.5) million and

$31.2 million in 1989, 1988 and 1987, respectively.The acquisition of Crocker was a business combination

accounted for as a purchase transaction. Accordingly, Crocker'sassets and liabilities were revalued to fair value at the time ofacquisition, net of the related tax effects. The resulting pretaxincome and expense amounts recognized related to these assetsand liabilities include the previously recorded income tax effects.

Thus, the relationship between pretax loss and income taxbenefit for 1987 is not comparable with previous years or withother companies that are not affected by net-of-tax accounting.Net-oE-tax accounting did not have a material effect on therelationship between pretax income and income tax expense

for 1989 and 1988.

Year ended December 31,

1989 1988 1987

% Amount' oft) Amount Q'

Amount .0

$340 '3 34.0 % 5284.0 3+°% $ (4·3) (4°·0)%

71.5 7.1 59·5 7. 1 .1 ·5

(12.6) (l.y (lq) (l.5) ('9'5) (179'9)

(.2) (27·3) (3-)) (52.1) (479·4)

14.2 '31.1

·7 .1 '9.2 2-3 (.1)

$399·7 39'9% $322.7 38.6% $(6I.7) (567-7)%

21.1

$ 61.0

Yenl' ended December 31,

Effectivc income taX provision and rate

Sr~tutory fedeml income tax provision and rate

Change in tax rate resulting from:

St~te and local taxeS on income, net of federal

income tax benefit

Tax-cxempt income

Income and expensc relmed to Crocker's assets ~nd

liabilities ~ccounred for net of taX

'Thx benefit recognized on ~ portion of the provision for

loan losses at 1988 taX rates

Other

(in millions)

1989 1988

Lower (higher) le~se financing income

for tax return purposes $(109.0) $ 39·9

Higher (Iowcr) loan loss deduction for

tax return purposes (69'9) 231.6

Altern~tive minimum taX credit 46 .7 (46.7)

Cash basis ~ccounting for taX

return purposes (I) (43. 0) (y.2)

Higher (lowcr) state tax deduction for

tax return purposes (2°'9) (II.I)

Deferred income ~nd expenses

recognized currently for tax

rerum purposes 2.0 (19. 0)

Undistributed earnings of

foreign subsidiaries (1.2) (1l·9)

Other (4·3) 17.0

Total $(2°9.6) $168.6

(in millions)

The deferred income tax provision is the result of certainitems being accounted for in different time periods for financialreporting purposes than for income tax purposes. The com­ponents of the deferred income tax provision were as follows:

(I) During 1989 and 1988, the Company substantially reduced its asscrs in Larin Americathrough snlcs and chtlrgc·of(s of developing coumry lonns. The rcmnining :lssets ilt

December 31, 1989 consisted of !oihon~tcnn ourS[(Indings 1"0 I3rtn:il l for which thereWere related commitments ro lend ndditianal funds of 529 million.

--~-­

J§--'4JFJ-­

J9

No1e R2.

PARENT COMPANY

Condensed financial information of Wells Fargo & Company

(Parent) is presented below:

CONDENSED STATEMENT OF INCOME CONDENSED BALANCE SHEET

CONDENSED STATEMENT

OF CASH FLOWSCONDENSED STATEMENT OF

CHANGES IN FINANCIAL POSITION

(in million,) Year ended DeccIl1bcr 311 (in millions) December I, (in millions) Yenr ended December 3', (in millions) Year endedDecelTlbcr }I. 1987

--<,£fF._­

40--~-­

4ll

9-3

2.0

50 .8

11.411.8(5·1)

lB.I

7tD •B(581.9)48.2

22·3(55.6)

14}8

$ 171.2

$ 70·426p

(162-4)

$ 171.2

Ner financial reSOurCes provided by operations

Orhcr financing acriviries:Shorr-wrm borrowingsSenior and subordinated debrIndebredness [Q nonbank subsidiariesCommon stock issucdCommon srock repurchased

Financial rcsources provided by orhcr financing activities

Orhcr acriviries:

Cash and due from Wells Fargo BankInvesrillent in subsidiariesOrher, net

Financial resources provided by other acriviries

Increase in financial resources invested in earning assers

Financial resources provided by (applied ra):

Operations:Ner incomeNoncash charges (credits):

Provision for loan lossesProvision for deferred raxesEquiry in undistribured incomc of subsidiaries

Fi nandal resources provided by operationsCash dividends dcclared

Increase (decrease) in earning assers:Invesnnenr sccuririesNet loansLoans and advances ro subsidiaries

Increase in earning assets

For information regarding the Parent's long-term debt andcommitments and contingent liabilities, see Notes 6 and 13,respectively.

179. 1

52 •1

34. 1

84°'9(874·7)

1, 105'9(25.6)

(125.7)

6.0(1I.6)

226.8

31.2

97°·3(718 '9)(292 .6)

$ 601.1

344·5 (16JB)(318.3) (662.2)

1.2 (265.8)28,9 2}5

(151.8) (49'9)(191.2) (141.5)

(9.1) 34.8

(295.8) (1,224'9)

(.5) k4)1.0 5·4

-5 1.0

Cash flows from operating activities:Net income

Adjusrments to reconcile net income to ncrcash provided by operating acriviries:

Provision for loan lossesProvision for deferred raxesEquiry in undisrribured income

of subsidiariesOther, ner

Ncr cash provided by operating activities

Cash flows from investing activities:Proceeds from sales of investmenr secuririesProceeds from maturiries of investment secuririesPurchases of investment securitiesNer decrease (increase) in loansNcr decrease in loans and advances

to subsidiariesInvesrmenr in subsidiariesPurchase of BarclaysProceeds from saIe of Barclays to

Wells Fargo BankOrher, ner

Ncr cash provided by investing acriviries

Cash flows from financing activities:Net increase (decrease) in shorr-tcrm borrowingsRepayment of senior and subordinared debtNer increase (decrease) in indebredness

to subsidiariesIssuance of common stockRepurchase of common stockCash dividends paidOrher, ner

Net cash used by financing acriviries

Net change in cash and cash equivalentsCash and cash equivalents ar beginning of year

Cash and cash equivalenrs ar end of year

$3.090.4 $2,747·71l.6 9.8

2,458,9 2,782 .6

3·5 2·3241.4 233-9

5,805.8 5,776,3

2.860'9 ~,579·4

$8,666'7 $8,355,7

$ ·5 1.0

212·5 496.1

571.6 280.68.6 +2

563.0 276-4

2,124.1 2,648-3',949,5 1,646.8

2,979,9 2,599-3

'7°.0 155·7667.2 532.1

$8,666'7 $ 8,355·7

Ner loans

LoansAllowance for loan losses

Toral liabilities

Toral asse"

Loans and advances ro subsidiaries:Wells Fargo BankNonbank subsidiaries

Investment in subsidiaries:Wells Fargo BankNonbank subsidiaries

Orher assets

LIABILITIES AND STOCKHOLDERS' EQUITY

Commercial paper outstandingOther short-term borrowingsSenior and subordinated debtIndebtedness to subsidiariesOther liabilities

ASSETS

Cash and due from Wells Fargo BankInvestment securides

Stockholders' equity

Toral liabilities and stockholders' equity

260-3 189.1 211.7

244.8 253-3 297·4

·3 10.8 29.2

6.0 (.8) 2.0

27.1 26.~ 5. 8

538,5 478.6 546.1

206.1 171.5 107.8

15.6 9·4 24.2

371.5 34~·4 (51.0)

7·9 (10.8) (30.2)

$ 601.1 $ 512 .5 S 50.8

$218'9 $ 169. 1 $ "5·916,3 1}6 21.4

234·7 248'5 210·9162·5 139·3 257.8

77.1 54.0 41.2

35.1 ~5·6 6·7

744.6 650.1 653-9Total income

Toral expense

Income before income rax benefir andundistributed income of subsidiaries

Income tax benefitEquiry in undistributed income of

subsidiaries:Wells Fargo BankNonbank subsidiaries

EXPENSE

NET INCOME

Interesr on:Shon-term borrowingsSenior and subordinated debtIndebtedness to subsidiaries

Provision for I an lossesNoninrerest expense

INCOME

Dividends from subsidiaries:Wells Fargo BankNonbank subsidiaries

Imcrest income from:Wells Fargo BankNonbank subsidiariesOther

Noninterest income

NoteD.

COMMITMENTS AND CONTINGENT LIABILITIES

Note [4[..

STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS ADOPTED IN 19 88

(,) Excludes credit card and related plans.

------ ------------

In the normal course of business, the Company makes com­mitments and assumes contingent liabilities for various pur­poses, such as meeting the financing needs of its customersand reducing its own exposure to fluctuations in interest rates.These commitments and contingent liabilities are properly notreflected in the financial statements. Losses, if any, resultingfrom these commitments are not anticipated to be material.The approximate commitment amounts are summarized below:

Not all commitments to extend credit or standby letters ofcredit are expected to be drawn upon. Thus, the total commit­ment amount does not necessarily represent future liquidityrequirements or credit risk.

Standby letters of credit include approximately $200 million

of participations purchased and are net of approximately $200

million of participations sold. Standby letters of credit areissued to cover performance obligations including those whichback financial instruments (financial guarantees). At Decem­

ber JI, 1989, the Company had issued or purchased partici­pations in financial guarantees of approximately $700 millionfor the following types of financial instruments:

t~l__FAS 95

Effective for the year ended December 31, 1988, the Companyadopted Statement of Financial Accounting Standards No. 95(FAS 95), Statement of Cash Flows. This financial statementreplaces the statement of changes in financial position andcategorizes cash flows by activity (operating, investing and

financing). As permitted by FAS 95, the Company has pre­sented a statement of cash flows for 1989 and 1988 and astatement of changes in financial position for 1987.

---t~l

FAS 91

Effective January I, 1988, the Company adopted Statement ofFinancial Accounting Standards No. 91 (FAS 91), Accountingfor Nonrefundable Fees and Costs Associated with Originatingor Acquiring Loans and Initial Direct Costs of Leases. FAS 91,

which was applied only to transactions entered into afterJanuary I, 1988, requires the deferral and amortization of cer­tain fees and direct incremental loan origination costs. Theadoption of FAS 91 did not have a material effect on net in­come, as compared with net income that would have beenrecognized under accounting policies in effect prior to FAS 91.

FAS 91 also specifies whether certain fee income should be

classified as part of interest income or noninterest income.To enhance comparability, $129.7 million previously recordedin 1987 as interest income on loans was reclassified to domesticfees and commissions. The reclassification had no imp~ct on1987 net income.

Capital leases

$ 112.6 16.1106,9 16.0

91.4 15·486.8 15374·7 11.2

216.0 '39,9

,688-4 21}9

(93)(121.5)

, 8}1

Opermi ng leases

Executory costsAmounts representing interest

Present value of net minimumlease payments

Total minimum lease payments

(in millions)

Year ended December ]1,

1990

'99'1992

1993'994Thereafter

The Company enters into interest rate swap contracts pri­marily as an asset/liability management strategy to reduceinterest rate risk. Interest rate swap contracts are the exchangeof interest payments, such as fixed-rate payments for floating­rate payments, based on a notional (underlying) principalamount, which does not represent the much smaller amountspotentially subject to credit risk. At December JI' 1989, theCompany had interest rate swaps outstanding with a notionalprincipal amount of approximately $].3 billion, of which theParent's share was $1.0 billion.

The Company is obligated under a number of noncancelableoperating leases for premises and equipment with terms rang­ing from 1-35 years, many of which provide for periodic ad­justment of rentals based on changes in various economicindicators. The following table shows future minimum pay­ments under noncancelable operating leases and capital leases

with terms in excess of one year as of December JI' 1989'

$ 1,40 0

20018,200

December 3', '98<)lin millions)

Standby letters of credit

Commercial and similar letters of credit

Commitmenrs to extend credit (,)

Commitments to purchase futures contracts

Commirments to purchase foreign and U.S. currencies

~-======-========

Substantially all fees received from the issuance of financialguarantees are deferred and amortized on a straight-line basisover the term of the guarantee. The credit criteria for issuingthese financial guarantees are the same as for loans.

(in millions)

lax-exempt industrial revenue/

development bonds

Loans and investments

Commercial paper

Other financial insrruments

Total fi nancial guarantees

December 31I 19~

$3°0200

100100

~v(altlrir)' r::mgl's

1990- 1997199°-19971991- 19991990 - 1999

Total future minimum payments to be received under non­cancelable operating subleases at December JI, 1989 wereapproximately $365 million; these payments are not reflectedin the table above.

Rental expense, net of rental income, for all operating leases

was $101.6 million, $104.2 million and $II9.2 million for theyears ended December 31, 1989, 1988 and 1987, respectively.

In the normal course of business, the Company is at all timessubject to numerous pending and threatened legal actions andproceedings, some for which the relief or damages soughtare substantial. After reviewing with counsel pending andthreatened actions and proceedings, management considersthat the outcome of such actions or proceedings will nothave a material adverse effect on stockholders' equity ofthe Company.

--~-­

41-2--~-­

41-3

INDEPENDENT AUDITORS' REPORT QUARTERLY FINANCIAL DATA

CONDENSED CONSOLIDATED STATEMENT OF INCOME - QUARTERLY

The Board of Directorsand Stockholders ofWells Fargo & Company:

(in millions)

March )' June )0

1989Quaner ended

Sept. )0 Dec. )' Moreh 3' June 30

1988___Q--,---uo_ncr ended

Sell1. )0 Dec. )'

We have audited the accompanying consolidated balance sheet

of Wells Fargo & Company and Subsidiaries as of December 31,

1989 and 1988 and the related consolidated statements of in­come and changes in stockholders' equity for each of the

years in the three-year period ended December 31, 1989, theconsolidated statement of cash flows for each of the years in

the two-year period ended December 31, 1989 and the con­solidated statement of changes in financial position for theyear ended December 31, 1987. These consolidated financialstatements are the responsibility of the Company's manage­ment. Our responsibility is to express an opinion on these

consolidated financial statements based on our audits.We conducted our audits in accordance with generally

accepted auditing standards. Those standards require thatwe plan and perform the audit to obtain reasonable assuranceabout whether the financial statements are free of material

misstatement. An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the fi­nancial statements. An audit also includes assessing the ac­counting principles used and significant estimates made bymanagement, as well as evaluating the overall financial state­ment presentation. We believe that our audits provide a reason­

able basis for our opinion.In our opinion, the consolidated financial statements referred

to above present fairly, in all material respects, the financialposition of Wells Fargo & Company and Subsidiaries at De­

cember 31, 1989 and 1988, the results of their operations foreach of the years in the three-year period ended December 31,

1989, their cash flows for each of the years in the two-yearperiod ended December 31, 1989 and changes in their financialposition for the year ended December 31, 1987, in conformity

with generally accepted accounting principles.As discussed in Note 14 to the financial statements, the

Company adopted in 1988 Statement of Financial Accounting

Standards No. 95, Statement of Cash Flows.

c~~G- .5fJ.J<:. '::)""...,,:1-KPMG Peat MarwickCertified Public Accountants

San Francisco, California

January 16, 1990

INTEREST INCOMEINTEREST EXPENSE

NET INTEREST INCOMEProvision for loan losses

Net interest income after provision for lonn losses

NONINTEREST INCOMEDomestic fees and commissions

Service charges on deposit accounts

Trust and investment services incomeInvestmenr securities lossesOther

Total noninterest income

NONINTEREST EXPENSESnlaries

Employee benefits

Net occupancyEquipment

Other

Total noninterest expense

INCOME BEFORE INCOME TAX EXPENSEIncome tax expense

NET INCOME

NET INCOME APPLICABLE TO COMMON STOCK

PER COMMON SHARENet income

Dividends declared

Average common shares outstanding

$1,171.5636,4

535.1100.0

435.1

64'957.842 •8

(1.1)21.0

149.2

40 •642 . 1

33.6121.0

386,5

234.0

92 .5

$ 141.5

$ 134·5

$ 2.56

·75

52 •6

$1,212.0685.0

52 7. 0

100.0

75-460·4

43-7(.1)

~

211.7

153·338,444.1

32 •8u6·4

385.0

253-7106'3

$ '47-4

$ 14°.1

$ 2.68

$ ·75

52 .3

$1,244.870 7.8

537.082.0

455.0

68·762.1

45.6(.6)

16.1

165.435. 1

44. 0

34.1

1'4.8

39304

253·599.8

$ 153·7

$ 147.1

$1,241.9

682'5

559·480.0

479·4

74.666·4

46.2(.8)

304

189.8

1630435.1

48'336.8

126.0

lOLl

$ 2·95

·9°

$996'9528.6

468 ,375.0

59·352 .638.,(1.6)

7.8

'56.2

371.6

177·9

57-5

$120·4

$ liB

$ 2.15

$ .50

$1,008,9

_53~

474-)

75. 0

399-)

78'55J-O37·4

(.4)

__'5

~

37}1

'95.2

70 •8

S 124.4

$ 2.24

.60

52 .9

5°0·7

~

425.7

68.0

57. 1

37·7(.2)

30 .7

193-3

155·937·74}435.8

~

392 .7

226-)

94.6

$ 125. 2

$ 2-)6

$ .60

53- I

$1,112.0

58p

528.875. 0

45J8

72 .4

56'94°-5(2.1)

(4. 0 )

16}7

235·7

99·7

S 16.0

S 2.45

·75

52 .8

--~-­

44

•

--~-­

45

AVERAGE BALANCES, YIELDS AND RATES PAID

(TAXABLE-EQUIVALENT BASIS)

QUARTERLYDIRECTORY

Averagebalance

(in millions)

Averagebalance

Averagebalance

Quarter endedSeptember 30, '~9

Yields/ Interes,rates income/

expense

Quarter ended______D_e_c_em_ber 3', '988

Yields/ ImereStrates income/

expense

DIRECTORS

WEllS FARGO & COMPANY

AND ITS PRINCIPAL SUBSIDIARY, WELLS FARGO BANK, N.A.

MANAGEMENT

EARNING ASSETS

Interest-earni ng deposits $ 5 2·74% .1 '3 5.68% .2 120 7'99% 2·4 William R. Breuner Directors Emeriti WeLls fargo & ComrdlJlY Wel~s fargo Ba~, N. A.Investment securities: Retired Chairman of the Board

u.s. Treasury securities 364 6.83 6,3 764 7.42 14-3 858 7·53 16.2

Securities of other U.S. government agenciesJohn Breuner Company

Roger D. Lapham, Jr.and corporations 1,696 8.16 )4.6 2,37° 8.83 52.3 2,14 1 8.81 47.2

CHAIRMAN AND CHAIRMAN AND

Obligations of states and political subdivisions 67 7-44 1.2 67 7-48 1.3 74 8.24 1-5 James F. Dickason Chairman and Managing DirectorCHIEF EXE UTIVE OFFICER CHIEF EXECUTIVE OFFICER

Other securities ---.-:22 9.86 7·4 249 10·°5 6.2 ~ 11.66 11.0 Rama Corporation, Ltd. Carl E. Reichardt Carl E. ReichardtChairman of the Executive Committee

Total investment securities 2,426 8.15 49·5 3,45° 8-58 74.1 3,449 8,79 75·9 The Newhall Land andFedeml funds sold 4° 8.67 .8 30 9·33 ·7 29 8,78 .6

Farming Company Arjay Miller PRESIDENT AND PRESIDENT AND

Loans:CHIEF OPERATING OFFICER CHIEF OPERATING OFFICER

Commercial, fi nancial and agricultural 14,594 11.52 423.7 14,794 11.56 431.1 12,513 10·93 34}8 Dean Emedtus

Real estate construction (,) 4,283 11·45 123.6 4,429 11.69 130.5 4,54° 11.12 127-3 James K. Dobey Graduate School of Business Paul Hazen Paul Hazen

Real estate mortgage (,) 13,17° 10.65 JSI'9 1l,926 10·73 321.2 10,489 10.58 278.2 Retired Chairman of the Board Stanford University

Consumer 7,891 13.23 261'5 7,648 1}37 256,4 704°3 I}I6 244.1Wells Fargo & Company

VICE CHAIRMEN VICE CHAIRMEN

Lease fi nand ng 1.221 12.02 36,7 1,387 9.66 3}5 1,)40 9.6, )2.2 B. Regnar Paulsen Robert L. JossForeign 72 10.13 1.8

~ 10·5° 2·4 7°5 8.)2 14.8Robert L. Joss

Total loans 41,231 11·57 1,199.2 40,277 ll.61 1,175.1 )6,990 11.21 1,040.4 Paul Hazen Retired Chairman of the Board Clyde \XI. Ostler Clyde \XI. Ostler

Toral earni ng assetS 11.38 t,249·6 11.)6 540,588 President and Chief Operating Officer Rice Growers Association of California David M. Petrone David M. Petrone

$43,7°2 543,77° 1,25°·1 10·99 1,119-3 William F. Zuendt William F. Zuendt

FUNDING SOURCESRobert K. Jaedicke Wilson Riles

Interest-bearing liabilities: Dean President CHIEF FINANCIAL OFFICER EXECUTIVE VICE PRESIDENTS

Deposits: Graduate School of Business Wilson Riles & Associates, Inc. Rodney L. Jacobs William F. Aldinger III

Savings deposits 3,797 4'98 47.6 $ ),987 4·97 5°·0 $ 4>493 4.98 56-) Stanford University Alexander M. Anderson

NOW accounts 3,435 ]-92 33-9 ].239 }92 )2.0 ].296 }92 32-5 CHIEF COUNSEL AND A. Larry ChapmanMarket rate checking 211 4.01 2.1 289 4.01 2·9 344 4.01 3-5 SECRETARY

Marker ratc savings 8,619 6.63 143'9 8,°90 6.72 1)7.1 8.18) 5.96 122-5 Donald M. Koll Thomas J. Davis

Savings certificates 10,688 8.01 215.8 10,298 8"4 2Il-) 9,)84 7.07 166,9 Chairman of the Board andGuy Rounsaville, Jr. Teresa A. Dial

Certificates of deposit 4°4 8'98 9.1 419 9·°3 9·5 482 9. 18 11.1 Chief Executive Officer Ronald E. Eadie

Other time deposits 146 8.82 3,) .62 8·)7 H '70 7.92 }4The Koll Company

CHIEF CREDIT OFFICER

Deposits in foreign offices 263 8'99 6.0 367 9. 16 8'5 881 7.83 17-3Stephen A. Enna

TOtal inrerest-bearing deposits 27,563 6.65 461.7 26,851 6.72 6.04Patrick W. Leahy Douglas K. Freeman

454·7 27,233 41}5 Mary E. Lanigar Michael]. GillfillimCommercial paper 3,171 8.69 69·5 2,9°6 9.07 66,4 2,499 8,43 5}0

Other short-term borrowings 4,229 8,59 91.5 5.332 9. 10 122·3 2,285 8,42 48'3 Reti red PartnerCHIEF LOAN EXAMINER Frederick L. A. Grauer

Senior and subordinated debt: Arthur Young & Company Douglas P Holloway William \XI. Henderson

Senior debt 731 9.10 16.6 771 9,°9 17.6 1,008 8'98 22·7 E. Alan HolroydeSubordinated debt 1,868 8.80 41.5 1,958 9. 15 45.1 ~ 8.73 4}7

Paul A. Miller GENIORAL AUDITOR Seawadon L. Houston

Total senior and subordinated debt 2,599 8.89 58.1 2,729 9. 1) 62.( 3,000 8.82 66·4 Dudley M. Nigg David A. Hoyt- Chairman of the Executive Committee

Toral interest-bearing liabilities 3(,562 7-19 680.8 37,818 7·4' 706.1 35,01 7 6.60 581.2 Pacific Enterprises Rodney L. Jacobs

Portion of noninterest-bearing funding sources 6,140 ~52 ~ CONTROLLER Charles M. Johnson

Toral funding sources $43,7°2 6.18 680.8 430770 6.40 706.1 $40,588 5·7° 581.2 Robert T. Nahas Frank A. Moeslein James G. Jones

Net interest matgin and net interest income President Patrick \XI. Leahy

on a taxable-equivalent basis 5.20% $ 568.8 4.96% $ 544.0 5.29% $ 5)8.1 R. T. Nahas Company TREASURER Ely L. Licht

NONINTEREST-EARNING ASSETSAlan J. Pabst John E. Lindstedt

Cash and due from banks $ 2,824 2,585 5 2,6,2Ellen M. Newman Liam E. McGee

Other 2,366 2,25° 2,256 President PERSONNEL DIRECTOR Dudley M. Nigg

Toral noninterest-earning assets $ 5,19° 4,8)5 5 4,868Ellen Newman Associates Stephen A. Enna Ronald S. Parker

Fredrick \XI. Petri

NONINTEREST-BEARING FUNDING SOURCESCarl E. Reichardt DIRECTOR OF INVESTOR Lois R. Rice

Deposits $ 7,381 $ 6,874 $ 6,758 Chairman and Chief Executive Officer RELATIONS Guy Rounsaville, Jr.

Other liabilities I,III 1,119 1,132 Leslie L. Altick Michael D. Sczuka

Preferred stockholders' equity 4°5 4°5 4°5 Harry O. Reinsch Dale R. Walker

Common stockholders' equity 2,433 2,)89 2,144Vice Chairman

Raymond J. Walsh, Jr.Noninterest-bearing funding sources used to

fund earning assets (6,140) (5,952) (5,57') Bechtel Energy Corporation Timothy \XI. Washburn

Net noninrerest-bearing funding sources $ 5,19° 5 4,835 $ 4,868G. Hardy Watford

Henry F. Trione Paul M. Watson

TOTAL ASSETS $48,892 548,6°5 $45,456 Chairman of the Executive CommitteeKaren Wegmann

Geyser Peak Winery

The average prime rate of Wells Fargo Bank was 10'50%, 10.66°. and 10.,8')0 for Ihe quarters ended December 31, '989, September 30, '989 and December 3', '988, respectively.John A. Young

ll) Erfenive December 31, 1989, swnding lo:ms, which nTC loans secured primaril~' by complNed and opcmtionnl real estate with terms generally nm in excess of five years, nrc included

in the rcnl «:state morrgage loan C<l.l'Cgory. In prior periods, these balances were included in rhe real estate construcrion loan category. All periods presented hfl\lc been reclassified. President and Chief Executive OfficerHewlett-Packard Company

--~,--~ «dfiP._-

46 41.1.

The Advisory Council was established in 1977 to provide advice andcounsel to Wells Fargo's management.

GEOFFREY W. TAYLOR

ChairmanDaiwa Europe Bank PLCRetired Group Chief ExecutiveMidland Bank PLC .London, England

IRVING S. SHAPIRO

Retired ChairmanDuPont CompanyWilmington, Delaware

THE RT. HON. LORD SHERFIELD,G.CB., G.CM.G.

House of LordsLondon, England

THORNTON A. WILSON

Chairman EmeritusThe Boeing CompanySeattle, Washington

ROGER D. LAPHAM, JR.

Director EmeritusWells Fargo & CompanyChairman and Managing DirectorRama Corporation, Ltd.Paris, France

ADOLF KRACHT

PartnerMerck, Fink and CompanyMunich, West Germany

THE RT. HON. LORD KADOORIE,CRE., J.P.

Sir Elly KadQorie and SonsHong Kong

Wells Fargo Ag CreditLarry Lewton, President

Wells Fargo Capital Markets, Inc.Charles A. Greenberg, President

Wells Fargo Insurance Servicesjames G. jones, President

Wells Fargo Investment AdvisorsFrederick L.A. Grauer, Chairman

NONBANK

SIR CAMPBELL FRASER

ChairmanScottish Television PLCLondon, England

GORAN ENNERFELT

President andChief Executive OfficerThe Axel Johnson GroupStockholm, Sweden

WILLIAM R. HEWLETT

Director EmeritusHewlett-Packard CompanyPalo Alto, California

EUGENIO GARZA·LAGUERA

Chairman of the BoardValores IndustrialesMonterrey, N.L., Mexico

ANGELO CALMON DE sAPresident andChief Executive OfficerBanco Economico, S.A.Salvador, Bahia, Brazil

WILLIAM I.M. TURNER, JR.

Chairman andChief Executive OfficerPCC Industrial Corp.Montreal, Quebec, Canada

Chairman:

Wells Fargo Realty AdvisorsA. Larry Chapman, President

Wells Fargo Realty FinanceGeorge A. Tillotson, President

Wells Fargo Securities, Inc.Deborah G. Patterson, President

--f,#'J-­

4J.§

Michael M. McNicklePaul V. McQuadeRobin S. MidkiffFrank A. MoesleinRoberr A. MooreMichael B. Mulcahy

Mark L. MyersBruce A. NortonAlan j. PabstDeborah PattersonMichael C. PesceKenneth E. PetersonAlan K. Pribble

Stephen P PrinzShepherd G. Pryor IVjohn M. ReardonArthur C. Rutzen, jr.C. james SaavedraRichard T. Schliesmann

jackson L. SchultzThomas P Staudtjoseph P StiglichFrederick S. TaffDrew A. Tanzman

Shelly B. ThompsonWilliam L. TimoneyElsie L. Vromanjoseph A. Wahedjames R. WallaceThomas A. Warren

jay WelkerPaul WhitneyMary M. WikstromHoward N. YoungEdward G. ZaikDavid]. Zuercher

SENIOR VICE PRESIDENTS

Leslie L. AltickRobert Altobello

Mats G. ArklindVincent j. AugelloGloria]. Bennewitz

Dale F. BentzBrian L. BillingsRobert W. BissellBarbara]. Brady-SmithSamuel BrownKathleen A. Burke

Patricia CallahanMary P CarryerRegina L. ChunRichard T. ClappLouis M. CossoLarry CrabtreeLemuel C. Cragholm, Jr.

Harry L. Cuddy

Donald E. DanaMichael j. Dasher

P Steve DobelScott R. DunfrundAlbert F. EhrkeElizabeth A. Evansjohn P FayWilliam G. FisherLoran R. FiteChristine N. GarveyDennis P GibbonsAlan C. Gordon

Richard R. GreenCharles A. GreenbergArnold T. GrishamDonald W. HanceLarry M. HarriganKathleen L. Harrington-LucierDouglas R. HayekDonald j. Herrema

Irma I. HerronPeter HitchDouglas P Holloway

George E. HuxtableMichael R. jamesjan M. jewellArthur S. jonesNorman W. KallanRobert S. Kegleyjohn C. Kilhefner

Alan]. KizerDavid F. Kvederis

Richard G. LaporteYung S. LewBarry X. Lynn