UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1997 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-2979 NORWEST CORPORATION A Delaware Corporation-I.R.S. No. 41-0449260 Norwest Center Sixth and Marquette Minneapolis, Minnesota 55479 Telephone (612) 667-1234 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes ___ No. Common Stock, par value $1 2/3 per share, outstanding at April 30, 1997 374,939,826 shares
PART I. FINANCIAL INFORMATION Item 1. Financial Statements. The following consolidated financial statements of Norwest Corporation and its subsidiaries are included herein: Page 1. Consolidated Balance Sheets - March 31, 1997 and December 31, 1996......................... 3 2. Consolidated Statements of Income - Quarters Ended March 31, 1997 and 1996....................... 4 3. Consolidated Statements of Cash Flows - Quarters Ended March 31, 1997 and 1996....................... 5 4. Consolidated Statements of Stockholders' Equity - Quarters Ended March 31, 1997 and 1996....................... 6 5. Notes to Unaudited Consolidated Financial Statements........... 8 The financial information for the interim periods is unaudited. In the opinion of management, all adjustments necessary (which are of a normal recurring nature) have been included for a fair presentation of the results of operations. The results of operations for an interim period are not necessarily indicative of the results that may be expected for a full year or any other interim period. 2
Norwest Corporation and Subsidiaries CONSOLIDATED BALANCE SHEETS (Unaudited) In millions, except shares March 31, December 31, 1997 1996 ASSETS Cash and due from banks ...................... $ 4,157.1 4,856.6 Interest-bearing deposits with banks ......... 30.6 1,237.9 Federal funds sold and resale agreements ..... 1,201.2 1,276.8 Total cash and cash equivalents .......... 5,388.9 7,371.3 Trading account securities ................... 326.6 186.5 Investment and mortgage-backed securities available for sale ......................... 21,498.4 16,247.1 Investment securities (fair value $768.5 in 1997 and $745.2 in 1996) ......... 735.5 712.2 Total investment securities .............. 22,233.9 16,959.3 Loans held for sale .......................... 2,795.1 2,827.6 Mortgages held for sale ...................... 5,160.8 6,339.0 Loans and leases, net of unearned discount ... 40,369.4 39,381.0 Allowance for credit losses .................. (1,062.6) (1,040.8) Net loans and leases ..................... 39,306.8 38,340.2 Premises and equipment, net .................. 1,237.8 1,200.9 Mortgage servicing rights, net ............... 2,720.9 2,648.5 Interest receivable and other assets ......... 4,409.5 4,302.1 Total assets ............................. $83,580.3 80,175.4 LIABILITIES AND STOCKHOLDERS' EQUITY Deposits Noninterest-bearing ........................ $14,332.3 14,296.3 Interest-bearing ........................... 37,693.2 35,833.9 Total deposits ........................... 52,025.5 50,130.2 Short-term borrowings ........................ 8,704.8 7,572.6 Accrued expenses and other liabilities ....... 4,691.4 3,326.2 Long-term debt ............................... 11,971.4 13,082.2 Total liabilities ........................ 77,393.1 74,111.2 Preferred stock .............................. 289.9 249.8 Unearned ESOP shares ......................... (102.7) (61.0) Total preferred stock .................... 187.2 188.8 Common stock, $1 2/3 par value - authorized 500,000,000 shares: Issued 381,109,956 and 375,533,625 shares in 1997 and 1996, respectively ............ 635.2 625.9 Surplus ...................................... 976.6 948.6 Retained earnings ............................ 4,475.3 4,248.2 Net unrealized gains on securities available for sale ......................... 104.7 303.5 Notes receivable from ESOP ................... (10.2) (11.1) Treasury stock - 5,063,590 and 6,830,919 common shares in 1997 and 1996, respectively (174.0) (233.3) Foreign currency translation ................. (7.6) (6.4) Total common stockholders' equity ........ 6,000.0 5,875.4 Total stockholders' equity ............... 6,187.2 6,064.2 Total liabilities and stockholders' equity ................... $83,580.3 80,175.4 See notes to unaudited consolidated financial statements. 3
Norwest Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME (Unaudited) In millions, except per common share amounts Quarter Ended March 31, 1997 1996 INTEREST INCOME ON Loans and leases ................................ $1,095.4 1,039.8 Investment and mortgage-backed securities available for sale ............................. 325.5 265.9 Investment securities ........................... 7.0 8.9 Loans held for sale ............................. 56.2 87.2 Mortgages held for sale ......................... 97.7 108.4 Money market investments ........................ 21.1 7.8 Trading account securities ...................... 4.5 6.0 Total interest income ....................... 1,607.4 1,524.0 INTEREST EXPENSE ON Deposits ........................................ 356.1 310.0 Short-term borrowings ........................... 99.1 110.8 Long-term debt .................................. 193.9 212.4 Total interest expense ...................... 649.1 633.2 Net interest income ....................... 958.3 890.8 Provision for credit losses ..................... 109.0 87.8 Net interest income after provision for credit losses ............. 849.3 803.0 NON-INTEREST INCOME Trust ........................................... 84.7 70.8 Service charges on deposit accounts ............. 89.1 75.2 Mortgage banking ................................ 227.8 171.3 Data processing ................................. 18.1 16.5 Credit card ..................................... 27.9 31.5 Insurance ....................................... 90.2 69.7 Other fees and service charges .................. 86.4 69.6 Net investment and mortgage-backed securities available for sale gains (losses) .............. (4.4) 1.7 Net venture capital gains ....................... 19.2 66.5 Trading ......................................... 24.9 (15.3) Other ........................................... 26.7 (4.7) Total non-interest income ................... 690.6 552.8 NON-INTEREST EXPENSES Salaries and benefits ........................... 546.6 509.1 Net occupancy ................................... 80.0 68.3 Equipment rentals, depreciation and maintenance . 82.2 72.7 Business development ............................ 58.4 53.2 Communication ................................... 71.5 66.5 Data processing ................................. 45.1 33.4 Intangible asset amortization ................... 40.4 38.2 Other ........................................... 123.3 101.8 Total non-interest expenses ................. 1,047.5 943.2 INCOME BEFORE INCOME TAXES ...................... 492.4 412.6 Income tax expense .............................. 170.5 141.2 NET INCOME ...................................... $ 321.9 271.4 Average common and common equivalent shares .... 377.9 360.8 PER COMMON SHARE Net Income Primary ...................................... $ 0.84 0.74 Fully diluted ................................ 0.84 0.74 Dividends ..................................... 0.30 0.24 See notes to unaudited consolidated financial statements. 4
Norwest Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) <TABLE> <CAPTION> Quarter Ended In millions March 31, 1997 1996 <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES Net income ............................................................$ 321.9 271.4 Adjustments to reconcile net income to net cash flows from operating activities: Provision for credit losses ....................................... 109.0 87.8 Depreciation and amortization ..................................... 178.4 137.2 Gains on sales of loans, securities and other assets, net ......... (70.9) (55.0) Release of preferred shares to ESOP ............................... 11.6 13.4 Purchases of trading account securities ........................... (2,539.8) (19,367.1) Proceeds from sales of trading account securities ................. 2,428.2 19,013.5 Originations of mortgages held for sale ........................... (11,024.1) (12,272.7) Proceeds from sales of mortgages held for sale .................... 12,230.8 13,065.7 Originations of loans held for sale ............................... (302.6) (249.2) Proceeds from sales of loans held for sale ........................ 341.2 147.6 Interest receivable ............................................... (38.4) 1.7 Interest payable .................................................. 8.8 3.5 Other assets, net ................................................. (113.7) (242.1) Other accrued expenses and liabilities, net ....................... 1,241.0 139.5 Net cash flows from operating activities ........................ 2,781.4 695.2 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from maturities and paydowns of investment securities ...... 0.5 8.0 Proceeds from maturities and paydowns of investment and mortgage- backed securities available for sale .............................. 581.2 739.5 Proceeds from sales and calls of investment securities .............. 5.2 64.8 Proceeds from sales and calls of investment and mortgage-backed securities available for sale ..................................... 1,302.3 946.3 Purchases of investment securities .................................. (23.8) (160.6) Purchases of investment and mortgage-backed securities available for sale .......................................................... (6,564.7) (1,757.1) Net change in banking subsidiaries' loans and leases ................ (153.6) 153.4 Non-bank subsidiaries' loans and leases originated .................. (1,937.4) (1,459.5) Principal collected on non-bank subsidiaries' loans and leases ...... 2,067.5 1,343.9 Purchases of premises and equipment ................................. (69.2) (50.1) Proceeds from sales of premises, equipment & other real estate owned 19.0 23.0 Cash paid for acquisitions, net of cash and cash equivalents acquired 25.6 55.5 Net cash flows used for investing activities ...................... (4,747.4) (92.9) CASH FLOWS FROM FINANCING ACTIVITIES Deposits, net ....................................................... 229.0 (577.4) Short-term borrowings, net .......................................... 1,015.4 (661.4) Long-term debt borrowings ........................................... 814.1 2,070.5 Repayments of long-term debt ........................................ (1,929.5) (1,414.1) Issuances of common stock ........................................... 18.7 24.8 Repurchases of common stock ......................................... (48.5) (50.8) Repurchases of preferred stock ...................................... - (112.7) Net decrease in notes receivable from ESOP .......................... 0.9 0.1 Dividends paid ...................................................... (116.5) (90.9) Net cash flows used for financing activities ...................... (16.4) (811.9) Net decrease in cash and cash equivalents ......................... (1,982.4) (209.6) CASH AND CASH EQUIVALENTS Beginning of period ................................................. 7,371.3 4,946.5 End of period .......................................................$ 5,388.9 4,736.9 See notes to unaudited consolidated financial statements. </TABLE> 5
Norwest Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) <TABLE> <CAPTION> Net Unrealized Gains In (Losses) on millions, Unearned Securities Notes Foreign except for Preferred ESOP Common Sur- Retained Available Receivable Treasury Currency shares Stock Shares Stock plus Earnings for Sale from ESOP Stock Translation Total <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Balance, December 31, 1995....... $ 341.2 (38.9) 597.2 734.2 3,496.3 327.1 (13.3) (125.9) (5.8) 5,312.1 Net income............... - - - - 271.4 - - - - 271.4 Dividends on Common stock........... - - - - (86.4) - - - - (86.4) Preferred stock........ - - - - (4.5) - - - - (4.5) Conversion of 13,406 preferred shares to 363,671 common shares.. (13.4) - - 2.5 - - - 10.9 - - Repurchase of 1,127,125 preferred shares....... (112.7) - - - - - - - - (112.7) Cash payments received on notes receivable from ESOP.............. - - - - - - 0.1 - - 0.1 Issuance of 59,000 preferred shares to ESOP................ 59.0 (61.3) - 2.3 - - - - - - Release of preferred shares to ESOP......... - 13.9 - (0.5) - - - - - 13.4 Issuance of 1,053,160 common shares.......... - - - 5.3 (5.3) - - 29.0 - 29.0 Issuance of 6,325,906 common shares for acquisitions........... - - 10.1 64.3 22.6 (0.2) (1.5) 8.2 - 103.5 Repurchase of 1,415,908 common shares.......... - - - - - - - (50.8) - (50.8) Change in net unrealized gains (losses) on securities available for sale............... - - - - - (29.1) - - - (29.1) Foreign currency translation............ - - - - - - - - 0.5 0.5 Balance, March 31, 1996.......... $ 274.1 (86.3) 607.3 808.1 3,694.1 297.8 (14.7) (128.6) (5.3) 5,446.5 </TABLE> (Continued on page 7) 6
Norwest Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) (Continued from page 6) <TABLE> <CAPTION> Net Unrealized Gains In (Losses) on millions, Unearned Securities Notes Foreign except for Preferred ESOP Common Sur- Retained Available Receivable Treasury Currency shares Stock Shares Stock plus Earnings for Sale from ESOP Stock Translation Total <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Balance, December 31, 1996...... $ 249.8 (61.0) 625.9 948.6 4,248.2 303.5 (11.1) (233.3) (6.4) 6,064.2 Net income.............. - - - - 321.9 - - - - 321.9 Dividends on Common stock.......... - - - - (112.1) - - - - (112.1) Preferred stock....... - - - - (4.4) - - - - (4.4) Conversion of 11,567 preferred shares to 248,316 common shares. (11.6) - - 1.3 - - - 10.3 - - Cash payments received on notes receivable from ESOP............. - - - - - - 0.9 - - 0.9 Issuance of 51,700 preferred shares to ESOP.................. 51.7 (53.8) - 2.1 - - - - - - Release of preferred shares to ESOP........ - 12.1 - (0.5) - - - - - 11.6 Issuance of 1,047,881 common shares......... - - - 13.4 (22.3) - - 38.3 - 29.4 Issuance of 7,029,100 common shares for acquisitions.......... - - 9.3 11.7 44.0 1.0 - 59.2 - 125.2 Repurchase of 981,637 common shares......... - - - - - - - (48.5) - (48.5) Change in net unrealized gains (losses) on securities available for sale.............. - - - - - (199.8) - - - (199.8) Foreign currency translation........... - - - - - - - - (1.2) (1.2) Balance, March 31, 1997........ $ 289.9 (102.7) 635.2 976.6 4,475.3 104.7 (10.2) (174.0) (7.6) 6,187.2 See notes to unaudited consolidated financial statements. </TABLE> 7
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. Changes in Accounting Policies Effective January 1, 1997, the corporation adopted Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" (FAS 125). FAS 125 sets forth the criteria for determining whether a transfer of financial assets should be accounted for as a sale or as a pledge of collateral in a secured borrowing. FAS 125 requires that after a transfer of financial assets, a company must recognize the financial and servicing assets controlled and liabilities incurred, and derecognize financial assets and liabilities in which control is surrendered or debt is extinguished. The adoption of FAS 125 has not had a material effect on the corporation's consolidated financial statements. 2. Consolidated Statements of Cash Flows Supplemental disclosures of cash flow information for the quarters ended March 31, include: In millions 1997 1996 Interest...................................... $ 640.3 629.7 Income taxes.................................. 14.1 12.3 Transfer of loans to other real estate owned.. 16.0 13.2 See Notes 7 and 12 for certain non-cash common and preferred stock transactions. 8
3. Investment Securities The amortized cost and fair value of investment securities at March 31, 1997 were: <TABLE> <CAPTION> In millions Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value <S> <C> <C> <C> <C> Available for sale: U.S. Treasury and federal agencies .. $ 3,972.0 13.3 (35.2) 3,950.1 State, municipal and housing - tax exempt ......................... 1,167.0 45.7 (3.8) 1,208.9 Other ............................... 850.2 285.8 (11.9) 1,124.1 Total investment securities available for sale .............. 5,989.2 344.8 (50.9) 6,283.1 Mortgage-backed securities: Federal agencies ................... 15,183.0 120.5 (255.2) 15,048.3 Collateralized mortgage obligations ....................... 162.9 5.4 (1.3) 167.0 Total mortgage-backed securities available for sale .............. 15,345.9 125.9 (256.5) 15,215.3 Total investment and mortgage-backed securities available for sale .................. 21,335.1 470.7 (307.4) 21,498.4 Other securities held for investment . 735.5 35.8 (2.8) 768.5 Total investment securities ........ $22,070.6 506.5 (310.2) 22,266.9 </TABLE> Interest income on investment securities for the quarters ended March 31 were: Quarter In millions 1997 1996 Available for sale: U.S. Treasury and federal agencies .. $ 32.1 17.3 State, municipal and housing - tax exempt ........................ 14.6 12.6 Other ............................... 14.5 10.9 Total investment securities available for sale .............. 61.2 40.8 Mortgage-backed securities: Federal agencies ................... 259.9 221.4 Collateralized mortgage obligations ....................... 4.4 3.7 Total mortgage-backed securities available for sale .............. 264.3 225.1 Total investment and mortgage-backed securities available for sale ...... 325.5 265.9 Other securities held for investment . 7.0 8.9 Total investment securities ........ $ 332.5 274.8 Certain investment securities with a total amortized cost of $5.2 million and $0.8 million for the quarters ended March 31, 1997 and 1996, respectively, were sold by the corporation due to significant deterioration in the creditworthiness of the related issuers or because such securities were called by the issuers prior to maturity. The sales and calls of investment securities resulted in no gain or loss during the first quarters of 1997 and 1996. 9
4. Loans and Leases The carrying values of loans and leases at March 31, 1997 and December 31, 1996 were: In millions March 31, December 31, 1997 1996 Commercial, financial and industrial ..... $10,578.9 10,204.9 Agricultural ............................. 1,066.0 1,107.7 Real estate Secured by 1-4 family residential properties ........................... 10,667.4 10,376.3 Secured by development properties ...... 2,249.0 2,104.5 Secured by construction and land development .......................... 980.4 943.8 Secured by owner-occupied properties ... 2,774.2 2,644.6 Consumer ................................. 10,510.9 10,431.2 Credit card .............................. 1,497.1 1,566.2 Lease financing .......................... 815.2 812.4 Foreign Consumer ............................... 805.6 774.9 Commercial ............................. 235.1 187.7 Total loans and leases ............... 42,179.8 41,154.2 Unearned discount ........................ (1,810.4) (1,773.2) Total loans and leases, net of unearned discount .................... $40,369.4 39,381.0 Changes in the allowance for credit losses for the quarters ended March 31, were: Quarter In millions 1997 1996 Balance at beginning of period ....... $1,040.8 917.2 Allowance related to assets acquired, net ..................... 24.8 40.2 Provision for credit losses ........ 109.0 87.8 Credit losses ...................... (146.7) (116.0) Recoveries ......................... 34.7 30.5 Net credit losses ................ (112.0) (85.5) Balance at end of period ............. $1,062.6 959.7 10
5. Non-performing Assets and 90-day Past Due Loans and Leases Total non-performing assets and 90-day past due loans and leases at March 31, 1997 and 1996 and December 31, 1996 were: In millions March 31, December 31, 1997 1996 1996 Impaired loans Non-accrual ........................... $ 108.7 107.3 94.0 Restructured .......................... 0.2 1.8 0.2 Total impaired loans ................ 108.9 109.1 94.2 Other non-accrual loans and leases ...... 64.7 68.9 62.5 Total non-accrual and restructured loans and leases ........ 173.6 178.0 156.7 Other real estate owned ................. 50.0 37.8 43.3 Total non-performing assets ........... 223.6 215.8 200.0 Loans and leases past due 90 days or more* 94.3 113.8 110.7 Total non-performing assets and 90-day past due loans and leases ..... $ 317.9 329.6 310.7 * Excludes non-accrual and restructured loans and leases. The average balances of impaired loans for the quarters ended March 31, 1997 and 1996 were $104.6 million and $105.3 million, respectively. The allowance for credit losses related to impaired loans at March 31, 1997 and December 31, 1996 was $36.6 million and $31.4 million, respectively. Impaired loans of $1.0 million and $0.9 million were not subject to a related allowance for credit losses at March 31, 1997 and December 31, 1996, respectively, because of the net realizable value of loan collateral, guarantees and other factors. The effect of non-accrual and restructured loans on interest income for the quarters ended March 31, were: Quarter In millions 1997 1996 Interest As originally contracted ........... $ 5.2 4.6 As recognized ...................... (0.5) (0.5) Reduction of interest income ..... $ 4.7 4.1 6. Long-term Debt During the first three months of 1997, certain subsidiaries of the corporation received advances from the Federal Home Loan Bank. Advances of $775 million were issued bearing interest at rates ranging from one-month LIBOR less 17 basis points to three-month LIBOR less 7 basis points, and which mature between June 1997 and September 2000. Norwest Financial, Inc. issued a $36.5 million senior note bearing interest at a fixed rate of 4.9 percent, which matures in March 2000. 11
7. Stockholders' Equity The table below is a summary of the corporation's preferred and preference stock at March 31, 1997 and December 31, 1996. A detailed description of the corporation's preferred and preference stock is provided in Note 10 to the audited consolidated financial statements included in the corporation's 1996 annual report on Form 10-K. <TABLE> <CAPTION> In millions, except share amounts Annual Dividend Shares Outstanding Rate at Amount Outstanding March 31, December 31, March 31, March 31, December 31, 1997 1996 1997 1997 1996 <S> <C> <C> <C> <C> <C> Cumulative Tracking, $200 stated value .............. 980,000 980,000 9.30% $196.0 196.0 1997 ESOP Cumulative Convertible, $1,000 stated value ..................... 41,434 - 9.50% 41.4 - 1996 ESOP Cumulative Convertible, $1,000 stated value ..................... 24,066 24,469 8.50% 24.1 24.5 1995 ESOP Cumulative Convertible, $1,000 stated value .............. 22,203 22,716 10.00% 22.2 22.7 ESOP Cumulative Convertible, $1,000 stated value ....... 11,209 11,594 9.00% 11.2 11.6 Less: Cumulative Tracking shares held by a subsidiary .............. (25,000) (25,000) (5.0) (5.0) 1,053,912 1,013,779 289.9 249.8 Unearned ESOP shares ........ (102.7) (61.0) Total preferred stock ... $ 187.2 188.8 </TABLE> On February 24, 1997, the corporation issued 51,700 shares of 1997 ESOP Cumulative Convertible Preferred Stock, $1,000 stated value per share ("1997 ESOP Preferred Stock"), in the stated amount of $51.7 million at a premium of $2.1 million; a corresponding charge of $53.8 million was recorded to unearned ESOP shares. On February 26, 1996, the corporation issued 59,000 shares of 1996 ESOP Cumulative Convertible Preferred Stock, $1,000 stated value per share ("1996 ESOP Preferred Stock"), in the stated amount of $59.0 million at a premium of $2.3 million; a corresponding charge of $61.3 million was recorded to unearned ESOP shares. During the quarters ending March 31, 1997 and 1996, 11,567 and 13,406 shares of ESOP preferred stock were converted into 248,316 and 363,671 shares of common stock of the corporation, respectively. 12
8. Business Segments The corporation's operations include three primary business segments: banking, mortgage banking and consumer finance. See Note 16 to the audited consolidated financial statements included in the corporation's annual report on Form 10-K for the year ended December 31, 1996 for a detailed description of each business segment. Selected financial information by business segment for the quarters ended March 31 is included in the following summary: In millions Quarter 1997 1996 Revenues:* Banking ................ $ 1,491.7 1,344.1 Mortgage Banking ....... 350.5 301.3 Norwest Financial ...... 455.8 431.4 Total ................ $ 2,298.0 2,076.8 Organizational earnings:* Banking ................ $ 226.5 181.2 Mortgage Banking ....... 33.8 30.4 Norwest Financial ...... 61.6 59.8 Total ................ $ 321.9 271.4 Total assets: Banking ................ $63,606.6 56,081.1 Mortgage Banking ....... 11,103.0 9,496.2 Norwest Financial ...... 8,870.7 8,364.8 Total ................ $83,580.3 73,942.1 * Revenues (interest income plus non-interest income), where applicable, and organizational earnings by business segment are impacted by intercompany revenues and expenses, such as interest on borrowings from the parent company, corporate service fees and allocation of federal income taxes. 9. Mortgage Banking Activities Additional information about mortgage banking non-interest income for the quarters ended March 31, is presented below: Quarter In millions 1997 1996 Origination and other closing fees ............ $ 58.6 72.3 Servicing fees ............ 101.1 58.4 Net gains on sales of servicing rights ........ 0.2 15.1 Net gains (losses) on sales of mortgages ...... 31.5 (5.7) Other ..................... 36.4 31.2 Total mortgage banking non-interest income ... $227.8 171.3 13
Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets. The outstanding balances of serviced loans were $184.6 billion and $112.1 billion at March 31, 1997 and 1996, respectively, and $179.7 billion at December 31, 1996. Changes in capitalized mortgage servicing rights for the quarters ended March 31, were: Quarter In millions 1997 1996 Mortgage servicing rights: Balance at beginning of period ............ $2,712.7 1,290.9 Originations ........... 77.8 84.2 Purchases and other additions ............ 31.7 165.3 Sales .................. (17.4) (16.9) Amortization ........... (85.6) (47.0) Other .................. 65.9 25.8 2,785.1 1,502.3 Less valuation allowance (64.2) (64.2) Balance at end of period . $2,720.9 1,438.1 The fair value of capitalized mortgage servicing rights at March 31, 1997 was approximately $3.2 billion, calculated using discount rates ranging from 500 to 700 basis points over the ten-year U.S. Treasury rate. There were no changes in the valuation allowance for capitalized mortgage servicing rights during the quarters ended March 31, 1997 and 1996. 10. Trading Revenues For the quarters ended March 31, trading revenues were derived from the following activities: Quarter In millions 1997 1996 Interest income: Securities .............................. $ 4.5 6.0 Non-interest income: Gains(losses) on securities sold ........ 15.3 (26.3) Swaps and other interest rate contracts . 0.3 8.5 Foreign exchange trading ................ 3.7 2.1 Options ................................. 2.1 (1.6) Futures ................................. 3.5 2.0 Total non-interest income ............. 24.9 (15.3) Total trading revenues .................... $ 29.4 (9.3) 14
11. Derivative Activities The corporation and its subsidiaries, as end-users, utilize various types of derivative products (principally interest rate swaps and interest rate caps and floors) as part of an overall interest rate risk management strategy. See Note 15 to the audited consolidated financial statements included in the corporation's annual report on Form 10-K for the year ended December 31, 1996 for a detailed description of derivative products utilized in end-user activities. Interest rate swaps generally involve the exchange of fixed and floating rate interest payments based on an underlying notional amount. Generic swaps' notional amounts do not change for the life of the contract. The rate of return on the amortizing swaps is the underlying coupon yield, paydown adjustment and price characteristics of an amortizing pool of mortgages or mortgage-backed securities. Basis swaps are contracts where the corporation receives an amount and pays an amount based on different floating indices. Currently, interest rate floors, futures contracts and options on futures contracts are principally being used by the corporation in hedging its portfolio of mortgage servicing rights. The floors provide for the receipt of payments when interest rates are below predetermined interest rate levels. The unrealized gains (losses) on interest rate floors and futures contracts are included, as appropriate, in determining the fair value of the capitalized mortgage servicing rights. For the three months ended March 31, 1997, end-user derivative activities decreased interest income by $0.1 million and interest expense by $14.5 million, for a total benefit to net interest income of $14.4 million. For the same period in 1996, net interest income was increased by $15.1 million by a corresponding reduction in interest expense. Activity in the notional amounts of end-user derivatives for the quarter ended March 31, 1997 is summarized as follows: <TABLE> <CAPTION> In millions December 31, Amortization March 31, 1996 Additions & Maturities Terminations 1997 Swaps: <S> <C> <C> <C> <C> <C> Generic receive fixed ..... $ 4,602 703 (400) (36) 4,869 Amortizing receive fixed .. 83 2,364 (1) - 2,446 Generic pay fixed ......... 354 15 - (150) 219 Basis ..................... 29 - - - 29 Total swaps ............. 5,068 3,082 (401) (186) 7,563 Interest rate caps and floors ................ 15,977 3,500 - (1,500) 17,977 Futures contracts ........... 3,617 7,117 - (7,436) 3,298 Options on futures contracts 5,559 10,539 (2,964) (5,094) 8,040 Security options ............ 825 1,425 (1,350) (900) - Total ....................... $ 31,046 25,663 (4,715) (15,116) 36,878 </TABLE> Deferred losses on closed end-user derivatives included in mortgage servicing rights at March 31, 1997 totalled $69.8 million. Deferred gains and losses on other closed end-user derivatives were not material at March 31, 1997 and December 31, 1996. 15
A key assumption in the information which follows is that rates remain constant at March 31, 1997 levels. To the extent that rates change, both the average notional and variable interest rate information may change. The following table presents the maturities and weighted average rates for end-user derivatives by type: Dollars in millions <TABLE> <CAPTION> Maturity There- March 31, 1997 1997 1998 1999 2000 2001 after Total <S> <C> <C> <C> <C> <C> <C> <C> Swaps: Generic receive fixed- Notional value ........$ 550 653 766 400 500 2,000 4,869 Weighted avg. receive rate ........ 6.58% 6.34 7.28 6.17 6.35 6.60 6.61 Weighted avg. pay rate 5.61% 5.56 5.52 5.58 5.58 5.68 5.61 Amortizing receive fixed- Notional value ........$ - 62 1,270 1,114 - - 2,446 Weighted avg. receive rate ........ -% 2.89 7.21 6.83 - - 6.93 Weighted avg. pay rate -% 5.63 5.37 5.41 - - 5.40 Generic pay fixed- Notional value ........$ 4 - - - 4 211 219 Weighted avg. receive rate ........ 5.56% - - - 5.44 5.60 5.59 Weighted avg. pay rate 6.37% - - - 6.29 5.86 5.88 Basis- Notional value ........$ - 29 - - - - 29 Weighted avg. receive rate ........ -% 4.45 - - - - 4.45 Weighted avg. pay rate -% 4.00 - - - - 4.00 Interest rate caps and floors (1): Notional value ........$ - 577 1,400 5,750 5,750 4,500 17,977 Futures contracts (1): Notional value ........$ 3,298 - - - - - 3,298 Options on futures contracts (1): Notional value ........$ 8,040 - - - - - 8,040 Total notional value ....$11,892 1,321 3,436 7,264 6,254 6,711 36,878 Total weighted avg. rates on swaps: Receive rate ........ 6.58% 5.98 7.24 6.66 6.34 6.50 6.67 Pay rate ............ 5.62% 5.50 5.43 5.45 5.58 5.69 5.54 </TABLE> (1) Average rates are not meaningful for interest rate caps and floors, futures contracts or options. Note: Weighted average variable rates are based on the actual rates as of March 31, 1997. 16
The following table provides the gross gains and gross losses not yet recognized in the consolidated financial statements for open end-user derivatives applicable to certain hedged assets and liabilities: <TABLE> <CAPTION> In millions Balance Sheet Category Loans Mortgage Interest- Long- Investment and Servicing bearing term March 31, 1997 Securities Leases Rights Deposits Debt Total Swaps: <S> <C> <C> <C> <C> <C> <C> Pay variable Unrealized gains ........ $ - - - - 27.7 27.7 Unrealized (losses) ..... - - (10.3) (19.8) (65.0) (95.1) Pay variable net ........ - - (10.3) (19.8) (37.3) (67.4) Pay fixed Unrealized gains ........ - - 3.2 5.9 - 9.1 Unrealized losses ....... - (0.3) - - - (0.3) Pay fixed net ........... - (0.3) 3.2 5.9 - 8.8 Basis Unrealized gains ........ 0.4 - - - - 0.4 Total unrealized gains .... 0.4 - 3.2 5.9 27.7 37.2 Total unrealized (losses) . - (0.3) (10.3) (19.8) (65.0) (95.4) Total net ............... $ 0.4 (0.3) (7.1) (13.9) (37.3) (58.2) Interest rate caps and floors: Unrealized gains .......... $ - - 5.3 - - 5.3 Unrealized (losses) ....... (3.5) - (84.6) (0.1) (0.2) (88.4) Total net ............... $ (3.5) - (79.3) (0.1) (0.2) (83.1) Futures contracts: Unrealized gains .......... $ - 0.1 - - - 0.1 Options on futures contracts: Unrealized gains .......... $ - 0.3 20.5 - - 20.8 Unrealized (losses) ....... - (0.3) (30.9) - - (31.2) Total net ............... $ - - (10.4) - - (10.4) Grand total unrealized gains ........ $ 0.4 0.4 29.0 5.9 27.7 63.4 Grand total unrealized (losses) ..... (3.5) (0.6) (125.8) (19.9) (65.2) (215.0) Grand total net ........... $ (3.1) (0.2) (96.8) (14.0) (37.5) (151.6) </TABLE> 17
As a result of interest rate fluctuations, off balance-sheet derivatives have unrealized appreciation or depreciation in market values as compared with their cost. As these derivatives hedge certain assets and liabilities of the corporation, as noted in the table above, there has been offsetting unrealized appreciation and depreciation in the assets and liabilities hedged. The corporation has entered into mandatory and standby forward contracts, including options on forward contracts, to reduce interest rate risk on certain mortgage loans held for sale and other commitments. The contracts provide for the delivery of securities at a specified future date, at a specified price or yield. At March 31, 1997, the corporation had forward contracts and options on forward contracts totaling $20.3 billion, all of which mature within 180 days. Gains and losses on forward contracts and options on forward contracts are included in the determination of market value of mortgages held for sale. At March 31, 1997, the corporation's trading account portfolio included futures of $504 million notional value, which are valued at market with any gains or losses recognized currently. 12. Business Combinations The corporation regularly explores opportunities for acquisitions of financial institutions and related businesses. Generally, management of the corporation does not make a public announcement about an acquisition opportunity until a definitive agreement has been signed. At March 31, 1997, the corporation had two pending acquisitions with total assets of approximately $166.2 million, and it is anticipated that approximately 0.6 million common shares will be issued upon completion of these acquisitions. These pending acquisitions, subject to approval by regulatory agencies, are expected to be completed by the third quarter of 1997 and are not significant to the financial statements of the corporation, either individually or in the aggregate. Transactions completed in the three months ended March 31, 1997 include: <TABLE> <CAPTION> In millions, except share amounts Common Cash Shares Method of Date Assets Paid Issued Accounting <S> <C> <C> <C> <C> <C> Franklin Federal Bancorp., F.S.B. Austin, Texas (B) ............ January 1 $ 621.3 $ 90.0 - Purchase of assets Central Bancorporation, Inc. Fort Worth, Texas (B) ........ January 28 1,105.3 - 4,699,788 Pooling of interests* Reliable Financial Services, Inc. San Juan, Puerto (F) ......... February 21 38.6 - 876,543 Pooling of interests* Statewide Mortgage Company, Birmingham, Alabama (B) ...... February 26 27.9 - 524,996 Purchase The United Group, Inc. Charlotte, North Carolina (F). March 21 40.6 - 324,174 Purchase Farmers National Bancorp, Inc. Geneseo, Illinois (B) ........ March 24 197.6 - 603,599 Purchase $2,031.3 $ 90.0 7,029,100 * Pooling of interests transactions were not material to the corporation's consolidated financial statements; accordingly, previously reported results have not been restated. (B) - Banking Group; (F) - Norwest Financial </TABLE> 18
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Management's discussion and analysis should be read together with the financial statements submitted under Item 1 of Part I and with Norwest Corporation's 1996 Annual Report on Form 10-K. EARNINGS PERFORMANCE The corporation reported net income of $321.9 million for the quarter ended March 31, 1997, an 18.6 percent increase over the $271.4 million earned in the first quarter of 1996. Fully diluted earnings per share were 84 cents, compared with 74 cents in the first quarter of 1996, an increase of 13.5 percent. Return on realized common equity was 22.7 percent and return on assets was 1.63 percent for the first quarter of 1997, compared with 22.7 percent and 1.51 percent, respectively, in the first quarter of 1996. ORGANIZATIONAL EARNINGS The organizational earnings of the corporation's primary business segments are included in Note 8 to the unaudited consolidated financial statements for the quarters ended March 31, 1997 and 1996 and are discussed in the following paragraphs. Banking Group The Banking Group reported first quarter 1997 earnings of $226.5 million, a 25.0 percent increase over the first quarter 1996 earnings of $181.2 million. The increased earnings in the first quarter of 1997 reflected a 10.6 percent increase in tax-equivalent net interest income to $682.2 million, primarily due to an 11.6 percent increase in average earning assets and partially offset by a five basis point decrease in net interest margin. The Banking Group's provision for credit losses for the quarter ended March 31, 1997 increased $8.1 million to $38.2 million from a year earlier, as average loans and leases rose $2.5 billion, or 8.5 percent, while net charge-offs as a percent of average loans and leases increased 16 basis points to 0.57 percent. Non-interest income rose $76.1 million to $387.7 million for the first three months of 1997, due primarily to growth in trust and insurance revenues, and fees and service charges, partially offset by lower venture capital gains. Non-interest expenses of $680.3 million for the first three months of 1997 were $59.8 million higher when compared with the first three months of 1996, reflecting additional operating expenses due to acquisitions. Mortgage Banking Mortgage Banking earned $33.8 million in the current quarter compared with $30.4 million in the first quarter of 1996. See Note 9 to the unaudited consolidated financial statements for additional information about mortgage banking revenues for the quarters ended March 31, 1997 and 1996. The growth in Mortgage Banking earnings over 1996 reflects higher servicing fees from a larger servicing portfolio and an increase in the combined gains on sales of mortgages and servicing rights to $31.7 million in the first quarter of 1997, compared with $9.4 million in the same period a year ago. Mortgage loan originations amounted to $10.4 billion during the first quarter of 1997, compared with $11.7 billion, in the comparable period in 1996. The percentage of fundings attributed to mortgage loan refinancings 19
was approximately 19 percent in 1997, compared with 40 percent in 1996. The unclosed pipeline of mortgage loans was $9.7 billion at March 31, 1997, compared with $7.7 billion at December 31, 1996. The servicing portfolio totaled $184.6 billion at March 31, 1997, compared with $179.7 billion at year-end 1996, and currently has a weighted average coupon of 7.76 percent. Norwest Financial Norwest Financial (including Norwest Financial Services, Inc. and Island Finance) reported earnings of $61.6 million in the first quarter of 1997, compared with $59.8 million in the first quarter of 1996, an increase of 2.9 percent. The growth in earnings reflected a 6.3 percent increase in Norwest Financial's tax-equivalent net interest income as average finance receivables grew 4.3 percent from the first quarter of 1996. Norwest Financial's net charge-offs in the first quarter of 1997 were $67.0 million, or 3.66 percent of average loans, compared with $55.8 million, or 3.15 percent of average loans, in the same period in 1996. The increase in charge-offs was due to higher consumer credit losses. CONSOLIDATED INCOME STATEMENT ANALYSIS Net Interest Income Consolidated tax-equivalent net interest income was $967.2 million in the first quarter of 1997, compared with $898.3 million in the first quarter of 1996, an increase of 7.7 percent. Growth in tax-equivalent net interest income over the three months ended March 31, 1996 was primarily due to an 8.8 percent growth in average earning assets, principally investment securities and loans, partially offset by a seven basis point decrease in net interest margin. Net interest margin, the ratio of annualized tax-equivalent net interest income to average earning assets, was 5.62 percent in the first quarter of 1997, compared with 5.69 percent in the first quarter of 1996. The decrease in net interest margin from first quarter of 1996 is primarily due to a lower yield on loans held for sale, partially offset by an improvement in funding costs. The following table summarizes changes in tax-equivalent net interest income between the first quarter of 1997 and the first and fourth quarters of 1996. Changes in Tax-Equivalent Net Interest Income* In millions 1Q 97 1Q 97 from from 1Q 96 4Q 96 Increase (decrease) due to: Change in earning asset volume ............ $ 82.6 13.2 Change in volume of interest-free funds ... 12.2 0.8 Change in net return from Interest-free funds ...................... (5.5) (4.2) Interest-bearing funds ................... (12.8) (1.4) Change in earning asset mix ............... (22.4) (2.6) Change in funding mix ..................... 14.8 6.3 Change in tax-equivalent net interest income. $ 68.9 12.1 * Net interest income is presented on a tax-equivalent basis utilizing a federal incremental tax rate of 35 percent in each period presented. 20
Provision for Credit Losses The corporation provided $109.0 million for credit losses in the first quarter of 1997, compared with $87.8 million in the same period a year ago. Net credit losses totaled $112.0 million and $85.5 million for the three months ended March 31, 1997 and 1996, respectively. As a percentage of average loans and leases, net credit losses were 114 basis points in the first quarter of 1997, compared with 93 basis points in the same period a year ago. The increase in net credit losses for the first quarter of 1997 is principally due to higher levels of charge-offs in regions where the corporation has had acquisitions and to higher consumer credit charge-offs at Norwest Financial. Non-interest Income Consolidated non-interest income was $690.6 million in the first quarter of 1997, an increase of $137.8 million, or 24.9 percent, from the first quarter of 1996, due to continued growth in virtually all categories, including trust, fees and service charges, insurance and mortgage banking revenues. The increases in trust revenues and fees and service charges reflect overall increases in business activity, including acquisitions and marketing efforts. Mortgage banking revenues in the first quarter of 1997 were $227.8 million, compared with $171.3 million in the first quarter of 1996. The increase for the quarter was principally due to increased levels of servicing fees from a larger servicing portfolio and higher net gains on sales of mortgages. Mortgage banking revenue derived from sales of servicing rights and future sales of servicing rights are largely dependent upon portfolio characteristics and prevailing market conditions. See Note 9 to the unaudited consolidated financial statements for additional information about mortgage banking revenues for the quarter ended March 31, 1997 and 1996. Net venture capital gains were $19.2 million for the three months ended March 31, 1997, compared with $66.5 for the same period in 1996. Sales of venture capital securities generally relate to timing of holdings becoming publicly traded and subsequent market conditions, causing venture capital gains to be unpredictable in nature. Net unrealized appreciation in the venture capital investment portfolio was $192.2 million at March 31, 1997. Insurance revenues in the first quarter of 1997 were $90.2 million, compared with $69.7 million in the corresponding period in 1996. The increase in insurance revenues is primarily attributed to commissions on higher sales of crop hail and credit life insurance. The corporation's trading revenue for the first quarter of 1997 was $24.9 million compared with a loss of $15.3 million in the first quarter of 1996. See Note 10 to the unaudited consolidated financial statements for a detailed analysis of trading revenues for the quarters ended March 31, 1997 and 1996. Non-interest Expenses Consolidated non-interest expenses were $1,047.5 million in the first quarter of 1997, compared with $943.2 million in the same period of 1996, an increase of 11.1 percent. First quarter 1997 results reflect increased operating expenses associated with acquisitions and one-time acquisition charges of $4.6 million related to transactions completed during the quarter. 21
CONSOLIDATED BALANCE SHEET ANALYSIS At March 31, 1997, earning assets were $72.1 billion, an increase of 5.7 percent from $68.2 billion at December 31, 1996. This increase was primarily due to a 31.1 percent increase in total investment securities. The increase is due to purchases of securities with short term funds pending reinvestment at year-end 1996 and to acquisitions. At March 31, 1997, interest-bearing liabilities totaled $41.2 billion, a 2.5 percent increase from $40.2 billion at December 31, 1996. The increase was primarily due to increases in interest-bearing deposits from acquisitions. Credit Quality The major categories of loans and leases are included in Note 4 to the unaudited consolidated financial statements for the quarter ended March 31, 1997. At March 31, 1997, the allowance for credit losses totaled $1,062.6 million, or 2.63 percent of loans and leases outstanding. Comparable amounts were $959.7 million, or 2.57 percent, at March 31, 1996, and $1,040.8 million, or 2.64 percent, at December 31, 1996. The ratio of the allowance for credit losses to total non-performing assets and 90-day past due loans and leases was 334.2 percent at March 31, 1997, compared with 291.2 percent at March 31, 1996 and 335.0 percent at December 31, 1996. Although it is impossible for any lender to predict future credit losses with complete accuracy, management monitors the allowance for credit losses with the intent to provide for all losses that can reasonably be anticipated based on current conditions. The corporation maintains the allowance for credit losses as a general allowance available to cover future credit losses within the entire loan and lease portfolio and other credit-related risks. However, management has prepared an allocation of the allowance based on its views of risk characteristics of the portfolio. This allocation of the allowance for credit losses does not represent the total amount available for actual future credit losses in any single category nor does it prohibit future credit losses from being absorbed by portions of the allowance allocated to other categories or by the unallocated portion. The allocation of the allowance for credit losses to major categories of loans March 31, 1997 and December 31, 1996 was: March 31, December 31, 1997 1996 Commercial .................... $ 238.7 208.6 Consumer ...................... 294.0 285.7 Real estate ................... 146.5 150.3 Foreign ....................... 36.3 32.3 Unallocated ................... 347.1 363.9 Total ...................... $1,062.6 1,040.8 Non-performing assets and 90-day past due loans and leases totaled $317.9 million, or 0.38 percent of total assets, at March 31, 1997, compared with $329.6 million, or 0.45 percent, at March 31, 1996, and $310.7 million, or 0.39 percent, at December 31, 1996. 22
The corporation manages exposure to credit risk through loan portfolio diversification by customer, product, industry and geography in order to minimize concentrations in any single sector. The corporation's Banking Group operates in 16 states, largely in the Midwest, Southwest and Rocky Mountain regions of the country. Distribution of average loans by region during the first three months of 1997 was approximately 54 percent in the North Central Midwest, 15 percent in the South Central Midwest and 31 percent in the Rocky Mountain/Southwest region. Norwest Mortgage, Norwest Financial and Norwest Card Services operate on a nationwide basis. Mortgage Banking includes the largest retail mortgage origination network and the largest servicing portfolio in the country. The five states with the highest originations year to date in 1997 are: California $1,987.6 million; Washington $487.4 million; New Jersey $483.6 million; Illinois $482.0 million; and Minnesota $455.8 million. The originations in these five states comprise approximately 37 percent of total originations in 1997. The five largest states in the servicing portfolio include: California $36.5 billion; Minnesota $10.5 billion; Texas $8.8 billion; New York $8.6 billion; and Florida $7.9 billion. These five states comprise approximately 39 percent of the total servicing portfolio at March 31, 1997. Norwest Financial engages in consumer finance activities in 48 states, all 10 Canadian provinces, the Caribbean, Central America and Guam. The five states with the largest consumer finance receivables are: California $443.9 million; Illinois $217.4 million; Florida $216.0 million; Texas $213.7 million; and Alabama $165.2 million. Consumer finance receivables in Puerto Rico and Canada totaled $1.2 billion and $587.8 million, respectively, at March 31, 1997. The consumer finance receivables of Puerto Rico, Canada, and the five largest states listed above comprise approximately 44 percent of total consumer finance receivables at March 31, 1997. With respect to credit card receivables, approximately 64 percent of the portfolio is within the corporation's 16-state banking region. Minnesota represents approximately 13 percent of the total outstanding credit card portfolio. No other state accounts for more than 10 percent of the portfolio. In general, the economy in regions of the U.S. where the corporation primarily conducts operations continues to reflect modest growth. The corporation's credit-risk management policies and activities as well as the geographical diversification of the corporation's Banking Group (including Norwest Card Services), Mortgage Banking, and Norwest Financial help mitigate the credit risk in their respective portfolios. Capital and Liquidity Management The corporation's regulatory capital and ratios are summarized as follows: March 31, December 31, 1997 1996 Tier 1 capital......................... $ 4,716 4,716 Tier 1 and Tier 2 capital.............. 5,709 5,692 Total risk adjusted assets............. 56,027 54,638 Tier 1 capital ratio................... 8.42% 8.63 Total capital to risk adjusted assets.. 10.19% 10.42 Leverage ratio......................... 6.07% 6.15 23
The corporation's Tier 1 capital, total capital to risk-adjusted assets and leverage ratios exceed the regulatory minimums of 4.0 percent, 8.0 percent and 3.0 percent, respectively. The corporation's dividend payout ratio was 35.7 percent for the first quarter of 1997 compared with 32.4 percent for the first quarter of 1996. RECENTLY ISSUED ACCOUNTING STANDARDS In February 1997, the FASB issued Statement of Financial Accounting Standards No. 128, "Earnings per Share," (FAS 128) which establishes new standards for calculating and presenting earnings per share disclosures. The corporation will be required to adopt the provisions of FAS 128 at year-end 1997. Under FAS 128, basic and diluted earnings per share for the quarters ended March 31 were: Quarter In millions 1997 1996 Net income.................. $321.9 271.4 Less dividends accrued on preferred stock........ (4.5) (4.5) Income available to common stockholders.............. $317.4 266.9 Weighted average common shares outstanding........ 372.8 357.4 Adjustments for dilutive securities: Assumed exercise of outstanding stock options. 9.9 9.9 Diluted common shares....... 382.7 367.3 Earnings per common share: Basic..................... $ 0.85 0.75 Diluted................... 0.83 0.73 Also in February 1997, the FASB issued Statement of Financial Accounting Standards No. 129, "Disclosure of Information about Capital Structure," (FAS 129) which codifies existing disclosure requirements regarding capital structure. FAS 129 will be required to be adopted at year-end 1997 and is not expected to have a material impact on the corporation's current capital structure disclosures. 24
Norwest Corporation and Subsidiaries CONSOLIDATED AVERAGE BALANCE SHEETS AND RELATED YIELDS AND RATES <TABLE> <CAPTION> Quarter Ended March 31, In millions, except ratios 1997 1996 Interest Average Interest Average Average Income/ Yields/ Average Income/ Yields/ Balance Expense* Rates* Balance Expense* Rates* <S> <C> <C> <C> <C> <C> <C> Assets Money market investments .... $ 1,620 $ 21.1 5.29% $ 559 $ 7.8 5.63% Trading account securities .. 272 4.7 6.98 398 6.1 6.14 Investment securities available for sale U.S. Treasury & federal agencies ................ 2,067 32.1 6.22 1,131 17.3 6.22 State, municipal and housing tax-exempt ...... 1,012 21.6 8.85 840 18.4 9.22 Mortgage-backed ........... 14,263 264.3 7.46 12,333 225.1 7.41 Other ..................... 1,130 14.5 6.85 933 10.9 7.30 Total investment securities available for sale ............. 18,472 332.5 7.37 15,237 271.7 7.42 Other securities held for investment .............. 720 7.0 3.89 796 8.9 4.50 Total investment securities ........... 19,192 339.5 7.23 16,033 280.6 7.27 Loans held for sale ......... 2,924 56.2 7.79 3,440 87.2 10.19 Mortgages held for sale ..... 5,485 97.7 7.13 6,344 108.4 6.83 Loans and leases (net of unearned discount) Commercial ................ 13,311 297.2 9.05 12,287 279.9 9.16 Real estate ............... 14,972 357.8 9.61 13,085 323.0 9.88 Consumer .................. 11,663 442.1 15.25 11,648 438.5 15.09 Total loans and leases .. 39,946 1,097.1 11.07 37,020 1,041.4 11.28 Allowance for credit losses (1,058) (952) Net loans and leases .... 38,888 36,068 Total earning assets (before the allowance for credit losses) .......... 69,439 1,616.3 9.42 63,794 1,531.5 9.71 Cash and due from banks ..... 3,646 3,551 Other assets ................ 8,150 5,909 Total assets .............. $80,177 $72,302 (Continued on page 26) </TABLE> 25
Norwest Corporation and Subsidiaries CONSOLIDATED AVERAGE BALANCE SHEETS AND RELATED YIELDS AND RATES (Continued from page 25) <TABLE> <CAPTION> Quarter Ended March 31, In millions, except ratios 1997 1996 Interest Average Interest Average Average Income/ Yields/ Average Income/ Yields/ Balance Expense* Rates* Balance Expense* Rates* <S> <C> <C> <C> <C> <C> <C> Liabilities and Stockholders' Equity Noninterest-bearing deposits. $13,086 $ - -% $11,167 $ - -% Interest-bearing deposits Savings and NOW accounts .. 9,444 38.7 1.66 5,513 24.2 1.76 Money market accounts ..... 10,467 89.7 3.48 11,485 84.6 2.96 Savings certificates ...... 13,200 176.4 5.42 11,826 162.7 5.53 Certificates of deposit and other time .......... 3,412 47.6 5.65 2,510 35.7 5.72 Foreign time .............. 439 3.7 3.44 239 2.8 4.68 Total interest-bearing deposits .............. 39,962 356.1 3.91 31,573 310.0 3.95 Federal funds purchased repurchase agreements ..... 2,485 29.9 4.88 3,170 41.1 5.22 Short-term borrowings ....... 5,256 69.2 5.34 5,099 69.7 5.50 Long-term debt .............. 12,719 193.9 6.10 13,689 212.4 6.21 Total interest-bearing liabilities ........... 57,422 649.1 4.57 53,531 633.2 4.75 Other liabilities ........... 3,550 2,330 Preferred stock ............. 188 191 Common stockholders' equity . 5,931 5,083 Total liabilities and stockholders' equity .. $80,177 $72,302 Net interest income (tax-equivalent basis) .. $967.2 $ 898.3 Yield spread .............. 4.85 4.96 Net interest margin ....... 5.62 5.69 Interest-bearing liabilities to earning assets ....... 82.69 83.91 </TABLE> * Interest income and yields are calculated on a tax-equivalent basis utilizing a federal incremental tax rate of 35% in each period presented. Non-accrual loans and the related negative income effect have been included in the calculation of yields. 26
PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. The following exhibits are filed or incorporated by reference in response to Item 601 of Regulation S-K. Exhibit No. Exhibit 3(a). Restated Certificate of Incorporation, as amended, incorporated by reference to Exhibit 3(b) to the corporation's Current Report on Form 8-K dated June 28, 1993. Certificate of Amendment of Certificate of Incorporation of the corporation authorizing 4,000,000 shares of Preference Stock, incorporated by reference to Exhibit 3 to the corporation's Current Report on Form 8-K dated July 3, 1995. 3(b). Certificate of Designations of powers, preferences and rights relating to the corporation's ESOP Cumulative Convertible Preferred Stock incorporated by reference to Exhibit 4 to the corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 1994. 3(c). Certificate of Designations of powers, preferences and rights relating to the corporation's Cumulative Tracking Preferred Stock incorporated by reference to Exhibit 3 to the corporation's Current Report on Form 8-K dated January 9, 1995. 3(d). Certificate of Designations of powers, preferences and rights relating to the corporation's 1995 ESOP Cumulative Convertible Preferred Stock incorporated by reference to Exhibit 4 to the corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995. 3(e). Certificate Eliminating the Certificate of Designations with respect to the Cumulative Convertible Preferred Stock, Series B, incorporated by reference to Exhibit 3(a) to the corporation's Current Report on Form 8-K dated November 1, 1995. 3(f). Certificate Eliminating the Certificate of Designations with respect to the 10.24% Cumulative Preferred Stock incorporated by reference to Exhibit 3 to the corporation's Current Report on Form 8-K dated February 20, 1996. 3(g). Certificate of Designations of powers, preferences and rights relating to the corporation's 1996 ESOP Cumulative Convertible Preferred Stock incorporated by reference to Exhibit 3 to the corporation's Current Report on Form 8-K dated February 26, 1996. 27
Exhibit No. Exhibit 3(h). Certificate of Designations of powers, preferences and rights relating to the corporation's 1997 ESOP Cumulative Convertible Preferred Stock incorporated by reference to Exhibit 3 to the Corporation's Current Report on Form 8-K dated April 14, 1997. 3(i). By-Laws (as amended through April 22, 1997). 4(a). See 3(a) through 3(i) of this Item. 4(b). Rights Agreement dated as of November 22, 1988 between the corporation and Citibank, N.A., incorporated by reference to Exhibit 1 to the corporation's Form 8-A dated November 6, 1988 and Certificates of Adjustment pursuant to Section 16 of the Rights Agreement incorporated by reference to Exhibit 3 to the corporation's Form 8 dated July 21, 1989 and Exhibit 4 to the corporation's Form 8-A/A dated June 29, 1993. 4(c). Copies of instruments with respect to long-term debt will be furnished to the Commission upon request. 10(a). Norwest Corporation Employees' Deferred Compensation Plan. 10(b). Norwest Corporation Performance Deferred Award Plan for Mortgage Banking Executives. 10(c). Norwest Corporation Elective Deferred Compensation Plan for Mortgage Banking Executives. 11. Computation of Earnings Per Share. 12(a). Computation of Ratio of Earnings to Fixed Charges. 12(b). Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends. Stockholders may obtain a copy of any Exhibit, none of which are contained herein, upon payment of a reasonable fee, by writing Norwest Corporation, Office of the Secretary, Norwest Center, Sixth and Marquette, Minneapolis, Minnesota 55479-1026. (b) Reports on Form 8-K. The corporation filed Current Reports on Form 8-K, dated January 16, 1997, reporting consolidated operating results of the corporation for the quarter ended December 31, 1996 and dated April 14, 1997, reporting consolidated operating results of the corporation for the quarter ended March 31, 1997. 28
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NORWEST CORPORATION May 14, 1997 By /s/ Michael A. Graf Senior Vice President and Controller (Chief Accounting Officer) 29