Docstoc

Annual Report 1997 - Wells Fargo History

Document Sample
Annual Report 1997 - Wells Fargo History Powered By Docstoc
					                                                                                                        I                               WELLS      FARGO    &   COMPANY       AND     SUBSIDIARIES




CORPORATE PROFILE                                                                                           HIGHLIGHTS




Wells Fargo Bank, N.A. is the primary subsidiary                                                            (in millions)                                                                                          %   Change
of Wells Fargo & Company, founded in 1852.                                                                                                                                                                 1997/         1996/
                                                                                                                                                                       1997            1996        1995    1996          1995
The Company's familiar trademark, the Concord
stagecoach, is both a memento of its historic role                                                          FOR THE YEAR
in developing the West's premier stage line and                                                             Net income                                              $ 1,155     $     1,071     $ 1,032      8%             4%
an enduring symbol of reliability - the pride in                                                            Net income applicable to common stock                     1,130           1,004         990     13              1

"coming through" for its customers that has been                   TABLE OF CONTENTS
                                                                                                            Earnings per common share                               $ 12.77     $     12.21     $ 20.37      5            (40)
                                                                                                            Earnings per common share - assuming dilution             12.64           12.05       20.06      5            (40)
a Wells Fargo hallmark for over 145 years.
                                                                                                            Dividends declared per common share                        5.20            5.20        4.60                   13
                                                               1   HIGHLIGHTS
Wells Fargo operates one of the largest and                                                                 Average common shares outstanding                          88.4            82.2        48.6       8           69
                                                              2    LETTER TO SHAREHOLDERS
busiest consumer banking businesses in the                                                                  Average common shares outstanding - assuming dilution      89.4            83.3        49.4       7           69
                                                              8    WELLS FARGO' IN THE COMMUNITY
United States, serving as banker to more than                                                               Profitability ratios
                                                                 FINANCIAL REVIEW                             Net income to average total assets (ROA)                 1.16%           1.15%       2.03%      1           (43)
10 million households in 10 western states~
                                                              10 Overview                                     Net income applicable to common stock to average
The bank provides a retail network of more than               13 Line of Business Results                         common stockholders' equity (ROE)                    8.79            8.83       29.70                   (70)
1,900 staffed service outlets, 4,400 round-the-               16 Earnings Performance
                                                              16   Net Interest Income                      Efficiency ratio                                           62.2%           69.0%       55.3%   (10)           25
clock Wells Fargo Express™ ATMs, a 24-hour
                                                              16   Noninterest Income                       Average loans                                           $64,625     $ 60,574        $34,508      7            76
telephone banking service and a popular online                     Noninterest Expense
                                                              17                                            Average assets                                           99,560       93,392         50,767      7            84
banking service.                                              20   Earnings/Ratio Excluding Goodwill        Average core deposits                                    72,996       70,890         36,624      3            94
                                                                     and Nonqualifying CDi
TIle Company also provides a full range of                                                                  Net interest margin                                        5.99%           6.11%       5.80%     (2)            5
                                                              21 Balance Sheet Analysis
banking services to small business, commercial,               21   Investment Securities                    Net Income and Ratios Excluding Goodwill and
agribusiness and real estate customers. A joint                      (table on page 44)                     Nonqualifying Core Deposit Intangible Amortization
                                                              22   Loan Portfolio                           and Balances ("Cash" or "Tangible")
venture, Wells Fargo HSBC Trade Bank, N.A., is                       (table on page 46)                     Net income applicable to common stock                   $ 1,588     $     1,376     $ 1,025     15             34
a nationally chartered, FDIC-insured bank that                24   Nonaccrual and Restructured              Earnings per common share                                 17.96           16.74       21.08      7            (21)
is solely devoted to international trade finance                     Loans and Other Assets                 Earnings per common share - assuming dilution             17.77           16.52       20.76      8            (20)
                                                              26   Allowance for Loan Los e                 ROA                                                        1.77%           1.66%       2.12%     7            (22)
for middle-market businesses. Wells Fargo i also
                                                                     (table on page 47)                     ROE                                                       34.39           28.46       34.92     21            (18)
recognized as one of the nation's leading man-                28   Depo its                                 Efficiency ratio                                           54.6            62.2        54.5    (12)            14
agers and administrators of mutual fund and                   28   Certain Fair Value Information
                                                              28   Capital Adequacy/Ratios                  AT YEAR END
trust assets. In addition to managing $23 billion
                                                                     (table on page 65)                     Investment securities                                   $ 9,888     $ 13,505        $ 8,920    (27)           51
in mutual flmds, the bank maintains personal
                                                              29   Market Risks                             Loans                                                    65,734          67,389      35,582     (2)           89
and institutional trust assets of approximately               30   Derivative Financial Instruments         Allowance for loan losses                                 1,828           2,018       1,794     (9)           12
$149 billion.                                                 32   Liquidity Management                     Goodwill                                                  7,031           7,322         382     (4)
                                                              33 Comparison of 1996 Versus 1995             Assets                                                   97,456         108,888      50,316    (10)          116
                                                              34 Additional Information                     Core deposits                                            71,397          81,581      37,858    (12)          115
                                                                 fiNANCIAL STATEMENTS                       Common stockholders' equity                              12,614          13,512       3,566     (7)          279
                                                              35 Consolidated Statement of Income           Stockholders' equity                                     12,889          14,112       4,055     (9)          248
                                                              36 Consolidated Balance Sheet                 Tier 1 capital                                            6,119           6,565       3,635     (7)           81
                                                              37 Consolidated Statement of Changes in       Total capital (Tiers 1 and 2)                             9,242          10,000       5,141     (8)           95
                                                                   Stockholders' Equity                     Capital ratios
                                                              38 Consolidated Statement of Ca h Flows         Common stockholders' equity to assets                   12.94%          12.41 %      7.09%     4            75
                                                              39 Notes to Financial Statements                Stockholders' equity to assets                          13.22           12.96        8.06      2            61
                                                                   (index on in ide back cover)               Risk-based capital
                                                              71   INDEPENDENT AUDiTORS' REPORT                 Tier 1 capital                                         7.61            7.68        8.81      (1)         (13)
                                                              72   QUARTERLY FINANCIAL DATA                     Toral capital                                         11.49           11.70       12.46      (2)          (6)
                                                                                                              Leverage                                                 6.95            6.65      . 7.46       5          (11)
                                                              74   DiRECTORY
                                                                   SHAREHOLDER INFORMATION
                                                                                                            Book value per common share                             $146.41     $ 147.72        $ 75.93      (1)          95
                                                                     (inside back cover)                    Common stockholders                                      42,629         42,277       27,885      1            52
                                                                                                            Staff (active, full-time equivalent)                     33,100         36,902       19,249    (10)           92
                                                                   INDEX OF SPECIAL TOPICS
                                                                     (inside back cover)                    Physical distribution offices                             1,935          2,007          975     (4)          106
* Arizona, California, Colorado, Idaho, Nevada, New Mexico,
  Oregon, Texa~, Utah and Wa hinglon
LETTER TO SHAREHOLDERS



fhJOughout 1997, as I traveled                           ating standards we enjoyed prior to    company by $700 million. However,      PHYSICAL DISTRIBUTION GROUP             surround a larger traditional branch.
Wells Fargo's territory, I witnessed                     the First Interstate merger in 1996,   this did not meet our pre-merger       During 1997, we continued our           By the end of 1997, we had 322
time and time again the remarkable                       but we are not complacent.             expense target of reducing combined    branch redesign strategy. We            fully staffed branches operating
franchise we have. We are operating                         Every business throughout our       expenses by $800 million. We did       strengthened our network by open-       in Arizona and Nevada, a 38%
in nine of the 10 fastest-growing                        company is focused first and fore-     not achieve the expense cuts we had    ing more in-store locations in key      increase from the 234 in place
states in the countly,* which attract                    most on ensuring we deliver            originally projected because we were   markets, we developed new formats       in April 1996, when we acquired
individuals and businesses alike.                        services to our customers in a way     not able to turn our attention to      to better serve our customers and we    First Interstate.
   Each of these markets has differ-                     that demonstrates we respect their     streamlining our processes until       closed redundant or low-performing        The convenience that our net-
ent characteristics and strengths                        time. Nothing is more important        late in the year. Those efforts are    branches. We also sold branches in      work offers meets the needs of
and presents us with varied oppor-                       to us. Based on the foundation we      now underway and they will             rural areas to community banks that     many groups. For instance, branch
tunities for growth in our diverse                       began laying in 1997, we believe       expand in 1998.                        specialize ill. providing financial     employees in Tucson "set up shop"              PAUL HAZEN - CHAIRMAN
businesses. Within these markets, we                     we are well-positioned to deliver        In the fourth quarter of 1997,       services in those markets. By year-     at the Social Security Administra-
offer innovative financial services                      on the expectations of our customers   amid the Asian financial turmoil,      end, we had expanded our retail         tion's local office to educate senior
through a convenient network                             in the coming years and to see con-    we were able to report that Wells      presence in several markets, and        citizens on the benefits of direct
that encompasses retail and small                        tinued growth in our many markets      Fargo had little direct exposure       our in-store locations accounted        deposit. In"just one day, they opened
business branches, commercial and                        and business lines as a result.        to the most troubled markets. We       for approximately half of our total     dozens of new accounts because          encouraging trend we noted with
real e tate lending offices, -uper-                                                             typically use large American or        distribution network.                   seniors were attracted to the ease,     our new in-store locations is that
market locations, ATMs, telephone                        FINANCIAL SUMMARY                      European banks as counterparties         In California, our largest and most   access and security of our multiple     many of them exceeded their
banking and online access.                                                                      for asset/liability and foreign cur-   established network, we continued       banking channels.                       business goals and were among
   During the year, our empl yees                        Earnings for 1997 were $1.2 billion    rency management. Additionally,        our in-store expansion, opening 70        Texas was another market where        the highest-scoring branches in
demonstrated remarkable focus,                           or $12.77 per share vs. $1.1 billion   although we acquired ome modest        new locations. The value that cus-      we added to our existing traditional    our ongoing customer satisfaction/
discipline and dedication in return-                     or $12.21 per share for 1996. Cash     loan exposure to South Korea as        tomers place on our 1,071 California    network, opening 33 new store           service surveys.
ing our company to the historical                        earnings for the year were $17.96      part of the First Interstate merger    locations was reflected in account      sites. We ended the year with a           Throughout 1997, we focused
service standards for which we are                       vs. $16.74 in 1996.                    in 1996, w had eliminated it from      and balance growth. Additionally,       total of 181 retail locations, up 10%   on providing high-caliber service
known. By the fourth quarter, that                          Return on average assets (ROA)      our books by mid-1997. At this         customers in two markets voted          from the 165 in place when we           to retail customers. By mid-year,
hard work began to yield tangible                        was 1.16% and return on average        point in time, it is hard to project   Wells Fargo the number one bank         acquired First Interstate. Our Texas    the consistency and quality we
results. Our loan volumes continued                      common equity (ROE) was 8.79%          what indirect impact the Asian         for service in reader polls: In         in-store locations are popular with     delivered were such that we
the upward trend that had begun                          for the full year 1997 vs. 1.15% and   financial situation will have on the   August, readers of The San Diego        businesses as well as consumers:        launched a public campaign in
in the third quarter, our deposits                       8.83%, respectively, for 1996. Cash    U.S. economy and, by extension,        Union Tribune voted Wells Fargo         They open more small business           our 10 states, promoting a service
were up and we saw modest                                ROA for 1997 was 1.77% and ca h        on our business customers.             as the leading local bank, and in       checking accounts per location than     guarantee: Five-Minute Max
revenue growth.                                          ROE was 34.39% vs. 1.66% and                                                                                          any other state.                        pledges that our customers will
                                                                                                                                       October, Oakland Tribune readers
   Even in our Physical Distribu-                        28.46%, respectively, in 1996. Cash    FOCUSING OUR BUSINESSES
                                                                                                                                       selected similarly.                       In Oregon and Washington, we          get through our teller lines in five
tion Group, which has undergone                          earnings are the more relevant                                                                                        opened 54 in-store branches as          minutes or less, or we will credit
                                                                                                                                         We made fast progress expanding
so much change, surveys through-                         measure of financial performance       Wells Fargo is engaged in a broad                                              we began the initial phase of our       their account $5.
                                                                                                                                       our retail network in Arizona and
out our 10 states showed that 96%                        for shareholders because they          mix of businesses, but our "face" to                                           network redesign. Of the new loca-        Five-Minute Max was instantly
                                                                                                                                       Nevada during the year, as we
of our branch customers are satis-                       measure Wells Fargo's ability to       our customers arld the community                                               tions, a large percentage is in the     popular with customers, employees
                                                                                                                                       opened in-store sites in Phoenix,
fied with the service they received                      support growth, pay dividends          at large is our extensive physical
                                                                                                                                       Tucson, Las Vegas and Reno. Our         Portland metropolitan market. In        and the news media. Customer
                                                                                                distribution system - the 1,935
and most would recommend Wells                           and repurch.ase stock.                                                        efforts in these high-density cities    Washington, we expanded our             knew what to expect when they
                                                                                                offices we operate in traditional
Fargo to a friend. This was a good                          At year-end, we had reduced the                                                                                    network to new markets such as          stepped into a teller line, employees
                                                                                                and in-store locations.                epitomize how we can best employ
r flection of our return to the oper-                    combined expense base of the new                                                                                      Bellingham and Aberdeen. An             felt pride in delivering our historic
                                                                                                                                       our "hub-and-spoke" strategy in
                                                                                                                                       opening supermarket offices that                                                level of service and the n ws media

"Arizona, Colorado, Idaho, Nevada, New Me).ico, Oregon, Texas, Utah and
 Washington. The IOcll scare is Georgia. (Source: U.S. Census Buremt, /990-1996)
read it as one signal that our con-   tremendous growth potential that          transfers, but also use the machines    ba e 52%, ending the year with           BUSINESS BANKING GROUP                    INVESTMENT GROUP

version challenges were behind us.    online banking promises. As the           to pay bills, obtain mini-account       3.4 million cards issued and mark-       Growth continued in our Business          We continued to strengthen Wells
Results to date have been better      number of devices that connect            statements and buy stamps. Houston      ing Wells Fargo as the second largest    Banking Group, which provides             Fargo's solid base of trust, investment
than expected. At year-end, net       customers to the Internet continues       customers, for instance, now lead       debit card issuer in the nation. Our     credit and related financial services     management and private banking
customer attrition had stopped and    to grow, so will the popularity           all markets in using our popular        debit card is called the Express         to small businesses in the United         businesses during the year. We
we were paying $5 to fewer than       of online banking. WebTV, for             ATM mini-statement feature, and         ATM and Check Card and it gives          States through a combined sales           established an investment subsidiary,
one out of 1,000 customers. Five-     instance, is a cost-effective way to      Phoenix customers are now buying        customers a fast and easy way to pay     strategy of direct mail solicitation      grew mutual fund assets by 21 %,
Minute Max is now an "institu-        bring the Internet into consumers'        more stamps per branch ATM than         for goods without writing a check        and 140 commercia! loan officers          opened new regional offices and
tion" throughout our territory.       living rooms, while Internet cellular     any other market. An encouraging        or carrying excess cash. Texas cus-      in our 10 western states. Total loan      recruited talented managers from
  A new direction we announced        phones will make it easy to access        trend in our Northwest region           tomers are our most avid users of        outstandings grew 20% during the          the ill vestment world to staff some
in 1997 was our partnership with      the world wide web from anywhere.         during the year was the growing use     debit cards, and usage is also high in   year, from $4.9 billion in 1996 to        of our key regional offices.
Starbucks Coffee Company. We've         Pioneering further online inno-         of Express ATMs by our customers        Oregon, Washington and Arizona.          $6.0 billion in 1997, and we have           Wells Capital Management
joined forces in planning seven       vation, we announced plans for an         and the accompanying reduction            In Texas, voters approved legis-       more than 300,000 borrowers.              (WCM), a wholly owned subsidiary
retail centers that offer a mix of    electronic bill presentment pilot,        in the ratio of teller transaction to   lation in November that allows             Business Gateway, our "point-and-       of Wells Fargo Bank, was established
services under one roof. There are    paving the way for customers to           total transactions. We believe this     banks and other financial service        click" onltne service, was rolled out     in the first quarter as an active
two format designs, one for con-      receive and pay their bills electron-     reflects the increasing awareness       companies to make home equity            in nine states during the year, after     manager of equity and fixed-income
sumers and one for businesses.        ically. We believe electronic bill        of the convenience and speed our        loans in the state. We began adver-      its successful introduction in Calif-     investments for institutional
Both formats will feature Wells       presentment and payment will offer        ATM network offers.                     tising and marketing efforts prior       ornia in 1996. California remains         accounts, and mutual and collective
Fargo and Starbucks, plus a variety   a higher level of convenience to            In Northern California, we            to the election to establish Wells       the most popular state for selling this   investment funds. WCM's
of retail businesses such as postal   customers and a compelling reason         introduced Snow Sport    Express~" a    Fargo's brand and expertise in home      Windows-based software product,           management has been con-
and copying services, sandwich        to become a Wells Fargo customer.         service at 550 Express ATMs that        equity lending. Consumer response        with Arizona and Texas ranking            tinuously in place since 1987
cafes and dry cleaning outlets.         Two hallmarks of our approach           allows consumers to buy discounted      to our campaign was strong, meet-        second and third, respectively.           and has an established track record
These retail centers will begin to    to allow customers to bank when           ski lift tickets and lesson packages.   ing our aggressive goals. When             In the third and fourth quarters,       in active asset management.
open in early 1998.                   their time permits are our 24-hour        The response has exceeded our           the legislation became effective in      we opened 25 Business Centers in          Institutional assets under man-
                                      telephone banking centers and             expectations. Strongest ticket sales    January 1998, we began processing        California, Arizona and Nevada,           agement grew 11 % in 1997.
ALTERNATIVE WAYS TO BANK
                                      our 10-state network of 4,400             have been among young adults and        thousands of applications. It is our     adding to the initial two we opened         We doubled the number of
In-store and traditional branches     Express ATMs.                             on college campuses, and 40% of         belief that Wells Fargo will become      in 1996. These specialized offices,       mutual funds available mrough
are only part of the network we've      Our telephone banking service           ticket sales are to non-Wells Fargo     a significant force for home equity      which provide tailored services to        broker-dealers during the year and
established to deliver timesaving     is tailored to specific customer          customers. Wells Fargo is the only      lending in this market.                  small businesses, have quickly            created a single, strong brand image
services to our customers.            groups - retail, online, small business   bank in the country to offer this         Our auto lease financing business      become an important part of our           for our family of mutual funds by
  Our fastest-growing service is      and commercial customers. Custo-          kind of ATM ticket service.             continued its upward climb through-      evolving network.                         merging the Overland Express
online banking, offered through       mers can talk with agents trained                                                 out the year: Annual auto lea ing          Our Merchant Card Services              Funds into the Stagecoach Family
                                                                                CONSUMER LENDING
our website (www.wellsfargo.com ).    in those specific businesses or bank                                              originations increased 47% in 1997       Division, which processes credit and      of Funds. The broader distribution
During 1997, our online customer      through our automated touch-tone          Several divisions in our Consumer       over 1996, due to marketing efforts      debit card transactions for small         and the stronger brand inlage con-
base grew to 420,000, up 40%          service. Among consumers, our             Lending Group had encouraging           in California and our expanding          and mid-sized businesses, increased       tributed significantly to our healthy
from 300,000 at the end of 1996.      largest group of telephone bank           growth during the year. The Group       national territories. We offer auto      its annual credit card processing         sales. Added to that initiative was
Customers signed on to pay bills,     users, more than 80% of callers           provides custon,ers with credit and     lease financing exclusively through      sales volume by 57% to $16 billion        our launch of a new mutual fund,
invest and trade, transfer money      choose to bank via the automated          debit cards, home equity lines and      dealerships in 24 states. The Auto       for the year. Portfolio acquisitions,     our Intemational Equity Fund, whose
and balance their accounts - in       touch-tone service.                       loans, vehicle financing, lines of      Leasing Division's focus on outstand-    new merchant customers and new            initial asset growth exceeded our
short, to bank in the comfort of        Express ATM services attract            credit and installment loans.           ing service resulted in its being        Internet volumes drove much of            projections. We gathered $36 mil-
their homes or offices.               customers who not only choose               During the year, our card pay-        ranked number two nationally by          the growth. The Merchant Card             lion of customer assets into the
  Since we introduced Internet        basic deposits, withdrawals and           ment division grew its debit card       automotive dealers for value among       Services Division has 150 sales           Fund during its 19-day initial offer-
banking in 1995, we've seen the                                                                                         bank lessors.                            representatives in 10 western states.
                                        ":   "   .:      .,'., .'   .... -   '.-   ......    .


ing period and customers invested                     WHOLESALE BANKING                            WellsOne, first introduced in late           HSBC Group, one of the world's           to specifically market this product.     formed our company over the last
an additional $15 million in the                      Resurgent regional economies,              1996, had strong sales during 1997             largest international banking and        Loans originated by CMO are              145 years. As we look back, one
next three months. Despite the tur-                   improved operating performance             and ended the year with a roster of            financial services organizations.        eventually pooled, securitized and       common element in every one of
moil in the Asian financial markets,                  and new products spurred growth            nearly 2,000 clients. WellsOne is                A number of services set us apart      sold in the commercial mortgage-         these mergers is evident: the endur-
the Fund has outperformed the                         in the fourth quarter for our              our cash management product that               in helping exporters and importers       backed securities market. Looking        ing commitment of our employees to
Lipper Index for its category.                        Commercial Banking Group, as its           allows businesses with multi-state             manage their risk. These includ          forward, we believe we will continue     our customers and to our company.
  Our Private Client Services                         relationship managers seized market        operations to maintain a single                our ability to purchase short- or        to maintain our position as a leading      Doing what is right for our
(PCS) Division expanded its offices                   opportunities. Several encouraging         bank account, rather than multiple             medium-term receivables from             provider of commercial real estate       customers - respecting the value
in 10 markets throughout California,                  developments characterized the year.       banking relationships or separate              foreign buyers, our proven foreign       financing because of our long history    of their time by delivering services
adding the capability to offer full-                    Our commercial finance division,         accounts in each state. Because                exchange advisory services and           of service commitment and the            fast and accurately - has been a
service brokerage. We did the same                    WellsCredit, restructured and              WellsOne rLITIS on a single operating          our in-house access to export credit     leading-edge financial tools we offer.   haLLmark of every Wells Fargo
in other markets, among them                          expanded its business, primarily           platform across the lO-state telTitory,        insurance. These services, combined                                               generation. Our employees know,
Denver, Salt Lake City and Scotts-                    due to growth opportunities in our         customers receive con istent report-           with HSBC's global network of            YEAR 2000                                as they have always known, that
dale, and plan to continue these                      10 western states. New business            ing, improved control, faster recon-           more than 5,500 banking offices in                                                everything they do each day,
efforts into early 1998. Accompany-                   commitments grew by $375 mil-              ciliation and the benefit of reduced           79 countries, enabled The Trade          As we approach the 21st century,         no matter how big or small, con-
ing the physical expansion was a                      lion, a 125% increase over 1996.           training time for their locations.             Bank to add 200 new customers and        Wells Fargo faces the challenge          tributes to the succes of our
recruitment effort to help us better                  The division lends to middle-                With the introduction of                     grow loan volumes by 26%. Since          that confronts businesses around         customers and, ultimately, to our
leverage our trust and investment                     m~rket        companies whose credit       WellsNet Information Express, we               its founding in October 1995 with        the world. We must ensure that           company. In 1997, they continued
strengths. We brought aboard sea-                     needs cannot be met by traditional         have brought the power of the                  $100 million in assets, The Trade        our computer systems are able to         this fine heritage. For that, I
soned Wall Street investment and                      loans and lines.                           Internet to our commercial bank-               Bank has grown to $524 million.          recognize the dates of a new century,    thank them.
sales professionals to head many of                     Wells Fargo's Business Express           ing customers. Now company                       We originated more than $7 bil-        beginning in the year 2000. We             We are living in competitive
our regional offices and to join our                  Deposit Card, introduced during            treasurers, chief financial officers and       lion in new commercial real estate       are weLL underway with our prepara-      times, and companies that succeed
roster of financial consultants and                   the year, met with widespread              controllers can use the Internet               loans during 1997. While many of         tions. Our bankwide project team         in the financial services industry
private client managers. With this                    acceptance and popularity among            whenever they want to access                   our competitors chose to exit the        is thoroughly assessing our existing     will be those that can execute well,
specialized division, Wells Fargo                     mid- to large-sized customers. The         detailed information about their               commercial real estate market in         computer software operating sys-         day in and day out. We are fortunate
now offers a full line of investment                  card allows our business and com-          accounts and transactions, even                the early 1990s, we continued to         tems and applications and, where         to have this strength as our history.
management, private banking, trust                    mercial customers to conveniently          while traveling or working at home.            treat this as a core business. Our       necessary, upgrading or replacing        We are determined to make it
and brokerage services under one                      make deposits at our lO-state                Use of our check fraud preven-               continuous presence in this market       them. Each system will be carefully      our future.
roof. Through the Bank's subsidiary,                  network of Express ATMs, with              tion service, Positive Pay, also               for over 25 years is selving us well     tested to ensure that it is Year
Wells Fargo Securities, clients can                   the security, confidentiality and          grew by over 75% in 1997. More                 as regional economies continue to        2000-ready. AdditionaLLy, we have
trade using either full-service, dis-                 detailed reporting they expect from        and more companies found this                  improve. One of the fastest-growing      established a certification process
count or online-discount brokerage.                   us. Financial services companies,          service - used in conjunction                  opportunities in our commercial          that enables each business unit to
During the year, we established                       manufacturers, wholesalers, agri-          with our imaging and controlled-               real estate business is our ability to   confirm the compliance of critical
                                                                                                                                                                                                                                  Paul Hazen
new partnerships with companies                       businesses and specialty retailers are     disbursement technology - an                   provide permanent loans to our           suppliers, business partners, and
                                                                                                                                                                                                                                  Chairman
that brought state-of-the-art tech-                   among the types of businesses that         effective solution to combating                customers. These loans, to owners        external facilities and equipment.
nology and products to our discount                   have embraced this new way to              corporate check fraud.                         of retail, multi-family and indu trial
and full-service brokerage units, as                  deposit because of its flexibility           During 1997, mitigating risk                 properties, are originated through       CONCLUSION                               March 6, 1998
well as improving client service and                  and same-day deposit credit across         played a central part in the success           Our Real Estate Group as well as
reporting in our trust and invest-                    our 10 states. We are especially           of our International Group and                 through 17 Commercial Mortgage           The pages of WeLLs Fargo's history
ment management businesses.                           encouraged by the solid growth in          The Trade Bank, which is jointly               Origination (CMO) offices estab-         are filled with chapters chronicling
                                                      card usage we have seen among              owned by Wells Fargo and the                   lished throughout the United States      more than 500 mergers that have
                                                      customers in our Northwest and
                                                      Southwest regions.


                                                                                                                                            r
-
    WELLS FARGO IN THE COMMUNITY



    An education. A job. A place           $25 billion we singled out for small   government-guaranteed loan pro-         are designed to qualify low-income
                                                                                                                          consumers for personal, auto,
                                                                                                                                                                and investors about our community
                                                                                                                                                                reinvestment efforts, Wells Fargo
                                                                                                                                                                                                                                       In Fort Worth, Texas, the
                                                                                                                                                                                                                                    Wells Fargo Foundation funded a
    to live.                               business loans. This has helped us     grams for this market segment.
       At Wells Fargo, we consider         become the leading small-business         Our total lending for commer-        home improvement and other            has established a special section on                                program to improve basic writing
    these fundamentals to be among         lender in the West. We believe         cial economic development in            conswner loans as little as $500.     our web site (www.wellsfargo.com).                                  skills for public school students in
    the primary building blocks of our     small businesses are the key to        1997 was $2.3 billion.                  Small monthly terms and extended                                                                          grades 6 through 12 with a $60,000
    communities. For that reason,          future economic development and                                                terms are available. Wells Fargo                                                                          grant. .
                                                                                                                                                                CORPORATE CONTRIBUTIONS
    they are the focus of our commu-       job creation in our communities.                                               also offers government-guaranteed                                                                            Even smaller grants generated
                                                                                  AFFORDABLE HOUSING/
    nity reinvestment and corporate            As part of our efforts, we are                                             student loans and secured credit                                                                          big benefits for our communities.
                                                                                  COMMUNITY DEVELOPMENT                                                         Three-quarters of our $300-million
    contributions programs.                active in Small Business Adminis-                                              cards for customers who need to                                                                           For instance, the $24,000 grant we
                                                                                                                                                                goal is pledged to kindergarten
       They also underlie the two          tration (SBA), Capital Access and                                              establish or re-establish credit.                                                                         gave to Edison Elementary School
                                                                                  The third largest component of our                                            through 12th grade educational
    financial corrunitments we made'       other government-guaranteed loan                                                  In 1997, Wells Fargo provided                                                                          in Salt Lake City, Utah, helped
                                                                                  pledge is the $7 billion targeted for                                         programs, economic development
    as part of our merger with First       programs. We also focus on making                                              over $790 million in consumer,                                                                            make possible its parent volunteer
                                                                                  affordable housing and community                                              projects and social services for
    Interstate in 1996: to loan $45 bil-   loans to Enterprise Zone businesses,                                           equity, student and credit card                                                                           program and family science nights.
                                                                                  development. In addition to pro-                                              the disadvantaged.
    lion for community reinvestment        50l(c)(3) nonprofit agencies, and                                              loans to benefit low-income                                                                                  A $10,000 grant to Elko
                                                                                  viding financing for the construction                                            Among the many programs we
    and to donate $300 million to non-     women-owned and minority-owned                                                 individuals and communities.                                                                              Grammar School in Elko, Nevada,
                                                                                  of affordable housing, we also                                                funded in 1997 were these:
    profit organizations over a 10-year    businesses. For instance, our                                                     At year-end 1997, Wells Fargo                                                                          replaced obsolete computers with
                                                                                  finance non-residential community                                                In Oregon, we partnered with
    period.                                Women's Loan Program reached a                                                 had committed more than $170 mil-                                                                         new ones.
                                                                                  and economic development projects                                             the State Department of Education,
       In 1997, we loaned $7.2 billion     $2.3 billion milestone in 1997 in                                              lion in community development
                                                                                  that will stabilize neighborhoods                                             which was aiming to raise the level
    for small business, affordable         its quest to lend $10 billion in 10                                            investments, including $52.5 mil-                                                                         AN "OUTSTANDING" RATING
                                                                                  and create employment.                                                        of children's math skills. We
    housing/community development,         years to women-owned small busi-                                               lion in the California Equity Fund,
                                                                                     Last year, we provided over $621                                           committed $300,000 and funded
    commercial economic develop-           nesses. In October, we made the                                                $16 million in the Oregon Equity
                                                                                  million in housing and economic                                               math improvement programs in                                        Our record of creating and imple-
    ment and low-income consumers.         first loan in the newly enacted                                                Fund and $2.25 million in the
                                                                                  development commitments in the                                                17 school districts.                                                menting special lending programs
    Adding the $6.1 billion we loaned      Texas Capital Access Program,                                                  Arizona MultiBank Community
                                                                                  10 western states where we do busi-                                              In Arizona and Nevada, we joined                                 to meet community credit needs
    in 1996, we've reached $13.3 bil-      which provides working capital                                                 Development Corp. Other smaller
                                                                                  ness, resulting in more than 5,700                                            local school districts to develop                                   is validated by the "Outstanding"
    lion in commlmity reinvestment         lines of credit for small businesses                                           commitments included $300,000
                                                                                  affordable living spaces.                                                     an innovative program that gives                                    community reinvestment rating we
    lending, or 30% of our lO-year         that don't otherwise qualify for                                               to the Business Incubator at
                                                                                                                                                                teachers fast access to funding for                                 hold from the Office of the Comp-
    lending goal.                          bank funding. In California, we are                                            Enterprise Park in West Las Vegas,
                                                                                                                                                                in-class projects or field trips they                               troller of the Currency. We intend
       In terms of charitable contri-      a leader in the state's Capital        CONSUMER LOANS/                         in part to help form a micro enter-
                                                                                                                                                                could not otherwise afford. The                                     to continue our leadership efforts
    butions, Wells Fargo participates      Access Program, with loans to date     MORTGAGE/I NVESTMENTS                   prise loan fund, and $150,000 to
                                                                                                                                                                Wells Fargo Foundation has com-                                     in this area because we believe they
    actively in its communities. In        totaling over $200 million.                                                    the Southeast Idaho Council of
                                                                                                                                                                mitted $500,000 to The Teachers                                     promote growth, financial strength
    1997, we donated $24.1 million            All of these enabled us to          The remainder of our pledge is          Governments to support small-
                                                                                                                                                                Partner Program, aimed at kinder-                                   and higher standards of living for
    to nonprofit groups. Adding the        loan $3.5 billion in 1997 to small     composed of $2 billion for low-         business job creation programs.
                                                                                                                                                                garten through 12th grade teachers.                                 our communities.
    $16 million we donated in 1996         businesses under our community         income consumer loans, $2 billion
    brings our total donations since the   reinvestment program.                  for targeted residential second         ELECTRONIC BANKING
    merger to more than $40 million.                                              mortgage loans and $500 million         PRODUCTS
                                                                                                                                                                                      COMMITMENTS TO THE COMMUNITY -                                                         1996 AND 1997
       Such accomplishments are the        COMMERCIAL ECONOMIC                    for community development
    result of targeted research and a                                             investment.                                                                                                                        Corporate                                                         CRA(lj                                     eRA
                                           DEVELOPMENT                                                                    Our electronic banking capabilities
    localized outreach program by our                                                We provide residential mortgage                                                                                              Con[ribu[ions                                                    LO~ln~                                II1\'cl'lrmcnrs
                                                                                                                          also support our community efforts.
    regional community development                                                products to low-income people
                                           The second largest component of                                                For instance, employers use our                  ARIZONA                                $ 4,269,488                           $ 1,050,484,857                                                • I 1,350,000
    officers and Wells Fargo Foundation                                           throughout the western United                                                                                                     ....... ,.......                        .                -.-                      .           ..                      .
                                           our pledge is the $8.5 billion tar-                                            PayCard product to give employees                                                                                                                                    -




    staff. Their goal is to determine                                             States through Wells Resource                                                            CALIFORNIA                               24,035,401                                  7,820,483,387                                           120,52I,OY,)
                                           geted for middle-market businesses.                                            who lack a checking account the                                                    .................. ,   ,.,....         .       ,        ,    , ,.
    the need for banking and credit                                               Real E tate Services, our joint ven-                                                     COLORADO                                    938,061                                    456,655,059                                                 250,000
                                           We provide flexible underwriting                                               ability to access their wages elec-                                                    ........     ..                                    .                                     .
    services and corporate donations,                                             ture alliance with PHH Mortgage.                                                         IDAHO                                       109,352                                      114,994,433                                              1,150.000
                                           criteria for businesses that provide                                           tronically through a special ATM                                                         .....................                .                                             .                      .. ....
    especially in moderate- to low-                                               In 1997, Wells Resource Real
                                           community benefit, with an empha-                                              card. We also partnered with many                NEVADA                                        1,169,105                                  613,403,523                                                 900,0 0
    income communities.                                                           Estate Services partnered with                                                                                      ................                                          .                          .              ..
                                           sis on those owned by minorities,                                              nonprofits to bring them low-cost                NEW MEXICO                                     255,480                                       71,861,916                                            200,000
       Highlights of our efforts during                                           the NeighborWorks National                                                                                                                                                            .'         ,
                                           women and the disabled.                                                        access to the Internet through                   OREGON                                        3,140,710                                  623,051,301
                                                                                                                                                                                                                                                                                                          '


                                                                                                                                                                                                                                                                                                                         12,700,000
    1997 follow.                                                                  Campaign for Homeownership                                                                                                         ,.,.,...              ..                                 - --                                                       ..
                                              We also assist businesses in                                                WebTV. And we created our                                                                                             ................•..                            ,- ,                      ,           ,


                                                                                  and Freddie Mac to provide up                                                            TEXAS                                         3,145,961                              1,041,045,952                                            18,645,210
                                           Enterprise or Empowerment Zones,                                               InterCuenta Express product so                                                                                             .............                     .                                       .
    SMALL BUSINESS                                                                to $15 million in home mortgages        U.S. residents could safely send                 UTAH                                           372,774                                   124,574,967                                             448,000
                                           nonprofit agencies and Native                                                                                                                                                                                                                                       ..........................
                                                                                  to low- and moderate-income                                                              WASHINGTON                                    2,612,587                                  485,403,511                                              7,411,826
                                           American tribal governments. In                                                funds to friends and relatives in
                                                                                  borrowers in six states.                Mexico through the ATM network.
    The largest single component of        addition, we offer SBA and other                                                                                                  10-State Tertitory Total             $40,048,919                           $12,401,958,906 (l)                                        $ 173,576, 131
                                                                                     Low Income Finance Terms                To inform the public, customers
    our historic $45-billion community                                                                                                                                     (1) Community Reinvestment Act
    reinvestment commitment is the                                                (LIFT) consumer loan products                                                            (2) Wells Fargo also provided over $950 million in community lending in the U.S. outside its
                                                                                                                                                                               10-state territory, bringing the total to $l3J billion during 1996 and 1997.
-'




             FINANCIAL REVIEW



             OVERVIEW



             Wells Fargo & Company (Parent) is a bank holding com-                                     Net income in 1997 was $1,155 million, compared with                                                                             TABLE 1         RATIOS AND PER COMMON SHARE DATA
                                                                                                                                                                         The Company's direct credit risk related to the ongoing
             pany whose principal subsidiary is Wells Fargo Bank, N.A.                              $1,071 million in 1996, an increase of 8%. Earnings per
                                                                                                                                                                      volatility of the financial markets in Asia is predominantly                                                                      Year ended December 31,
             (Bank). In this Annual Report, Wells Fargo & Company                                   common share were $12.77, compared with $12.21 in 1996,
                                                                                                                                                                      short-term in nature and is not significant. However, the                                                                  1997          1996             1995
             and its subsidiaries are referred to as the Company.                                   an increase of 5%.
                                                                                                                                                                      primary risk to the Company is the long-term impact of
                On April 1, 1996, the Company completed its acquisi-                                   Return on average assets (ROA) was 1.16% and return                                                                             PROFITABILITY RATIOS
                                                                                                                                                                      the Asian financial markets on the economy of the U. S.
             tion (Merger) of First Interstate Bancorp (First Interstate).                          on average common equity (ROE) was 8.79% in 1997,                                                                                  Net income to average total assets (ROA)                 1.16%          1.15%        2.03%
                                                                                                                                                                      (in particular, California) and the Company's borrowers.         Net income applicable to common stock
             As a result, the financial information presented in this                               compared with 1.15% and 8.83%, respectively, in 1996.
                                                                                                                                                                      Understanding this risk is more difficult and is dependent         to average common stockholders'
             Annual Report for the years ended December 31, 1997                                       Earnings before the amortization of goodwill and non-                                                                            equity (ROE)                                            8.79           8.83        29.70
                                                                                                                                                                      on the passage of time.
             and 1996 reflects the effects of the acquisition subsequent                            qualifying core deposit intangible (CDl) ("cash" or "tangible"                                                                     Net income to average stockholders' equity               8.74           8.81        26.99
                                                                                                                                                                         At December 31, 1997, the ratio of common stockholders'
             to the Merger's consummation (i.e., the year 1997 reflects                             earnings) were $17.96 per share in 1997, compared with                                                                             EFFICIENCY RATIO (I)                                     62.2%          69.0%        55.3%
                                                                                                                                                                      equity to total assets was 12.94%, compared with 12.41 %
             twelve months of combined operations, compared with                                    $16.74 in 1996. On the same basis, ROA was 1.77% and
                                                                                                                                                                      at December 31, 1996. The Company's total risk-based             NET INCOME AND RATIOS
             nine months for the year 1996). Since the Company's                                    ROE was 34.39% in 1997, compared with 1.66% and                                                                                    EXCLUDING GOODWILL AND
                                                                                                                                                                      capital (RBC) ratio at December 31, 1997 was 11.49% and
             results of operations subsequent to April 1, 1996 reflect                              28.46%, respectively, in 1996.                                                                                                     NONQUALIFYING CORE DEPOSIT
                                                                                                                                                                      its Tier 1 RBC ratio was 7.61 %, exceeding the minimum           INTANGIBLE AMORTIZATION
             amounts recognized from the combined operations, they                                     Net interest income on a taxable-equivalent basis was                                                                           AND BALANCES ("CASH" OR
                                                                                                                                                                      regulatory guidelines of 8% and 4%, respectively, for bank
             cannot be divided between or attributed directly to either                             $4,627 million in 1997, compared with $4,532 million a                                                                             "TANGlBLE") (2)
                                                                                                                                                                      holding companies and the "well capitalized" guidelines for      Net income applicable to common stock               $ 1,588        $   1,376    $   1,025
             of the two former entities nor can they be directly com-                               year ago. The Company's net interest margin was 5.99%
                                                                                                                                                                      banks of 10% and 6%, respectively. The Company's ratios at       Earnings per common share                             17.96            16.74        21.08
             pared with prior periods.                                                              for 1997, compared with 6.11 % in 1996.
                                                                                                                                                                      December 31, 1996 were 11.70% and 7.68%, respectively.           Earnings per common share-
                                                                                                       Noninterest income increased from $2,200 million                                                                                  assuming dilution                                    17.77           16.52        20.76
                                                                                                                                                                     The Company's leverage ratios were 6.95% and 6.65% at
                                                                                                    in 1996 to $2,704 million in 1997, an increase of 23%.                                                                             ROA                                                     1.77%           1.66%        2.12%
                                                                                                                                                                      December 31, 1997 and 1996, respectively, exceeding the          ROE                                                    34.39           28,46        34.92
                                                                                                    A significant portion of the increase was due to higher
                                                                                                                                                                      minimum regulatory guideline of 3% for bank holding              Efficiency ratio                                        54.6            62.2         54.5
             RETURN ON AVERAGE TOTAL ASSETS (ROA) (%)                                               credit card and ATM fees reflecting an industry trend
                                                                                                                                                                      companies and the "well capitalized" guideline for banks
                                                                                                    toward increased fees.                                                                                                             CAPITAL RATIOS
                                                                                                                                                                     of 5%. A discussion of RBC and leverage ratio guidelines
     3.0%· .. ·       ··       ·        ·..··                                               .          Noninterest expense decreased from $4,637 million in                                                                            At year end:
                                                                                                                                                                      is in the Capital Adequacy/Ratios section.                         Common stockholders' equity to assets                12.94%          12,41%        7.09%
                                                                                                    1996 to $4,549 million in 1997, a decrease of 2%.
                               • Cash                                                                                                                                    The Company has bought in the past, and will continue           Stockholders' equity to assets                       13.22           12.96         8.06
                                                                                                       As of year-end 1997, the Company realized approximately
                                                            2.12                                                                                                      to buy, shares to offset stock issued or expected to be issued     Risk-based capital (3)
                                                                                                    $700 million in annualized cost savings as a result of the

     20,~~~~~~~~ ..~::
                                                                                                                                                                      under the Company's employee benefit and dividend rein-              Tier 1 capital                                       7.61           7.68         8.81
                                                                                                    Merger, compared to the pre-merger objective of about                                                                                  Total capital                                      11.49           11.70        12,46
                                                                                                                                                                     vestment plans. In addition to these shares, the Board of
                                                                                                    $800 million. The Company failed to realize all of the                                                                               Leverage (3)                                          6.95            6.65         7,46
                                                                                                                                                                     Directors authorized in April 1996 the repurchase of up           Average balances:
                     1.20'                                                             - _• •       efficiencies from the Merger due to the focus on maintaining
      1.0·          · · ·               ·......        ..                       .                                                                                    to 9.6 million shares of the Company's outstanding com-             Common stockholders' equity to assets                12.92           12.17         6.57
                                                                                                    a stable operating environment in 1997, which caused a
                               •       As reported                                                                                                                   mon stock under a repurchase program begun in 1994. In              Stockholders' equity to assets                       13.28           13.01         7.53
                                                                                                    delay in branch closures and a higher staff level requirement
                                                                                                                                                                     October 1997, the Board of Directors authorized the repur-        PER COMMON SHARE DATA
                                                                                                    than originally anticipated. For discussion of the Company's
       0 ........                                                                                                                                                    chase from time to time of up to an additional 8.6 million        Dividend payout (4)                                        41%          43%      23%
                                                                                                    plan for former First Interstate branch closures and consoli-
                       1993                 1994            1995             1996          1997                                                                      shares of the Company's outstanding stock under the same          Book value                                          $146.41        $147.72  $ 75.93
                                                                                                    dations, see Note 2 to Financial Statements.
                                                                                                                                                                     program. Under these programs, the Company repurchased            Market prices (5):
                                                                                                       The provision for loan losses was $615 million in 1997,                                                                           High                                              $339.44        $289.88
                                                                                                                                                                     a total of 5.3 million shares (net of shares issued) in 1997,                                                                                     $229.00
                                                                                                    compared with $105 million in 1996. During 1997, net                                                                                 Low                                                246.00         203.13       143.38
     RETURN ON COMMON STOCKHOLDERS' EQUITY (ROE) (%)                                                                                                                 compared with 7.7 million shares (net of shares issued) in
                                                                                                    charge-offs were $805 million, or 1.25% of average total                                                                             Year end                                           339.44         269.75       216.00
                                                                                                                                                                     1996. The Company currently expects to continue repur-
                                                            34.92                           34.39   loans, compared with $640 million, or 1.05%, during 1996.
                                       ·~~S;88 ~:~~~~
                                                                                                                                                                     chasing shares in 1998 using cash earnings not required to        (I) The efficiency ratio is defined as noninterest expense divided by the total of net
                                                                                                    The allowance for loan losses was $1,828 million, or 2.78%


                                                                                           .                                                                         Support balance sheet growth.
     35% :                                                                                                                                                                                                                                 interest income and non interest income.


     ::Zo;:~;~7~
                                                                                                    of total loans, at December 31, 1997, compared with
                                                                                                                                                                         The Company adopted on December 31, 1997 Statement            (2) Nonqualifying core deposit intangible (COl) amortization and average balance
                                                                                                    $2,018 million, or 3.00%, at December 31, 1996.                                                                                        excluded from these calculations are, with the exception of the efficiency
                                                                                                                                                                     of Financial Accounting Standards No. 128 (FAS 128),
                                                                                                       At December 31, 1997, total nonaccrual and restructured                                                                            ratio, net of applic(lble taxes. The aftcr,tax amOllnts for the Cllllonizati n flnd
                                                                                                                                                                     Earnings per Share. This Statement establishes standards             average balance of nonqualifying COl were $132 million and $1,023 million,
                                                                                                    loans were $537 million, or .8% of total loans, compared

                                                                                            .                                                                        for computing and presenting earnings per common share.
      15            16.74                                               ..                                                                                                                                                                respectively, (or the year ended December 31, 1997. Goodwill amortization
                                                                                                    with $724 million, or 1.1 %, at December 31, 1996. Fore-                                                                              and average balanee (which arc not rax effected) were $326 million and
                                                                                                                                                                     It replaces the presentation of primary eamings per common
      10 .. ·....                                                       ..... ~
                              ....................................................~~        8.79    closed assets were $158 million at December 31, 1997,                                                                                 $7,218 million, respectively, (or the year ended December 31, 1997. See
                                                                                                                                                                     share (net income applicable to common stock divided by              page 20 for additional information.
                               •       As reported                                                  compared with $219 million at December 31,1996.
       5········                                                                            .                                                                        average common shares outstanding and, if dilution is 3%          (3) Sec the Capital Adequacy/Ratios section for additional information.
                                                                                                                                                                     or more, common stock equivalents) with a presentation of         (4) Dividends declared per common share as a percentage o( eamings per
       o·                          .                                                                                                                                                                                                       common shme.
                       1993                     1994        1995             1996          1997
                                                                                                                                                                                                                                       (5) Based on daily closing priees reported on the New York Stock Exchange
                                                                                                                                                                                                                                           Composite Transaction Reporting System.
                                                                                                                                              F




                                                                                                                                                  LINE OF BUSINESS RESULTS



(basic) earnings per common share (net income applicable               accumulated balance of other comprehensive income is to be                  the Company has identified six distinct lines of business for        The in-store branches and banking centers continue to
to common stock divided by average common shares out-                  displayed separately from retained earnings and additional                 the purposes of management reporting, as shown in Table 3.         be part of the ongoing effort to provide higher-convenience,
standing), which the Company previously presented. It also             paid-in capital in the equity section of the balance sheet.                   The line of business results show the financial perfor-         lower-cost service to customers. The business centers are
requires dual presentation of earnings per common share                   This Statement is effective wim the year-end 1998                       mance of the major business units. Line of business results        designed primarily to service small and medium-sized busi-
and earnings per common snare - assuming dilution on the               financial statements; however, a total for comprehensive                   are determined based on the Company's management                   nesses and are typically located in or near areas with a high
face of the income statement and a reconciliation of the               income is required in the financial statements of interim                  accounting process, which assigns balance sheet and income         concentration of these businesses.
numerator and denominator of both earnings per common                  periods beginning with the first quarter of 1998. Reclassifi-              statement items to each responsible business unit. This              The number of ATMs continued to increase in 1997,
share computations. The Statement requires restatement of              cation of financial statements for earlier periods provided                process is dynamic and somewhat subjective. Unlike finan-          reaching a total of 4,400 at December 31, 1997, compared
all prior period earnings per common share data presented,             for comparative purposes is required.                                      cial accounting, there is no comprehensive, authoritative          with 4,283 at December 31,1996.
including interim periods.                                                This Annual Report includes forward-looking statements                  body of guidance for management accounting equivalent
                                                                                                                                                  to generally accepted accounting principles.                        The Business Banking Group provides a full range of
   In June 1997, the Financial Accounting Standards                    that involve inherent risks and lillcertainties. The Company
                                                                                                                                                     The management accounting process measures the per-              credit products and financial services to small businesses
Board (FASB) issued FAS 130, Reporting Comprehensive                   cautions readers that a number of important factors could
                                                                                                                                                  formance of the business lines based on the management              and their owners. These include lines of credit, receivables
Income. This Statement establishes standards for reporting             cause actual results to differ materially from those in the
                                                                                                                                                  structure of the Company and is not necessarily comparable          and inventory financing, equipment loans and leases, real
and displaying comprehensive income and its components                 forward-looking statements. Those factors include fluctua-
                                                                                                                                                  with similar infom1ation for any other financial institution.       estate financing, SBA financing, cash management, deposit
in the financial statements. It requires that a company                tions in interest rates, inflation, government regulations, the
                                                                                                                                                  First Interstate results prior to April 1, 1996 are not included    and investm nt accounts, payroll services, retirement
classify items of other comprehensive income, as defined               progress of integrating First Interstate, economic conditions,
                                                                                                                                                  and, tI~erefore, the year 1997 is not comparable to 1996.           plans, medical savings accounts, and credit and debit card
by accounting standards, by their nature (e.g., unrealized             customer disintermediation, technology changes and com-
                                                                                                                                                     Changes in management structure and/or the allocation            proce sing. Business Banking customers are small businesses
gains or losses on securities) in a financial statement, but           petition in the geographic and business areas in which me
                                                                                                                                                  process may result in changes in allocations, transfers arid        with annual sales up to $10 million in which the owner is
does not require a specific format for that statement. The             Company conducts its operations.
                                                                                                                                                  assignments. In that case, results for prior periods would be       also the principal financial decision maker.
                                                                                                                                                  (and have been) restated to allow comparability from one               Business Banking distributes credit products in all 50
                                                                                                                                                  period to the next.                                                states and Canada through national direct marketing·and
                                                                                                                                                     Internal expense allocati ns are independently negotiated        140 commercial loan specialists in small business lending
TAELE 2 SIX-YEAR SUMMARY OF SELECTED FINANCIAL DATA                                                                                               between business units and, where possible, service and price      offices in 22 markets in the Western United States. Business
                                                                                                                                                                                                                      Banking jointly owns with First Data Corp. a merchant
                                                                                                                                                  is measured against comparable services available in the
(in millions)                         1997           1996       1995            1994        1993         1992    %   Change      Five..year       external marketplace.                                              card processing alliance, which acquires customers through
                                                                                                                       1997/    compound                                                                             a ISO-person sales force.
                                                                                                                       1996    growth rate           The following describes tI1e six major business units.
                                                                                                                                                                                                                         Business Banking provides access to customers through
INCOME STATEMENT                                                                                                                                  The Retail Distribution Group sells and services a                 a wide range of channels. These include Business Banking
Net interest·income               $ 4,614     $    4,521    $ 2,654         $ 2,610      $ 2,657      $ 2,691            2%             11%
                                                                                                                                                  complete line of retail financial products for consumers           Officers who are relationship managers for the premier seg-
Provision for loan losses              615           105                        200          550        1,215          486            (13)        and small businesses. In addition to the 24-hour Telephone         ment of small business customers, as well as Wells Fargo's
Noninterest income                   2,704         2,200       1,324          1,200        1,093        1,059           23             21         Banking Centers and Wells Fargo's Online Financial                 extensive network of traditional and in-store branches,
Noninterest expense                  4,549         4,637       2,201          2,156        2,162        2,035           (2)            17         Services (the Company's personal computer banking                  banking centers, ATMs and business centers. Business
Net income                           1,155         1,071       1,032            841          612          283            8             32
                                                                                                                                                  services), the Group encompasses Physical Distribution's           Banking also serves customers through its National Business
Earnings per common share         $ 12.77     $     12.21   $ 20.37         $ 14.78      $ 10.10      $ 4.44             5             24         network of traditional branches, in-store branches, banking        Banking Center, a 24-hour telephone center dedicated to
Eamings per common share -                                                                                                                        centers, business centers and ATMs. Retail Distribution            the small business customer, and through Bu iness Gateway,
  assuming dilution                  12.64          12.05      20.06           14.54        9.96         4.39            5             24
Dividends declared per                                                                                                                            also includes me consumer checking business, which                 a personal computer banking service exclusively for the
  common share                        5.20           5.20       4.60            4.00        2.25         1.50                          28         primarily uses the network as a source of new customers.           small business customer.
                                                                                                                                                     In 1997, the Retail Distribution Group continued the                Business Banking has partnered with the National
BALANCE SHEET
(at year end)                                                                                                                                     consolidation of the former First Interstate physical distrib-     Association of Wom n Business Owners to lend $10 billion
Investment securities             $ 9,888     $ 13,505      $ 8,920         $11,608      $13,058      $ 9,338          (27)%            1%        ution network into the Wells Fargo physical distribution           to women-owned businesses and with the United States
Loans                               65,734         67,389    35,582          36,347       33,099       36,903           (2)            12         network. This consolidation consisted of the closure and           Hispanic Chamber of ommerce to lend $1 billion to
Allowance for loan losses            1,828          2,018     1,794           2,082        2,122        2,067           (9)            (2)        sale of traditional branches as well as the continued opening      Latino-owned businesses over the next six years. In the
Goodwill                             7,031          7,322       382             416          477          523           (4)            68         of in-store branches and banking centers. The Company              third quarter of 1997, the Company launched the first
Assets                              97,456        108,888    50,316          53,374       52,513       52,537          (10)            13
Core deposi ts                      71,397         81,581    37,858          38,508       41,291       41,879          (12)            11
                                                                                                                                                  closed 124 traditional branches in California and 88 tradi-        phase of a direct lending program to selected Canadian
Common stockholders' equity         12,614         13,512     3,566           3,422        3,676        3,170           (7)            32         tional branches in other states. The Company also sold             business owners. Via mail and telephone, small businesse
Stockholders' equity                12,889         14,112     4,055           3,911        4,315        3,809           (9)            28         30 traditional branches in California and sold 87 traditional      can contact Wells Fargo in the U.S. anJ receive a loan
Tier 1 capital                       6,119          6,565     3,635           3,562        3,776        3,287           (7)             13        branches in other states. The distribution network opened          decision within 48 hours. In 1998, the Company will
Total capital                        9,242         10,000     5,141           5,157        5,446        5,255           (8)             12        70 in-store locations in California and 171 in other states.       launch its lending program to Canada nationally.
                                                                                                                                                  As of December 31, 1997, the Company had 956 traditional
                                                                                                                                                  branches, 523 in-store branches, 377 banking centers and           The Investment Group is responsible for the sales and
                                                                                                                                                  27 business centers in 10 Westem states. Motor banking             management of savings and investment products, invest-
                                                                                                                                                  faCilities ("motorbanks") are available at 52 of the tradi-        ment management and fiduciary and brokerage services to
                                                                                                                                                  tional branches.                                                   institutions, retail customers and high net worth individuals.
                                                                                                                                                                                                                     This includes the Stagecoach family of mutual funds as
-
    TABLE 3          LINE OF BUSINESS RESULTS (ESTIMATED)


    (income/expense in millions,                                                                     Re~ail                             Bllsiness                                                                                                Wholesale
    avetage balances in billions)                                                     Distribution GrOll1                         Banking Group                       Investment Group           Real Estate GroUI'                          Products Group                      Consumer Lending                                      Other                 Consolidated Company
                                                                                     1997             1996                 1997             1996                   1997             1996      1997             1996                   1997              1996                   1997             1996                   1997             1996                   1997           1996


    Net interest income (I)                                                     $ 979            $ 821                    $ 783           $ 651                  $ 774            $ 744      $ 393           $ 388                   $ 724            $ 728                $1,110            $1,004                  $(149)           $ 185                 $4,614          $4,521
    Provision for loan losses (2)                                                                                           136              92                      5                   4      43               42                     76               72                   449               425                    (94)             (530)                  615             105
    Noninteresr income (3)                                                          1,168            1,022                  278              247                   549              479        126               86                    337              295                   459               319                   (213)             (248)                2,704           2,200
    Noninterest expense (3)                                                         1,863            1,812                  459              450                   647              648
                                                                                                                                                                                             .---B-             110                    430              382                ~                    501                    591               734                 4,549           4,637
    Income before income tax expense (benefit)                                       284                31                  466              356                   671              571        404              322                    555              569                633                  397                    (859)            (267)                 2,154          1,979
    Income tax expense (benefit) (4)                                                 117                13                  191              147                   275              235        166              133                    228              235                260                   164                   (238)          ---.i!2)                  999           908
      Net income (loss)                                                         $ 167            $      18                $ 275           $ 209                  $ 396            $ 336      $ 238           $ 189                   $ 327            $ 334                $ 373             $ 233                   $(621)           $(248)                $1,155          $1,071
    Average loans                                                               $                $                        $ 5.6           $ 4.3                  $ 2.0            $ 1.6      $ 9.5           $ 9.4                   $16.8            $16.0                $ 23.7            $ 21.3                  $ 7.0            $ 8.0                 $ 64.6          $ 60.6
    Average assets                                                                    2.9              3.1                  7.4             6.4                    2.7              2.3       10.5             10.0                   20.7             19.8                    24.7             22.2                   30.7             29.6                   99.6           93.4
    Average core deposits                                                            18.5             16.7                 12.0            11.5                   33.6             32.5        0.4              0.4                    8.0              8.4                     0.5              0.4                                     1.0                   73.0           70.9
    Return on equity (5)                                                              16%                2%                  36%              34%                   57%              53%        23%              20%                    19%               21%                    25%              17%                      -%              -%                      9%            9%
    Risk-adjusted efficiency ratio (6)                                                96%              108%                   66%             71 %                   59%             63%        56%              67%                    77%               73%                    69%              85%                      -'Yo            -%                      -'Yo          -%

    (I) Net interest income is the difference between actual interest eamed on assets (and interest paid on liabilities) owned by a group and a funding charge (and credit) based            (4) Businesses are taxed at the Company's marginal (staturory) tax rate, adjusted for any nondeductible expenses. Any differences between the marginal and effective
        On the Company's cost of funds. Groups are charged a cost to fund any assets (e.g., loans) and are paid a funding credit for any funds provided (e.g., depOSits). The interest           (aX rate are in Other.

        spreat.l is the difference between the interest rate earned on an asset or pait.l on a liability and the Company's COSt of funds rate.                                               (5) Equity is allocated to the lines of business based on an assessment of the i..;'herent risk associated with each business so rhat the returns on "lIocated equity are on
    (2) The provision allocated to the line groups for 1997 and 1996 is based on management's current assessment of the normalized net charge-off ratio for each line of business.               :.1 risk~adjusted basis and compamble ,,)cross business lines.
       In any particular year, the actual net charge-offs can be higher or lower than the normalized provision allocated to the lines of business. The difference between the                (6) The risk-adjusted efficiency ,,"rio is defined as non interest expense plus rhe COSt of capital divided by revenues (net interest income "nd noninrerest income)
       normalized provision and the Company provision is included in Other.                                                                                                                      less normal ized loan losses.
    (3) Retail Distribution Group's charges to rhe product groups are shown as non interest income to the physical distribution channels and non interest expense to the product
        groups. They amounted to $329 million and $392 million for 1997 and 1996, respectively. These charges are eliminated in the Other category in arriving at the Consolidated
        Company totals for noninterest income and expense.




    well as personal trust, employee benefit trust and agency                                       Assets under management at December 31, 1997 were                                        commercial loans and lines, letters of credit, international                                    The Other category includes the Company's 1-4 family
    assets. It also includes product management for market rate                                   $66 billion, compared with $57 billion at year-end 1996.                                   trade facilities, foreign exchange services, cash management                                    first mortgage portfolio, the investment securities portfolio,
    accounts, savings deposits, Individual Retirement Accounts                                                                                                                               and electronic products.                                                                        goodwill and the nonqualifying core deposit intangible, the
                                                                                                  The Real Estate Group provides a complete line of
    ORAs) and time deposits. Within this Group, Private Client                                                                                                                                  The Wholesale Products Group now operates 35 regional                                        difference between the normalized provision for the line
                                                                                                  services supporting the commercial real estate market.
    Services operates as a fully integrated financial services                                                                                                                               commercial banking offices in 10 Western states and                                             groups and the Company provision for loan losses, the net
                                                                                                  Products and services include construction loans for com-
    organization focusing on banking/credit, trust services, invest-                                                                                                                         five offices which serve the large corporate segment. The                                       impact of transfer pricing loan and deposit balances, the
                                                                                                  mercial and residential development, land acquisition and
    ment management and full-service and discount brokerage.                                                                                                                                 WellsOne electronic commerce product, introduced in                                             cost of external debt, the elimination of intergroup non-
                                                                                                  development loans, secured and unsecured lines of credit,
       In the first quarter of 1997, the Company sold the                                                                                                                                    November 1996, now has nearly 2,000 customers. WellsOne                                         interest income and expense, and any residual effects of
                                                                                                  interim financing arrangements for completed structures,
    Corporate and Municipal Bond Administration (Corporate                                                                                                                                   allows businesses with multi-state operations to maintain                                       unallocated systems and other support groups. It also
                                                                                                  rehabilitation loans, affordable housing loans and letters
    Trust) business to the Bank of New York.                                                                                                                                                 one master bank account, rather than separate accounts                                          includes the impact of asset/liability strategies the Company
                                                                                                  of credit. Secondary market services are provided through
       During the second quarter of 1997, the Bank signed a                                                                                                                                  in each state.                                                                                  has put in place to manage interest rate sensitivity.
                                                                                                  the Real Estate Capital Markets Group. Its business includes
    definitive agreement to sell its Institutional Custody busi-                                                                                                                                The Group includes the majority ownership interest in                                           Net interest income during 1997 reflects the impact
                                                                                                  senior loan financing, mezzanine financing, financing for
    nesses to The Bank of New York and its affiliate, BNY                                                                                                                                    the Wells Fargo HSBC Trade Bank, which provides trade                                           of lower investment securities and higher short-term bor-
                                                                                                  leveraged transactions, purchasing distressed real estate
    Western Trust Company. Transfer of accounts is OCCUlTing                                                                                                                                 and Eximbank (a public corporation offering export finance                                      rowings. The decrease in noninterest expens for 1997
                                                                                                  loans and high yield debt, origination of permanent loans
    in several stages, the first of which was in the third quarter                                                                                                                           support programs for American-made products) financing,                                         includes merger-related cost savings in the unallocated
                                                                                                  for securitization, loan syndications and commercial real
    of 1997, with completion expected by the end of 1998.                                                                                                                                    letters of credit and collection services. The Trade Bank's                                     systems and other support groups, partially offset by oper-
                                                                                                  estate loan servicing.
       In 1997, the Bank announced an alliance with Morgan                                                                                                                                   loan balances grew by 26% during 1997 and overall fee                                           ating losses for 1997 related to resolving various merger-
                                                                                                     During 1997, the Real Estate Group generated noninterest
    Stanley, Dean Witter, Discover & Co., whereby Dean Witter                                                                                                                                income increased 42%.                                                                           related operations and back office issues (see page 20 for
                                                                                                  income from the sale of loans totaling $31 million. Non-
    would provide technology, investment products, services                                                                                                                                                                                                                                  add itional information).
                                                                                                  interest expense for 1997 includes net gains on the sale of                                Consumer Lending offers a full array of consumer loan
    and sales and marketing support to Wells Fargo Securities                                                                                                                                                                                                                                   In 1997, the FASB issued FAS 131, Disclosures about
                                                                                                  foreclosed assets totaling $50 million.                                                    products, including credit cards, transportation (auto,
    and its full-service brokerage clients. The full range of Dean                                                                                                                                                                                                                           Segments of an Enterprise and Related Information. The
    Witter's services will be available to Wells Fargo customers                                  The Wholesale Products Group serves businesses with                                        recreational vehicle, marine) financing, home equity lines
                                                                                                                                                                                                                                                                                             Statement requires that a public business enterprise report
    under private label by the end of first quarter 1998.                                         annual sales in excess of $5 million and maintains relation-                               and loans, lines of credit and installment loans.
                                                                                                                                                                                                                                                                                             financial and descriptive information about its reportable
       In addition, the Bank entered into an alliance in                                          ships with major corporations throughout the United States.                                  As a result of legislation approved by voters in November,
                                                                                                                                                                                                                                                                                             operating segments on the basis that is used internally for
    December 1997 with BHC Securities whereby BHC will                                            The Group is responsible for soliciting and maintaining                                    Wells Fargo entered the Texas home equity loan market in
                                                                                                                                                                                                                                                                                             evaluating segment performance and deciding how to
    offer a broad range of investment products to Wells Fargo's                                   credit and noncredit relationships with businesses by offer-                               the first quarter of 1998.
                                                                                                                                                                                                                                                                                             allocate resources to segments. This Statement is effective
    discount brokerage customers through the Internet and                                         ing a variety of products and services, including traditional                                The increase in noninterest income was largely due to
                                                                                                                                                                                                                                                                                             for the year-end 1998 audited financial statements.
    telephone channels.                                                                                                                                                                      higher fee income on credit cards.
       EARNINGS PERFORMANCE


       Ihe Bank generated net income of $1,127 million and               NONINTEREST INCOME                                                                              The increase in shared ATM network fees was due                tomer service levels, particularly given the earlier unstable
                                                                         ..........................................................................................
       $1,006 million in 1997 and 1996, respectively. The Parent                                                                                                      to higher surcharge and debit card fees, slightly offset by       operating environment associated with integrating First
       (excluding its equity in earnings of subsidiaries) and its                                                                                                     lower network fees.                                               Interstate, as well as the review of profitability analyses
                                                                         Table 4 shows the major components of noninterest
       other bank and nonbank subsidiarie had net income of                                                                                                              The increase in trust and investment services income for       demonstrating increased customer usage and improved
                                                                         income.
       $28 million and $65 million in 1997 and 1996, respectively.                                                                                                    1997 was primarily due to greater mutual fund management          profitability for these 37 branches. These developments were
                                                                                                                                                                      fees, reflecting the overall growth in the fund families' net     not anticipated or foreseen at the time this accrual was
       NET INTEREST INCOME                                               TABU 4          NONINTERESTINCOME
                                                                                                                                                                      assets, including the Pacifica funds previously managed by
                                                                                                                                                                      First Interstate. This increase was substantially offset by a
                                                                                                                                                                                                                                        originally recorded. The remaining $21 million liability at
                                                                                                                                                                                                                                        D cember 31, 1997 was related to 32 branches that are
                                                                         (in millions)                              Year ended December 31,              % Chnnge     reduction in income due to the sale of the Corporate Trust        expected to be closed in 1998. In addition, an expense
       Net interest income is the difference between interest
                                                                                                                    1997       1996      1995     1997/       1996/   business and the Institutional Custody businesses to The          accrual of $27 million was made in the fourth quarter of 1997
       income (which includes yield-related loan fees) and interest                                                                               1996        1995    Bank of New York. The Institutional Custody businesses            representing disposition of premises and, to a lesser extent,
       expense. Net interest income on a taxable-equivalent basis
                                                                         Fees and commissions:                                                                        are being sold to The Bank of New York in several stages,         severance and communication expenses associated with the
       was $4,627 million in 1997, compared with $4,532 million
                                                                           Credit card membership                                                                     the first of which was during the third quarter of 1997, with     disposition in 1998 of 33 traditional branches located mostly
       in 1996.                                                                                                 $ 227 $ 116 $              95       96 %       22 %
                                                                             and other credit card fees                                                               completion expected by the end of 1998. The net income            outside of California. (See Note 2 to Financial Statements
          Net interest income on a taxable-equivalent basis                Shared ATM network fees                168   102                51       65        100     for 1997 generated by the Institutional Custody businesses        for other, former First Interstate branch dispositions.)
       expressed as a perc ntage of average total earning assets is        Charge, and fee, on loam               139   112                52       24        115
                                                                                                                                                                      was approximately $11 million. In the fourth quarter of              At December 31, 1997, the Company had 956 traditional
       referred to as the net interest margin, which represents            Debit anu credit card
                                                                             merchant fee,                            98       112         65      (13)         72    1997, the Overland Express Funds totaling $5.6 billion were       branches, 523 in-store branches, 377 banking centers and
       the average net effective yield on eaming assets. For 1997,
                                                                           Mutual fund and                                                                            merged into the Stagecoach family of mutual funds. The            27 business centers in 10 Western states. Motor banking
       the net interest margin was 5.99%, compared with 6.11 %               annuity sales fees                      69         61         33       13         85     assets and fees generated are not expected to change signifi-     facilities ("motorbanks") are available at 52 of the tradi-
       in 1996.                                                            All other (I)                            245        237        137        3         73
                                                                                                                                                                      cantly as a result of the merging of the two families of funds.   tional branches.
          Table 6 presents the individual components of net interest          Total fee, and
                                                                                                                                                    28
                                                                                                                                                                      The Company managed 36 mutual funds consisting of
       income and net interest margin.                                          cOlllmi,sions                       946        740        433                   71
                                                                         Service charges on                                                                           $23.3 billion of assets at December 31,1997, compared with        NON INTEREST EXPENSE
          The decrease in the margin in 1997 compared with 1996
                                                                           deposit accounts                         861        868        478        (1)       82     42 mutual funds consisting of $19.3 billion of assets (includ-
       was primarily due to the issuance of $1.15 billion of trust       Trust and investment                                                                         ing 14 Overland Express Funds consisting of $5.1 billion
       preferred securities in late 1996. The increase in net interest     services income:                                                                                                                                             Table 5 shows the major components of noninterest expense.
                                                                                                                                                                      of assets) at December 31, 1996. In addition to managing
       income for 1997 compared with 1996 was primarily due to             Asser management
                                                                             and cusmdy fees                        249        214        129       16         66     Stagecoach FlU"lds, the Company also managed or main-
       an increase in earning assets.
                                                                           Murual fund                                                                                tained personal trust, employee benefit trust and agency
          Interest income included hedging income of $78 million
       in 1997, compared with $81 million in 1996. Interest
                                                                            mRnagement fees
                                                                           All other
                                                                                                                    175
                                                                                                                     26
                                                                                                                                129
                                                                                                                                 34
                                                                                                                                           71
                                                                                                                                           41
                                                                                                                                                    36
                                                                                                                                                   (24)
                                                                                                                                                               82
                                                                                                                                                              (17)
                                                                                                                                                                      assets of approximately $149 billion and $300 billion             TABL~ 5 NON INTEREST                      EXPENSE

                                                                                                                                                                      (including $245 billion from First Interstate) at December
       expense included hedging income of$.1 million in 1997,                Total tru,t anu investment                                                                                                                                 (in millions)                            Year ended December   31,           % Change
                                                                                                                    450        377        241       19         56     31, 1997 and 1996, respectively. The decrease in assets
       compared with $3.4 million in 1996.                                      services income
                                                                                                                                                                                                                                                                                 1997      1996      1995      1997/       1996/
                                                                         Investment ,ecurities                                                                        managed or maintained was due to the sale of the Corpo-                                                                                  1996        1995
                                                                           gains (Ios,es)                             20         10       (17)    100                 rate Trust business in the first quarter of 1997 and the sale
                                                                         Sale of joim                                                                                 of the Institutional Custody businesses which was substan-
                                                                           venture imeresr                                                163                (100)                                                                      Salaries                             $1,269 $1,357 $ 713                 (6)%        90 %
                                                                         Income from equity
                                                                                                                                                                      tially completed in the last half of 1997. The Company            Incentive compensation                  195    227   126                (14)         80
                                                                           investments accounted                                                                      managed $9.3 billion of Institutional Custody assets at           Employee benefits                       332    373   187                (11)         99
                                                                           for by the:                                                                                December 31,1997, compared with $85.0 billion at                                                                                           (4)
                                                                                                                                                                                                                                        Equipment                               385    399   193                            107
                                                                           Cost method                              157        137         58      15         136                                                                                                                      366   211                  6          73
                NET INTEREST MARGIN (%)                                                                                                                               December 31, 1996.                                                Net occupancy                           388
                                                                           Equity method                             57         24         39     138         (38)                                                                                                                                                          614
                                                                                                                                                                         Income from cost method equity investments in both             Goodwill                                326    250    35                 30
                                                                          heck printing charges                      70         61         39      15          56                                                                       Core deposit intangible:
6.25%····                       .                                        Gaino (Ios,e,) on ,ale,                                                                      1997 and 1996 reflected net gains on the sales of and distri-
                                                                                                                                                                                                                                          Nonqualifying (I)                      223        206                   8
                                                                           of loans                                   52         22       (40)    136                 butions from nonmarketable equity investments.
                                                                                                                                                                                                                                          Qualifying                              32         37        42       (14)        (12)
                                                                         Gaim (Iosse,) from di,position                                                                  At December 31, 1996, the Company had a liability of
6.00 ...                                                                   of operations                              15        (95)      (89)                                                                                          Operating lo,ses                         320        145        45       121         222
                                                                         Los,es on dispo,itions of
                                                                                                                                                                      $111 million related to the disposition of premises an I, to      Commcr ,ervices                          236        295       149       (20)         98
5.75                                                  .                    premi,es and equipment                (63)       (46)          (31)      37         48     a lesser extent, severance and miscellaneous expenses asso-       Telecom m un ications                    143        140        58         2         141
                                                                         All other                               139        102            50       36        104     ciated with branches not acquired as a result of the Merger.      Security                                  87         56        21        55         167
                                                                                                                --         --          --
                                                                              Toral                             $2,704 $2,200 $1,324                23 %       66 %   Of this amount, $15 million represented the balance of the        Postage                                   83         96        52       (14)         85
5.50                .                                                                                                                                                                                                                   Outside professional services             79        112        45       (29)        149
                                                                                                                                                                       1995 accrual for the sale of 13 branches and the closures
                        1995        1996       1997                                                                                                                                                                                     Auvenising and promotion                  74        116        73       (36)         59
                                                                         (I) Includes mortgage loan servicing fees rOlaling $98 million, $82 million an I
                                                                                                                                                                      of9 branches which were completed in 1997. At Decem-                                                                   76        37        (9)        105
                                                                                                                                                                                                                                        Starionery and supplies                   69
                                                                             $55 million for purchased mortgage servicing rights for 1997,1996 "nd 1995,              ber 31, 1996, the remaining balance consisted of a fourth         Travel and entertainment                  62         78        36       (21)        117
  Yield on tot,,1                                                            respectively. Also includes the relared amoni,ation expense of $69 million,              quarter 1996 accrual of $96 million for the disposition of        Check printing                            55         43        25        28          72
  earning assets        8.93%       8.81%     8.95%                          $63 million and $39 million for 1997, 1996 and 1995, respecrively.                        137 traditional branches in California. Of the $96 million,      Outside data processing                   49         55        11       (11)        400
  Rate on toral                                                                                                                                                       $48 million was associated with 68 branches that were             Foreclosed assers                         (33)        7         1                   600
  funding Sources       3.13        2.70      2.96                                                                                                                                                                                      All orher                                 175       203       141       (14)         44
                                                                                                                                                                      closed in 1997. In the fourth quarter of 1997, the Company                                              --         ----
                                                                           Credit card membership and other credit card fees                                          evaluated the remaining 69 scheduled branch closures and            Total                              $4,549 $4,637 $2,201                 (2)%      III    'Yo
                                                                                                                                                                                                                                                                              ===
                                                                         increased $111 million, or 96%, from 1996 reflecting an                                      decided to retain 37 branches, which resulted in reducing
                                                                         industry trend of increased fees.                                                             the liability by $27 million. The decision was made based        (J) Amortization of core deposit intnngibles acquired afrer February   1992 tlmt are
                                                                                                                                                                      on numerous factors, including the need to maintain cus-              subtracrecl from swckholdcrs' equity in computing regulatory capital for bank
                                                                                                                                                                                                                                            holdi ng companies.
TABLE 6         AVERAGE BALANCES, YIELDS AND RATES PAID (TAXABLE-EQUIVALENT BASIS) (1)(2)

                                                                                                                                                                                 1996                                            1995                                                                1994                                                                1993
(in millions)                                                                                               1997
                                                                      Average           Yields!        Interest                            Average           Yields/         Interest       Average           Yields/        Interest                         Average            Yields/        Interest                         Average            Yields/        Interest
                                                                      balance                                                              balance                           income!        balance            rates          income!                         balance             rates         income/                             balance          rates          income/
                                                                                         rates          income/                                               rare
                                                                                                       cxpenl;e                                                             expense                                          expense                                                            expense                                                            expense
EARNING ASSETS
Federal funds sold and securitie purcha ed
  under resale agreements                                         $     318              5.58%         $     18                        $      522             5.55%         $     29        $      69          5.94%         $      4                        $     189            3.51%         $       7                       $      734           3.17%         $      23
Investment securities:
  At fair value (3):
     U.S. Treasury securities                                          2,709             6.03               163                             2,460             5.77               142              499          6.34                31                              190            6.66                13
    Securities of U.S. government agencies
        and corporations                                               5,640             6.44               362                             6,980             6.20               435            1,426          5.55                81                            1,547            5.82                93
     Private collateralized mortgage obligations                       2,821             6.65               189                             2,691             6.39               174            1,095          6.24                71                            1,240            6.14                80
    Other securities                                                     333             6.28                19                               455             6.84                28               81         19.69                11                               76           14.13                  6
       Total investment securities at fait value
  At cost:
                                                                      11,503             6.39         -----n3                              12,586             6.18          -m              3}Of               6.17          -r94                                3,053            6.12          -----r92
     U.S. Treasury securities                                                                                                                                                                    1,246         4.88                61                            2,376            4.77               113                             2,283           5.03                115
    Securities of U.S. government agencies
        and corporations                                                                                                                                                                         4,428         6.07               269                            5,902            6.05               357                             7,974           6.41                511
     Private collateralized mortgage obligations                                                                                                                                                 1,124         5.87                66                            1,242            5.74                71                               864           4.16                 36
    Other securities                                                                                                                                                                               145         6.90                10                              133            5.75                 8                               189           5.67                 11
       Total investment securities at cost                                                                                                                                                       6,943         5.84          ----;rD6                             9,653           5.69          549                             1TJiO                5.95          ~
       TotaL investment securities                                    11,503             6.39               733                            12,586             6.18                              10,044         5.94          -----wo                             12,706           5.79          ~                               1TJiO                5.95          ~
Mortgage loan held for sale (3)                                                                                                                                                                  1,002         7.48                76
Loans:
  Commercial                                                          18,567            9.07               1,684                           16,640             9.02            1,501             8,635          9.88               853                            7,092            9.19               652                             7,154           9.36                670
  Real estate 1-4 family first mortgage                                9,697            7.50                728                             9,601             7.43              713             5,867          7.36               432                            8,484            6.85               581                             6,787           7.92                538
  Other real estate mortgage                                          11,608            9.70               1,126                           11,470             9.31            1,068             8,046          9.50               765                            8,071            8.68               700                             9,467           8.20                776
  Real estate construction                                             2,302           10.12                 233                            2,093            10.43              218             1,146         10.16               116                              977            9.29                91                             1,303           8.50                III
  Consumer:
    Real estate 1-4 family junior lien mortgage                      6,005              9.39                564                           5,801               9.09              528           3,349            8.61                288                           3,387            7.75               262                             3,916           6.97                273
    Credit card                                                      5,131             14.45                742                           4,938              14.87              734           3,547           15.59                552                           2,703           15.39               416                             2,587          15.62                404
    Other revolving credit and monthly payment                       7,750              9.27                718                           7,329               9.57              701           2,397           10.68                257                           2,023            9.60               194                             1,893           9.45                179
       Total consumer                                               18,886             10.72               2,024                         18,068              10.87            1,963           9,293           11.81              1,097                       8JI3
                                                                                                                                                                                                                                                                1,271
                                                                                                                                                                                                                                                                                 10.75
                                                                                                                                                                                                                                                                                  9.16
                                                                                                                                                                                                                                                                                                ----an
                                                                                                                                                                                                                                                                                                    116
                                                                                                                                                                                                                                                                                                                                     8,396
                                                                                                                                                                                                                                                                                                                                     1,190
                                                                                                                                                                                                                                                                                                                                                    10.19
                                                                                                                                                                                                                                                                                                                                                     9.83
                                                                                                                                                                                                                                                                                                                                                                   -ss6
                                                                                                                                                                                                                                                                                                                                                                          117
  Lease financing                                                    3,446              8.82                 304                          2,557               8.82              226           1,498            9.22                138
  Foreign                                                              119              6.95                   8                            145               6.62               10              23            7.54                  2                             31             5.06                  2                                7
       Total loans (4)(5)                                           64,625              9.45               6,107                         60,574               9.41            5,699          34,508            9.86              3,403                         34,039             8.85              3,014                           34,304           8.94
Other                                                                  853              6.91                  59                            432               6.29               27              62            5.47                  3                             54             5.89                  3
          Toral earning assets                                    $ 77,299              8.95               6,917                       $ 74,114               8.81            6,534         $45,685            8.93              4,086                        $46,988             8.00              3,765                           46,348           8.12

FUNDING SOURCES
Dep sits:                                                                                                                                                                               I
  Interest-bearing checking                                      $     1,803             1.34                 24                       $ 4,236                1.26                 53       $ 3,907             1.00               39                         $ 4,622               .98               45                         $ 4,626              1.18                55
  Market rate and other savings                                       32,031             2.61                837                           29,482             2.64                777        15,552             2.61              405                          18,921              2.34              442                          19,333              2.26               438
  Savings certificates                                                15,562             5.13                798                           14,433             4.93                712         8,080             5.25              424                           7,030              4.28              301                           7,948              4.37               347
  Other time deposits                                                    212             4.56                 10                              385             6.64                 27           385             6.14               24                             304              7.35               22                             331              7.19                24
  Deposits in foreign offices                                            629             5.37                 34                              336             5.19                 17         1,771             5.91              105                             925              4.75                44                                 7
       Total interest-bearing deposirs                                50,237             3.39              1,703                           48,872             3.25              1,586        29,695             3.36         -----wi                           31,802              2.69         -----s54                            32,245            2.68         --s64
Federal funds purchased and securities sold
  under repurchase agreements                                          2,844             5.40               154                             1,769             5.22                92             3,401          5.84              199                             2,223            4.45                99                            1,051            2.79                 29
Commercial paper and other short-tenn borrowings                         287             5.90                17                               369             4.13                16               544          5.82               32                               224            4.25                10                              207            2.90                  6
Senior debt                                                            1,933             6.31               122                             2,213             6.13               136             1,618          6.67              107                             1,930            5.29               102                            2,174            4.75                103
Subordinated debt                                                      2,751             7.03               193                             2,403             6.93               166             1,459          6.55               96                             1,510            5.94                90                            1,958            5.23                103
Guaranteed preferred beneficial interests in
  Company's subordinated debentures                                 1,287                7.82                101                             82               7.82                6
       Total interest-bearing liabilities                          59,339                3.86              2,290                         55,708               3.59            2,002          36,717             3.90                                           37,689              3.06                                           37,635              2.93
Portion of non interest-bearing funding sources                    17,960                                                                18,406                                               8,968                                                             9,299                                                              8,713
          Total funding sources                                  $ 77,299                2.96              2,290                       $ 74,114               2.70                          $45,685             3.13                                          $46,988              2.45             1,155                        $46,348              2.38
Net interest margin and net interest income                                                                                                                                                 =
  on a taxable-equivalent basis (6)                                                     5.99%          $4,627                                                 6.11 %        $4,532                              5.80%         $2,655                                               5.55%         $2,610                                               5.74%         $2,659

NON INTEREST-EARNING ASSETS
Cash and due from banks                                          $ 8,Q20                                                               $ 7,977                                              $ 2,681                                                           $ 2,618                                                            $ 2,456
Goodwill                                                            7,218                                                                 5,614                                                 399                                                               458                                                                501
Other                                                               7,023                                                                 5,687                                               2,002                                                             1,785                                                              1,805
         Total non interest-earning assets                       $ 22,261                                                              $ 19,278                                             $ 5,082                                                           $ 4,861                                                            $ 4,762
NON INTEREST-BEARING FUNDlNG SOURCES
Deposits                                                         $ 23,600                                                              $ 22,739                                             $ 9,085                                                           $ 9,019                                                            $ 8,482
Other liabilities                                                   3,396                                                                 2,796                                               1,142                                                             1,062                                                                997
Preferred stockholders' equity                                        366                                                                   779                                                 489                                                               521                                                                639
Common stockholders' equity                                        12,859                                                                11,370                                               3,334                                                             3,558                                                              3,357
Noninterest-bearing funding sources
  used to fund earning assets                                     (17,960)                                                              (18,406)                                             (8,968)                                                           (9,299)                                                            (8,713)
          Net non interest-bearing funding sources               $ 22,261                                                              $ 19,278                                             $ 5,082                                                           $ 4,861                                                            $ 4,762
TOTAL ASSETS                                                     $ 99,560                                                              $ 93,392                                             $50,767                                                           $51,849                                                            $51,110

(I) The average prime rare of the Bank was 8.44%, 8.27%, 8.83%, 7.14% and 6.00% for 1997, 1996, J 995, 1994 and 1993, respectively. The average three-month London                          (4) Imerest income includes loan fees, net of deferred costs, of approximately $86 million, $74 million, $41 million, $40 million and $41 million in 1997, 1996,1995, 1994
    Interbank Offered Rate (UBOR) was 5.74%, 5.51%, 6.04%, 4.75% and 3.29% for the same years, respectively.                                                                                    and 199 ,respectively.
(2) Interest rates and amounts include the effects of hedge and risk management activities associateLi with the respective asset ami liability categories.                                  (5) Nonacc..ual loans and related income are included in their respective loan categories.
(3) Yields arc based on amorrizeLi COSt balances. The average ",nortized cost balances for investment securities at fair value totaled $11.467 million, $12,610 milli n, $3,144 mil·        (6) Includes taxable-equivalent adjustments that primarily relate to income n certain loans ancl securities that is exempt from federal and applicable state income taxes.
    lion and $3,131 million in 1997, 1996, 1995 and 1994, respecrively. The average amortized cost balance for mortgage loans heiLi for sale totaled $1,012 million in 1995.                    The federal statutory tax rate was 35% for all years presented.

                                                                                                                                                                                                                                                                                                                                                                                m
r---------.,---------::-----------~----...,...-~-------~.........-l-.,;,...,..-......           ~- ._, _
                                                                                :.--_..".,.._.....                                                                                                                                       '-




         Salaries, incentive compensation and employee benefits       EARNINGS/RATIOS EXCLUDING
     expense decreased $161 million in 1997 compared with 1996.       GOODWILL AND NONQUALIFYING CDI
                                                                                                                                                               BALANCE SHEET ANALYSIS
     This was due to staff reductions after the merger with First
     Interstate. The Company's active full-time equivalent (FfE)      Table 7 reconciles reported earnings to net income exclud-
     staff, including hourly employees, was 33,100 at Decem-          ing goodwill and nonqualifying core deposit intangible
     ber 31,1997, compared with 36,902 at December 31,1996.           amortization ("cash" or "tangible") for the year ended                                   Acomparison between the year-end 1997 and 1996 balance                                          remaining maturity of the debt securities portfolio was
         The increase in operating losses in 1997 was predomi-        December 31, 1997. Table 8 presents the calculation of the                               sheets i presented below. The Bank's assets of $89.2 billion                                    1 year and 11 months at December 31,1997, compared
     nantly a result of back-office problems which arose              ROA, ROE and efficiency ratios excluding goodwill and                                    and $98.7 billion at December 31,1997 and 1996, respec-                                         with 2 years and 2 months at December 31, 1996. It has
     subsequent to certain systems conversions and other changes      nonqualifying core deposit intangible amortization and                                   tively, represented more than 90% of the Company's                                              been the intention of the Company to maintain a relatively
     to operating proce ses that were part of the First Interstate    balances for the year ended December 31,1997. These                                      consolidated assets at those dates.                                                             short-term expected maturity position in order to provide
      integration. These problems were related to clearing accounts   calculations were specifically formulated by the Company                                                                                                                                 additional liquidity and to fund future loan growth. Expected
     with other banks, misposting of deposits and loan payments       and may not be comparable to similarly titled measures                                                                                                                                   remaining maturities will differ from remaining contractual
                                                                                                                                                               INVESTMENT SECURITIES
     to customer accounts and processing of returned items. Since     reported by other companies. Also, "cash" or "tangible"                                  ..........................................................................................      maturities because borrowers may have the right to prepay
     the inception of these problems, management dedicated            earnings are not entirely available for use by management.                                                                                                                               certain obligations with or without penalties. It is more
     resources to resolve the increasing volume of ensuing sus-                                                                                                Total investment securities averaged $11.5 billion in 1997,                                     appropriate to monitor investment security maturities and
                                                                      See the onsolidated Statement of Cash Flows and Note 3
     pense items. In the secon I quarter of 1997, based on the                                                                                                 a 9% decrease from $12.6 billion in 1996. Total invest-                                         yields using prepayment assumptions since this better
                                                                      to Financial Statements for other information regarding
     age and volume of suspense items as well as additional                                                                                                    ment securities were $9.9 billion at December 31, 1997,                                         reflects what the Company expects to occur. (Note 4 to
                                                                      funds available for use by management.
     research and better insight, management determined that                                                                                                   a 27% decrease from $13.5 billion at December 31,1996.                                          Financial Statements shows the remaining contractual
     many of the items would not be cleared or collected.                                                                                                         Table 9 provides expected remaining maturities and                                           principal maturities and yields of debt securities.)
                                                                                      EARNINGS EXCLUDING GOODWILL                                              yields (taxable-equivalent basis) of debt securities within
     Consequently, it was determined that there was a need            TABLE 7         AND NONQUALIFYING COl
                                                                                                                                                               the investment portfolio. The weighted average expected
     to record an operating loss related to the outstanding
     items. Substantially all of these items were written off in      (in millions)                                      Year ended December 31, 1997
     the third quarter.                                                                          Reported                   Amoniza[ion          "Clsh"
                                                                                                                                                                                INVESTMENT SECURITIES
         Goodwill and COl amortization resulting from the
                                                                                                  earnings   Goodwill      Nonqualifying
                                                                                                                            core ueposit
                                                                                                                                               eanlings
                                                                                                                                                               TABLE 9          EXPECTED REMAINING MATURITIES AND YIELDS
     Merger were $292 million and $223 million, respectively,                                                                  inrangible
                                                                      Income before                                                                            (in millions)                                                                                                                                                   December 31, 1997
     for the year ended December 31, 1997, compared with
                                                                        income mx expense         $2,154       $ 326              $ 223        $2,70                                                   Toml      Weigh red      Weighted             Within one year         After one year             After five years           After ten years
     $216 million and $206 million, respectively, for the year          Income tax expense           999                             91         1,090                                                amOlln(       average        avcmge                                  rhrough five years          through ten years
     ended December 31, 1996. The core deposit intangible is                                       1,155
                                                                                                                                                                                                                      yield      expected      Amount          Yield    Amount         Yield     Amount           Yield     Amount           Yield
                                                                      Net income                                   326               l32         1,613                                                                         remaining
     amortized on an accelerated basis based on an estimated use-       Preferred srock                                                                                                                                       maturity (in
     fullife of 15 years. The impact on non interest expense from         dividends                     25                                          25                                                                          yrs.-mos.)
     the amortization of the nonqualifying core deposit intangi-      Net income applicable                                                                    U.S. Treasury securities              $2,535           6.04%           1-3       $1,130         5.83%    $1,404         6.21 %       $ 1            6.67%       $ -                 -%
     ble in 1998, 1999 and 2000 is expected to be $177 million,         [Q common srock           $1,130       $ 326              $ 132        $1,588     II   Securities of U.S.
                                                                      Earnings per                                                                               governmenr agencies
     $158 million and $144 million, respectively. The related                                     $12.77       $3.69                           $17.96                                                 4,390           6.68            2-3        1,910         6.80      2,032         6.58           371          6.90           77             5.30
                                                                        common share                                              $1.49                          and corporations
     impact on income tax expense is expected to be a benefit                                                                                                  Ptivate collateralized
                                                                      Earnings per                                                                                                                                                                                                                               10.08                      20.17
     of$72 million, $64 million and $58 million in 1998, 1999                                                                                                     mortgage obi igarions                2,390          6.76           1-6          l,097        7.04      1,265         6.41            24                          4
                                                                        common share -
                                                                        assuming dilution         $12.64       $3.65              $1.47        $17.77          Other                                     441          8.11           4-2             73        7.33        232         7.74           121         9.02            15        10.50
     and 2000, respectively.
         The Company has determined that a significant number                                                                                                  TOTAL COST OF
                                                                                                                                                                 DEBT SECURITIES (I)                 $9,756           6.60%          I-ll       $4,210         6.61 %   $4,933         6.49%        $517           7.54%       $ 96              6.69%
     of its computer softwar applications will need to be repro-                                                                                                                                                                                               -
                                                                                                                                                               ESTIMATED FAIR VALUE                  $9,823                                     $4,229                  $4,972                      $522                       $100
     grammed or, to a far lesser extent, replaced in order to                         RATIOS EXCLUDING GOODWILL AND
     maintain their functionality as the year 2000 approache .        TABU 8          NONQUALIFYING COl
     A comprehensive plan has been developed, with system                                                                                                      (I) The weighted average yielJ is computed u ing the amorrized cosr of available·for-sale uebt securities carried ar fair value. See Note 4 to the Financial Statement for fair
                                                                      (in millions)                                      Year ended December 31, 1997              value of available·for-sale securities by tl'pe of security.
     conversions and testing to be substantially completed by
     December 31, 1998. Add itionally, communications with                                ROA:           A/(C-E)    =     1.77%
     significant customers and vendors have been initiated to                             ROE:           B/(D·E)    =    34.39%
                                                                                                                                                                  The available-for-sale portfoliO includes both debt and                                       of stockholders' equity. At December 31,1997, the valuation
     determine the extent of risk created by tho e third parties'                         Efficiency:    (F·G)/H    =    54.64%
                                                                                                                                                               marketable equity securities. At December 31, 1997, the                                          allowance amounted to an unrealized net gain of $55 mil-
     fallure to remediate their own Year 2000 issue. However, it
                                                                      Net income                                                       $ 1,613    (A)          available-for-sale securities portfolio had an unrealized net                                    lion, compared with an unrealized net gain of $23 million
     is not possible, at present, to determine the financial effect
                                                                      Nct income applicable to COmmOn stock                              1,588    (B)          gain of $92 million, comprised of unrealized gross gains of                                      at December 31, 1996.
     if significant customer and vendor remediation efforts are
                                                                      Averagc [Oral assets                                              99,560    (e)          $112 million and unrealized gross losses of $20 million. At                                         The unrealized net gain in the debt securities portion of
     not resolved in a timely manner.                                 Average common stockholders' equity                               12,859    (D)          December 31, 1996, the available-for-sale securities port-                                       the available-for-sale portfolio at December 31, 1997 was
        The Company's noninterest expense for 1997 includes           Average goodwill ($7,218) and after-tax nonqualifying
                                                                        core deposit intangible ($1,023)                                    8,241 (E)          folio had an unrealized net gain of $41 million, comprised                                       primarily attributable to mortgage-backed securities, reflect-
     approximately $10 million associated with the Year 2000
                                                                      Noninterest expensc                                                   4,549 (F)          of unrealized gross gains of $107 million and unrealized                                         ing a decrease in interest rates since the time of purchase.
     issue. The Company currently estimates that it will incur
                                                                      Amortization expense for goodwill and nonqualifying                                      gross losses of $66 million. The unrealized net gaUL or loss                                     The Company may decide to sell certain of the available-
     (and expense) additional incremental, out-of-p cket costs          core deposit intangible                                              549 (G)
                                                                                                                                                               on available-for-sale securities is reported on an after-tax                                     for-sale securities to manage the level of eaming assets (for
     in the area of $100 million. Other costs associated with         Net interest income plus noninterest income                           7,318 (H)
                                                                                                                                                               basis as a valuation allowance that is a separate component                                      example, to offset loan growth that may exceed expected
     the redeployment of internal systems technology resources
     to the Year 2000 issue are expected to be significantly less
     than the incremental costs.
                                                                                                                                                                                       REAL ESTATE MORTGAGE LOANS BY STATE AND TYPE

       maturities and prepayments of securities). (See Note 4 to        in the residential mortgage and direct auto loan portfolios,
                                                                                                                                                                   TABLE 11            (EXCLUDING 1-4 FAMILY FIRST MORTGAGE LOANS)


       Financial Statements for investment securities carried at        where the Company has withdrawn from the business of                                       (in millions)                                                                                                                                                                  December 31, 1997
                                                                                                                                                                                                                                                                   Nevada (Z)                 Washington         Other states (3)               All states        Non-
       fair value by security type.)                                    being an active originator for its own balance sheet. Except                                                                                Califomia                       Textts
                                                                                                                                                                                                                                                                                                                                                               accruals
                                                                                                                                                                                                                                       Tutal         Non-                    Total       Total        Non-       Total        Non-      Toml         Non-
           At December 31,1997, mortgage-backed securities              for those portfolios, the Company expects to see growth in                                                                          Total         Non·                                                                                                                                  as a %
                                                                                                                                                                                                            loans      accrual         loans       accrual                   lo-ans      loans      accrual      loans      accrual     loans     accrual
                                                                                                                                                                                                                                                                                                                                                               of total
       included in securities of U.S. government agencies and           all major categories in 1998. The Company's total unfunded                                                                                                                                                                                                                             by rype
       corporations primarily consisted of pass-through securities      loan commitments decreased to $54.0 billion at Decem-
       and collateralized mortgage obligations (CMOs) and sub-          ber 31,1997, from $55.2 billion at December 31,1996.                                       Office buildings                      $2,200          $ 79          $197            $-                    $ 76       $101            $-     $ 603          $24 $ 3,177           $103              3%
       stantially all were issued or backed by federal agencies.           Commercial loans grew 3% to $20.1 billion at year-end                                   Retail buildings                       1,513            24           159             3                      49        148             1       552            4   2,421             32              1
                                                                                                                                                                   Industrial                             1,543            14            49                                    57         31             1       171            8   1,851             23              1
       These securities, along with the private CMOs, represented       1997, from $19.5 billion at December 31,1996. Total                                                                                                                                                                                                         1,374
                                                                                                                                                                   Hotels/morels                            399             4           107                                   364         12                     492                                   4
       $6,780 million, or 69% of the Company's investment secu-         unfunded commercial loan commitments decreased from                                                                                 927            17            71                                    23        132                     215            I   1,368             20               I
                                                                                                                                                                   Apartments
       rities portfoliO at December 31,1997. The CMO securities         $28.1 billion at December 31, 1996 to $27.5 billion at                                     Institutional                            334             9            29                                     8         64                      49            3     484             12              2
       held by the Company (including the private issues) are           December 31, 1997. Included in the commercial loan                                         Agricultural                             277             9            12                                                13                     37            4     339             13              4
       primarily shorter-maturity class bonds that were structured      portfolio are agricultural loans of $1 ,599 million and                                    Land                                     204             8            13                                     14          4                     35                  270              8              3
                                                                                                                                                                   1-4 family structures (I)                  2                                                                             5                                           7
       to have more predictable cash flows by being less sensitive      $1,409 million at December 31, 1997 and 1996, respec-                                                                                                                                                                                                         895             13
                                                                                                                                                                                                            394            8             77             4                      44         91                      289 (4)       1
       to prepayments during periods of changing interest rates.        tively. Agricultural loans consist of loans to finance                                     Other
                                                                                                                                                                                                         --             --             --              -                     --         --                     --             -   ---              --
                                                                                                                                                                      Total by state                     $7,793         $172           $714            $8                    $635       $601            $3     $2,443         $45 $12,186           $228               2%
       As an indication of interest rate risk, the Company has          agricultural production and other loans to farmers.
       estimated the impact of a 200 basis point increase in interest      Table 10 presents comparative period-end commercial                                        % of roral   loans                        64%                           6%                                 5%            5%                   20%                  100%
       rates on the value of the mortgage-backed securities and         real estate loans.                                                                            Nonaccruals as a %
                                                                                                                                                                        of roral by state                                     2%                           1%                                            -%                       2%
       the corresponding expected remaining maturities. Based on
       this rate scenario, mortgage-backed securities would decrease
       in fair value from $6,821 million to $6,594 million and the      TAHLE 10           COMMERCIAL REAL ESTATE LOANS                                            (I) Represents loans to real estate levelopers secmed by 1-4 family residential develupments.
       expected remaining maturity of these securities would                                                                                                       (2) There were no loans on nonaccnml at December 31, 1997.
                                                                        (in millions)                                         December 31,             % Change    (3) C nsists of 35 stares: no state had loans in excess of$370 million at December 31, 1997.
       increase from 2 years and 0 months to 2 years and 6 months.                                                                                                 (4) Includes loans secured by collateral pools of approximately $100 million (where the pool is a mixture of various real estate property types located in vatious states,
                                                                                                            1997          1996         1995    1997/       1996/
                                                                                                                                               1996        1995        non~real estareirelmed assets and other gU<.1r'.ln[ces).

       LOAN PORTFOLIO
                                                                        Commercial loans to
                                                                          real estate developers
                                                                          and REITs (I)                $ 1,772       $ 1,070      $     700      66 %       53%
       A comparative schedule of average loan balances is pre-
       sented in Table 6; year-end balances are presented in
                                                                        Other real estate
                                                                          mortgage (2)                  12,186        11,860        8,263          3        44
                                                                                                                                                                   TABLE 12            REAL ESTATE CONSTRUCTION LOANS BY STATE AND TYPE

       Note 5 to Financial Statements.                                  Real estate construcrion         2,320         2,303        1,366          1        69     (in millions)                                                                                                                                                                   December 31, 1997
                                                                                                                     ---
         Loans averaged $64.6 billion in 1997, compared with              Toral                        $16,278       $15,233      $10,329          7%       47%                                                 California       Nevada (I)                       Texas         Arizona (I)      Oregon (I)       Other states (2)              All states         Non-
                                                                                                                                                                                                                                                                                                                                                               accruals
       $60.6 billion in 1996. Total loans at December 31, 1997                                                                                                                                          TOlal         Non-            Toral          Total          Non-              Toral           Toral      Total         Non-     Total        Non-
                                                                                                                                                                                                                                                                                                                                                                ;J~ a 0/0
                                                                        Nonaccrual loans               $    252      $    376     $    371      (33)%         1%                                        loans                         loans          loans       ::lccrual            loans           loans      loans      accrual     loans      accrual
       were $65.7 billion, compared with $67.4 billion at year-end                                                                                                                                                  accrual                                                                                                                                     of total
                                                                        Nonaccrual loans as a                                                                                                                                                                                                                                                                   by type
       1996. The decrease in loans is primarily due to the run-off        % of toral                          1.5%         2.5%         3.6%
                                                                                                                                                                   Retail buildings                   $ 136           $-             $ 23            $ 10             $-              $ 6             $ 9        $163           $-     $ 347          $-               -gh
                                                                                                                                                                    1-4 family:
                                                                        (I) Included in commercial loans. (RElTs arc real esrate investment truSts.)                                                                                                                                                      7         77                   337
                                                                                                                                                                      Land                                238                            8                  7
                                                                        (2) Includes agricultural loans that are primarily secured by real estate of                                                                                                                                    27                3         50                   307              15           5
                                                                                                                                                                     Structures                           187           15              11                 29
                                                                            $343 million, $325 million and $250 millioo at December 31, 1997,
               LOAN MIX AT YEAR END (%)                                                                                                                            Land (excluding
                                                                            1996 and 1995, respectively.
                                                                                                                                                                     1-4 family)                          132                            3                 48                            2                3         66            7      253               7           3
                                                                                                                                                                   Apartments                           100                             14                  7                            6               46         53                   226
                                                 •
                                                 Commercial                                                                                                        Office buildings                      82                               I                20                           24               12         34                   173
            2.1..       29                                                 Table 11 summarizes other real estate mortgage loans by                                 Industrial                            81                              6                  9                            5                2         24                   127
                                     3..'...
                                                 • estate
                                                 Real                   state and property type.                                                                    Hotels/motels                        15                             36                  6                           48                7          5                   117
                                                                                                                                                                    lnstiturional                         7                              4                  3                            2               25          2                    43
            13
                                                 1-4 family                Table 12 summarizes real estate construction loans by state                              Agricultural                          1                                                                              4                                                  5
                                                 first mortgage
                        .IX          P..                                and project type.                                                                           Other                               131                            99             38                1               10              6         100                     385           1
                                                 • real estate                                                                                                                                       --                              --             --                -               --             --          --                    --             -
                                                                                                                                                                      Toral by srate                 $1,110            $15           $205           $177               $1             $134           $120        $574            $7    $2,320         $23              1%
            Z3                                   Other
100%                    19           19                                                                                                                                                              --                              --
                                                 mortgage
                                                                                                                                                                      % of roralloans                    48%                              9%                7%                            6%              5%        25%                   100%
            ...1..        3          ...1..                                                                                                                            Nonaccruals as a 0/0
                                                 Real estate
                                                                                                                                                                         of roral by srate                                1%                                            1%                                                        1%
                                                 construction
            ~.8..       3..0..       ~.?..
                                                 •
                                                 Consumer                                                                                                           (I) There were no I ans on nonaccrual at December 31, 1997.
              5                         5                                                                                                                           (2) Consists of 2 I states; no state had loans in excess of $75 million at December 31, 1997.

                 1995
                        ...1.-
                              1996        1997
                                                 •
                                                 Lease financing
                                                                                                                                                                                                  TABl~       14   CHANGES IN NONACCRUAL LOANS

NONACCRUAL AND RESTRUCTURED                                                                  nonaccrual and restructured loans and foreclosed assets,                                                                                                                                                   NONACCRUAL LOANS ($ BILLIONS)
                                                                                                                                                                                                  (in millions)                               Year ended December I,
LOANS AND OTHER ASSETS                                                                       respectively. )
                                                                                                                                                                                                                                                1997           1996
                                                                                                Table 14 summarizes the approximate changes in non-                                                                                                                                     $1                                                               .
                                                                                             accrual loans. The Company anticipates normal influxes of                                            Bal"nce, beginning of year                   $ 714         $ 538                                  1.2




                                                                                                                                                                                                                                                                                          ': . ·~~i~~:;~~=~
Table 13 presents comparative data for nonaccrual and                                                                                                                                             Nonaccrual loans of First Interstate                          201
                                                                                             nonaccrualloans as it further increases its lending activity                                                                                        441            655
restructured loans and other assets. Management's classifi-                                                                                                                                       New loans placed on nonaccrual
                                                                                             as well as resolutions of loan in the nonaccrual portfolio.                                          Chmge-offs                                    (171)          (48)
cation of a loan as nonaccrual or restructured does not
                                                                                             The performance of any individual loan can be impacted by                                            Payments                                      (434)          (312)
necessarily indicate that the principal of the loan is uncol-                                                                                                                                                                                     (5)          (101)
                                                                                             external factors, such as the interest rate environment or                                           Transfers t foreclosed assets
lectible in whole or in part. Table 13 exclude loans that                                                                                                                                         Luans retumed to accrual                       (17)        -.lli2)
                                                                                             factors particular to a borrower such as actions taken by a                                                                                                                                     o
are contractually past due 90 days or more as to interes[ or                                                                                                                                      Balance, end of year                         $ 528         $ 714                                  1993       1994   1995              1996      1997
                                                                                             borrower's management. In addition, from time to time, the
principal, bur are both well-secured and in the process of
                                                                                             Company purchases loans from other financial institutions
collection or are real estate 1-4 family first mortgage loans                                                                                                                                                                                                                          NEW LOANS PLACED ON NONACCRUAL ($ BILLIONS)
                                                                                             that may be classified as nonaccrual based on its policies.
or consumer loans that are exempt under regulatory rules
                                                                                                The Company generally identifies loans to be evaluated                                                                                                                                  $1.5                                                             .
from being classified as nonaccrual. This information is pre-
                                                                                             for impairment under FAS 114 (Accounting by Creditors                                                principal (unless both well-secured and in the process of
sented in Table 16. Notwithstanding, real estate 1-4 family
                                                                                             for Impairment of a Loan) when such loans are on nonac-                                              collection), when the full timely collection of interest or                             1.0·
loans (first and junior liens) are placed on nonaccrual                                                                                                                                                                                                                                             0.8
within 150 days of becoming pas[ due and are shown in
                                                                                             crual or have been restructured. However, not all nonaccrual                                         principal becomes uncertain or when a portion of the prin-                                        •                ---.~ 'O.4
                                                                                                                                                                                                                                                                                                                                        0.7
                                                                                             loans are impaired. Generally, a loan is placed on nonaccrual                                        cipal balance has been charged off. Real estate 1-4 family                                 .5 .              .. ~~.~05
                                                                                                                                                                                                                                                                                                                         :'.,' .
the table below. (Notes 1 and 5 to Financial Statements
                                                                                             status upon becoming 90 days past due as to interest or                                              loans (both first liens and junior liens) are placed on ,
describe the Company's accounting policies relating to
                                                                                                                                                                                                  flonaccrual status within 150 days of becoming past due as                                 O·
                                                                                                                                                                                                  to interest or principal, regardless of security. In contrast,                                    1993       1994   1995              1996      1997
                                                                                                                                                                                                  under FAS 114, loans are considered impaired when it is
TABL~ 13          NONACCRUAL AND RESTRUCTURED LOANS AND OTHER ASSETS                                                                                                                              probable that the Company will be unable to collect all
                                                                                                                                                                                                  amounts due according to the contractual terms of the loan
(in millions)                                                                                                                                                                   December 31,      agreement, including scheduled interest payments. For a
                                                                                                1997                        1996                1995                 1994                1993     loan that has been restructured, the contractual terms of
                                                                                                                                                                                                  the loan agreement refer to the contractual terms specified
Nonaccrualloans:
                                                                                                                                                                                                  by the original loan agreement, not the contractual terms               If interest due on the book balances of all nonaccrual
  Commercial (1 )(2)                                                                           $155                     $223                   $112                 $ 88              $ 252
  Real estate 1-4 family first mortgage                                                         104                       99                      64                  81                 99       specified by the restructuring agreement. Not all impaired           and restructureclloans (including loans no longer on
  Other real estate mortgage (3)                                                                228                      349                     307                328                 578       loans are necessarily placed on nonaccrual status. That is,          nonaccrual or restructured at year end) had been accrued
  Real estate construction                                                                       23                       25                      46                  58                235       restructured loans performing under restructured terms               under [heir original terms, $55 million of interest would
  Consumer:                                                                                                                                                                                                                                                            have been recorded in 1997, compared with $23 million
                                                                                                                                                                                                  beyond a specified pelformance period are classified as
    Real estate 1-4 family junior lien mortgage                                                   17                          15                   8                    11                   27
                                                                                                                                                                                                  accruing but may still be deemed impaired under FAS 114.             actually recorded.
    Other revolving credit and monthly payment                                                     1                           1                   1                     1                   3
  Lease financing                                                                                                             2                                                                      For loans covered under FAS 114, the Company makes                   Table 15 summarizes [he changes in foreclosed assets.
                                                                                                                            --                                                                    an assessment for impairment when and while such loans               Foreclosed assets at December 31, 1997 decreased to
       Total nonaccrual loans (4)                                                              528                          714                538                  567               1,194
Restructured loans (5)                                                                            9                           10                 14                    15                 6       are on nonaccrual, or the loan has been restructured.                $158 million from $219 million at December 31,1996.
                                                                                               --                           --                 --                   -                 --          When a loan with unique risk characteristics has been                Approximately 61 % of foreclosed assets at December 31,
Nonaccrual and restructured loans (6)                                                          537                          724                552                  582               1,200
As a percentage of toralloans                                                                    .8%                         l.l%               1.6%                  1.6%              3.6%      identified as being impaired, the amount of impairment will          1997 have been in the portfolio thre years or less, with
                                                                                                                                                                                                  be measured by the Company using discounted cash flows,              land and agricultural properties representing the majority
Foreclosed assets (7)                                                                            158                        219                 186                 272                 348
Real estate investments (8)                                                                         4                          4                 12                  17                  15       except when it is determined that the sole (remaining)               of the amount greater than three years old.
                                                                                               --                       --                     --                   -                 --          source of repayment for the loan is the operation or liquida-
Toral nonaccrual and restructured loans ,mcl other assets                                      $699                     $947                   $750                $871              $1,563
                                                                                                                                                                                                  tion of the underlying collateraL In such cases, the currenr

(I) Includes loans (primarily unsecured) to real estate developers and REITs of $1 million, $2 million, $18 million, $30 million and $91 million ar December 31, 1997, 1996,
                                                                                                                                                                                                  fair value of the collateral, reduced by costs to sell, will be      TABLE 15         CHANGES IN FORECLOSED ASSETS

    1995,1994 and 1993, respecrively.
                                                                                                                                                                                                  used in place of discounted cash flows. Additionally, some
                                                                                                                                                                                                                                                                       (in millions)                                         Year ended December 31,
(2) Includes agricultural loons of$13 million. $13 million, $6 million, $1 million and $9 million at December 31, 1997, 1996, 1995, 1994 and 1993, respecrively.                                  impaired loans with commitments of less than $1 million
                                                                                                                                                                                                                                                                                                                                 1997           1996
(3) Includes agricultural loans secured by real eSlate of$13 million, $10 million, $1 million, $3 million and $24 milliun at December 31,1997,1996,1995,1994 and                                  are aggregated for the purpose of measuring impairment
    1993, respectively.
                                                                                                                                                                                                  using historical loss factors as a means of measurement.             Balance, beginning of year                            $ 219             $ 186
(4) Of the rot"lnonaccru"lloans, $298 million, $493 million and $408 millinn at December 31, 1997, 1996 and 1995, respectively, lVere considered impaired under                                                                                                        Foreclosed assets of First Interstate                                      51
    FAS [14 (Accounting by Creditors for Impairment of a Loan).                                                                                                                                      If the measurement of the impaired loan is less than the          Additions                                                   95            141
(5) In addition to originated loans that lVere subsequently restructured, there lVere loans of $23 million, $50 million and $50 million 'at December 31, 1997, 1996 and 1995,                     recorded investment in the loan (including accrued interest,         Sales                                                     (146)          (129)
    respectively, that were purchased at a steep discount whose contractual terms were modified afrer acquisirion. The modified terms did not "ffect the book b"lance nor the                     net deferred loan fees or costs and unamortized premium or           Charge-offs                                                (11)           (20)
    yields expected at the date of purchase. Of the totalrestrl,ctu"ed loans and loans purchased at a sreep discount, $23 million, $50 million and $50 million were considered                                                                                         Write-clowns                                                (5)            (5)
    impaired under FAS 114 at December 31,1997,1996 and 1995, respectively.
                                                                                                                                                                                                  discount), an impairment is recognized by creating or adjust-
                                                                                                                                                                                                                                                                       Other                                                        6             (5)
(6) Related commitments to lend additi nal funds were approximately $14 million <It December 31, 1997.                                                                                            ing an existing allocation of the allowance for loan losses.
(7) Includes ogricultural properties of$16 million. $17 million, $22 million, $23 million and $26 million   ,It   December 11, 1997, 1996, 1995, 1994 and 199.1, respectively.                    FAS 114 does not change the timing of charge-offs of loans           Balance, end of year                                  $   158           $ 219
(8) Represents the amoun( of real estate investments (contingent interest loans accounred for as investments)       d1;.H   wuuld be c1assifieJ as nonaccruc.ll i( such assets were luans.        to reflect the amount ultimately expected to be collected.
   Real estate investments totaled $172 million, $154 million, $95 million, $54 million and $34 million at December 31, [997, 1996, 1995, 1994 and 1993, respectively.
                                                                                                                                                TABU 17         NET CHARGE-OFFS BY LOAN CATEGORY
LOANS 90 DAYS OR MORE PAST DUE                                          As both the economic environment and the credit quality
AND STILL ACCRUING                                                      of the Company's loan portfolio improved, the Company                   (in millions)                                                                                               Year ended December 31,

                                                                        began reducing its provision in 1993 and 1994. In 1995,                                                                                    1997                        1996                           1995
Table 16 shows loans contractually past due 90 days or                                                                                                                                                           ---
                                                                        as California continued to make progress in its economic                                                                       Amount      0/0 of       Amount         %of         Amount             %0£
more as to interest or principal, but not included in the                                                                                                                                                        average                     average                       average
nonaccrual or restructured categories. All loans in this                recovery and as the Company considered the allowance for                                                                                   loans                       loans                         loans
category are both well-secured and in the process of collec-            loan losses adequate in relation to its existing loan portfolio,
tion or are real estate 1-4 family first mortgage loans or              no provision was made. In April 1996, the Company                       Commercial                                               $199      1.06 %         $ 86          .50 %         $ 17             .19 %
                                                                        absorbed the $770 million allowance for loan losses of First            Real estate 1-4 family first mortgage                      15       .15             10          .11             10             .17
consumer loans that are exempt under regulatory rules from                                                                                      Other real estate mortgage                                (35)     (.30)            (7)        (.06)             (1)          (.02)
being classified as nonaccrual because they are automatically           Interstate as a result of the Merger. In the third quarter of
                                                                                                                                                Real estate construction                                   (8)     (.34)             2          .09              9             .80
                                                                        1996, the Company began making a provision for loan losses
charged off after being past due for a prescribed period
                                                                        of $35 million due to the level of charge-offs and increased
                                                                                                                                           •    Consumer:
(generally, 180 days). Notwithstanding, real estate 1-4                                                                                           Real estate 1-4 family junior lien mortgage              15       .25             19          .33             13              .40
family loans (first liens and junior liens) are placed on
nonaccrual within 150 days of becoming past due and
                                                                        that amount by $35 million for each succeeding quarter
                                                                        through the third quarter of 1997. The provision for loan          1      Credit card
                                                                                                                                                  Other revolving credit and monthly payment
                                                                                                                                                                                                          438
                                                                                                                                                                                                          152
                                                                                                                                                                                                          605
                                                                                                                                                                                                                   8.54
                                                                                                                                                                                                                   1.98
                                                                                                                                                                                                                   3.21
                                                                                                                                                                                                                                   368
                                                                                                                                                                                                                                   139
                                                                                                                                                                                                                                   526
                                                                                                                                                                                                                                               7.44
                                                                                                                                                                                                                                               1.91
                                                                                                                                                                                                                                               2.91
                                                                                                                                                                                                                                                               195
                                                                                                                                                                                                                                                                41
                                                                                                                                                                                                                                                               249
                                                                                                                                                                                                                                                                              5.46
                                                                                                                                                                                                                                                                              l.73
                                                                                                                                                                                                                                                                              2.67
such nonaccrualloans are excluded from Table 16.                        losses totaled $105 million in 1996 and $615 million in 1997.      ,I        Toral consumer
                                                                        As it had done in the fourth quarter of 1997, the Company               Lea e financing                                            29       .86             23          .89              4                .31
                                                                        anticipates that it will continue to make a provision for                 Total net loan charge-offs                             $805      1.25 %         $640         1.05 %         $288                .83 %
                                                                                                                                                                                                                                                              --
TABL~ 16
                 LOANS 90 DAYS OR MORE PAST DUE
                 AND STILL ACCRUING
                                                                        loan losses of approximately $195 million each quarter in
                                                                        1998, which is expected to approximate net charge-offs. Net
                                                                                                                                           !
                                                                                                                                           'I
                                                                                                                                                                                                                   --                          -                              -



(in millions)                                           December 31 ,   charge-offs in 1997 were $805 million, or 1.25% of average
                           1997   1996   1995    1994           1993    total loans, compared with $640 million, or 1.05%, in 1996                 Any loan that is past due as to principal or interest and     losses may fluctuate from period to period. Although man-
                                                                        and $288 million, or .83%, in 1995. Loan loss recoveries                that is not both well-secured and in the process of collection   agement has allocated a portion of the allowance to specific
Commercial                 $ 8    $ 65   $ 12   $ 6             $4      were $273 million in 1997, compared with $220 million in                is generally charged off (to the extent that it exceeds the      loan categories, the adequacy of the allowance must be
Real estate
  1-4 family                                                            1996 and $134 million in 1995. Table 17 summarizes net                  fair value of any related collateral) after a predetermined      considered in its entirety.
  fi rst mortgage            35     42      8     18             19     charge-offs by loan category.                                           period of time that is based on loan category. For example,         The Company's determination of the level of the
Other real estate                                                          The commercial loan category in 1997 includes net                    credit card loans generally are charged off within 180 days      allowance and, correspondingly, the provision for loan losses
  mortgage                    5     59     24     47             14
Real estate
                                                                        charge-offs for the commercial loan component of small                  of becoming past due. Additionally, loans are charged off        rests upon various judgments and assumptions, including
  construction                1      4      -       -             8     business loans of $109 million (or 2.91 % of average small              when classified as a loss by either internal loan examiners      general (particularly California's) economic conditions, loan
Consumer:                                                               business loans in this category), compared with $50 million             or regulatory examiners.                                         portfolio composition, prior loan loss experience and the
  Real estate
       1-4 family junior                                                (or 1.89%) in 1996 and $18 million (or 1.27%) in 1995.                     The Company has an established process to determine           Company's ongoing examination process and that of its
      lien mortgage          42     23      4      4              6     During 1997, the period for charging off past due loans                 the adequacy of the allowance for loan losses which assesses     regulators. The Company has an internal risk analysis and
  Credit card               133    120     95     42             43     for the Business Direct product within this portfolio was               the risk and losses inherent in its portfolio. This process      review staff that reports to the Board of Directors and
  Other revolving
      credit and
                                                                        changed from 180 to 120 days. The impact of this change                 provides an allowance consisting of two components, allo-        continuously reviews loan quality. Such reviews also assist
       monthly                                                          was an increase in gross charge-offs of approximately                   cated and unallocated. To arrive at the allocated component      management in establishing the level of the allowance.
      payment                19     20      1       1             1     $15 million. The target market for small business loans                                                                                  Similar to a number of other large national banks, the Bank
                                                                                                                                                of the allowance, the Company combines estimates of the
     Toral consumer         194    163    100   ----±l           50     is expected to experience higher loss rates on a recurring              allowances needed for loans analyzed individually (includ-       has been for several'years and continues to be examined by
  Total                    $243   $333   $144   $118            $95     basis than is the case with loans to middle market and                  ing impaired loans subject to FAS 114) and loans analyzed        its primary regulator, the Office of the Comptroller of the
                                  --     --
                                                                        corporate borrowers, and such loans are priced at appro-                on a pool basis. While coverage of one year's losses is often    Currency (OCC), and has acc examiners in residence.
                                                                        priately higher spreads.                                                adequate (particularly for homogeneous pools of loans), the      These examinations occur throughout the year and target
                                                                           The largest category of net charge-OffS in all periods               time period covered by the allowance may vary by portfolio,      various activities of the Bank, including speci.fic segments
ALLOWANCE FOR LOAN LOSSES                                               presented was credit card loans, comprising more than                   based on the Company's best e timate of the inherent             of the loan portfolio (for example, commercial real estate
                                                                        50% of the tOtal net charge-offs. During 1997, credit card              losses in the entire portfolio as of the evaluation date. The    and shared national credits). In addition to the Bank being
An analysis of the changes in the allowance for loan                    gross charge-offs due to bankruptcies were $204 million,                Company has deemed it prudent, when reviewing the over-          examined by the OCC, the Parent and its nonbank sub-
losses, including charge-offs and recoveries by loan cate-              or 42%, of total credit card charge-offs, compared with                 all allowance, to maintain a total allowance in excess of        sidiaries are examined by the Federal Reserve.
gory, is presented in Note 5 to Financial Statements. At                $163 million, or 40%, and $82 million, or 39%, in 1996                  projected losses. To mitigate the imprecision inherent in           The Company considers the allowance for loan losses of
December 31, 1997, the allowance for loan losses was                    and 1995, respectively. In addition, credit card loans 30               most estimates of expected credit losses, the allocated com-     $1,828 million adequate to cover losses inherent in loans,
$1,828 million, or 2.78% of total loans, compared with                  to 89 days past due and still accruing totaled $173 million             ponent of the allowance is supplemented by an unallocated        commitments to extend credit and standby letters of credit
$2,018 million, or 3.00%, at December 31,1996 and                       at December 31,1997, compared with $199 million and                     component. The unallocated component includes manage-            at December 31, 1997.
$1,794 million, or 5.04%, at December 31, 1995. During                  $127 million at December 31,1996 and 1995, respectively.                ment's judgmental determination of the amounts necessary
1991 and 1992, the Company had a significantly higher                                                                                           for concentrations, economic uncertainties and other sub-
provision for loan losses than prior years resulting from a                                                                                     jective factors; correspondingly, the relationship of the
nationwide (particularly California) recession as well as the                                                                                   unallocated component to the total allowance for loan
Company's examination process and that of its regulators.
          DEPOSITS                                                                                    CERTAIN FAIR VALUE INFORMATION                                     and due from banks (0% to 20%), 1-4 falllily first mortgage                                 are exp cted to have ratios of at least 4% t05%, depending
                                                                                                                                                                         loans (50%) and private collateralized mortgage obligations                                 upon their particular condition and growth plans. Higher
        Comparative detail of average deposit balances is presented                                   FAS 107 (Disclosures about Fair Value of Financial Instru-         backed by 1-4 family first mortgage loans (50%).                                            leverage ratios could be required by the particular circum-
        in Table 6. Average core deposits increased 3% in 1997                                        ments) requires that the Company disclose estimated fair                                                                                                       stances or risk profile of a given banking organization.
        compared with 1996 largely due to the Merger. This was                                        values for certain financial instruments. Quoted market                                   RISK-BASED CAPITAL AND
                                                                                                                                                                                                                                                                     The Company's leverage ratios were 6.95% and 6.65% at
        partially offset by divestitures of branches and sales of                                     prices, when available, are used to reflect fair values. If        TABLE 19               LEVERAGE RATIOS                                                      December 31, 1997 and 1996, respectively. The increase
        former First Interstate banks which occurred in 1996 and                                      market quotes are not available, which is the case for most                                                                                                    in the leverage ratio at December 31, 1997 compared with
                                                                                                                                                                         (in billions)                                                            December 3 I,
        sales of branches in 1996 and 1997, including $3.9 billion                                    of the Company's financial instruments, management has                                                                                                         December 31, 1996 resulted primarily from a decrease in
                                                                                                                                                                                                                                         1997                1996
        of core deposits. Average core deposits funded 73% and                                        provided its best estimate of the calculation of the fair values                                                                                               quarterly average total assets.
                                                                                                                                                                         Tier 1:
        76% of the Company's average total assets in 1997 and                                         using discounted cash flows. Fair value amounts differ from          Common stockholders' equity                               $ 12.6             $ 13.5
        1996, respectively.                                                                           book balances because fair values attempt to capture the             Preferred stock (I)                                           .3                 .4       FEDERAL DEPOSIT INSURANCE CORPORATION
                                                                                                                                                                           Guaranteed preferred beneficial interests in                                              IMPROVEMENT ACT OF 1991 (FDICIA)
           Year-end deposit balances are presented in Table 18.                                       effect of current market conditions (for example, interest             Company's subordinated debentures                            1.3                 1.2
                                                                                                      rates) on the Company's financial instruments.                        Goodwill and other deductions (l)                             (8.l)              (8.5)   In addition to adopting a risk-based assessment system,
                                                                                                         There was an increase in the excess (premium) of the                  Total Tier 1 capital                                       6.1                 6.6    FDlCIA requir d that the federal regulatory agencies adopt
          TABLE             18       DEPOSITS                                                         fair value over the carrying value of the Company's finan-         Tier 2:
                                                                                                                                                                                                                                                                     regulations defining five capital tiers: well capitalized,
                                                                                                      cial instruments at December 31, 1997 compared with                  Mandatory converti ble debt                                  .1                     .2    adequately capitalized, undercapitalized, significantly under-
          (in millions)                                                  December 31.          %                                                                                                                                       2.0                    2.1
                                                                                           Change
                                                                                                      December 31, 1996. The Company's FAS 107 disclosures                 Subordinated debt and unsecured senior debt                                               capitalized and critically undercapitalized. Under the regu-
                                                                 1997               1996
                                                                                                      are presented in Note 20 to Financial Statements.                     Allowance for loan losses allowable in Tier 2              1.0
                                                                                                                                                                                                                                     ---
                                                                                                                                                                                                                                                              1.1    lation , a "well capitalized" institution must have a Tier 1
                                                                                                                                                                               Toral Tier 2 capiral                                       3.1                 3.4    RBC ratio of at least 6%, a total capital ratio of at least 10%
        Noninterest-bearing                                $23,953             $29,073        (18)%                                                                                                                                  --
        lmerest-bearing checking                             2,155               2,792        (23)                                                                                Total risk-based capital                           $    9.2           $ 10.0       and a leverage ratio of at least 5% and not be ubject to a
                                                                                                      CAPITAL ADEQUACy/RATIOS
          Market rare and
                                                                                                                                                                                                                                                        $ 82.2
                                                                                                                                                                                                                                                                     capital directive order. The Bank had a Tier 1 RBC ratio of
           other savings                                       29,940           33,947        (12)                                                                       Risk-weighted balance sheet assets                          $ 77.6
        Savings certificates                                   15,349           15,769         (3)                                                                       Risk.weighted off· balance sheet items:                                                     8.34%, a total capital ratio of 11.18% and a leverage ratio
                                                                                                      The Company uses a variety of measures to evaluate capital                                                                                                     of 7.21 % at December 31, 1997, compared with 8.53%,
                                                                                                                                                                            Commitments to make or purchase loans                         9.4                10.1
               Core deposits                                   71,397           81,581        (12)    adequacy. Management reviews the various capital measures             Standby letters of credit                                     1.6                 2.1    11.00% and 6.81 % at December 31, 1996, respectively.
          Other time deposits                                     205              186         10
                                                                                                      monthly and takes appropriate action to ensure that they              Other                                                          .7                   .5
          Deposits in foreign offices                             597               54                                                                                                                                               ---                --
                                                                                                      are within established intemal and extemal guidelines. The               Total risk-weighted off-balance sheet items               11.7                12.7
                   Total deposits                          $72,199             $81,821        (12)%                                                                                                                                                     --           MARKET RISKS
                                                                                                      Company's current capital position exceeds current guide-          Goodwill and other deductions (2)                                (8.l)              (8.5)
                                                                                                      lines established by industry regulators.                          Allowance for loan losses not included in Tier 2                  (.8)               (.9)
                                                                                                                                                                                  Total risk-weighted assets                         $ 8Q.4             $ 85.5       Matket risk is the exposure to loss resulting from changes
                                                                                                      RISK-BASED CAPITAL RATIOS                                                                                                                                      in interest rates, foreign currency exchange rates, commodity
                                                                                                                                                                         Risk-based capital ratios:
                                                                                                      The Federal Reserve Board (FRB) and the oce issue risk-                                                                                                        prices and equity prices. The primary market risk to which
                                                                                                                                                                            Tier 1 capital    (4% minimum requirement)                    7.61%              7.68%
                                                                                                      based capital (RBC) guid lines for bank holding companies             Toral capital    (8% minimum requirement)                    11.49              11.70
                                                                                                                                                                                                                                                                     the Company is exposed is interest rate risk. The majority
                                                                                                      and national banks, respectively. The FRB is the primary                                                                                                       of the Company's interest rate risk arises from the instru-
                                                                                                                                                                         Leverage ratio (3% minimum requirement) (3)                     6.95%              6.65%
                                                                                                      regulator for the Parent and the OCC is the primary regula-                                                                                                    ments, positions and transactions entered into for purposes
     CORE DEPOSITS AT YEAR END ($ BILLIONS)
                                                                                                      tor for the Bank. RBC guidelines establish a risk-adjusted                                                                                                     od1er than trading. They include loans, investment securi-
                                                                                                                                                                         (1) Excludes $175 million of Series D preferred stock at December J 1, 19 6
                                                                                                                                                                                                                                                                     ties, deposit liabilities, short-term borrowings, senior and
$90"""""'"
                                              81.6                  •
                                                                    Noninterest#
                                                                                                      ratio relating capital to different categories of assets and           due to the Compan\"s December 1996 announcement to redeem rhis series
                                                                                                                                                                             in March 1997.                                                                          subordinated debt and derivative financial instruments used
                                                                    bearing
                                                                                                      off-balance sheet exposures. (See Note 18 to Financial
                                                                                                                                                                         (2) Other deductions include COl acquired aftcr February 1992 (nonqualifying                for asset/liability management. Interest rate risk occurs when
                                                          71.4                                        Statements for additional information.)                                COl) and the unrealized ncr gain (loss) un available·for·sale securities
                                                                                                         The Company's total RBC ratio at December 31,1997                   carried at fair value.                                                                  assets and liabilities reprice at different times as interest rates
60 .. ·.. ·.. ·· ..···· .. ····   ·.. ·.. ·               ..        •
                                                                    Interest-bearing                  was 11.49% and its Tier 1 RBC ratio was 7.61 %, exceeding          (3) Tier I capital divided by quarterly avemge total assets (excluding goodwill,            change. For example, if fixed-rate assets are funded with
                                                                                                                                                                             nonqualifying COl ~nd orher itelTIs which were deducted to arrive ar                    floating-rate debt, the spread between assets and liability
                                                                    checking                          the minimum guidelines of 8% and 4%, respectively. The                 Tier I capital).
                                                                                                      ratios at December 31,1996 were 11.70% and 7.68%,                                                                                                              rates will decline or turn negative if rates increase. The
                      37.9                                                                                                                                                                                                                                           Company refers to this type of risk as "term structure risk."
                                                                    • rate &                          respectively. The decrease in the Company's RBC ratios at
                                                                                                                                                                         LEVERAGE RATIO                                                                              There is, however, another source of inter st rate risk which
30 .. ·        ·       ·                      ..                    Market                            December 31, 1997 compared with 1996 resulted substan-
                                                                    other savings
                                                                                                      tially from the repurchase of common stock.                        To supplement the RBC guidelines, the FRB established a                                     results from changing spreads between asset and liability
                                                                                                         The Company's risk-weighted assets are calculated as            leverage ratio guideline. The leverage ratio consists of                                    rates. The Company calls this type of risk "basis risk;" it is
                                                                    •
                                                                    Savings
                                                                                                      shown in Table 19. Risk-weighted balance sheet assets were         Tier 1 capital divided by quarterly average total assets,                                   the Company's main source of interest rate risk and is sig-
                                                                                                                                                                                                                                                                     nificantly more difficult to quantify and manage than term
                                                                    certificates                      $19.9 billion and $26.7 billion less than total assets on the      excluding goodwill and certain other items. The minimum
 0         ·           ·                             ..
                                                                                                      consolidated balance sheet of $97.5 billion and $108.9 bil-        leverage ratio guideline is 3% for banking organizations                                    structure risk. The two most significant components of
                      1995                    1996        1997
                                                                                                      lion at December 31, 1997 and 1996, respectively, as a             that do not anticipate significant growth and that have                                     basis risk are the spread between Prime-based loans and
                                                                                                      result of weighting certain types of assets at less than 100%;     well-diversified risk, excellent asset quality, high liquidity,                             market rate account (MRA) savings deposits and the rate
                                                                                                      such assets, for both December 31,1997 and 1996, substan-          good earnings and, in general, are considered top-rated,                                    paid on savings and interest-bearing checking accounts as
                                                                                                      tially can isted of claims on or guarantees by the U.S. gov-       strong banking organizations. Other banking organizations                                   compared to LlBOR-basecl loans.
                                                                                                      emment or its agencies (risk-weighted at 0% to 20%), cash
                                                                                                                                         -
                                                                                                                                              TABLE 2~             DERIVATIVE ACTIVITIES


   Interest rate risk is managed within an overall asset/lia-                                                                                 (notional or contractu .... 1 amOul1lS in 111i1!ions)                                                                                                  Year ended December 31, 1997
                                                                  tions and provide more stable spreads between loan yields
bility framework for the Company. The principal objectives                                                                                                                                                                Beginning         Additions         Expirarions         Tcrminarions (2)          Ending            Weighted
                                                                  and the rates on their funding sources. For example, the                                                                                                                                                                                  balance
                                                                                                                                                                                                                            balance                                                                                                average
of asset/liability management are to manage the sensitivity       Company uses interest rate futures to shorten the rate matu-                                                                                                                                                                                                 expected
                                                                                                                                                                                                                                                                                                                              rCI11:-1ining
of net interest spreads to potential changes in interest rates    rity of MRA savings deposits to better match the maturity                                                                                                                                                                                                 maturity (in
and to enhance profitability in ways that promise sufficient      of Prime-based loans. The Company also purchases interest                                                                                                                                                                                                    )'rs.-mos.)
reward for understood and controlled risk. Funding positions      rate floors to protect against the loss in interest income on               Interest rate contracts:
                                                                                                                                                Swaps                                                                     $l8,986            $19,138            $18,399                  $266           $19,459       (3)            2-9
are kept within predetennined limits designed to ensure that      LIBOR-based loans during a decreasing interest rate envi-
                                                                                                                                                Futures                                                                     5,198             26,335             22,145     (I)           742             8,646                     0-10
risk-taking is not excessive and that liquidity is properly       ronment. Additionally, receive-fixed rate swaps are used to                    Floors purchased                                                          21,044              2,798              1,819                   l55            21,868       (4)            2-1
managed. The Company employs a sensitivity analysis in            convert floating-rate loans into fixed rates to better match                  Caps purchased                                                              2,523              1,633              1,080                                   3,076                      2-4
the form of a net interest income imulation to help char-         the liabilities that fund the loans.                                           Floors written                                                               405                823                106                                      1,122                    -0
acterize the market risk arising from changes in interest rates                                                                                 Caps written                                                                2,174              1,682                968                      17              2,871                   2-5
                                                                     Looking toward managing interest rate risk in 1998, the
                                                                                                                                                Options purchased                                                                                540                461                                         79                   0-1
in the other-than-trading portfolio.                              Company will continue to face term structure risk and basis                                                                                                                                                                                                        0-1
                                                                                                                                                Options written                                                                                   27                                                            27
   The Company's net interest income simulation includes          risk and may be confronted with several risk scenarios. If                     Forwards                                                                                         59                                                            59                   0-4
all other-than-trading financial assets, financial liabilities,   interest rates rise, net interest income may actually increase              Foreign exchange contracts:
derivative financial instruments and leases where the             if deposit rates lag increases in market rates (e.g. Prime,                    Forwards and spots                                                          U77                 73,365          72,832                                      1,910                    0-2
                                                                                                                                                 Options purchased                                                            65                    320             275                                        110                    0-3
Company is the lessor. It captures the dynamic nature of          LIBOR). The Company could, however, experience signifi-
                                                                                                                                                 Options written                                                              59                    316             265                                        110                    0-6
the balance sheet by anticipating probable balance sheet and      cant pressure on net interest income if there is a substantial
off-balance sheet strategies and volumes under different          increase in deposit rates relative to market rates. This basis
                                                                                                                                              (I) To facilitate the settlement process, the Company enters into offsetting C0l1rracts Z to 45 days prior to their maturity date. Concurrent with the closing of these positions,
interest rate scenarios over the course of a one-year period.     risk potentially could be hedged with interest rate caps, but                   the Company generally enters into new interest rate futures and forward contracts with ::l later expiration date since the Company's use of rhese contracts predominantly
This simulation measures both the term structure risk and         the Company believes they are not cost-effective in relation                    relates to ongoing hedging programs.
the basis risk in the Company's positions. The simulation                                                                                     (2) Terminations occur if a customer that purchased a contract decides [Q cancel it before the maturity date. If the customer contract was hedged, the Company terminates the
                                                                  to the risk they would mitigate.
                                                                                                                                                  interest rate derivative instrument used to hedge the customer's contract upon cancellation. The impacl of termll'wtions on incorne before incorne taxes for 1997 was a loss
also captures the option characteristics of products, such as        A declining interest rate environment might result in a                      of less [han $.5 million.
caps and floors on floating rate loans, the right to prepay       decrease in loan rates, while deposit rates remain relatively               (3) See Table 21 for furrher details of maturities and average rates received or paid.
mortgage loans without penalty and the ability of customers       stable, as they did between 1994 and 1996. This rate scenario               (4) Includes forward noors, which will hedge loans, of $3 million starring in February 1998, $2,000 million statting in October 199 , $1,200 million starring in January 1999,
                                                                                                                                                  $20 million srarting in March 1999, $63 million starting in June 1999 and $5 million starting in October 2000.
to withdraw deposits on demand. These options are modeled         could also create significant risk to net interest income.
directly in the simulation either through the use of option       The Company has partially hedged against this risk with
pricing models, in the case of caps and floors on loans,          interest rate floor and receive-fixed rate swap contracts. The
or through statistical analysis of historical customer            Company will be entering into new receive-fixed rate swaps                  TABLE 21             INTEREST RATE SWAP MATURITIES AND AVERAGE RATES (I)

behavior, in the case of mortgage loan prepayments or             in the first quarter of 1998 to replace maturing swaps and                  (nOtional amounts in millions)                                       1998                   1999                2000                    2001           Thereafter                      Toml
non-maturity deposits.                                            help maintain the existing hedge against a falling interest
   The Company uses four standard scenarios - rates               rate environment. Based on its current and projected bal-                   Receive-fixed rate (hedges loans)
                                                                                                                                                Notional amount                                                $1,900                 $2,628              $3,639                   $2,607              $      88               $10,862
unchanged, expected rates, high rates and low rates - in          ance sheet, the Company does not expect that a change in
                                                                                                                                                Weighted average rate received                                   5.94%                  6.84%               6.74%                    6.59%                  6.77%                 6.59%
analyzing interest rate sensitivity. The expected scenario        interest rates would affect its liquidity position.                           Weighted average rate paid                                       5.99                   5.97                5.94                     5.87                   6.26                  5.94
is based on the Company's projected future interest rates,
                                                                                                                                              Receive-fixed rate (hedges senior and
while the high-rate and low-rate scenarios cover 90% prob-        DERIVATIVE FINANCIAL INSTRUMENTS                                              subordinated debtl
able upward and downward rate movements based on the                                                                                            Notional amount                                                $     67               $                   $                        $ 314               $1,158                  $ \ ,539
Company's own interest rate models. For example, the low-                                                                                       Weighted average rate recei ved                                    8.38%                    -'Yo                 -'Yo                7.52%               7.40%                     7.47%
rate scenario would have the 5-year Treasury rate of 4.61 %       The Company uses interest rate derivative financial instru-                   Weighted average rate paid                                         5.97                                                              5.89                6.05                      6.02

at December 3 I, 1998, compared with the actual rate of           ments as an asset/liability management tool to hedge the                    Receive-fixed rate (hedges purchased
5.71 % at December 31, 1997.                                      Company's exposure to interest rate fluctuations. The                         mOttgage 'ervicing rights)
                                                                  Company also offers contracts to its customers, but hedges                    Notional amount                                                $ 200                  $                   $                        $ 200               $                       $     400
   The current interest rate risk limit using the net interest                                                                                  Weighted average rate received                                   5.92%                      -%                   -%                  5.67%                      -%                   5.80%
income simulation allows up to 30 basis points (.30%) of          such contracts by purchasing other financial contracts or
                                                                                                                                                Weighted average rate paid                                       5.89                                                                5.91                                            5.90
sensitivity in the expected average net interest margin over      uses the contracts for asset/liability management.
                                                                     Table 20 reconciles the begilU1ing and ending notional                   Receive-fixed rate (hedges deposits)
the next year. As of December 31, 1997, the simulation                                                                                          Notional amount                                                $                      $ 250               $1,700                   $\ ,550             $                       $ 3,500
showed a decline in the net interest margin of 5 basis points     or contractual amounts for derivative financial instruments                                                                                                                                                                                   -%
                                                                                                                                                Weighted average rate received                                       -%                   6.07%             5.36%                     5.55%                                       5.49%
(.05%, or $38 million decline in net interest income) for         for 1997 and shows the expected remaining maturity at                         Weighted average rate paid                                                                5.84              5.89                      5.92                                        5.90
the low-rate scenario case relative to the expected case.         year-end 1997. Table 21 summarizes the notional amount,
                                                                                                                                              Othet SWaps (Zl
   The Company uses interest rate derivative financial            expected maturities and weighted average interest rates asso-                 Notional amount                                                                                                                                        $ 645                   $ 3,158
                                                                                                                                                                                                               $ 720                  $ 632               $ 544                    $ 617
instruments as an asset/liability management tool to hedge        ciated with amounts to be received or paid on interest rate                   Weighted average rate received                                   6.21 %                 6.19%               6.33%                    6.02%               6.24%                    6.19%

mismatches in interest rate exposures indicated by the net        swap agreements, together with an indication of the asset/                    Weight d average rate paid                                       6.15                   6.14                6.25                     5.98                6.11                     6.12

interest income simulation described above. They are used         liability hedged. For a further discussion of derivative finan-             Total notional amount                                            $2,887                 $3,510              $5,883                   $5,288              $1,891                  $19,459
to reduce the Company's exposure to interest rate fluctua-        cial instruments, refer to Note 19 to Financial Statements.
                                                                                                                                    ,I        (1) Variable interesr rates are presenred on the basis of rares in effect at December 31, 1997. These rates may change substantially in rhe future due   [Q   open marker factors.
                                                                                                                                              (2) Represents CUStomer accommodation swaps not useJ for 3sset/liability management purposes. The notional amount reflects customer accommodatiuns as well as the
                                                                                                                                    r
                                                                                                                                                  swaps lIsed fO hedge the customer accommodations.

                                                                                                                                                                                                                                                                                                                                              Ell
                                                                                                                                         .-
     LIQUIDITY MANAGEMENT                                                debt or preferred stock. The proceeds from the sale of any                To accommodate future growth and current business                of Company facilities and routine replacement of furniture
                                                                         securities will be used for general corporate purposes. As of           need, the Company has a capital expenditure program.               and equipment. The Company will fund these expenditures
      Liquidity refers to the Company's ability to maintain a cash       December 31,1997, the Company had issued $.2 billion                    Capital expend itures for 1998 are estimated at about              from various sources, including retained earnings of the
      flow adequate to fund operations and meet obligations and          of preferred stock and $.7 billion of medium-term notes                 $300 million for equipment for supermarket branches, bank-         Company and borrowings of various maturities.
      other commitments on a timely and cost-effective basis.            under this shelf registration, with $2.6 billion of securities          ing centers and business centers, relocation and remodeling
         In recent years, core deposits have provided the Company        remaining unissued.
      with a sizable source of relatively stable and low-cost funds.        In 1996, the Company also filed a universal shelf regis-
      The Company's average core deposits and stockholders'              tration statement with the SEC that allows for the issuance
      equity funded 87% and 89% of its average total assets in           of $750 million of enior and subordinated debt, preferred
      1997 and 1996, respectively.                                       stock and common stock of the Company and preferred
         The remaining funding of average total assets was mostly       securities of special purpose subsidiary trusts. The registration        COMPARISON OF                           1996 VERSUS 1995
      provided by senior and subordinated debt, deposits in foreign      allows each special PUlvose subsidiary to issue trust preferred
      offices, short-term borrowings (comprised of federal funds'       securities which qualify as Tier 1 capital of the Company
                                                                                                                                                 ~n
                                                                                                                                             I
      purchased and securities sold under repurchase agreements,         for regulatory purposes. The special purpose subsidiary
                                                                                                                                                     April 1, 1996, the Company completed its acquisition           in 1995. This decrease is substantially due to the estimated
      commercial paper and other short-term borrowings) and              holds junior subordinated deferrable interest debentures
                                                                                                                                                 (Merger) of First Interstate Bancorp (First Inter tate),           expenses related to the First Interstate integration of about
      trust preferred securities. Senior and subordinated debt           (debentures) of the Company. Interest paid on these
                                                                                                                                                 which has been accounted for as a purchase business com-           $440 million and a loan loss provision of $105 million.
      averaged $4.7 billion and $4.6 billion in 1997 and 1996           debentures will be distributed to the holders of the trust
                                                                                                                                                 bination. As a result, the financial information presented         On the same basis, ROA was 1.66% and ROE was 28.46%
      respectively. Short-term borrowings averaged $3.1 billio:,        preferred securities. As a result, distributions to the holders
                                                                                                                                                 in this Annual Report reflects the effects of the acquisition      in 1996, compared with 2.12% and 34.92%, respectively,
     and $2.1 billion in 1997 and 1996, respectively. Trust pre-        of the trust preferred securities will be tax deductible and
                                                                                                                                                  ubsequent to the Merger's consummation. Since the                 in 1995.
     ferred securities averaged $1.3 billion and $82 million in         treated as interest expense in the consolidated statement
                                                                                                                                                 Company's results of operations subsequent to April 1,                Net interest income on a taxable-equivalent basis was
      1997 and 1996, respectively.                                      of income. This provides the Company with a more cost-
                                                                                                                                                 1996 reflect amounts recognized from the combined opera-           $4,532 million in 1996, compared with $2,655 million in
         The weighted average expected remaining maturity of the        effective means of obtaining Tier 1 capital than if the
                                                                                                                                                 tions, they cannot be divided between or attributed directly       1995. The Company's net interest margin was 6.11 % for
     debt securities within the investment securities portfolio         Company itself were to issue additional preferred stock. In
                                                                                                                                                 to either of the two former entities nor can they be directly      1996, compared with 5.80% in 1995. The increase in the
     was 1 year and 11 months at December 31, 1997. Of the              December 1996, the Company issued $400 million in trust              ~
                                                                                                                                                 compared with prior periods.                                       margin was primarily due to the mix of funding sources due
     $9.8 billion debt securities that were available for sale at       preferred securities through one trust, Wells Fargo Capital I.
                                                                                                                                                    In substantially all of the Company's income and expense        to the Merger, as core deposits replaced more expensive
     December 31, 1997, $4.2 billion, or 43%, is expected to            In January 1997, the Company issued an add itional $150
                                                                                                                                                 categories, the increases in the amounts reportecl for the         short-term borrowings. The increase in net interest income
     mature or be prepaid in 1998 and an additional $2.6 billion,       million in trust preferred securities through a separate trust,
                                                                                                                                                 year ended December 31, 1996 compared to the amounts               for 1996 compared with 1995 was primarily due to an
     or 27%, is expected to mature or be prepaid in 1999.               Wells Fargo Capital II. At December 31, 1997, $200 mil-
                                                                                                                                                 reported in the corresponding period in 1995 resulted from         increase in average earning assets as a result of the Merger.
         Other sources of liquidity include maturity extensions         lion remained unissued under this shelf registration. (See
                                                                                                                                             r   the Merger. The increases in substantially all of the categories      Noninteresr income increased from $1,324 million in
     of hort-term borrowings and sale or runoff of assets.              Note 10 to Financial Statements.) In addition to the pub-
                                                                                                                                                 of the Company's balance sheet between amounts reported            1995 to $2,200 million in 1996, an increase of 66%. In
     Commercial and real estate loans totaled $43.5 billion at          licly regi tered trust preferred securities, the Company
                                                                                                                                                 at December 31, 1996 and those reported at December 31,            addition to the effects of the Merger, the increase reflects
     December 31,1997. Of these loans, $13.7 billion matures           established in 1996 three special purpose trusts, which col-
                                                                                                                                                 1995 also resulted from the Merger. Other significant factors      the loss on sale in 1995 of certain product types within the
     in one year or less, $15.0 billion matures in over one year        lectively issued $750 million of trust preferred s curities in
                                                                                                                                                 affecting the comparison of the Company's results of opera-        real estate 1-4 family first mortgage portfoliO. The increase
     through five years and $14.8 billion matures in over five         private placements (see Note 10 to Financial Statements).
                                                                                                                                                 tions and financial po ition are described below.                  in 1996 was partially offset by the 1995 sale of the
     years. Of the $29.8 billion that matures in over one year,        Similar to the registered trust preferred securities, these          I
                                                                                                                                                    Net income in 1996 was $1,071 million, compared with            Company's joint venture interest in WFNIA.
    $20.2 billion has floating or adjustable rates and $9.6 bil-       preferred securities qualify as Tier 1 capital for regulatory       I
                                                                                                                                                 $1,032 million in 1995, an increase of 4%. Earnings per               In December 1995, the Company sold its joint venture
     lion has fixed rates. Of the $9.6 billion of fixed-rate loans     purposes and the interest on the debentures is paid as tax-
                                                                                                                                                 common share were $12.21 in 1996, compared with $20.37             interest in WFNIA as well as its MasterWorks division to
    approximately $1.7 billion I:epresents fixed initial-rate      '   deductible distributions to the trust preferred security holders.
                                                                                                                                                 in 1995, a decrease of 40%. Return on average assets (ROA)         Bardays PLC of the U.K., resulting in a $163 million pre-
     mortgage (FIRM) loans. FIRM loans carry fixed rates for a         The proceeds from these publicly registered and private
                                                                                                                                                 was 1.15% aq.d return on average common equity (ROE)               tax gain. The Company's joint venture interest in WFNIA
    minimum of 3 years to a maximum of 10 years of the loan            placement issuances were invested in debentures of the             \
                                                                                                                                                 was 8.83% in 1996, compared with 2.03% and 29.70%,                 was accounted for as an equity invesrment under the equity
    term and carry adjustable rate thereafter. (Refer to the           Company. The proceeds from the sale of these debentures            I      re pectively, in 1995.                                             method. The income from the equity investment in WFNIA,
    Consolidated Statement of Cash Flows for further informa-          were used by the Company for general corporate purposes.
                                                                                                                                                    The increase in earnings in 1996 compared with 1995             included in non interest income, totaled $27 million in
    tion on the Company's cash flows from its operating,                   In 1997, the Parent's primary source of funding was divi-
                                                                                                                                                 reflected the results of the Merger, substantially offset by a     1995. Noninterest income from the MasterWorks division
    investing and financing activities.)                               dends paid by the Bank totaling $2.0 billion. The dividends
                                                                                                                                                 $163 million ($94 million after tax) gain resulting from the       included in "all oth r" trust and investment services        '
        Liquidity for the Parent Company and its subsidiaries is       received helped to fund the Company's stock repurchase
                                                                                                                                                 sale of the Company's joint venture interest in Wells Fargo        income totaled $26 million in 1995.
    generated through its ability to raise funds in a variety of       program. The Company expects the Parent to continue to
                                                                                                                                                 Nikko Investment Advisors (WFNIA) in 1995 and a                       In 1996, losses from dispositions of operations included
    domestic and international money and capital markets,              receive dividends from the Bank in 1998. (See Notes 3 and
                                                                                                                                                 $105 million loan loss provision in 1996 compared with             a $96 million fourth quarter 1996 accrual representing dis-
    and through dividends from sub idiaries and lines of credit.       16 to Financial Statements for a discussion of the restric-
                                                                                                                                                 none in 1995.                                                      positions of premi es and, to ales er extent, severance and
    In 1996, the Company filed a helf registration with the            tions on the Bank's ability to pay dividends and the Parent
                                                                                                                                                    Earnings before the amortization of goodwill and non-           communications expenses associated with the disposition
    Securities and Exchang Commission (SEC) that allows                Company's financial statements, respectively.)
                                                                                                                                                 qualifying core deposit intangible (CD!) ("cash" or "tangible"     of 137 traditional branches in California. (See page 17 for
    for the issuance of $3.5 billion of senior or subordinated                                                                              l    earnings) were $16.74 per share ($16.52 as uming dilution)         additional information.)
                                                                                                                                                 In 1996, compared with $21.08 ($20.76 assuming dilution)
                                                                                                                                            I




.
                                                                                                                                                                                                                    ~~FARGO                            &     COMPANY   AND   SUBSIDIARIES




                                                                                                                                                                                        CONSOLIDATED STATEMENT OF INCOME
                                                                 ADDITIONAL INFORMATION

                                                                                                                                                                                                                                                                                                     Year ended December 31,
                                                                                                                                                                                        (in millions)
                                                                                                                                                                                                                                                                                         1997         1996                 1995
    Gains and losses on sales of loans for 1995 included a       [ommon stock of the Company is traded on the New York
first quarter $83 million write-down to the lower of cost or     Stock Exchange, the Pacific Exchange, the London Stock                                                                 INTEREST INCOME
                                                                                                                                                                                        Federal funds sold and securities purchased under resale agreements                      $        18     $     29          $       4
estimated market resulting from the reclassification of cer-     Exchange and the Frankfurt Stock Exchange. The high,
                                                                                                                                                                                        Investment securities                                                                            732          779                599
tain types of products within the real estate 1-4 family first   low and end-of-period annual and quarterly closing prices
                                                                                                                                                                                        Mortgage loans held for sale                                                                                                      76
mortgage loan portfolio to mortgage loans held for sale.         of the Company's stock as reported on the New York
                                                                                                                                                                                                                                                                                     6,094           5,688             3,403
During the second half of 1995, as all mortgage loans held       Stock Exchange Composite Transaction Reporting System                                                                  Loans
                                                                                                                                                                                                                                                                                        60              27                 3
for sale were sold and because such sales were at prices         are presented in the graphs. The number of holders of                                                                  Other                                                                                    ---             ---               ---
greater than originally estimated, the Company recorded a        record of the Company's common stock was 42,299 as                                                                                     Total interest income                                                        6,904           6,523             4,085
$19 million gain on sale.                                        of January 31, 1998.
                                                                                                                                                                                        INTEREST EXPENSE
    Noninterest expense increased from $2,201 million in            Common dividends declared per share totaled $5.20 in                                                                                                                                                             1,703           1,586                 997
                                                                                                                                                                                        Deposits
1995 to $4,637 million in 1996. In addition to the effect of     1997, $5.20 in 1996 and $4.60 in 1995. The dividend was                                                                Federal funds purchased and securities sold under repurchase agreements                        154              92                 199
combining operations of First Interstate with the Company,       last increased in the first quarter of 1996 to $1.30 per share                                                         Commercial paper and other short-term borrowings                                                17              16                  32
the increase reflected goodwill and nonqualifying CDr            from $1.15 per share. Quarterly dividends are considered at                                                                                                                                                           315             302                 203
                                                                                                                                                                                        Senior and subordinated debt
amortization, severance for Wells Fargo employees and            the Board of Directors meeting the month following quar-                                                               Guaranteed preferred beneficial interests in Company's subordinated debentures                 101               6
                                                                                                                                                                                                                                                                                 ---             ---
other integration expenditures. The Company's active,            ter end. Dividends declared are payable the second month
                                                                                                                                                                                                        Total interest expense                                                       2,290           2,002             1,431
full-time equivalent staff, including hourly employees was       after quarter end. The Company, with the approval of the                                                                                                                                                        ---
36,902 at December 31, 1996, compared with 19,249 at             Board of Directors, intends to continue its present policy of                                                          NET INTEREST INCOME                                                                          4,614           4,52i             2,654
December 31,1995.                                                paying quarterly cash dividends to stockholders. The level                                                             Provision for loan losses                                                                      615             105
                                                                                                                                                                                                                                                                                                 ---
    Excluding the effects of the Merger, the increase in         of future dividends will be determined by the Board of                                                                                                                                                              3,999           4,416             2,654
                                                                                                                                                                                        Net interest income after provision for loan losses
equipment expense to $399 million in 1996 compared               Directors in light of the earnings and financial condition
with $193 million in 1995 was related to a higher level of       of the Company.                                                                                                        NONINTEREST INCOME
                                                                                                                                                                                        Fees and commissions                                                                              946          740                  433
spending on software and technology for product develop-
                                                                                                                                                                                        Service charges on deposit accounts                                                               861          868                  478
ment and increased depreciation expense on equipment                            PRICE RANGE OF COMMON STOCK-ANNUAL ($)
                                                                                                                                                                                        Trust and investment services income                                                              450          377                  241
related to business initiatives and system upgrades.                                                                                                                                                                                                                                                                       (17)
                                                                              $350                ·        ·· .. ····· .. ·· .. ····· .. ········ ...... 339.44                         Investment securities gains (losses)                                                               20           10
   The Company's effective tax rate was 46% for 1996
                                                                                                                                                                                        Sale of joint venture interest                                                                                                      163
and 42% for 1995. The increase in the effective tax rate for
                                                                                                                                                                                        Other                                                                                             427          205                   26
1996 was due to increased goodwill amortization related                        300                                           289.88          · . ..                                                                                                                               ---            ---                ---
to the Merger, which is not tax deductible.                                                                                                                                                             Total noninterest income                                                     2,704           2,200             1,324
   The decrease in federal deposit insurance expense in
1996, compared with 1995, was substantially due to the                         250·                                                                                   •
                                                                                                                                                                      Indicates
                                                                                                                                                                                         NONINTEREST EXPENSE
                                                                                                                                                                                                                                                                                     1,269           1,357                  713
                                                                                                      22900                                          246.00                              Salaries



                                                                              ::1
revised rate structure effective June 1, 1995, partially ffset                                                                                                        closing price
                                                                                                                                                                                                                                                                                       195             227                  126
                                                                                                                                                                      at end of
                                                                                                                                                                                         Incentive compensation
by the passage of the Deposit Insurance Funds Act of 1996                                                                                                                                                                                                                              332             373                  187
                                                                                                                                                                                         Employee benefits
(DIFA). DIFA was enacted, in part, to increase the Federal                                                                                                                                                                                                                             385             399                  193
                                                                                                                                                                                         Equipment
Deposit Insurance Corporation Savings Association Insm-                                                                      10313                       .                                                                                                                             388             366                  211
                                                                                                                                                                                         Net occupancy
ance Fund reserve ratio to 1.25% and levied a 65.7 cent fee                                                                                                                                                                                                                            326             250                   35
                                                                                                      143.38                                                                             Goodwill
on every $100 of thrift deposits held on March 31,1995.                                                                                                                                                                                                                                255             243                   42
                                                                                                                                                                                         Core deposit intangible
The Company acquired thrift deposit through the Merger.                        100            ·                         ..                                                                                                                                                             320             145                   45
                                                                                                                                                                                         Operating losses
Accordingly, $22 million was paid in 1996 based on the                                                 1995                    1996                   1997                                                                                                                           1,079           1,277                  649
                                                                                                                                                                                         Other                                                                                                                      ---
thrift deposits of First Interstate.
                                                                              PRICE RANGE OF COMMON STOCK-QUARTERLY I'                                                                                  Total noninterest expense                                                    4,549            4,637                2,201
   There was a provision for loan losses of $105 million in                                                                                                                                                                                                                       ---

1996, compared with no provision in 1995. Net charge-                        $350 .. ·                                                                       339.44                      INCOME BEFORE INCOME TAX EXPENSE                                                                2,154        1,979                1,777
offs in 1996 were $640 million, or 1.05% of average total                                                                                                                                Income tax expense                                                                                999          908                  745
                                                                                                                              319.25                                                                                                                                              ---            ---                 ---
loans, compared with $288 million, or .83%, in 1995.                                                                                                                                                                                                                                 $1,155          $1,071          $1,032
                                                                                                                                                                                         NET INCOME
The allowance for loan losses was 3.00% of total loans                        300                                    289.88"         .. 287.88      ..
                                                                                                                                                  279.88                                 NET INCOME APPLICABLE TO COMMON STOCK                                                       $1,130          $1,004            $ 990
at December 31,1996, compared with 5.04% at Decem-
ber 31, 1995.                                                                        261.25 264.50 264.00
                                                                                                                             271.00              275.75                   •
                                                                                                                                                                          Indicates      EARNINGS PER COMMON SHARE                                                                   $12.77          $12.21            $20.37
   Total nonaccrual and restructured loans were $724 million,                 250· .. ·                           ...... .....    .....                                   closing pro
                                                                                                                     250.25        246.00 250.13
                                                                                                                                                                          at end of      EARNINGS PER COMMON SHARE - ASSUMING DILUTION                                               $12.64          $12.05            $20.06
or 1.1 % of total loans, at December 31, 1996, compared
                                                                                                  232.13                                                                  quarter
with $552 million, or 1.6% of total loans, at December 31,                                                 220.13                                                                        DIVIDENDS DECLARED PER COMMON SHARE                                                         $ 5.20          $ 5.20            $ 4.60
1995. Foreclosed assets were $219 million at December 31,                     200 ..ibTjj·· .. ··· .. ···· ..··          ·                                    ..
                                                                                                                                                                                          Average common shares outstanding                                                               88.4         82.2                 48.6
1996, compared with $186 million at December 31, 1995.                                                                                                                                                                                                                               =                                 =

                                                                                                                                                                                          Average common shares outstanding - assuming dilution                                           89.4         83.3                 49.4
                                                                               150"
                                                                                         IQ           2Q      3Q       4Q        IQ       2Q        3Q        4Q
                                                                                                       1996                                   1997
                                                                                                                                                                                          The accompanying nOles are an inlegral parI of lhese SlalemenlS.
                                                        1].~1:)·1IJr]iJ·
~iiiiiiiiiiiiiiii_iiiii.ii.iiiiiiiiiiiiiiiiiiiiiiiiiiiliii,[ []1J~Dli13~~lrl=====:::J~                                                                 m I:J I!d!. m    IlUZli lJ'ti   ~ 0     la mmIll'!i.\ en,    D   mI:)   Ii].   I!I 1!3 EJ I]   I:)   Dm DI] lrl
                                                                                                                                                                                                                                                              D

     CONSOLIDATED BALANCE SHEET                                                                                I~--       CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                                                                                               ,
                                                                                                               II
     (in millions)                                                                              December 31,              (in millions)                                           Preferred      Common       Additional              Rerained               Foreign     Investment         Total
                                                                                         1997          1996                                                                           stock         stock        paid-in              earnings              currency       securities       stock-
                                                                                                                                                                                                                 capital                                 translation       valuation      holders'
                                                                                                                                                                                                                                                        adj ustments      allowance        equity
     ASSETS
     Cash and due from banks                                                         $ 8,169     $ 11,736                 BALANCE DECEMBER 31,1994                                                  $ 256      $        871       $ 2,409                                    $(110)     $ 3,911
                                                                                                                                                                                                                                  ---
     Federal funds sold and securities purchased under resale agreements                  82           187                                                                                                                          1,032                                                 1,032
                                                                                                                          Net income-1995
     Investment securities at fair value                                               9,888        13,505                Common stock issued under
     Loans                                                                            65,734        67,389                  employee benefit and
     Allowance for loan losses                                                         1,828         2,018                  dividend reinvestment plans                                                  4               86                                                                  90
                                                                                                                          Common stock repurcha ed                                                    (25)           (822)                                                                 (847)
                  Net loans                                                           63,906        65,371
                                                                                                                          Preferred srock dividends                                                                                         (42)                                            (42)
    Due from customers on acc ptances                                                     98           197                Common tock dividends                                                                                           (225)                                            (225)
    Accrued interest receivable                                                          507           665                Change in unrealized net losses,
    Premises and equipment, net                                                        2,117         2,406                  after applicable taxes                                                                                                                              136         136
    Core depOSit intangible                                                            1,709         2,038                Transfer                                                                                  1,000              (1,000)
    Goodwill                                                                           7,031         7,322
    Other assets
                                                                                                                          Net change                                                                  (21 )             264               (235)                                 136         144
                                                                                       3,949         5,461
                  Total assets
                                                                                                                          BALANCE DECEMBER 31,1995                                      489           235           1,135               2,174                   ~)               26       4,055
                                                                                     $97,456     $108,888
                                                                                                                          Net income-1996                                                                                               1,071                                             1,071
    LIABILITIES                                                                                                           Preferred srock issued to
                                                                                                                            First Interstate stockholders                               350                              10                                                                 360
    Noninterest-bearing deposits                                                     $23,953     $ 29,073                 Preferred stock issued,
    Interest-bearing deposits                                                         48,246       52,748                   net of issuance costs                                       200                              (3)                                                                197
              Total deposits                                                          72,199       81,821                 Common stock issued to
    Federal funds purchased and securities sold under repurchase agreements            3,576        2,029                   First Interstate stockholders                                             260          11,037                                                                11,297
    Commercial paper and other short-term borrowings                                     249          401                 Common tock issued under
    Acceptances outstanding                                                               98          197                   employee benefit and
    Accrued interest payable                                                             175          171                   dividend reinvestment plans                                                  4              113                                                                  117
    Other liabilities                                                                  2,403        3,947                 Preferred stock redeemed                                     (439)                                                                                                (439)
    Senior debt                                                                        1,983        2,120           II    Common stock repurchased                                                    (42)         (2,116)                                                                (2,158)
    Subordinated debt                                                                  2,585        2,940                 Preferred stock dividends                                                                                        (67)                                              (67)
                                                                                                                    1'1
    Guaranteed preferred beneficial interests in Company's subordinated debentures     1,299        1,150                 Common stock dividends                                                                                          (429)                                             (429)

    STOCKHOLDERS' EQUITY                                                                                       .          Change in unrealized net gains,
                                                                                                                            after applicable taxes                                                                                                                                (3)         (3)
    Preferred stock                                                                     275           600                 Fair value adjustment related to
    Common stock-$5 par value, authorized 150,000,000 shares;                                                               First Interstate stock options                                                              111                                                                 111
      issued and outstanding 86,152,779 shares and 91,474,425 shares                     431          457                 Net change                                                    111           222           9,152                  575                              _(3)         10,057
                                                                                                                                                                                                                                  ---
    Additional paid-in capital                                                         8,712       10,287
    Retained earnings
                                                                                                                          BALANCE DECEMBER 31,1996                                      600           457          10,287               2,749                   ~)               23      14,112
                                                                                       3,416        2,749
    Cumulative foreign currency translation adjustments                                                 (4)               Net income-1997                                                                                              1,155                                              1,155
    Investment securities valuation allowance                                            55             23                Common stock issued under
                                                                                                                            employee benefit and
                 Total stockholders' equity                                           12,889       14,112
                                                                                                                            dividend reinvestment plans                                                 3               85                                                                   88
                 Total liabilities and stockholders' equity                          $97,456    $108,888                  Preferred stock redeemed                                     (325)                                                                                               (325)
                                                                                                                          Common stock repurchased                                                    (29)         (1,660)                                                               (1,689)
                                                                                                                          Preferred stock dividends                                                                                       (25)                                              (25)
                                                                                                                          Common stock dividends                                                                                         (463)                                             (463)
                                                                                                                          Translation adjustments                                                                                                                 4                            4
                                                                                                                          Change in unrealized net gains,
                                                                                                                            after applicable taxes                                                                                                                               32          32
                                                                                                                          Net change                                                   (325)          (26)         (1,575)                667                    4               32      (1,223 )
                                                                                                                          BALANCE DECEMBER 31, 1997                                $ 275            $431       $ 8,712                $3,416                    $-           $ 55       $12,889


    The accompanying nores are em intq,lTal jJan of these 5latemenlS,                                                     The accom/Janying notes are an integral. pan of these statements,

_Em_"- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1 ' - - - - - - - - - - - - - - - - - - - -                                                                                                                                                                               ~m_
-------------W-E--L-L-S-                                                                      ~        A    R   I   E   S
                                                                                                                                                                                                   ARGO       &:   COMPANY        AND      SUBSIDIARIES




    CONSOLIDATED STATEMENT OF CASH FLOWS
                                                                                                                                                            NOTES TO FINANCIAL STATEMENTS

    (in millions)                                                                                                               Year ended December 31,
                                                                                                     1997                         1996              1995
    Cash flows from operating activities:
      Net income
      Adjustments to reconcile net income to net cash provided by operating activities:
        Provision for loan losses
        Depreciation and amortization
        (Gains) losses on disposition of operations
        Gain on sale of joint venture interest
                                                                                              $ 1,155
                                                                                                     615
                                                                                                     917
                                                                                                     (15)
                                                                                                                            $ 1,071
                                                                                                                                  105
                                                                                                                                  809
                                                                                                                                   95
                                                                                                                                              $ 1,032


                                                                                                                                                    272
                                                                                                                                                     89
                                                                                                                                                   (63)
                                                                                                                                                            1     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        Deferred income tax expense                                                                  165                           169                17    Wells Fargo & Company (Parent) is a bank holding company         SECURITIES
        Increase (decrease) in net deferred loan fees                                                 21                            22           (6)        whose principal subsidiary is Wells Fargo Bank, N.A (Bank).
        Net (increase) decrease in accrued interest receivable                                       158                           (49)          20
        Writedown on mortgage loans held for sale                                                                                    -           64         Besides servicing millions of customers in 10 Westem states,
                                                                                                                                                                                                                             Securities are accounted for according   to   their purpose and
        Net (decrease) increase in accrued interest payable                                             4                           0)           25         Wells Fargo & Company and Subsidiaries (Company)
        Net decrease (increase) in loans acquired for sale                                           (652)                        390          (535)                                                                         holding period.
                                                                                                                                                            provide a full range of banking and financial services to
        Other, net                                                                                    775                       0,536)         (139)
                                                                                                                                              ---           commercial, agribusiness, real estate and small business
    Net cash provided by operating activities                                                      3,143                         1,075          676         customers across the nation.
                                                                                                                                                                                                                             INVESTMENT SECURITIES

    Cash flows from investing activities:                                                                                                                      The accounting and reporting policies of the Company          Securities generally acquired to meet long-term investment
      Investment securities:
        At fair value;                                                                                                                                      conform with generally accepted accounting principles            objectives, including yield and liquidity management pur-
           Proceeds from sales                                                                       310                           719              673     (GAAP) and prevailing practices within the banking indus-        poses, are clas ified as investment securities. Realized gains
           Proceeds from prepayments and maturities                                                4,376                         5,047              229     try. The preparation of financiai statements in conformity       and losses are recorded in noninterest income using the
           Purchases                                                                                (780)                       (2,759)             (77)
        At cost:                                                                                                                                            with GAAP requires management to make estimates and              identified certificate method. For certain debt securities
           Proceeds from prepayments and maturities                                                                                               2,191     assumptions that affect the reported amounts of assets and       (for example, Govemment National Mortgage Association
           Purchases                                                                                                                               (04)     liabilities at the date of the financial statements and in~ome   securities), the Company anticipates prepayments of prin-
      Cash acquired from First Interstate                                                                                        6,030
      Proceeds from sales of mortgage loans held for sale                                                                                                   and expenses during the reporting period. Actual results         cipal in the calculation of the effective yield.
                                                                                                                                                4,273
      Net (increase) decrease in loans resulting from originations and collections                  1,063                        2,301         (3,700)      could differ from those estimates. Certain amounts in the
      Proceeds from sales (including participations) of loans                                         437                          364            770                                                                        Securities at fair value Debt ecurities that may not be
                                                                                                                                                            financial statements for prior years have been reclassified to
      Purchases (including participations) of loans                                                  (314)                        (33)           (233)                                                                       held until maturity and marketable equity securities are
      Proceeds from sales of foreclo ed assets                                                        211                          155            202       conform with the current financial statement presentation.
                                                                                                                                                                                                                             considered available for sale and, as such, are classified as
      Net decrease in federal funds sold and securities purchased under resale agreements             105                        2,064             83       The following is a description of the significant accounting
      Other, net                                                                                                                  (756)          (72)                                                                        securities carried at fair value, with unrealized gains and
                                                                                                       47                                                   policies of the Company.
                                                                                                                                              ---                                                                            losses, after applicable taxes, reported in a separate com-
    Net cash provided by investing activities                                                      5,455                        13,032          4,135
                                                                                                                                                                                                                             ponent of stockholders' equity. The estimated fair value
    Cash flows from financing activities:                                                                                                                   CONSOLI DATION
      Net decrease in deposits                                                                     (9,622)                      (4,609)           (3,350)                                                                    of investments is determined based on current quotations,
      Net (decrease) increase in short-term borrowings                                              1,395                         (892)             (235)                                                                    where available. Where current quotations are not available,
      Proceeds from issuance of senior debt                                                           700                        1,260             1,230    The consolidated financial statements of the Company             the estimated fair value is determined based primarily on the
      Repayment of senior debt                                                                       (810)                      0,183)              (811)
      Proceeds from issuance of subordinated debt                                                                                  800                 -    include the accounts of the Parent, the Bank and other           present value of future cash flows, adjusted for the quality
      Repayment of subordinated debt                                                                 (351)                                         (210)    bank and nonbank subsidiaries of the Parent.                     rating of the securities, prepayment assumptions and other
      Proceeds from issuance of guaranteed preferred beneficial interests in                                                                                   Significant majority-owned subsidiaries are consolidated      factors. Declines in the value of debt securities and mar-
        Company's subordinated debentures                                                            149                      1,150
      Proceeds from issuance of preferred stock                                                                                 197                         on a line-by-line basis. Significant intercompany accounts       ketable equity securities that are considered other than
      Proceeds from issuance of common stock                                                           88                       117                  90     and transactions are eliminated in consolidation. Other          temporary are recorded in noninterest income as a loss
      Redemption of preferred srock                                                                  (325)                     (439)                        subsidiaries and affiliates in which there is at least 20%       on investment securities.
      Repurchase of common stock                                                                   0,689)                    (2,158)               (847)
      Payment of cash dividends on preferred stock                                                    (25)                      (73)                (42)    ownership are generally accounted for by the equity              Securities at cost Debt securities acquired with the positive
      Payment of cash dividends on common stock                                                      (463)                     (429)               (225)    method; those in which there is less than 20% ownership
      Other, net                                                                                   (1,212)                      513                 (0)                                                                      intent and ability to hold to maturity are classified as secu-
                                                                                                                            ---               ---           are generally carried at cost. Subsidiaries and affiliates       rities carried at historical cost, adjusted for amortization of
    Net cash used by financing activities                                                         (12,165)                   (5,746)              (4,410)   that are accounted for by either the equity or cost meth d
                                                                                                                                              ---                                                                            premium and accretion of discount, where appropriate. If it
      Net change in cash and cash equivalents (due from banks)                                     (3,567)                    8,361                  401    are included in other assets.
    Cash and cash equivalents at beginning of year                                                 11,736                     3,375                2,974                                                                     is probable that the carrying value of any debt security will
                                                                                                                            ---               ---                                                                            not be realized due to other-than-temporary impairment,
    Cash and cash equivalents at end of year                                                  $ 8,169                       $11,736           $ 3,375
                                                                                                                                                                                                                             the estimatecl loss is recorded in noninterest income as a
    Supplemental disclosures of cash flow information:                                                                                                                                                                       loss on investment securities. If a decision is made to dispose
      Cash paid during the year for:
        Interest                                                                              $ 2,286                       $ 1,916           $ 1,406                                                                        of securities at cost or should the Company become unable
        Income taxes                                                                          $   711                       $ 641             $ 618                                                                          to hold securities until maturity, they would be reclassified
      Noncash investing and financing activities:                                                                                                                                                                            to securities at fair value.
        Transfers from investment securities at cost to investment securities at fair value   $                             $                 $ 6,532
        Transfers from loans to foreclosed assets                                             $       95                    $     141         $ 115
        Transfers from loans to mortgage loans held for sale                                  $                             $                 $ 4,440                                                                        TRADING SECURITIES
        Acquisition of First Interstate;
          Common stock issued                                                                 $                             $11,297           $                                                                              Securities acquired for short-term appreciation or other
          Fair value of preferred stock issued                                                                                  360                                                                                          trading purposes are recorded in a trading portfolio and
          Fair value of stock options                                                                                           111
          Fair value of assets acquired .                                                                                    55,797                                                                                          are carried at fair value, with unrealized gains and losses
          Fair value of liabilities assumed                                                                                  51,214                                                                                          recorded in noninterest income.

    The accompanying notes are an integral part of these statements.
                                                                                                                                            I




      NONMARKETABLE EQUITY SECURITIES                                    impaired when, based on current information and events,                       borrowers and the Company's ongoing examination proces           GOODWILL AND IDENTIFIABLE
                                                                         it is probable that the Company will b unable to collect                      and that of its regulators. The Company considers the            INTANGIBLE ASSETS
      Nonmarketable equity securities are acquired for various
                                                                         all amounts due according to the contractual terms of the                     allowance for loan losses adequate to cover losses inherent
      purposes, such as troubled debt restructurings and as a
                                                                         loan agreement, including scheduled intere t payments. For                    in loans, loan commitments and standby letters of credit.
      regulatory requirement (for example, Federal Reserve Bank                                                                                                                                                         Goodwill, representing the excess of purchase price over the
      stock). These securities are accounted for at cost and are         a loan that has been restructured, the contractual terms of
                                                                                                                                                                                                                        fair value of net assets acquired, results from acquisitions
      included in other assets as they do not fall within the defm-      the loan agreement refer to the contractual terms specified                   TRANSFERS AND SERVICING                                          made by the Company. Substantially all of the Company's
                                                                         by the original loan agreement, not the contractual terms                     OF FINANCIAL ASSETS
      ition of an investment security since there are restrictions                                                                                                                                                     goodwill is being amortized using the straight-line method
      on their sale or liquidation. The asset value is reduced when      specified by the restructuring agreement.
                                                                                                                                                                                                                         ver 25 years. The remaining period of amortization, on a
                                                                            This assessment for impairment occurs when and while
      declines in value are considered to be other than temporary                                                                                   Effective January 1, 1997, the Company adopted Statement           weighted average basis, approximated 23 years at Decem-
                                                                         such loans are on nonaccrual, or the loan has been restruc-
      and the estimated loss is recorded in noninterest income                                                                                      of Financial Accounting Standards No. 125 (FAS 125),               ber 31,1997.
      as a loss from equity investments.                                 tured. When a loan with unique risk characteristics has been
                                                                                                                                                    Accounting for Transfers and Servicing of Financial                    Core deposit intangibles are amortized on an accelerated
                                                                         identified as being impaired, the amount of impairment will
                                                                                                                                                    Assets and Extinguishments of Liabilities, except for those        basis based On an esti1l1ated useful life of 10 to 15 years.
                                                                         be measured by the Company using discounted cash flows,            L
      LOANS                                                                                                                                         provisions related to repurchase agreements and similar               ertain identifiable intangible assets that are included in
                                                                         except when it is determined that the sole (remaining)
                                                                                                                                                   collateralized transactions for which the Financial                 other assets are generally amortized using an accelerated
                                                                         source of repayment for the loan is the operation or liquida-
                                                                                                                                                   Accounting Standards Board (FASB) deferred the effective            method over an original life of 5 to 15 years. Approximately
      Loans are reported at the principal amount outstanding, net        tion of the underlying collateral. In such cases, the current
                                                                                                                                                   date to January 1, 1998.                                            35% of the December 31, 1997 remaining balance will be
      of unearned income. Unearned income, which includes                fair value of the collateral, reduced by costs to sell, will be
                                                                                                                                                       A transfer of financial as ets is accounted for as a sale       amortized in 3 years.
      deferred fees net of deferred direct incremental loan origi-       used in place of discounted cash flows. Additionally, some
                                                                                                                                                   when control is surrendered over the assets transfelTed:                The Company reviews its intangible assets periodically
      nation costs, is amortized to interest income generally over       impaired loans with commitments of less than $1 million
                                                                                                                                                   Servicing rights and other retained interests in the assets sold    for other-than-temporary impairment. If such impairment
      the contractual life of the loan using an interest method          are aggregated for the purpose of measuring impairment
                                                                                                                                                   are recorded by allocating the previous recorded investment         is indicated, recoverability of the asset is assessed based on
      or the straight-line method if it is not materially different.     using historical loss factors as a means of measurement.
                                                                                                                                                   between the asset sold and the interest retained based on           expected undiscounted net cash flows.
          Loans identified as held for sale are carried at the lower        If the measurement of the impaired loan is less than the
                                                                                                                                                   their relative fair values, if practicable to determine, at the
      of cost or market value. Nonrefundable fees, related direct        recorded investment in the loan (including accrued interest,
                                                                                                                                                   date of transfer.                                                   INCOME TAXES
      loan origination costs and related hedging gains or losses,        net deferred loan fees or costs and unamortized premium or                                                                                    ..........................................................................................
                                                                                                                                                      Purchased mortgage servicing rights are amortiz d
      if any, are deferred and recognized as a component of the          discount), an impairment is recognized by creating or adjust-
                                                                                                                                                   in proportion to and over the period of estimated net
      gain or loss on sale recorded in non interest income.              ing an existing allocation of the allowance for loan losses.                                                                                  The Company files a consolidated federal income tax return.
                                                                                                                                                   servicing income. For purposes of evaluating and measuring
      Nonaccrual loans Loans are placed on nonaccrual tatus              Restructured loans In cases where a borrower experiences                  impairment for purchased mortgage servicing rights, the             Consolidated or combined state tax returns are filed in cer-
      upon becoming 90 days past due as to interest or principal                                                                                   Company stratifies these rights based on the type and inter-        tain states, including California. Income taxes are generally
                                                                         financial difficulties and the Company makes certain con-
      (unless both well-secured and in the process of collection),                                                                                 est rate of the underlying loans. Impairment is measured as         allocated to individual subsidiaries as if each had filed a
                                                                         cessionary modifications to contractual terms, the loan is
                                                                                                                                                   the amount by which the purchased mortgage servicing                separate return. Payments are made to the Parent by those
      when the full timely collection of interest or principal           classified as a restructured (accruing) loan. Loans restructur d
      becomes uncertain or when a portion of the principal bal-                                                                                    rights for a stratum exceed their fair value. Fair value of the     subsidiaries with net tax liabilities on a separate return
                                                                         at a rate equal to or greater than that of a new loan with
      ance has been charged off. Real estate 1-4 family loans                                                                                      purchased mortgage servicing rights is determined based on          basis. Subsidiaries with net tax losses and excess tax credits
                                                                         comparable risk at the time the contract is modified may
      (both first liens and junior liens) are placed on nonaccrual                                                                                 valuation techniques utilizing discounted cash flows incor-         receive payment for these benefits from the Parent.
                                                                         be excluded from the impairment assessment and may
      status within 150 days of becoming past due as to interest or      cease to be considered impaired loans in the calendar years               pOl'ating assumptions that market participants would use.              Deferred income tax assets and liabilities are determined
      principal, regardless of security. Generally, consumer loans                                                                                 Impairment, net of hedge results, is recognized through a           using the liability (or balance sheet) method. Under this
                                                                         sub 'equent to the restructuring if they are not impaired
      not secured by real estate are only placed on nonaccrual                                                                                     valuation allowance for each individual stratum.                    method, the net deferred tax asset or liability is determined
                                                                         based on the modified terms.
      status when a portion of the principal has been charged                                                                                                                                                          based on the tax effects of the differences between the
                                                                            Generally, a nonaccrualloan that is restructured remains
      off. Generally, such loans are entirely charged off within                                                                                                                                                       book and tax bases of the various balance sheet assets and
                                                                         on nonaccrual for a period of six months to demonstrate                   PREMISES AND EQUIPMENT
      180 days of becoming past due.                                                                                                               .                                                               .   liabilities and gives current recognition to changes in tax
                                                                         that the borrower can meet the restructured terms. How-
                                                                                                                                                                                                                       rates and laws.
         When a loan is placed on nonaccrual status, the accrued         ever, performance prior to the restructuring, or significant
      and unpaid interest receivable is reversed and the loan is                                                                                   Premises and equipment are stated at cost less accumulated
                                                                         events that coincide with the restructuring, are included in
                                                                                                                                                   depreciation and amortization. Capital leases are included          EARNINGS PER COMMON SHARE
      accounted for on the cash or cost recovery method there-           assessing whether the borrower can meet the new terms and
                                                                                                                                                   in premises and equipment, at the capitalized amount less
      after, Lmtil qualifying for return to accrual status. Generally,   may result in the loan being returned to accrual at the time
                                                                                                                                                   accumulated amortization.
      a loan may be returned to accrual status when all delinquent       of restructuring or after a shorter performance period. If the                                                                                Earnings per COlumon share are presented under t\l"O formats:
                                                                                                                                                      Depreciation and amortization are computed primarily
      interest and principal become current in accordance with           borrower's ability to meet the revised payment schedule is                                                                                    earnings per common share and earnings per common
      the terms of the loan agreement or when the loan is both                                                                                     using the straight-line method. Estimated useful lives range
                                                                         uncertain, the loan remains cla ified as a nonaccruall an.                                                                                    share - assuming dilution. Earnings per common share are
                                                                                                                                                   up to 40 years for buildings, 2 to 10 years for furniture
      well-secured and in the process of collection.                                                                                                                                                                   computed by dividing net income (after deducting dividends
                                                                         Allowance for loan losses The Company's determination of                  and equipment, and up to the lease term for leasehold
      Impaired loans Loans, other than those included in large           the level of the allowance for loan losses rests upon various             improvements. Capitalized leased assets are amortized on            on preferred stock) by the average number of common
      groups of smaller-balance homogeneous loan , are considered        judgments and assumptions, including general economic                     a traight-line basis over the lives of the respective leases,       shares'outstanding during the year. Earnings per common
                                                                         conditions, loan portfolio composition, prior loan loss expe-             which generally range from 20 to 35 years.                          share - assuming dilution are computed by dividing net
                                                                         rience, evaluation of credit risk related to certain individual


                                                                                                                                                                                                                                                                                                                            I

m_.
..                                                                                                                                          .'------------                                                                                                                                                          BJIM'



                                                                                                                                            :---                                                                                                                                                                            I
.--------------------~-------.~E..-.-----~---------------------l
                                                                                                                                                      i'


                                                                                                                                                      I




                                                                                                                                                                  MERGER WITH                     FIRST INTERSTATE BANCORP
             income (after deducting dividends on preferred stock)                at the time that the fee is paid and are classified with the
             by the average number of common shares outstanding                   hedged asset or liability. These fees are amortized over their
             during the year, plus the impact of those common stock               contractual life as a component of the interest reported on              On April 1, 1996, the Company completed its acquisition              87 former First Interstate out-of-state branches, including
             equivalents (i.e., stock options and restricted share rights)        the hedged asset or liability. If a hedged asset or liability            of First Interstate Bancorp (First Interstate). The Merger           deposits, in 1997. Additionally, the adjustments to goodwill
             that are dilutive.                                                   settles before maturity of the hedging interest rate deriva-             was accounted for as a purchase transaction. Accordingly,             included accruals of approximately $481 million ($284 mil-
                                                                                  tives, the derivatives are closed out or settled, and previ-              the results of operations of First Interstate are included           lion after tax) related to severance of former First Interstate
                                                                                  ously unrecognized hedge results and the net settlement                  with those of the Company for periods subsequent to the              employees throughout the Company who have been or
             DERIVATIVE FINANCIAL INSTRUMENTS                                                                                                              date of the Merger.
                                                                                  upon close-out or termination are accounted for as part                                                                                       will be displaced. Severance payments totaling $372 mil-
                                                                                  of the gains and losses on the hedged asset or liability. If                The major components of management's plan for the                  lion were paid since the second quarter of 1996, including
             Interest rate derivatives The Company uses interest rate             interest rate derivatives used in an effective hedge are                 combined company include the realignment of First                    $143 million in 1997.
             derivative financial instruments (futures, caps, floors and          closed out or terminated before the hedged item settles,                 Interstate's businesses to reflect Wells Fargo's structure, con-         InJune 1997, Wells Fargo Bank (Colorado), N.A.
             swaps) primarily to hedge mismatches in the rate maturity            previously unrecognized hedge results and the net settlement             solidation of retail branches and administrative facilities           (formerly First Interstate Bank of Denver, N.A.) was merged
             of loans and their funding sources. These instruments serve          upon close-out or termination are deferred and amortized                 and reduction in staffing levels. As a result of this plan,          with the Bank.
             to reduce rather than increase the Company's exposure to             over the life of the hedged asset or liability. Cash flows               the adjustments to goodwill since April 1, 1996 included                 In 1997, the Company sold the Corporate and Municipal
             movements in interest rates. At the inception of the hedge,          resulting from interest rate derivatives (including any related          accruals totaling approximately $324 million ($191 million           Bond Administration (Corporate Trust) business to The
             the Company identifies an individual asset or liability, or an       fees) that are accounted for as hedges of assets and liabilities         after tax) related to the disposition of premises, including an      Bank of New York.
             identifiable group of essentially similar assets or liabilities      are classified in the cash flow statement in the same cate-              accrual of$127 million ($75 million after tax) associated                During 1997, the Bank signed a definitive agreement
             that expose the Company to interest rate risk at the con-            gory as the cash flows from the items being hedged and are               with the dispositions of traditional former First Interstate         to sell its Institutional Custody businesses to The Bank of
             solidated or enterprise level. Interest rate derivatives are         reflected in that statement when the cash receipts or pay-               branches in California and out of state. At December 3"1,            New York and its affiliate, BNY Western Trust Company.
             accounted for by the deferral or accrual method only if they         ments due under the terms of the instruments are collected,         I    1997, the remaining accrual associated with the disposition          Transfer of the accounts is occurring in several stages, the
             are designated as a hedge and are expected to be and are             paid or settled.                                                         of traditional former First Interstate branches was $8 million.      first of which was during the third quarter of 1997. Sub-
             effective in substantially reducing interest rate risk arising           Interest rate derivatives entered into as an accommodation           The California dispositions included 175 branch closures             stantially all of the businesses were acquired as part of the
             from the assets and liabilities identified as exposing the           to customers and interest rate derivatives used to offset the            during 1996,47 branch closures during 1997 and 2 branches            acquisition of First Interstate; therefore, the excess of the
             Company to risk. Futures contracts must meet specific                 interest rate risk of those contracts are carried at fair value         scheduled to be closed by June 30, 1998. The Company                 related proceeds over the attributable costs of the net assets
             correlation tests (i.e., the change in their fair values must        with unrealized gains and los es recorded in noninterest                 also entered into definitive agreements with several institu-        sold on that portion of the sale is being deducted from
             be within 80 to 120 percent of the opposite change in the             income. Cash flows resulting from interest rate derivative              tions to sell 20 former First Interstate branches, including         goodwill, while the remaining net proceeds attributable
             fair values of the hedged assets or liabilities). For caps, floors   financial instruments carried at fair value are classified in            deposits, located in California. The sales of 17 of these            to business originated by the Company will be recorded
             and swaps, their notional amount, interest rate index and             the cash flow statement as operating cash flows and are
                                                                                                                                                      I
                                                                                                                                                           branches were completed in 1997, with the remaining                  as a gain in 1998 when the transfers are finalized.
             life must closely match the related terms of the hedged               reflected in that statement when the cash receipts or pay-              three branches expected to be completed by June 30, 1998.               The $7,230 million excess purchase price over fair value
             assets or liabilities. Further, for futures, if the underlying        ments due under the terms of the instruments are collected,             The out-of-state dispositions included 88 branch closures            of First Interstate's net assets acquired (goodwill) is amortized
             financial instrument differs from the hedged asset or liability,     paid or settled.                                                         that were completed in 1997 and 68 closures scheduled                using the straight-line method over 25 years.
              there must be a clear economic relationship between the                 Credit risk related to interest rate derivative financial            to be completed by June 30, 1998. The Company also sold
              prices of the two financial instruments. If periodic assessment      instruments is considered and, if material, provided for
              indicates derivatives no longer provide an effective hedge,         separately from the allowance for loan losses.
              the derivatives are closed out or settled; previously unrecog-
              nized hedge results, and the net settlement upon close-out          Foreign exchange derivatives The Company enters into
             or termination that offset changes in value of the hedged
              asset or liability are deferred and amortized over the life
             of the asset or liability with excess amounts recognized in
              noninterest income.
                                                                                  foreign exchange derivative financial instruments (forward
                                                                                  and spot contracts and options) primarily as an accommo-
                                                                                  dation to customers and offsets the related foreign exchange
                                                                                  risk with other foreign exchange derivatives. All contracts
                                                                                                                                                           J      CASH,          LOAN AND DIVIDEND RESTRICTIONS


                 Gains and losses on futures contracts result from the            are carried at fair value, with unrealized gains and losses              Federal Reserve Board regulations require reserve balances           purpose represents Tier 1 and Tier 2 capital, as calculated
              daily settlement of their open positions and are deferred           recorded in non interest income. Cash flows resulting from               on depOSits to be maintained by the Company's banking                under the risk-based capital guidelines, plus the balance of
              and classified on the balance sheet with the hedged asset           foreign exchange derivatives are classified in the cash flow              ubsidiaries with the Federal Reserve Banks. The average             the allowance for loan losses excluded from Tier 2 capital)
              or liability. They are recognized in income when the effects        statement as operating cash flows and are reflected in that              required reserve balance was $2.0 billion in both 1997               and, in the aggregate to all of its affiliates, to 20% of the
              of the related fair value changes of the hedged asset or lia-       statement when the cash receipts or payments due under                   and 1996.                                                            Bank's capital stock and surplus. The capital stock and
              bility are recognized (e.g., amortized as a component of the        the terms of the foreign exchange derivative are collected,                 The Bank is subject to certain restrictions under the             surplus at December 31, 1997 was $8 billion.
              interest income or expense reported on the hedged asset             paid or settled. Credit risk related to foreign exchange deriv-          Federal Reserve Act, including restrictions on extensions               Dividends payable by the Bank to the Parent without
              or liability). Amounts payable or receivable for swaps, caps        atives is considered and, if material, provided for separately           of credit to its affiliates. In particular, the Bank is prohibited   the express approval of the Office of the Comptroller of the
              and floors are accrued with the passage of time, the effect         from the allowance for loan losses.                                      from lending to the Parent and its nonbank subsidiaries              Currency (aCe) are limited to the Bank's retained net
              of which is included in the interest income or expense                                                                                       unless the loans are secured by specified collateral. Such           profits for the preceding two calendar years plus retained
              reported on the hedged asset or liability. Fees associated with                                                                              secured loans and other regulated transactions made by the           net profits up to the date of any dividend declaration in the
              these financial contracts are included on the balance sheet                                                                                  Bank (including its subsidiaries) are limited in amount as           current calendar year. Retained net profits are defined by
                                                                                                                                                           to each of its affiliates, including the Parent, to 10% of the       the oee as net income, less dividends declared during the
                                                                                                                                                           Bank's capital stock and surplus (as defined, which for this         period, both of which are based on regulatory accounting

1I.l!m:il-                                                                                                                                           -,I'---                                                                                                                                        Bl
                                                                                                                                                                                                                                                                                                     ,
                                                                                                                                                                                                                                                                                                    iiiiil
                                                                                                             Since it is not expected to have net income of $1.5 bill ion                                          The following table provides the remaining contractual                                      prepayments. Expected remaining maturities will differ
               principles. Based on this definition, the Bank, with the
                                                                                                             plus an amount equal to or greater than the dividends                                              principal maturities and yields (taxable-equivalent basis)                                     from contractual maturities because borrowers may have
               express approval of the ace, declared dividend in 1997
                                                                                                             expected to be declared in 1998, the Bank will again need                                          of available-for-sale debt securities within the investment                                    the right to prepay obligations with or without penalties.
               and 1996 of $1.5 billion in excess of its net income of
               $2.0 billion for those years. (The total dividends declared                                   to obtain the approval of the ace before any dividends                                             portfoliO. The remaining contractual principal maturities                                      (See the Investment Securities section of the Financial
                                                                                                             are declared in 1998.                                                                              for mortgage-backed securities were allocated assuming no                                      Review for expected remaining maturities and yields.)
               by the Bank in 1997, 1996 and 1995 were $2.0 billion,
               $1.5 billion and $1.6 billion (including a $.5 billion deemed                                    The Company's other banking sub idiaries are subject
               dividend), respectively.) Therefore, before it can declare                                    to the same re trictions as the Bank. However, any such
               dividends in 1998 without the approval of the ace, the                                        restrictions have not had a material impact on the banking                                         (in millions)                                                                                                                                                   December 31. 1997

                                                                                                             subsidiaries or the Company.                                                                                                              Tural   Weighred       Weighted                                                                   Remaining conlracnml principal mnwrity
               Bank must have net income of $1.5 billion plus an amount                                                                                                                                                                             amount        average       average
                                                                                                                                                                                                                                                                                                  Wirhin one year               After one year           After five years          After ten yems
               equal to or greater than the dividends declared in 1998.                                                                                                                                                                                             yield     remaining
                                                                                                                                                                                                                                                                                                                             rhrough five years        through ten years
                                                                                                                                                                                                                                                                            malUril)' (in
                                                                                                                                                                                                                                                                               yrs.-mos.)    Amount           Yield      Amuul1(          Yield    AmOlll1l        Yield    Amount          Yield

                                                                                                                                                                                                                U.S. Treasury securities            $2,535           6.04%          l-3      $l, LJO          5.83%      $l,404           6.2l%    $      1        6.67%    $      -           -'Yo
                                                                                                                                                                                                                Securities o( U.S.
                                                                                                                                                                                                                  government agencies
                                                                                                                                                                                                                  and corpomtions                     4,390          6.68          5-2         [,05           6.87         1,859          6.70         819          7.23         659        5.59
                                                                                                                                                                                                                Private collmeralizeJ
                                                                                                                                                                                                                  mortgage obligations                2,390          6.76          6-4           286          8.00        851             7.07         725         7.07          528        5.20


                4        INVESTMENT SECURITIES
                                                                                                                                                                                                                Other
                                                                                                                                                                                                                TOTAL COST OF
                                                                                                                                                                                                                DEBT SECURITIES (I)

                                                                                                                                                                                                                ESTIMATED FAIR VALUE
                                                                                                                                                                                                                                                    --  441

                                                                                                                                                                                                                                                    $9,756
                                                                                                                                                                                                                                                    $9,823
                                                                                                                                                                                                                                                                     8.11

                                                                                                                                                                                                                                                                     6.60%
                                                                                                                                                                                                                                                                     -
                                                                                                                                                                                                                                                                                   4-6

                                                                                                                                                                                                                                                                                   4-5
                                                                                                                                                                                                                                                                                   -
                                                                                                                                                                                                                                                                                                56
                                                                                                                                                                                                                                                                                              -.-
                                                                                                                                                                                                                                                                                              $2,525
                                                                                                                                                                                                                                                                                              $2,539
                                                                                                                                                                                                                                                                                                              7.56

                                                                                                                                                                                                                                                                                                              6.55%
                                                                                                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                                                                                                          223
                                                                                                                                                                                                                                                                                                                         --

                                                                                                                                                                                                                                                                                                                         $4,337
                                                                                                                                                                                                                                                                                                                         $4,3 75
                                                                                                                                                                                                                                                                                                                                          7.82

                                                                                                                                                                                                                                                                                                                                          6.67%
                                                                                                                                                                                                                                                                                                                                          -
                                                                                                                                                                                                                                                                                                                                                   - LJ6
                                                                                                                                                                                                                                                                                                                                                     -
                                                                                                                                                                                                                                                                                                                                                   $1,681
                                                                                                                                                                                                                                                                                                                                                   $1,687
                                                                                                                                                                                                                                                                                                                                                                   8.78


                                                                                                                                                                                                                                                                                                                                                                   -
                                                                                                                                                                                                                                                                                                                                                                    7.29%
                                                                                                                                                                                                                                                                                                                                                                             26
                                                                                                                                                                                                                                                                                                                                                                            --
                                                                                                                                                                                                                                                                                                                                                                            $l,2LJ
                                                                                                                                                                                                                                                                                                                                                                            $1,222
                                                                                                                                                                                                                                                                                                                                                                                            8.07

                                                                                                                                                                                                                                                                                                                                                                                            5.47%
                                                                                                                                                                                                                                                                                                                                                                                            -
                                                                                                                                                                                                                                                                                                                                                                                                              I




               The following table provides the cost and fair value for the                                   at fair value (there were no held-to-maturity investment
               major components of available-for-sale securities carried                                      securities at cost at the end of the last three years):
                                                                                                                                                                                                                (I) The weighted average yield is computed using the amnrtized cusr of available-for-sale del" securities carried ar fair value.



                                                                                                                                                                                      December 3 I ,
                (in millions)                                                                                                                                                                                     There was no dividend income in 1997, 1996 and 1995                                             Investment securities pledged primarily to secure trust
                                                                                                                                                                    1996                        1995
                                                                                                     1997                                                                                                       included in interest income on investment securities in                                        and public deposits and for other purposes as required or
                                                                                                                              Estimated       Estimated       Estimated       Cost       Estimated
                                                                 Estimated       Estimated      Estimated            COSt                                                                                       the Consolidated Statement of Income. Substantially all
                                                        Cost
                                                                                                                              unrealized     unrealized       fair value                  (air Vtlllle                                                                                                         permitted by law was $6.4 billion, $5.3 billion and $4.8 bil-
                                                                 unrealized      unrealized     fair value
                                                                 gross gains   gross losses                                   gross gains    gross losses                                                       income on investment securities is taxable.                                                    lion at December 31, 1997,1996 and 1995, re pectively.

                                                                                                                $ 2,824            $ 16             $ 3       $ 2,837       $1,347          $1,357
                U.S. Treasury securities            $2,535            $ 15             $ 1        $2,549
                Securities fU.S.
                  government agencies                                                                                                                                                         5,223
                                                                                                   4,425           7,043              46                 39        7,050     5,218
                  and corporations (I)                4,390              43                8
                Private collateralized                                                                                                                                       2,121            2,122
                                                                                           10       2,396          3,237               l6                23        3,230
                   mortgage obligations     (2)       2,390               16
                                                                                                                     342                2                 1          343       169              181
                                                        441               12                -         453                          --                -                      --
                Other                                                 --               -                                                                           IJ,460    8,855           8,883
                                                      9,756              86                19       9,823          l3,446             80                 66
                   Total debt securities                                                                                                                                                        37
                                                                                                       65              l8             27                  -            45        18
                Marketable equity securities             40              26                 1                    ---                                 -                      --              --
                                                                       --              -                                                                       $13,505      $8,873          $8,920
                                                     $9,796           $112             $20        $9,888         $13,464            $l07             $66
                      Total


                 (I) All securities of U.S. government agencies and corporations are mortgage-backed securities.
                 (2) Substantially all privare collaterali,ed mortgage obligations are AAA-rated bonds collateralized by 1-4 family residential first mortgages.




                    At December 31,1997, there were no investment securi-                                       1997,1996 and 1995, respectively. These were sold for
                 ties (excluding the U.S. govemment and its agencies and                                        asset/liability management purposes. The sales of marketable
                 corporations) that exceeded 10% of stockholders' equity.                                       equity securities in the available-for-sale portfol io resulted
                    Proceeds from the sale of securities in the available-for-sale                              in a gain of $14 million, $9 million and none in 1997,
                 portfolio totaled $310 million, $719 million and $673 mil-                                     1996 and 1995, respectively. Additionally, a $4 million loss
                 lion in 1997, 1996 and 1995, respectively. The sales of debt                                   was realized in 1995 resulting from a write-d wn of certain
                 securitie~ in the available-for-sale portfolio resulted in a                                   equity securities due to other-than-temporary impairment.
                 $6 million gain, $1 million gain and $13 million loss in.




lI,iIl!lIil'                         ----------------------------.......                                                                                                                                  t-----------------------                                                                                                                                                                     m·:a
                                                                                                                                                                                                                                                                                                                                                                                                      ll
                                                                                                                                                                                                         J ..
                                                                                                                                                                                                                                                        ---------                            -




         LOANS AND ALLOWANCE FOR LOAN LOSSES
                                                                                                                                                                                                Standby letters of credit totaled $2,612 million and
                                                                                                                                                                                                                                                                   Changes in the allowance for loan losses were as follows:
                                                                                                                                                                                            $2,981 million at December 31, 1997 and 1996, respectively.
A summary of the major categories of loans outstanding and                                   Portfolio section of the Financial Review summarize real
                                                                                                                                                                                            Standby letters of credit are issued on behalf of customers
related unfunded commitments to extend credit is shown in                                    estate mortgage loans (excluding 1-4 family first mortgage
                                                                                                                                                                                            in connection with contracts between the CustOmer and
the following table. At December 31,1997 and 1996, the                                       loans) by state and property type and real estate construction                                                                                                    (in milliuns)
                                                                                                                                                                                                                                                                                                                             Year ended December 31,
                                                                                                                                                                                            third parties. Under standby letters of credit, the Company
commercial loan category and related commitments did                                         loans by state and project type. A majority of the Company'                                                                                                                                                     1997              1996             1995
                                                                                                                                                                                           assures that the third parties will receive speCified funds
not have an industry concentration that exceeded 10% of                                      real estate 1-4 family first mortgages and consumer loans
                                                                                                                                                                                            if customers fail to meet their contractual obligations. The       Balance, beginning of year
total loans and commitment. Tables 11 and 12 in the Loan                                     are with customers located in California.                                                                                                                                                               $ 2,018                 $1,794          $2,082
                                                                                                                                                                                           liquidity risk to the Company arises from its obligation to         Allowance of Fitst Interstate                                    770
                                                                                                                                                                                           make payment in the event of a customer's contractual               Sale of former Fitst Interstate b~nks                            (II)
                                                                                                                                                                                           default. The credit risk involved in issuing letters of credit      Provision for loan losses                 615                    105
(in millions)                                                                                                                                                         December 31,                                                                             Loan charge-off>:
                                                                                                                                                                                           and the Company's management of that credit risk is COn-
                                                                                                                                     1997                                     1996                                                                               Commercial (I)                         (269)                 (140)
                                                                                                                                                                                           sidered in management's determination of the allowance                                                                                                   (55)
                                                                                                          Outstanding       Commitments            Outsti.lncling   Commitments                                                                                  Real estate 1-4 family
                                                                                                                                 to extend                               ro extend        for loan losses. At December 31, 1997 and 1996, standby                  fi rst mortgage                            (19)              (18)            (13)
                                                                                                                                     credit                                  crerlit       letters of credit included approximately $200 million and             Other real estate mortgage                   (I8)              (40)            (52)
                                                                                                                                                                                          $243 million, respectively, of participations purchased, net           Real estate construction                      (3)              (13)            (10)
                                                                                                                                                                                                                                                                 Consumer:
                                                                                                             $20,144            $27,458                $19,515            $28,125
                                                                                                                                                                                          of approximately $85 million and $61 million, respectively,
Commercial (I)                                                                                                                                                                                                                                                      Real estate 1-4 family
Real estate 1-4 family first mortgage (2)                                                                      8,869                833                 10,425                778         of participations sold. Approximately 68% of the Company's                  junior lien mortgage                   (23)              (28)             (16)
Other real estate mortgage                                                                                    12,186              1,086                 11,860                872         year-end 1997 standby letters of credit had maturities .                  Credit card                             (486)             (404)            (208)
Real estate construction                                                                                       2,320              1,552                  2,303              1,719         of one year or less and substantially all had maturities of               Other revolving credit and
Consumer:                                                                                                                                                                                 seven years or less.                                                        momhly payment                   ~)                  ~)               ~)
  Real estate 1-4 family junior lien mortgage                                                                   5,865              4,681                 6,278               4,781
                                                                                                                5,039             15,453                 5,462              15,737
                                                                                                                                                                                              Included in standby letters of credit are those that back               Total consumer                    (728)              (618)             (277)
  Credit card
  Other revolving credit anti monthly payment                                                                   7,185              2,913                 8,374               3,123        financial instruments (financial guarantees). The Company              Lease financing                       -ii.!.)            ~)               ~)
     Toral consumer                                                                                           18,089              23,047                20,114             23,641         had issued or purchased participations in financial guar-                      Total loan charge-offs           0,Q78)           (860)            (422)
Lease financing                                                                                                4,047                                     3,003                            antees of approximately $1,293 million and $1,798 million           Loan recoveries:
                                                                                                                                                                                                                                                                Commercial (2)                                70
Foreign
                                                                                                             ---
                                                                                                                  79                   43
                                                                                                                                                      ---
                                                                                                                                                           169
                                                                                                                                                                         ---
                                                                                                                                                                               101       at December 31, 1997 and 1996, respectively. The Company                                                                               54              38
                                                                                                                                                                                                                                                                Real estate 1-4 family
     Total loans   (3)                                                                                       $65,734            $54,019                $67,389            $55,236        also had commitments for commercial and similar letters                  fi rst mortgage                              4                8                3
                                                                                                                                                                                         of credit of $337 million and $406 million at December 31,             Other real estate mortgage                    53               47               53
(I) Outstanding balances include loans (primarily unsecured) to real eState developers and REITs of $1 ,772 million and $1,070 million at December 31, 1997 and 1996, respectively.
                                                                                                                                                                                         1997 and 1996, respectively. Substantially all fees received           Real estate construction                      11               11                1
(2) Substantially all of the commitments to extend credit relate to those equity lines thac are effectively first mortgages.                                                             from the issuance of financial guarantees are deferred and             Consumer:
(3) Outstanding loan balances at December 31, 1997 and 1996 arc net of unearned income, including net deferred loan fees, of$832 million and $614 million, respecrively.                 amortized on a straight-line basis over the term of the guar-             Real estate 1-4 family
                                                                                                                                                                                                                                                                     junior lien mortgage                     8                 9
                                                                                                                                                                                         antee. Losses on standby letters of credit and other similar                                                                                               3
                                                                                                                                                                                                                                                                   Credit catd                               48                36
                                                                                                                                                                                         letters of credit have been immaterial.                                                                                                                13
                                                                                                                                                                                                                                                                   Other revolving credit and
   In the course of evaluating the credit risk presented by a                                because a significant portion of these commitments is                                           The Company considers the allowance for loan losses of                  monthly payment                         67                47               12
customer and the pricing that will adequately compensate the                                 expected to expire without being drawn upon. Certain                                       $1,828 million adequate to cover losses inherent in loans                    Total consumer                         123                92               28
Company for assuming that risk, management determines a                                      commitments are subject to a loan agreement containing                                     loan commitments and standby letters of credit at Decem'-               Lease financing                              12                 8               11
requisite amount of collateral support. The type of collateral                               covenants regarding the financial petformance of the cus-                                  ber 31, 1997. However, no assurance can be given that the                       Total loan recoveries              273                220             134
held varies, but may include accounts receivable, inventory,                                 tomer that must be met before the Company is required                                     Company will nOt, in any particular period, sustain loan                            Total net loan
land, buildings, equipment, income-producing commercial                                      to fund the commitment. The Company uses the same                                          losses that are sizable in relation to the amount reserved, or                       cha rge-uffs             ~)                     (640)           (288)
properties and residential real estate. The Company has the                                  credit policies in making commitments to extend credit                                    that subsequent evaluations of the loan portfolio, in light of       Balance, end of year                      $ 1,828            $2,018           $1,794
same collateral policy for loans whether they are funded                                     as it does in making loans.                                                               the factors then prevailing, including economic conditions           Total net loan charge-offs as
                                                                                                                                                                                                                                                                                                      =                  =
immediately or on a delayed basis (commitment).                                                 In addition, the Company manages the potential credit                                  and the Company's ongoing examination process and that                 a percentage of average
   A commitment to extend credit is a legally binding                                        risk in commitments to extend credit by limiting the total                                of Its regulators, will not require significant increases in the       toralloans (3)                              1.25%              1.05%            .83%
agreement to lend funds to a customer and is usually for a                                   amount of arrangements, both by individual customer and                                   allowance for loan losses.                                           A 1I0wance as a percentage
specified interest rate and purpose. These commitments have                                  in the aggregate; by monitoring the size and maturity struc-                                    Loans held for sale are included in their respective loan        of total loans                              2.78%            3.00%             5.04%
fixed expiration dates and generally require a fee. The exten-                               ture of these portfolios; and by applying the same credit                                 ~tegOries and recorded at the lower of cost or market.
sion of a commitment gives rise to credit risk. The actual                                   standards maintained for all of its credit activities. The credit                             t December 31, 1997 and 1996, loans held for sale were           (I) Includes charge-offs of loans (primarily unsecured) to real estate developers and
liquidity needs or the credit risk that the Company will                                     risk associated with these commitments is considered in                                   $1,127 million and $308 million, respectively.                           REITs of none, $2 million and none in 1997, 1996 and 1995, respectively.
experience will be lower than the contractual amount of                                      management's determination of the allowance for loan losses.                                                                                                   (2) Includes recoveties from loans to real estate developers and REITs of $3 million,
                                                                                                                                                                                                                                                                $10 million and $ million in 1997, 1996 and 1995, respectively.
commitments to extend credit shown in the table above
                                                                                                                                                                                                                                                            (3) Average tamlloans exclude firSL mongage loans held for sale in 1995.
                                                                                                            The average recorded investment in impaired loans during          The Company is obligated under a number of noncan-                                  Income from nonmarketable equity investments accounted
           In accordance with FAS 114, the table below show the
                                                                                                        1997,1996 and 1995 was $410 million, $542 million and              celable operating leases for premises (including vacant                             for u ing the cost method was $157 million, $137 million
        recorded investment in impaired loans by.loan category
                                                                                                        $472 million, respectively. Total interest income recognized       premises) and equipment with terms up to 25 years, many                             and $58 million in 1997, 1996 and 1995, respectively.
        and the related methodology used to measure impairment
                                                                                                        on impaired loans during' 1997 , 1996 and 1995 was $13 mil-        of which provide for periodic adju tment of rentals based                              Trading assets consist predominantly of securities, includ-
        at December 31,1997 and 1996:                                                                                                                                      on changes in various economic indicators. The following                            ing corporate debt and U.S. government agency obligations.
                                                                                                        lion, $17 million and $15 million, respectively, substantially
                                                                                                        all of which was recorded using the cash method.                   table shows future minimum payments under noncancelable                             Gains from trading assets were $72 million, $44 million and
                                                                                                            The Company u es either the cash or cost recovery              operating leases and capital leases with terms in excess of                         $27 million in 1997,1996 and 1995, respectively.
                                                                                     [)ecember 31,
        (in millions)                                                                                                                                                      one yea r as of December 31, 1997:                                                     Included in certain identifiable intangible assets were
                                                                          1997               1996
                                                                                                        method to record cash receipts on impaired loans that arc on
                                                                                                        nonaccrual. Under the cash method, contractual interest is                                                                                             purchased mortgage servicing rights of $292 million and
                                                                         $103               $155        credited to interest income when received. This method                                                                                                 $257 million at December 31,1997 and 1996, resl ectively.
        Commercial
        Real estate 1-4 family first mortgage                               2                     I      is used when the ultimate collectibility of the total principal   (in millions)                                   Operating leases   Capital leases   The purchased mortgage loan servicing portfolio totaled
                                                                          193                   362                                                                                                                                                            $24 billion and $22 billion at December 31, 1997 and 1996,
        Orher real estate mortgage (I)                                                                   is not in doubt. Under the cost recovery method, all pay-
                                                                           22                    24                                                                        Year ended December 31,
        Real estate consrrucrion                                                                         ments received are applied to principal. This metho I is used                                                                                         respectively. Mortgage s rvicing rights purchased during 1997
                                                                               1                  I                                                                        1998                                                    $ 269              $ 12
        Other                                                                                                                                                                                                                                                  and 1996 were $102 million and $165 million, respectively.
                                                                                                         when the ultimate collectibility of the total principal is in     1999                                                      237                12
           Total                                                          $321              $543
                   (l)
                                                                                                         doubt. Loans on the cost recovery method may be changed           2000                                                      188                11     (For loan sales, there were no retained servicing right rec-
        Impairment measurement baseJ on:                                                                  to the cash method when the application of the cash pay-         2001                                                      147                10     ognized during the same periods.) Amortization expense,
                                                                          $233              $416                                                                           2002
          Collateral value method
                                                                                                          ments ha reduced the principal balance to a level where                                                                    120                10     recorded in non interest income, totaled $69 million, $63 mil-
          Discounted cash (Jow method                                       61               101
                                                                                                                                                                           Thereafter                                                480              .61      lion and $39 million for 1997, 1996 and 1995, respectively.
          Historical loss factors                                           27                26         collection of the remaining recorded investment is no
                                                                                                                                                                           Total minimum lease payments                            $1,441               116       The fair value of purchased mortgage servicing rights
                                                                          $321               $543         longer in doubt.
                                                                                                                                                                           Executory costS                                                               (3)   totaled $338 million and $289 million at December 31, 1997
                                                                                                                                                                           Amounts representing interest                                                (54)   ancl1996, respectively. At December 31, 1997 and 1996,
         (I) IncluJ~s accruing loans of $Z3 million and $';0 million at December 31, \997                                                                                                                                                             $ 59
                                                                                                                                                                           Present value of net minimum lease payments                                         the balance of the valuation allowances totaled none and
             anti 1996, respeclivcly, fhm were purchased m a sreep discount whose
             contractual terms were modified afler acquisiTion. The mnJihcd terms Jill                                                                                                                                                                         $582 thousand, respectively.
             not affecl the book halance nor the yields especred   at   rhe date of purchase.                                                                                                                                                                     Amortization expense for the other identifiable intangible
         (2) Includes $27 million of impaired loans with a rel:ned FAS 114 allowance of                                                                                                                                                                        assets included in other as ets was $29 million, $26 million
             $2 milliun at December   )I,   \997 allL! \996.
                                                                                                                                                                              Total future minimum payments to be received under                               and $12 million in 1997,1996 and 1995, respectively.
                                                                                                                                                                           noncancelable operating subleases at December 31, 1997                                 Foreclosed assets consist of assets (substantially real estate)
                                                                                                                                                                           were approximately $255 million; these payments are not                             acquired in satisfaction of troubled debt and are carried
                                                                                                                                                                           reflected in the preceding table.                                                   at the lower of fair value (less estimated costs to sell) or
                                                                                                                                                                              Rental expense, net of rental income, for all operating                          cost. Foreclosed assets income (expense), including dispo-
                                                                                                                                                                           leases was $228 million, $199 million and $111 million in                           sition gains and losses, was $33 million, $(7) million and
                                                                                                                                                                           1997,1996 and 1995, respectively.                                                   $(1) million in 1997, 1996 and 1995, respectively.
                    PREMISES,                        EQUIPMENT,
                                                                                                                                                                              The components of other assets at December 31, 1997
                    LEASE COMMITMENTS AND OTHER ASSETS                                                                                                                     and 1996 were as follows:

                                                                                                             Depreciation and amortization expense was $257 million,
          The following table presents comparative data for premises
                                                                                                          $238 million and $154 million in 1.997, 1996 and 1995,           (in millions)                                                      December 31,
          and equipment:
                                                                                                          respectively. Los e on disposition of premises and equipment,                                                               1997             1996
                                                                                                          recorded in noninterest income, were $63 million, $46 mil-
                                                                                                                                                                           Nonmarketable equity investments (I)                   $1,113           $1,085
                                                                                       Decemher 3\,
                                                                                                          lion and $31 million in 1997,1996 and 1995, respectively.
          (in millions)                                                                                                                                                    Trading assets                                            815              404
                                                                                                 1996
                                                                                                          Also recorded in non interest income were gains (losses)         Certain identifiable intangible assets                    479              471
                                                                              1997
                                                                                                          from disposition of operations of $15 million,·$(95) million     Net deferred tax asset ell                                209              346
           Land                                                          $     199          $ 234         and $(89) million in 1997, 1996 and 1995, respectively.          Foreclosed assets                                         158              219
                                                                             1,529           1,687        The losses were primarily related to the c1ispositi n of         Other                                                   1,175            2,936
           Buildings
                                                                             1,281           1,362                                                                           Toral other assets                                   $3,949           $5,461
           FurniLure and equipment                                                                        premises associated with scheduled branch closures.
           Leasehold improvements                                              395             392
           Premises leased under capital leases                                106             III
                                                                                                                                                                           (\) Commilmenrs re/ared to nonmarkcmble equily invesrmelK' tolaled $363 million
                                                                             3,510              3,786
             Total                                                                                                                                                             anel $376 million at Decemher 31,1997 and 1996, respectively.
           Less accumulated depreciation                                                                                                                                   (2) See Nore 14 ro Fillancial St:llemeIlL'.
             and amortization                                                1,393              1,380

                   Net book value                                         $2,117             $2,406




.   ;
      DEPOSITS                                                                                                                                                   SENIOR AND SUBORDINATED DEBT


The aggregate amount of time certificates of deposit and      respectively. At December 31,1997, the contractual matu-                                 The following is a summary of.senior and subordinat~d debt (reflecting unamortized debt discounts and premiums, where applic-
other time deposits issued by domestic offices was $15,560    rities of these deposits were as follows: $1,894 million in                              able) owed by the Parent and Its subsldlanes:
million and $15,955 million at December 31,1997 and           3 months or less, $829 million over 3 through 6 months,
1996, respectively. At December 31,1997, the contractual      $727 million over 6 through 12 months and $399 million
maturities of these deposits were as follows: $12,927 mil-    over 12 months.                                                                          (in millions)
                                                                                                                                                                                                                                                                Maturiry            Inreresr                           December 31,
lion in 1998, $1,338 million in 1999, $727 million in 2000,      Time certificates of deposit and other time deposits                                                                                                                                              date             race
                                                                                                                                                                                                                                                                                                              1997               1996
$218 million in 2001, $155 million in 2002 and $195 mil-      issued by foreign offices with a denomination of $100,000
                                                                                                                                                       SENIOR
lion thereafter. Substantially all of these deposits were     or more represent substantially all of the foreign deposit
                                                                                                                                                       Parent: Floating-Rate Me lium-Term Notes
interest bearing.                                             liabilities of $597 million and $54 million at December 31,                                                                                                                                            1998-99        Various                $1,460           $1,571
                                                                                                                                                               N tes (I)
   Of the total above, the amount of time deposits with       1997 and 1996, respectively.                                                                                                                                                                           1998           11.00%                     55               55
                                                                                                                                                               Medium-Term Notes (1)(8)
                                                                                                                                                                                                                                                                     1998-2002      7.78-10.90%               356              359
a denomination of $100,000 or more was $3,849 million             Demand deposit overdrafts that have been reclassified                                Notes payable by subsidiaries
                                                                                                                                                                                                                                                                                                               53               68
and $3,495 million at December 31,1997 and 1996,              as loan balances were $316 million and $800 million at                                  Obligations of subsidiaries unJer capital leases (Note 6)
                                                                                                                                                                                                                                                                                                               59               67
                                                              December 31, 1997 and 1996, respectively.                                                  Total senior debt
                                                                                                                                                                                                                                                                                                            1,983               2,120
                                                                                                                                                      SUBORDINATED
                                                                                                                                                      Parent: Floating-Rate Notes (2)(3)
                                                                                                                                                                                                                                                                      1997         Various                                       100
                                                                                                                                                              Floating-Rate Notes (2)(4)(5)
                                                                                                                                                                                                                                                                      1997         Various                                       100
                                                                                                                                                              Floating-Rate Notes (2)(4)
                                                                                                                                                                                                                                                                      1997         Various                                        83
                                                                                                                                                              Floating-Rate Capital Notes (2)(4)(6)
      SHORT-TERM                BORROWINGS                                                                                                                                                                                                                            1998         Various                    200                200
                                                                                                                                                              Floating-Rate Notes (2)(4)
                                                                                                                                                                                                                                                                     2000          Various                    118                118
                                                                                                                                                              Capital Notes (6)
                                                                                                                                                                                                                                                                      1999         8.625%                     186                190
                                                                                                                                                              Notes
                                                                                                                                                                                                                                                                     1997           12.75%                                        70
The table on the right shows selected information for                                                                                                         Notes (I )(7)(8)
                                                                                                                                                                                                                                                                     2002
                                                              (in millions)                                              Year ended December 31.                                                                                                                                   8.15%                     101                  97
short-term borrowings. These borrowings generally mature                                                                                                      Notes
                                                                                                                                                                                                                                                                     2002          8.75%
in less than 30 days.                                                                                      1997              1996             1995            Notes
                                                                                                                                                                                                                                                                     2002          8.375%
                                                                                                                                                                                                                                                                                                             200
                                                                                                                                                                                                                                                                                                             149
                                                                                                                                                                                                                                                                                                                                201         II
                                                                                                                                                              Notes                                                                                                                                                             149
                                                                                                                                                                                                                                                                     2003          6.875%                    150                150
                                                              FEDERAL FUNDS PURCHASED                                                                         Notes
                                                                                                                                                                                                                                                                     2003
                                                              Average amount outstanding (I)            $1,760           $1,079           $1,613             Notes (1)(8)
                                                                                                                                                                                                                                                                     2004
                                                                                                                                                                                                                                                                                   6.125%
                                                                                                                                                                                                                                                                                   9.1 25%
                                                                                                                                                                                                                                                                                                             249
                                                                                                                                                                                                                                                                                                             137
                                                                                                                                                                                                                                                                                                                                249             I
                                                                                                                                                             Notes (I )(7)(8)                                                                                                                                                   137
                                                              Daily average rate                          5.40%            5.21 %           5.79%                                                                                                                    2004          9.0%
                                                                                                                                                             Notes (I)
                                                                                                                                                                                                                                                                                                             124                121
                                                              Highest month-end balance (2)             $3,010           $2,151           $3,042                                                                                                                     2006          6.875%
                                                                                                                                                             Notes (1)(8)                                                                                                                                    499                499
                                                              Year-end balance                           2,199            1,496            1,885                                                                                                                     2006          7.125%                    299                299
                                                              Weighted average rare on                                                                         Medium-Term Notes        (1)
                                                                                                                                                                                                                                                                     1998-2002     9.38-11.25%               173                177
                                                                outstandings at year end                   5.46%            4.89%            5.32%      Total subordinated debt
                                                                                                                                                                                                                                                                                                           2,585            2,940
                                                              SECURITIES SOLD UNDER                                                                        Total senior and subordinated debt
                                                                                                                                                                                                                                                                                                         $4,568           $5,060
                                                              REPURCHASE AGREEMENTS
                                                              Average amount outstanding (1)            $1,084           $ 690            $1,788
                                                                                                                                                     (I) The Company entered into interesr tare swap agreements for substanrially all of these Nares whereby the Company receives fixed rate i It   t               .      I
                                                              Daily average rate                          5.40%            5.23%            5.89%
                                                                                                                                                         equal to interest on the Notes and makes interest pilymcnrs b~lsed on an average rhree~mOntjl or six#Olonrh LlBOR rate.    , # c.    I cres payments approxlIllare y
                                                              Highest month-end balance (3)             $1,533           $1,100           $2,776     (2) Notes me currenrll' redeemable in whole or in part, ar par.
                                                              Yem-end balance                            1,377              533              896
                                                                                                                                                     (3) Subject to a maximum interest rate of 13% due ro the purchase of an interest rate cap.
                                                              Weighred average rate on                                                                                                                                                                                                                                                      I
                                                                                                                                                     (4) Mal' be redeemed in whnle, at par, at any rime in the eVent withholding taxes are imposed by the Unired States.
                                                                                                                            5.21%            5.47%
                                                                                                                                                                                                                                                                                                                                        I



                                                                outsrandings at year end                   5.46%                                     (5) Subject to a maximum interest rate of 13%.
                                                                                                                                                     (6) Mandatory Equirl' Nares.
                                                              (I) Average balances were compured using Jaily amounts.                                (7) These Nores are redeemable in whole or in parr, at par, prior to marurit)'.
                                                              (2) Highesr monrh-enJ balance in eaeh of the last three rears occurred in September    (8) The inreresr rate swap agreemelll for rhese Notes is callable bl' the counterpartI' prior to the marurity of the Notes.
                                                                  1997, April 1996 anJ March 1995, respectively.
                                                              (3) Highest monrh-end bahll1ce in each of rhe last three rear> occurred in August
                                                                  1997, February 1996 and April 1995, respecrively.
                                                                                                                                                        At December 31,1997, the principal payments, including
                                                                                                                                                     sinking fund payments, on senior and subordinated debt are                                      (in millions)                                        Parent       Company
                                                                                                                                                     due as foLLows in the table on the right.
                                                                                                                                                                                                                                                    1998                                                 $1,794          $1,802
                                                                                                                                                        The interest rates on floating-rate notes are detennined
                                                                                                                                                                                                                                                    1999                                                    468             476
                                                                                                                                                     periodically by fonuulas based on certain money market                                         2000                                                    118             130
                                                                                                                                                     rates, subject, on certain notes, to minimum or maximum                                        2001                                                    354             365
                                                                                                                                                     interest rates.                                                                                2002                                                    388             399
                                                                                                                                                        The Company's mandatory convertible debt, which is                                          Thereafter                                            1,334           1,396
                                                                                                                                                     identified by note (6) to the table above, qualifies as Tier 2                                    Total                                             $4,456          $4,568
                                                                                                                                                     capital but is subject to discounting and note fund restric-
tions under the risk-based capital rules. The terms of the           Certain of the agreements under which debt has been                On or after December 2006 for Wells Fargo Capital A,                                      securitie!; may be redeemed at the option of the ompany
Mandatory Equity Notes of $200 million, due in 1998, and          issued contain provisions that may limit the m rger or sale of     Wells Fargo Capital B, Wells Fargo Capital C and Welb                                        on the occurrence of certain events that result in a negative
$186 million, due in 1999, require the Company to sell or         the Bank and the issuance of its capital stock or convertible      Fargo Capital I and on or after January 2007 for Wells Fargo                                 [ax impact, negative regulatory impact on the t[LIst preferred
exchange with .the noteholder the Company's common                securities. The Company was in compliance with the pro-            Capital II, each of the erie' of trust preferred securities                                  !;ecurities of the Company or negative legal or regulatory
stock, perpetual preferred stock or other capital securities      visions of the borrowing agreements at Dec mbcr 31, 1997.          may be redeemed and the corresponding debentures may be                                      impact on the appropriate special purpose trust which
at maturity or earlier redemption of the Notes. At Decem-                                                                            prepaid at the option of the Company, subject to Federal                                     would define it as an investment company. In addition,
ber 31, 1997, $264 million of stockholders' equity had been                                                                          Reserve approval, at declining redemption prices. Prior to                                   the Company has the right to defer payment of interest
designated for the retirement or redemption of these Notes.                                                                          December 2006 for Wells Fargo Capital A, Wells Fargo                                         on the debentures and, therefore, distributions on the
                                                                                                                                     Capital B, Wells Fargo Capital C and Wells Fargo Capital I                                   trust preferred securities for up to five years.
                                                                                                                                     and prior to January 2007 for Wells Fargo Capitalll, the




1~       GUARANTEED PREFERRED BENEFICIAL INTERESTS
          IN COMPANY'S SUBORDINATED DEBENTURES
                                                                                                                                     11           PREFERRED STOCK
In 1996, the Company established four separate special            The trust preferred securities are subject to mandatory
purpose trusts, which collectively issued $1,150 million in       redempti n at the stated maturity date of the debentures,         Of the 25,000,000 share!; authorized, there were 5,500,000
trust preferred securities. In 1997, the Company issued an        up n repayment of the debentures or earlier, pursuant to                                                                                                        to dividends and liquidation preference but have no general
                                                                                                                                    'hares and 6,600,000 shares of preferred stock issued and                                     voting rights.
additional $150 million in trust preferred securities through     the terms of the Trust Agreement.                                 outstanding at December 31, 1997 and 1996, respectively.
a eparate trust. The proceeds from such issuances, together                                                                                                                                                                          The following is a summary of preferred stock (adjustable
                                                                  Wells Fargo Capital A This trust issued $300 mill.ion in          All preferred shares rank senior to common shares both as                                     and fixed):
with the proceeds of the related issuances of common secu-
                                                                  trust prefen'ed securities in November 1996 and concurrently
rities of the trusts, were invested in junior subordinated
                                                                  invested $309.3 million in debentures of the Company
deferrable interest debentures (debentures) of the Company.
                                                                  with a stated maturity of December 1,2026. This class of                                                                                     Shrlrcs isslled         Carrying amounr                   Adjustable
The purpose of issuing these trust preferred securities was                                                                                                                                                 LInd ourstanding                  (in milliuns)
                                                                                                                                                                                                                                                                                                   Dividends declared
                                                                  trust preferred securities will accrue semi-annual distribu-                                                                                                                                      dividcm.b rare                        (in millions)
to provide the Company with a more cost- ffective means                                                                                                                                                       December 11 ,
                                                                  tions of $40.63 per security (8.13% annualized rate).                                                                                                                      December 31.     Minimum    Maximum             Year ended Decemher 31,
of obtaining Tier 1 capital for regulatory purposes than if                                                                                                                                          1997               1996         1997            1996                                   1997       1996      199')
the Company itself were to issue additional preferred stock       Wells Fargo Capital B This trust issued $200 million in
because the Company is allowed to deduct, for income tax                                                                            Adjustable-Rare ulllulative, Series B
                                                                  trust preferred securities in November 1996 and concurrently                                                               1,500,000           [,500,000         $    75          $ 75          5.5%        10.5%         $ 4        $    4    $ 5
                                                                                                                                      (Liquidation rreference $50)
purposes, distributions to the holders of the trust preferred     invested $206.2 million in debentures of the Company
securities. The sole assets of these special purpose trusts       with a stated maturity of December 1, 2026. This class of        9% CUlllulative, Series C
                                                                                                                                     (Liquidation prcference $500)        (I)
                                                                                                                                                                                                                                                                                                           21      21
are th debentures. These debentures rank junior to the            trust preferred securities will accrue semi-alU1ual distribu-
senior and subordinated debt issued by the Company. The           tions of $39.75 per security (7.95% annualized rate).            8%% CUlllulative, Series 0                                                     350,000                            175                                       3           16      16
Company owns all of the common securities of the five trust.                                                                         (Liquidation preference $500)        (2)
                                                                  Wells Fargo Capital C This trust issued $250 million in
The preferred securities issued by the trusts rank senior to                                                                       9%% CUlllulative, Series F
                                                                  tru t preferred securities in November L996 and conculTently       (Liquidation preference $200) 0)(4)
                                                                                                                                                                                                                                                                                                           12
the common securities. Concurrent with the issuance of
                                                                  invested $257.8 million in debentures of the Company
the preferred securities by the trusts, the Company issued                                                                         9% Cumulative, Series G
                                                                  with a stated maturity of Dec~mber 1, 2026. This class of                                                                                       750,000                            150                                      5         10
guarantees for the benefit of the security holders. The                                                                              (Liquidation preference $200) (3)(5)
                                                                  trust preferred securities will accrue semi-annual distribu-
obligations of the Company under the debentures, the                                                                               6.59%/Adjustable Rare Nonculllulative
                                                                  tions of $38.65 per security (7.73% annualized rate).
indentures, the relevant trust agreements and the guarantees,                                                                         Preferred Srock, Series H                             4,000,000          4,000,000            200             200           7.0        13.0            13            4
in the aggregate, constitute a full and unconditional guar-       Wells Fargo Capital I This trust issued $400 million in            (Liquidation preference $50)

an.tee by the Company of the obligations of th trusts under       trust preferred securities in December 1996 and concurrently          Toml                                                5,500,000          6,600,000          $275             $600                                    $25        $67       $42
the trust preferred securities and rank subordinate and           invested $412.4 million in debentures of the Company
junior in right of payment to all liabilities of the Company.     with a stated maturity of December 15, 2026. This class of       (I) In Decemher 1996. the Cumpany redecmed all $239 million (477,500 shares) of its Series C preferred srock.
   Listed below are the series of trust preferred securities of   trust preferred securities will accrue semi-annual distribu-     (2) In March 1997, rhe Company redeemed all $175 milliun 050,000 shares) of irs Series 0 preferred srock.
Wells Fargo Capital A, Wells Fargo Capital B, Wells Fargo         tions of $39.80 per security (7.96% annualized rate).            0) In April 1996, rhe Series F and Series G preferred srock were convened from Firsr Inre"rme preferred stock illlu rhe righr to receive one share uf rhe Companl"s preferred "ock.
Capital C, Wells Fargo Capital I and Wells Fargo Capital II                                                                        (4) In November 1996, Ihe Comp,,,,y redeemed all $200 million (1.000,000 s(",re,) of its Series F preferred ,tock.
                                                                  Wells Fargo Capital II This trust issued $150 million in         (5) In May 1997, rhe Company redeemed all $150 million (750,000 shares) of irs Series G preferred .rock.
issued at $1,000 per security. The distributions are cumula-
                                                                  trust preferred securities in January 1997 and concurrently
tive and payable semi-annually on the first day of June and
                                                                  invested $154.7 million in debentures of the Company
December for Wells Fargo Capital A, Wells Fargo Capital B                                                                          Adjustable,Rate Cumulative Preferred Stock,                                                   unpaid dividends. Dividends are cumulative and payable
                                                                  with a stated maturity of January 30,2027. This class of
and Wells Fargo Capital C and on the fifteenth day of June                                                                         Series B These shares were redeemable at the option of                                        quarterly on the 15th of February, May, August and
                                                                  trust preferred securities will accrue quarterly distributions
and December for Wells Fargo Capital!. The distributions                                                                           the Company through May 14, 1996 at a price of $51.50                                         November. For each quarterly period, the dividend rate
                                                                  at a variable annual rate of LlBOR plus 0.5%.
are cumulative and payable quarterly on the 30th of Jan-                                                                           per share and, thereafter, at $50 per share plus accrued and                                  is 76% of the highest of the three-month Treasury bill
uary, April, July and October for Wells Fargo Capital II.
                                                                      accru d and unpaid dividends. This class of preferred stock                               Under the terms of mandatory convertible debt, the             EMPLOYEE STOCK PLANS
discount rate, 10-year constant maturity Treasury security                                                                                                                                                                     ...... ,                                                       .
                                                                      had been issued as depositary shares, each representing one-                           Company must exchange with the noteholder, or sell, various
yield or 20-year constant maturity Treasury bond yield'obut
                                                                      eighth of a share of the Series F preferred stock. Dividel:ds                          capital securities of the Company as described in Note 9.
limited to a minimum of 5.5% and a maXUTIum of 10.5 Yo                                                                                                                                                                         Long~Term and Equity Incentive Plans The Wells
                                                                      of $4.94 per share (9Vs% annualized rate) were cumulative                                 During 1997, the Company repurchased approximately
per year. The average dividend rate was 5.5%, 5.5% and                                                                                                                                                                         Fargo & Company Long-Term Incentive Plan (LTIP)
                                                                      and payable on the last day of each calendar quarter.                                  5.9 million shares of its outstanding common stock and
5.8% during 1997,1996 and 1995, respectively.                                                                                                                                                                                  became effective in 1994. The LTIP supersedes the 1990
                                                                                                                                                             issued .6 million shares under various employee benefit
                                                                      9% Cumulative Preferred Stock, Series G In May                                                                                                           Equity Incentive Plan (1990 EIP), which is itself the succes-
9% Cumulative Preferred Stock, Series C In                                                                                                                   and dividend reinvestment plans.
                                                                      1997, the Company redeemed all $150 million of its Series                                                                                                sor to the original 1982 Equity Incentive Plan (1982 EIP).
December 1996, the ompany redeemed all $239 million
                                                                      G preferred stock at a price of $200 per share plus accrued                                                                                              No additional awards or grants will be issued under the
of its Series C preferred stock at a price of $500 per share
                                                                      and unpaid dividends. This class of preferred stock had been                           ADDITIONAL PAID-IN CAPITAL                                        1990 or 1982 EIPs.
plus accrued and unpaid dividends. This class of preferred
                                                                      issued as depositary shares, each representing one-eighth of                                                                                                The LTIP provides for awards of restricted shares, stock
stock had been i sued as depo itary shares, each represent-
                                                                      a share of Series G preferred stock. Dividends of $4.50 per                            Repurchases made in connection with the Company's stock           options, stock appreciation rights and share rights. Employee
ing one-twentieth of a share of the Series C preferred
                                                                      share (9% annualized rate) were cumulative and payable                                 repurchase program result in a reduction of the additional        stock options granted under the LTIP can be granted with
stock. Dividends of $11.25 per share (9% annualized rate)
                                                                      on the last day of each calendar quarter.                                              paid-in capital (APIC) account equal to the amount paid           exercise price at or above the current value of the common
were cumulative and payable on the last day of each
                                                                                                                                                             in repurchasing the stock, less the $5 per share representing     stock and, except for incentive stock options, can have tetTI1S
calendar quarter.                                                     6.59%/Adjustable Rate Noncumulative Preferred
                                                                                                                                                             par value that is charged to the common stock account.            longer than 10 years. Employee stock options generally
8718% Cumulative Preferred Stock, Series D In                         Stock, Series H These shares are redeemable at the                                                                                                       become fully exercisable over three years from the grant date.
                                                                                                                                                             In order to absorb future repurchases of common stock, the
March 1997, the Company redeemed all $175 million of                  option of the Company on or after October 1, 2001 at a                                                                                                   Upon termination of employment, the option period is
                                                                                                                                                             Company transferred $1 billion from Retained Earnings.
its Series D preferred stock at a price of $500 per share             price of $50 per share plus accrued and unpaid dividends.
                                                                                                                                                             to APIC in 1995.                                                  re luced or the options are canceled. The LTIP also provides
plus accrued and unpaid lividends. This class of preferred            Dividends are noncumulative and payable on the first day                                                                                                 for grants to recipients not limited to present key employees
stock had been issued as depositary shares, each represent-           of each calendar quarter at an annualized rate of 6.59%                                                                                                  of the Company. The total number of shares of common
                                                                      through October I, 2001. Th dividend rate after Octo-                                  DIRECTOR OPTION PLANS
ing one-twentieth of a share of the Series D preferred                                                                                                                                                                         stock issuable under the LTIP is 2,500,000 in the aggregate
stock. Dividends of $11.09 per share (8WYo annualtzed rate)           ber 1 2001 will be equal to .44% plus the highest of the                                                                                                 (excluding outstanding awards under the 1990 and 1982
were cumulative and payable on the last day of each                   Treas'ury bill discount rate, the 10-year constant maturity                            The 1990 Director Option Plan (1990 Dap) provides for             EIPs) and 800,000 in anyone calendar year. No compensa-
                                                                      rate and the 30-year constant maturity rate, as determmed                              annual grants of options to purchase 500 shares of common         tion expense was recorded for the stock options under the
calendar quarter.
                                                                      in advance of such dividend period, limited to a minimum                               stock to each non-employee director elected or re-elected at      LTIP, as the exercise price was equal to the quoted market
 97/8% Cumulative Preferred Stock, Series F In                        of 7% and a maximum of 13%.                                                            the annual meeting of shareholders. Non-employee directors        price of the stock at the time of grant.
 November 1996, the Company redeemed all $200 million of                                                                                                     who join the Board between annual meetings receive options           Loans may be made, at the discretion of the Company,
 its Series F preferred stock at a price of $200 per share plus                                                                                              on a prorated basis. The options may be exercised until the       to assist the participants of the LTIP and the EIPs in the
                                                                                                                                                             tenth mU1iversary of the date of grant; they become exer-         acquisition of shares under options. The total of such interest-
                                                                                                                                                             cisable after one year at an exercise price equal to the fair     bearing loans were $5.1 million and $2.9 million at
                                                                                                                                                             market value of the stock at the time of grant. The maximum       December 31, 1997 and 1996, respectively.
                                                                                                                                                             total number of shares of common stock issuable under the            The holders of the restricted share rights are entitled at
                                                                                                                                                             1990 Dap is 100,000 in the aggregate and 20,000 in any


  1~
                                                                                                                                                                                                                               no cost to the shares of common stock represented by the
              COMMON                       STOCK, ADDITIONAL PAID-IN                                                                                         one calendar year. No compensation expense was recorded           restricted share rights held by each person five years after
                                                                                                                                                             for the stock options under the 1990 Dap, as the exercise         the restricted share rights were granted. Upon receipt of
               CAPITAL AND STOCK PLANS
                                                                                                                                                             price was equal to the quoted market price of the stock at        the restricted share rights, holders are entitled to receive
                                                                                                                                                             the time of grant.                                                quarterly cash payments equal to the cash dividends that
 COMMON STOCK                                                                                                                             Number of shares      The 1987 Director Option Plan (1987 Dap) allows par-           would be paid on the number of common shares equal to
 ........................................................ ,       .
                                                                                                                                                             ticipating directors to file-an irrevocable election to receive   the number of restricted share rights. Except in limited
                                                                       Tax Advantage and Rerirement Plan                                         2,718.228   stock options in lieu of their retainer to be earned in any
 The table on the right summarizes common stock reserved,                                                                                        3,262,145                                                                     circumstances, restricted share rights are canceled upon
                                                                       Long-Term and Equity Incentive Plans                                                  one calendar year. The options become exercisable after
 issued, outstanding and authorized as of December 31, 1997:           Dividend Reinvestment anti
                                                                                                                                                                                                                               termination of employment. In 1997, 1996 and 1995, there
                                                                                                                                                 4,094,173   one year and may be exercised until the tenth armiversary         were 28,002, 95,233 and 69,778 restricted share rights
                                                                         Common Stock Purchase Plan
                                                                       Employee StOck Purchase Plan                                                587,220   of the date of grant. Options granted prior to 1995 have an       granted, respectively, with a weighted-average grant-date
                                                                       Director Oprion Plans                                                       161,676   exercise price of $1 per share. Commencing in 1995, o[ tions      fair value of $308.88, $236.87 and $173.90, respectively.
                                                                       Srock Bonus Plan                                                             10,212   granted have an exercise price equal to 50 percent of the         As of December 31,1997, the LTIP, the 1990 EIP and
                                                                         Toral shares reserved                                                  10,833,654   quoted market price of the stock at the time of grant.            the 1982 EIP had 208,454,109,700 and 10,437 restricted
                                                                       Shares issued and outsranJing                                            86,152,779
                                                                                                                                                             Compensation expense for the 1987 Dap is measured as              share rights outstanding, respectively, to 1,314,528 and
                                                                       Shares not reserved                                                      53,013,567
                                                                                                                                                             the quoted market price of the stock at the date of grant         42 employees or their beneficiaries, respectively. The
                                                                          Total shares authorizetl   (I)                                       150,000,000
                                                                                                                                                             less the option exercise price. This expense i' accrued a         compensation expense for the restricted share rights equals
                                                                                                                                                             retainers are earned.                                             the market price at the time of grant and is accrued on a
                                                                        (1) In 1996. shareholders approved an increase in the authmized shares of common
                                                                                                                                                                                                                               'traight-line basis over the vesting period of five years. The
                                                                           stock ro 500,000,000. This will hecome effective when an amendmem to
                                                                           the Restared Certih ate of Incorporarion is filed with the Secretary of State                                                                       total compensation expense recognized for the restricted
                                                                           of Delaware.                                                                                                                                        share rights was $11 million, $10 million and $8 million
                                                                                                                                                                                                                               in 1997, 1996 and 1995, respectively.
Other Stock Plans Pursuant to the Merger agreement,                                        Also as of that date, all outstanding restricted shares granted                       The following table is a summary of selected information                                       Employee Stock Purchase Plan Options to purchase
the First Interstate stock option plans were converted into                                under the First Interstate stock plans became vested and                           for the Company's stock option plans described on the                                             750,000 shares of common stock may be granted under the
stock option plans to purchase the Company's common                                        were issued. As no additional awards were made under                               preceding page:
                                                                                                                                                                                                                                                                                Employee Stock Purchase Plan (ESPP). Employees of the
stock based on the original stock option plan and the                                      these plans and all outstanding grants became fully vested
                                                                                                                                                                                                                                                                                Company who have completed their introductory period
agreed-upon exchange ratio. (First Interstate shareholders                                 at the time of the Merger, no compensation expense has
                                                                                                                                                                                                                                                                               of employment, except hourly employees, are eligible to
received two-thirds of a share of Wells Fargo common                                       been recognized by the Company for these plans.                                                                                                      December 31, 1997              participate. Certain highly compensated employees may
stock for each share of common stock owned. See Note 2                                        The following table is a summary of the Company's stock                                                                     Weighred-         Number         Weighred-           be excluded from participation at the discretion of the
for additional information concerning the Merger). As                                      option activity and related infOimation for the three years                                                                      average                            average
                                                                                                                                                                                                                          rClllflining                         exercise        Management Development and Compensation Committee
a result of the change in control, all outstanding First                                   ended December 31, 1997:                                                                                                     conrracrual                              price         of the Board of Directors. The plan provides for a purchase
Interstate options became exercisable as of April I, 1996.                                                                                                                                                               life (in yrs.)
                                                                                                                                                                                                                                                                               price of the lower of market value at grant date or 85% to
                                                                                                                                                                             RANGE OF EXERCISE PRICES                                                                          100% (as determined by the Board of Directors for each
                                                                                                                                                                             1990 and 1987 DOP                                                                                 period) of the market value at the end of a one-year period.
                                          1990 and 1987 DOP                                    LTIP                    1990 and 1982 EIP                Firsr Intcrsrare     $1.00
                                                                                                                                                                                                                                                                               For the current period ending July 31, 1998, the Board
                                   Number           Weighted-            Number           Weighred.           Number            Weightcd-     Number         Weigl1leJ-          Options outstanding/exercisable                 4.4         4,139         $     1.00
                                                       average                              average                               average                      average       $44.63-$66.25                                                                                     approved a closing purchase price of 85% of the market
                                                      exercise                              exercise                             exercise                      exercise
                                                                                                                                                                                 Options outstanding/exercisable                 4.2         4,354              64.72
                                                                                                                                                                                                                                                                               value. The plan is noncompensatory and results in no
                                                         price                                 price                                price                         price
                                                                                                                                                                             $ 72.50-$ 108.00                                                                                  expense to the C mpany. Transactions involving the
                                                                                                                                                                                Options outstanding/exercisable                 3.9          8,623             8UI             ESPP are summarized in. the table below:
Options outstanding as
                                                                                                                                                                             $ I 19.38-$160.00
  of December 31, 1994              28,307          $ 85.18             655,180          $ 126.27          1,274,388             $ 66.86
                                                                                                                                                                                Options outstanding                             6.4        17,350              142.22
                                                                                                                                                                                Options exercisable                                        15,214              143.25
1995:                                                                                                                                                                        $236.38-$264.75
Granted                              7,264   (2)       134.83           284,7000}           209.27                                                                              Options outstanding                             8.3        17,462           256.59
Canceled                                                                 (8,500)            121.34            (2,330)              75.63                                        Options exercisable                                         9,462           249.69
Exercised                           (2,000)             72.47           (66,870)            110.75          (471,625)              63.73                                    LTIP
Options outstanding as                                                                                                                                                       $107.25-$159.63
  of December 31, 1995              33,571              96.68           864,510             154.87           800,433               68.69                                       Options outstanding                              6.4       467,618          129.59
                                                                                                                                                                               Options exercisable                                        463,948          129.38
                                                                                                                                                                            $211.38-$3 I4.25
1996:
                                                                                                                                                                               Options outstanding                              8.3       948,288          260.20
Granted                             11,391   (2)      225.70            232,620 (3)         273.86
                                                                                                                                                                               Options exercisable                                        268,859          235.49
Acquired (I)                                                                                                                                 926,857          $ 93.78
                                                                                                                                                                             1990 and 1982 ElP
Canceled                                                                 (9,280)            215.27                                           (10,420)           95.49
                                                                                                                                                                            $54.00-$75.63
Exercised                             (500)             66.25           03,922)             130.73          (12 I ,444)            65.48    (499,472)           97.94
                                                                                                                                                                               Options outstanding/exercisable                 3.8        354,335              72.74
Options outstanding as                                                                                                                                                      First Interstate
  of December 31, 1996              44,462            130.08          1,053,928             181.38           678,989               69.26     416,965            88.74       $27.75-$83.06
                                                                                                                                                                               Oprions outstanding/exercisable                 3.2        137,273              64.04
1997:                                                                                                                                                                       $ 100.31-$125.81
Granted                            10,389    (2)      234.88           475,375 (3)         280.88                                                                              Options outstanding/exercisable                 6.7        118,012          112.48
Canceled                                                               (28,595)            215.43                                            (19,795)           81.57
Exercised                          (2,923)             98.73           (84,802)            131.81          (324,654)              65.46     (141,885)           93.89
Options outstanding as
  of December 31, 1997             51,928           $152.81          1,415,906           $217.07            354,335              $72.74     255,285           $86.43

                                                                                                                                                                                                                                                                                 1997                                 1996                                  1995
Outstanding options
                                                                                                                                                                                                                                                         Number           Weighted-           Number            Weighred-
  exercisable as of:                                                                                                                                                                                                                                                                                                                 Number            Weighted-
                                                                                                                                                                                                                                                                              average                             average
  December 31,1997                 41,792           $132.30            732,807           $168.31            354,335              $72.74     255,285           $86.43                                                                                                          exercise
                                                                                                                                                                                                                                                                                                                                                         average
                                                                                                                                                                                                                                                                                                                  exercise                               exercise
  December 31, 1996                33,071             97.14             544,508            138.54            678,989              69.26      416,965           88.74                                                                                                             price                               price                                  price
  December31,1995                   26,307            86.15             287,875            121.78            800,433               68.69
                                                                                                                                                                           Options outstanding, beginning of year                                    148,531              $227.80            129,980            $182.25             143,404            $153.38
                                                                                                                                                                             Grante I (I)                                                            151,018
(1) Options acquired from First Interstate pursuant to the Merger agreement.                                                                                                                                                                                               270.15            157,878             227.80             143,072             182.25
                                                                                                                                                                            Canceled (2)                                                             (77,021)
(2) The weighted-average per share fair value of options granted was $102.55, $90.51 and $70.98 for 1997, 1996 and 1995, respectively.                                                                                                                                     235.75            (62,524)            189.06             (73,359)            158.53
                                                                                                                                                                             Exercised                                                               (85,977)
(3) The weighted-average per share fair value of options granted was $86.17, $90.86 and $73.27 for 1997, 1996 and 1995, respectively.                                                                                                                                      227.80            (76,803)            182.25             (83,137)            153.38
                                                                                                                                                                           Options outsmnding, end of year        (3)                                136,551      (4)     $270.15            148,531            $227.80             129,980            $182.25
                                                                                                                                                                                                                                                     =                    =
                                                                                                                                                                           (I) The weigh red-average per share fair value of options granted was $65.48, $52.46 and $19.25 for 1997, 1996 and 1995, respectively.
                                                                                                                                                                           (2) Al rhe heginning uf the option period. panicirants are granted an aclJitional 50% of options lhat are exercised onl\' to the extent that the closing option price is sufficiently
                                                                                                                                                                               below the market value at grant date and based onlhe participant's level ofparricipalion. Since the closing option price was higher in 1997.1996 and 1995, the aJditional
                                                                                                                                                                               option grants were canceled. These 0plions represent a majority of lhc canceled options shown above.
                                                                                                                                                                           (J) None of the options outsranding as of December 31, 1997, 1996 and 1995 were exercisable.
                                                                                                                                                                           (4) The weighted-average remaining contractual life was eight months.
                                                                                                                                                                                                                                                                                                                                              •



   In October 1995, the FASB issued Statement of                                           The fair value of each option grant is e timated based         Section 401 (k) of the Internal Revenue Code, although a                                 The net periodic pension co't for 1997 and 1996 included
Financial Accounting Standards No. 123 (FAS 123),                                       on the date of grant using a modified Black Scholes option-       lower contribution limit may be applied to certain employees                           the following:
Accounting for Stock-Based Compensation. A provided                                     pricing model. For the stock option plans, the following          in order to maintain the qualified status of the plan. The
for under FAS 123, the Company elected to continue to                                   weighted-average assumptions were used for 1997, 1996             Company makes matching contributions of up to 4% of an
apply the provisions of the Accounting Principles Board                                 and 1995, respectively: expected dividend yield of 1.5%,         employee's covered compensation for those who have at                                   (in millions)                                                  Ye~r   ended Decemher 31,
Opinion 25, Accounting for Stock Issued to Employees,                                   1.4% and 1.6%; expected volatility of 25.2%, 29.0% and            least three years of service and elect to contribute under the
                                                                                                                                                                                                                                                                                                                         1997          1996
in accounting for the stock plans described above. Had                                  33.3%; risk-free interest rates of 6.0%,6.0% and 5.7%,            plan. Effective July 1994, the Company began to partially
compensation cost for these stock plans been determined                                 and expected life of 5.4 years· for all years. For the ESPP,      match contributions by employees with at least one but less                           Service COSt (benefits earned during the period)                   $               $ 7.4
based on the (optional) fair value method established by                                the following assumptions were used for 1997, 1996 and           than three years of service. For such employees who elect                              Interesr cosr on projected benefit obligmion                             71.5        52.9
                                                                                                                                                                                                                                                Acrual return on plan assets                                           (239.2)      (59.1 )
FAS 123, the Company's net income and earnings per                                      1995, respectively: expected dividend yield of 1.5%,1.8%         to contribute under the plan, the Company matches 50%
                                                                                                                                                                                                                                                Net amortizmion and deferral                                            167.7        (1.2)
share would have been reduce I to the pro forma amounts                                 and 1.8%, expected volatility of 25.5%, 23.8% and 18.0%,         of each dollar on the first 4% of the employee's covered
                                                                                                                                                                                                                                                   Net periodic pension cost                                       $               $
indicated below.                                                                        risk-free interest rates of 5.5%,5.8% and 5.7%, and expected     compensation. The Company's matching contributions
                                                                                        life of one year for all years.                                  are immediately vested and, similar to retirement contl'i-
                                                                                            For information on employee stock ownership through          butions, are tax deductible by the Company.
(in millions)                                                Year ended December J I,   the Tax Advantage and Retirement Plan, see Note 13.                 Employees direct the investment of their TAP nmds and
                                                      1997          1996        1995                                                                     may elect to invest in the Company's common stock.                                        The weighted-average discount rate used in determining
                                                                                                                                                            Expenses related to TAP for 1997, 1996 and 1995 were                                the pension benefit obligation was 7.0% and 7.5% in 1997
                                                                                        DIVIDEND REINVESTMENT PLAN
Net income                                                                                                                                               $107 million, $95 million and $57 million, respectively.                               and 1996, respectively. No increase in future salary levels
  As reported                                     $1,155         $1,071      $1,032                                                                                                                                                             was assumed as all accrued benefits under the plan were
  Pro forma (I)                                    1,139          1,063       1,030
                                                                                                                                                            First Interstate had a noncontributory defined benefit plan
                                                                                        The Dividend Reinvestment and Common Stock Purchase                                                                                                     frozen effective June 30, 1996. The eXl e ted long-term rate
Earnings per common share                                                                                                                                that provides retirement benefits that are a function of both
                                                                                        and Share Custody Plan allows holders of the Company's           years of service and the highest average compensation for                              of return on assets was 8.5% in both 1997 and 1996.
  As reported                                     $12.77         $12.21      $20.37
  Pro fonna (I)                                    12.60          12.12       20.33     common srock to purchase additional shares either by rein-       any .five (consecutive) year period during the last 10 years
Earnings per common share -                                                             vesting all or part of their dividends, or by making optional    before retirement. Pursuant to the Merger agreement,                                   HEALTH CARE AND LIFE INSURANCE
  assuming dilution                                                                     cash payments. Participants making optional cash payments       accrued benefits, as of June 30, 1996, for all participants                             ..........................................................................................
  As reported                                     $12.64         $12.05      $20.06     to purchase additional shares may do so by making payments
  Pro forma (I)                                    12.46          11.96       20.00                                                                     employed as of March 28,1996 became fully vested. Effective
                                                                                        between $150 and $2,000 per month. All purchases of                                                                                                     The Company provides health care and life insurance
                                                                                                                                                        June 30, 1996, all accrued benefits under the plan were
                                                                                        additional shares are made at fair market value. Shares may                                                                                              benefits for certain active and retired employees. The
(I) The pro (orma amounts not,,-I above only reflecr rhe effects o( srock-based com-                                                                    frozen. There is no intention at the present time to termi-
                                                                                        also be held in custody under the plan even without the                                                                                                 Company reserves its right to terminate these benefits at
   pensation grams made after 1994. Because slock options arc granted each year                                                                         nate the plan.
   Clnd generally vest over Three yeflTs, these pro forma amounts may not TeOeer rhe    reinvestment of dividends. During 1997 and 1996, 86,078                                                                                                 any time. The health care benefits for active eligible and
                                                                                                                                                            The funding policy for the defined benefit retirement
   full effect of applying the (optional) r.,ir "alue method established by FAS 12J
                                                                                        and 103,580 shares, respectively, were issued under the plan.                                                                                           retired employees are self-funded by the Company with
    thar would be expected if all outstanding srock option grants were accounted                                                                        plan is to make contributions sufficient to meet the minimum
    for under this method.
                                                                                                                                                                                                                                                the Point-of-Service Managed Care Plan or provided.
                                                                                                                                                        requirements set forth in the Employee Retirement Income
                                                                                                                                                                                                                                                through health maintenance organizations (HMOs). Life
                                                                                                                                                        Security Act of 1974, with additional contributions being
                                                                                                                                                                                                                                                insurance benefits for active eligible and retired employees
                                                                                                                                                        made periodically when deemed appropriate. The following
                                                                                                                                                                                                                                                are provided through an insurance company.
                                                                                                                                                        table sets forth the funded status of the plan as of its mea-
                                                                                                                                                                                                                                                   The Company recognized the cost of health care benefits
 IJ             EMPLOYEE                    BENEFITS AND OTHER                                    EXPENSES
                                                                                                                                                        surement date (September 30, 1997 and 1996) and amounts
                                                                                                                                                        included in the Company's Consolidated Balance Sheet as
                                                                                                                                                        of December 31, 1997 and 1996.
                                                                                                                                                                                                                                                for active eligible employees by expensing contributions
                                                                                                                                                                                                                                                totaling $78 million, $78 million and $37 million in 1997,
                                                                                                                                                                                                                                                1996 and 1995, respectively. The Company recognizes the
RETIREMENT PLAN                                                                            Prior to July 1994, the Company made supplemental                                                                                                    cost of life insurance benefits for active eligible employees
                                                                                        retirement contributions of 2% of employee-covered com-                                                                                                 by expensing the annual insurance premiums, which were
                                                                                                                                                        (in millions)                                                        December 31,
                                                                                        pensation. All salaried employees with at least one year                                                                                               $1.0 million, $1.2 million and $2.0 million in 1997, 1996
The Company's retirement plan is known as the Tax                                                                                                                                                                      1997           1996     and 1995, respectively.
                                                                                        of service were eligible to receive these Company contribu-
Advantage and Retirement Plan (TAP), a defined contri-                                                                                                                                                                                             The amount of subsidized health care coverage for
                                                                                        tions, which vested immediately. Effective July 1994, the       Actuarial presem value of benefit obligations:
bution plan. As part of TAP, the Company makes basic                                                                                                                                                                                           employees who retired prior to January 1, 1993 is based
                                                                                        supplemental retirement contributions were discontinued,        Accumulared bl'nefir obligation (fully vested)           $1,058.3        $975.2
retirement contributions to employee retirement accounts.                                                                                                                                                                                      upon their Medicare eligibility. The amount of subsidized
                                                                                        except for those contributions that are made to employees
Effective July 1994, the Company increased its basic retire-                                                                                            Phil) assers ar fair value (I)                           $1,182.7        $988.5        health care coverage for employees who retire after Decem-
                                                                                        hired before January 1, 1992. Those employees will continue     Projecred benefit obligation                              1,058.3         975.2
ment contributions from 4% to 6% of the total of employee                                                                                                                                                                        --            ber 31,1992 is ba ed upon their eligibility to retire as of
                                                                                        to receive the supplemental 2% contribution and the 4%          Plan assers in excess of projected bl'nefit obligarion
base salary plus payments from certain bonus plans (covered                                                                                                                                                          124.4            13.3     January 1, 1993 and their years of service at the time of
                                                                                        basic retirement contributions until fully vested. Upon         UntTcognizeci net gain ( lue ro past experience
compensation). The Company also makes special transition                                                                                                                                                                                       retirement. Active employees with an adjusted service date
                                                                                        becoming 100% vested, the basic retirement contribution           different from assumptions made ancll'ffl'cts of
contributions related to the termination of a prior defined                                                                                               changes in assumptions)                                                              after September 30, 1992 are not eligible for subsidized
                                                                                        will increase to 6% of employee-covered compensation                                                                         (124.4)         ( 13.3)
benefit plan of the Company ranging from .5% to 5% of                                                                                                                                                                                          health care coverage upon retirement.
                                                                                        and the supplemental 2% contributions will end.                 Prepaid pension asset (accrul'd pension liability)       $               $
covered compensation for certain employees. The plan
                                                                                           Salaried employees who have at least one year of service
covers salaried employees with at least one year of service
                                                                                        are eligible to contribute to TAP up to 10% of their pretax     (I) Primarily invested in equiry securities.
and contains a vesting schedule graduated from three to
                                                                                        covered compensation through salary deductions under
seven years of service.
  The following table sets forth the net periodic cost for                                      For measurement purposes, a health care cost trend rate
                                                                                                                                                                              14            INCOME TAXES

postretirement health care benefits for 1997, 1996 and 1995:                                 was used to recognize the effect of expected changes in
                                                                                             future health care costs due to medical inflation, utilization                 Total income taxes for the years ended December 31,1997,
                                                                                                                                                                                                                                                             The Company had net deferred tax assets of $209 million
                                                                                             changes, technological changes, regulatory requirements                        1996 and 1995 were recorded as follows:
                                                                                                                                                                                                                                                          and $346 million at December 31, 1997 and 1996, respec-
(in millions)                                                  Year ended December} I,       and Medicare cost shifting. Average annual increases of
                                                                                                                                                                                                                                                          tiv~ly. The tax effect of temporary differences that gave rise
                                                        1997            1996         1995    5.5% for HMOs and 7.0% for all other types of coverage in
                                                                                                                                                                                                                                                          to significant portions of deferred tax assets and liabilities
                                                                                             the per capita cost of covered health care benefits were                       (in millions)
                                                                                                                                                                                                                              Year ended December 31,
ServiLc cost (henefits attributed ro                                                                                                                                                                                                                      at December 31, 1997 and 1996 are presented below:
                                                                                             assumed for 1998. The rate for other coverage was assum d                                                                 1997          1996       1995
  scrvicc during the period)                         $ 2.0          $ 2.0           $ J.I
                                                                                             to decrease gradually to 5.5% in 2001 and remain at that
Interest cost on accumulated postretire-                                                                                                                                    Income taxes applicable to income
  mem henefit obligation (APBO)                        15.2          14.3             8.5    level thereafter. 1ncreasing the assumed health care trend                                                                                                   (in millions)
                                                                                                                                                                               before income tax expense              $999          $908                                                              Year ended Decemher 31,
Amortization of transition obligation (I)               7.1           7.1             7.1    by one percentage point in each year would increase the                                                                                           $745
                                                                                                                                                                            Stockholders' equity for
                                                       (4.2)         (4.2)           (3.5)                                                                                                                                                                                                              1997            1996
Amortization of net gain                                                                     APBO as of December 31, 1997 by $10.5 million and the                             compensation expense for tax
  Torn I                                              $20.1         $19.2          $13.2     aggregate of the interest cost and service cost components                        purposes in excess of amounts                                              Deferrcd Tax Assets
                                                                                             of th· net periodic cost for 1997 by $.4 million.                                 recognized for financial                                                   Allowance for loan losses                  $ 743           $ 805
                                                                                                                                                                              reporting purposes                       (37)          (17)                 Net tax-dcferred expcnses
(I) The unrecognized APBO at the lime of adoption of Statement of Financial                     The Company also provides postretirement life insurance                                                                                          (24)                                                  614             661
                                                                                                                                                                            Stockholders' cquity for tax effect of                                        State tax expensc
    AccOlmling Standards No. 106 (FAS 106), Employers' Accounting for                        to certain existing retirees. The APBO and expenses related                                                                                                                                                55              27
                                                                                                                                                                              the change in net unrcalized gain                                           Prcmiscs and equipment                        36
   Postretirement Benefits Other Than Pensions (transition obligation) of
                                                                                             to these benefits were not material. Employees with an                                                                                                                                                                     58
   $142 million is being amortized on a straight~linc bU.'iis over ZO years. The
                                                                                                                                                                              (loss) on investmcnt securities           21            (3)       100       Forecloscd assets                             30              42
   remaining unrecognized APBO at December 31, 1997 was $106.6 million.                      adjusted service date after January 1, 1994 are not eligible                        Total income taxes
                                                                                                                                                                                                                                                                                                     ---
                                                                                                                                                                                                                     $983          $888        $821                                                   1,478           1,593
                                                                                             for Company paid life insurance benefits.                                                                                                                    Valuation allowance                          -
                                                                                                                                                                                                                                                                                                     ---                  -
                                                                                                                                                                                                                                                                                                                    --
                                                                                                                                                                                                                                                            Total deferred tax assets,
   The following table sets forth the funded status for post-                                OTHER EXPENSES                                                                                                                                                   less valuation allowance                1,478           1,593
retirement health care benefits and provides an analysis of                                                                                                                  The following is a summary of the components of
                                                                                                                                                                                                                                                         Deferred Tax Liabilities
the accrued postretirement benefit cost (reported in other                                                                                                                                                                                               Core deposit intangible                        624
                                                                                                                                                                           income tax expense (benefit) applicable to income before                                                                                    751
                                                                                             The following table shows expenses which exceeded 1% of                                                                                                     Leasing
liabilitie ), which is included in the Company's Consolidated                                                                                                                                                                                                                                           538            413
                                                                                             total interest income and noninterest income and which                        income taxes:                                                                 Certain identifiable intangibles
Balance Sheet at December 31, 1997 and 1996.                                                                                                                                                                                                                                                             66             50
                                                                                             are not otherwise shown separately in the financial state-                                                                                                  Investments                                     31              8      "
                                                                                                                                                                                                                                                         Other
                                                                                             ments or notes thereto.                                                                                                                                                                                ---
                                                                                                                                                                                                                                                                                                         10             25
                                                                                                                                                                           (in millions)                                                                   Total defcrred tax liabilities             1,269          1,247
                                                                                                                                                                                                                             Year ended December 31,
(in millions)                                                  Year ended December 31,                                                                                                                                                                   Net Deferred Tax Asset
                                                                                                                                                                                                                      1997         1996        1995                                                 $ 209           $ 346
                                                                 1997                19 6
                                                                                             (in millions)                                  Year entled December 31,
                                                                                                                                                                                                                                                                                                                    --
                                                                                                                                                                           Current:
APBO(I):                                                                                                                             1997          1996        1995          Federal                                 $635         $500        $507
  Retirees                                                 $. 192.6            $ 174.7                                                                                       State and 10c,11                         199          150         183
  Eligible active employees                                    13.4               11.4       Contract services                      $236          $295        $149                                                   --           --                         Substantially all of the Company's net deferred tax asset
                                                               31.0               35.1       Telecommunications                      143           140          58                                                    834          650         690
 Othcr active employees
                                                           ---                 ---                                                                                                                                   --           --         --           of$209 million at December 31,1997 related to net expenses
                                                                                             Postage                                  83            96          52         Deferred:
                                                              237.0                221.2
                                                                                             OUlside professional services            79           112          45           Federal                                  129          196          37
                                                                                                                                                                                                                                                          (the largest of which were the allowance for loan losses
Plan assets ar fair value                                     -                  -
                                                            ---                ---           Advertising and promotion                74           116          73           State and local                           36           62          18        and the net tax-deferred expenses, offset by the core d posit
APBO in excess of plan assets                                  237.0               221.2                                                                                                                             --           --         --
                                                                                                                                                                                                                      165          258          55        intangible) that have been reflected in the financial state-
Unrccognized net gain from past experience                                                                                                                                                                                                   --
  diffcrcnr from rhat a. sumed and                                                                                                                                             Total                                 $999         $908       $745
                                                                                                                                                                                                                                                          ments, but which will reduce future taxable income. At
  from changes in assumptions                                    35.0                62.0                                                                                                                            --          --          --           December 31,1997, the Company did not have any net
Unrecognized transirion obligation                             (106.6)             (113.7)                                                                                                                                                               operating loss carryforwards. The Company estimates that
Accrued postretirement bencfit cosr                        $ 165.4             $ 169.5                                                                                                                                                                   approximately $201 million of the $209 million net deferred
                                                           ---                 ---
                                                                                                                                                                                                                                                         tax asset at December 31, 1997 could be realized by the
                                                                                                                                                                             Amounts for the current year are based upon estimates
(I) Based on a discollm rare of 6.9% and 7.2% in 1997 and 1996, respectively.                                                                                             and assumptions as of the date of this report and could vary                   recovery of previously paid federal taxes; however, the
                                                                                                                                                                          significantly from amounts shown on the tax returns as filed.                  Company expects to actually realize the federal net deferred
                                                                                                                                                                          Accordingly, the variances from the amounts previously                         tax asset by claiming deductions against future taxable
                                                                                                                                                                          reported for 1996 are primarily a result of adjustments to                     income. The balance of approximately $8 million primarily
                                                                                                                                                                          conform to tax returns as filed.                                              relates to net deductions that are expected to reduce future
                                                                                                                                                                             The Company's income tax expense (benefit) related to                      state taxable income. The Company believes that it is more
                                                                                                                                                                          investment securities gains (losses) was $8 million, $4 million               likely than not that it will have sufficient future state tax-
                                                                                                                                                                          and $(7) million for 1997, 1996 and 1995, respectively.                       able income to fully utilize these deductions. The amount
                                                                                                                                                                                                                                                        of the total deferred tax asset considered realizable, however,
                                                                                                                                                                                                                                                        could be reduced in the near term if estimates of future
                                                                                                                                                                                                                                                        taxable income during the carryforward periods are reduced.




                                                                                                                                                                       " - - - - - - - - - - - - - - - - - - - - - - - - - - - - -_ _----.JBlm-
                                                                                                                                                                                                                                                                                         -




  The following is a reconciliation of the statutory federal income tax expense and rate to the effective income tax
                                                                                                                                                1~            PARENT COMPANY

expense and rate:
                                                                                                                                              Condensed financial infonnation of Wells Fargo & Company (Parent) is presented below. For information'regarding the
(in millions)                                                                                                  Year ended December 31,        Parent's long-term debt, see Note 9.                                            .
                                                                     1997                           1996                         1995
                                                       Amount           %           Amount            %        Amount              %

Statutory federal income tax expense and rate           $754        35,0 %             $693         35.0 'Yo     $622            35.0 %
                                                                                                                                              CONDENSED STATEMENT OF INCOME
Change in tax rate resu lei ng from:                                                                                                                                                                                                     CONDENSED BALANCE SHEET
  State and local raxes on income, ner of federal                                                                                             (in millions)
                                                                                                                                                                                                         Year ended December 31,         (in millions)
     income tax benefit                                   131         6.1               124          6.3          132             7.4                                                                                                                                                                             December 11 ,
                                                                                                                                                                                           1997             1996                1995
  Amortization of goodwill not deductible for                                                                                                                                                                                                                                                            1997              1996
     tax return purposes                                  132         6.1                [02         5.2           14              .8
                                                                                                                                              INCOME
  Other                                                   (18)        (.8)               (il)        (.6)        ~)              Ql)                                                                                                     ASSETS
                                                                                                                                             Dividends from subsidiaries:
      Effective income tax expense and rate             $999        46.4 %             $908         45.9 'Yo     $745            42.0 0/0                                                                                               Cash and due from Wells Fargo Bank, N.A.
                                                                                                                                                Wells Fargo Bank, N.A.                 $2,006            $1,461           $1,131          (includes interest-earning deposits of
                                                                                                                                                Other bank subsidiaries                    69                33                   -       $650 million and $1,000 million)                         $     707          $ 1,043
                                                                                                                                               Nonbank subsidiarie~                            -              1                   -     Investment securities at fair value                              461              395
                                                                                                                                             Interest income from:
   The Company has not recognized a federal deferred tax          indefinitely reinvest a portion or all of such undistributed
                                                                                                                                               Well~ Fargo Bank, N.A.                      145               99
                                                                                                                                                                                                                                        Loans                                                            152               220
liability of $36 million on $102 million of undistributed         earnings. In addition, a current tax liability would be recog-                                                                                                86
                                                                                                                                               Other bank subsidiaries                      18                9                         A Ilowance (or loan losses                                        66
                                                                                                                                                                                                                                 3                                                                                          66
earnings of a foreign subsidiary because such earnings are        nized if the Company recovered those lmdistributed earnings                  Nonbank subsidiaries                                                                                                                                ---               ---
                                                                                                                                                                                             4                8                 12            Net loans                                              86                154
indefinitely reinvested in the subsidiary and are not taxable     in a taxable manner, such as through the receipt of dividends                Orher                                        43               71                 53                                                                 ---               ---
                                                                                                                                                                                                                                       Loans and advances to subsiJiaries;
under current law. A deferred tax liability would be recog-       or sale of the entity, or if the tax law changed.                          Noninterest income                            172              163                 52
nized to the extent the Company changed its intent to not                                                                                         Total income
                                                                                                                                                                                       ---              --               --              Wells Fargo Bank, N.A.                                        1,778             2,156
                                                                                                                                                                                        2,457           1,845              1,337         Other bank subsidiaries                                         255
                                                                                                                                                                                       ---              --               --              Nonbank subsidiaries
                                                                                                                                                                                                                                                                                                                           275
                                                                                                                                             EXPENSE                                                                                                                                                      31                90
                                                                                                                                                                                                                                       [nVeStlllCnr in subsidiaries (I);
                                                                                                                                            Interest on:                                                                                 Wells F'11'go Bank, N.A.                                     13,224            13,912

 IJ             EARNINGS PER COMMON                        SHARE
                                                                                                                                              Commercial paper and
                                                                                                                                                 other short-tenn borrowings
                                                                                                                                              Senior and subordinated debt
                                                                                                                                            Noninterest expense
                                                                                                                                                                                           14
                                                                                                                                                                                          394
                                                                                                                                                                                          120
                                                                                                                                                                                                          10
                                                                                                                                                                                                         299
                                                                                                                                                                                                          93
                                                                                                                                                                                                                             14
                                                                                                                                                                                                                            194
                                                                                                                                                                                                                                         Other bank subsidiaries
                                                                                                                                                                                                                                         Nonbank subsidiaries
                                                                                                                                                                                                                                       Other assets
                                                                                                                                                                                                                                                                                                       1,319
                                                                                                                                                                                                                                                                                                         244
                                                                                                                                                                                                                                                                                                       1,465
                                                                                                                                                                                                                                                                                                                         1,439
                                                                                                                                                                                                                                                                                                                           2[3
                                                                                                                                                                                                                                                                                                                         1,457
                                                                                                                                                                                      ---                                    35              Tora I assets
                                                                                                                                                                                                        --               --                                                                       $19,570            $21,134
                                                                                                                                                  Total expense                        528               402              243                                                                     ---
On December 31,1997, the Company adopted Statement                                                                                                                                    ---               --               --
                                                                  (in milliuns)                                Year ended December 31,      Incolne before income tax
of Financial Accounting Standards No. 128 (FAS 128),
                                                                                                        1997      1996           1995
                                                                                                                                              benefit and undistributed                                                                LIABILITIES AND STOCKHOLDERS' EQU ITY
Earnings per Share. This Statement replaces the presenta-                                                                                     income of subsidiaries                     1,929           1,443            1,094        Commercial paper and other
tion of primary earnings per common share (net income             Net income                        $1,155     $1,071         $1,032        Lncome tax benefit                              35              17               17          short-term borrowi ngs                                   $   222           $     170
applicable to common stock divided by average common              Less: Preferred stock dividends   -----.li   ~              ~
                                                                                                                                            Equity in undistributed income
                                                                                                                                                                                                                                       Other liabilities
                                                                                                                                              of subsidiaries:                                                                                                                                        664                742
shares outstanding and, if dilution is 3% or more, common         Net income applicable to                                                                                                                                             Senior debt                                                  1,871
                                                                                                                                              Wells Fargo Bank, N.A. (IJ                 (879)                                                                                                                         1,984
stock equivalents) with a presentation of (basic) earnings                                                                                                                                               (455)              (26)       Subordinated debt
                                                                   common stock                     $1,130     $1,004         $ 990           Other bank subsidiaries                                                                                                                               2,585              2,940
per common share (net income applicable to common stock                                                                       --                                                           42              48               (65)       Indebtedness to subsidiaries
                                                                                                                                              Nonbank subsidiaries                                                                                                                                  1,339              1,186
                                                                  EARNINGS PER                                                                                                             28              18                12        Stockholders' equity
divided by average common shares outstanding), which the                                                                                                                             ---               --               --                                                                         12,889             14,112
                                                                  COMMON SHARE                                                              NET INCOME                                $1,155           $1,071           $1,032              Total lic<bilities and stockholders' equity
Company previously presented. The Statement also requires         Net income applicable to                                                                                           =                 --               --                                                                       $19,570            $21,134
dual presentation of earnings per common share and earn-            common stock (numerator)
                                                                                                                                            (1) Amount.'; represent dividends distrib"red by Wells Fargo Bank, N.A. in excess
ings per common share - assuming dilution on the face             Average common share~                                                                                                                                                (I) The double leverage rario. which represents rhe ratio of the Parent'~ total equity
                                                                                                                                                of its 1997, 1996 and 1995 ncr income of $1,127 million, $1,006 million and
of the income statement and a reconciliation of the numer-                                                                                      $1, I05 million, respectively.                                                             investment in subsidiaries to irs rowl fitockholclers' cquily, was 1159*) and 110%
                                                                    outstanding (denominator)          88.4      82.2            48.6
                                                                                                                                                                                                                                           at December 31, 1997 and 1996, respectively.
ator and denominator of both earnings per common share            Per share                                    $12.21         $20.37
calculations, which is presented in the table on the right.
                                                                  EARNINGS PER COMMON
                                                                  SHARE - ASSUMING DILUTION
                                                                  Net income applicable to
                                                                    common stock (numerator)
                                                                  Average common shares
                                                                    outstanding                        88.4
                                                                  Add: Stock options                     .7
                                                                       Restricted share rights           .3
                                                                  Average common shares
                                                                    outstanding - assuming
                                                                    dilution (denominator)             89.4
                                                                  Per share                         $12.64
                                                                                                                                                                                                                                                                                                                                   I




                                                                                                                                                                                                                                                                                                                                  II
                                                                                         11       LEGAL ACTIONS                                                   1~             RISK-BASED CAPITAL

CONDENSED STATEMENT OF CASH FLOWS
                                                                                         In the normal course of bu iness, the Company is at all                 The Company and the Bank are subject to various regulatory                                       and 100%) is applied to the different balance sheet and off-
(in millions)                                           Year ended December 31,          times subject to numerous pending and threatened legal                  capital adequacy requirements administered by the Federal                                        balance sheet assets, primarily based on the relative credit
                                                      1997       1996         1995       actions, some for which the relief or damages sought are                Reserve Board (FRB) and the acc, respectively. The                                               risk of the counterparty. For example, claims guaranteed by
                                                                                         substantial. After reviewing pending and threatened actions             Federal Deposit Insurance Corporation Improvement Act of                                         the U.S. govemment or one of its agencies are risk-weighted
Cash flows from operating activities:
                                                                                         with counsel, management considers that the outcome of                  1991 (FDIClA) required that the federal regulatory agencies                                      at 0%. Off-balance sheet items, such as I an commitments
  Net income                                     $ 1,155 $ 1,071         $1,032
  Adjustmenrs to reconcile net income
                                                                                         such actions will not have a material adverse effect on                 adopt regulations defining five capital tiers for banks: well                                    and derivative financial instruments, are also applied a risk
    to net cash provided by                                                              stockholders' equity of the Company; the Company is not                 capitalized, adequately capitalized, lmdercapitalized, signifi-                                  weight after calculating balance sheet equivalent amounts.
    operating activities:                                                                able to predict whether the outcome of such actions may                 cantly undercapitalized and critically undercapitalized.                                         One of four credit conversion factors (0%, 20%, 50% and
  Deferred income tax (benefit)                          1        (3)         ( 15)
                                                                                         or may not have a material adverse effect on results of                 Failure to meet minimum capital requirements can initiate                                        100%) is assigned to loan commitments based on the like-
  Equity in undistributed loss of subsidiaries         809       389           79
                                                      (220)      155          (52)
                                                                                         operations in a particular future period as the timing and              certain mandatory and possibly additional discretionary                                          lihood of the off-balance sheet item becoming an asset. For
  Other, net
                                                               ---                       amount of any resolution of such actions and its relation-              actions by regulators that, if undertaken, could have a direct                                   example, certain loan commitments are converted at 50%
Net cash provided by operating activities          1,745        [,612     1,044
                                                                                         ship to the future results of operations are not known.                 material effect on the Company's financial statements.                                           and then risk-weighted at 100%. Derivative financial instru-
Cash flows from investing activities:
                                                                                                                                                                    Quantitative measures, established by the regulators to                                       ments are c nverted to balance sheet equivalents based on
  Investment securities:
    At fair value:                                                                                                                                               ensure capital adequacy, require that the Company and the                                        notional values, replacement costs and remaining contractual
       Proceeds from sales                              30         11            4                                                                               Bank maintain minimum ratios (set forth in the table below)                                      terms. (See Notes 5 and 19 for further discussion of off-
       Proceeds from prepayments                                                                                                                                 of capital to risk-weighted assets. There are two categori~s                                     balance sheet items.) The capital amounts and classification
         and maturities                                178        206            2
                                                                                                                                                                 of capital under the guidelines. Tier 1 capital includes com-                                    are also subject to qualitative judgments by the regulators
       Purchases                                      (259)      (183)         (59)
                                                                                                                                                                 mon stockholders' equity, qualifying preferred stock and                                         about components, risk weightings and other factors.
    At cost:
       Proceeds from prepayment                                                                                                                                  trust preferred securities, less goodwill and certain other                                         Management believes that, as of December 31, 1997, the
         and maturities                                                         56                                                                               deductions (including the unrealized net gains and losses,                                       Company and Bank met all capital adequacy requirements
  Net decrease in loans                                 68         51           70                                                                               after applicable taxes, on available-for-sale securities carried                                 to which they are subject.
  Net (increase) decrease io loans and                                                                                                                           at fair value). Tier 2 capital includes preferred stock not                                         Under the FDICIA prompt corrective action provisions
    a Ivances to subsidiaries                          457        289         (192)
                                                        (9)      (216)        (266)                                                                              qualifying as Tier 1 capital, mandatory convertible debt,                                        applicable to banks, the most recent notification from the
  Net increase in investment in subsidiaries
  Other, net                                           135        (88)         119                                                                               subordinated debt, certain unsecured senior debt issued by                                       acc categorized the Bank as well capitalized. To be cate-
Net cash provided (used) by
                                                                                                                                                                 the Par nt and the allowance for loan losses, subject to                                         gorized as well capitalized, the institution must maintain a
  investing activities                                 600         70         (266)                                                                              limitations by the guidelines. Tier 2 capital is limited to                                      total risk-based capital ratio as set forth in the following
Cash flows from financing activities:                                                                                                                            the amount of Tier 1 capital (i.e., at least half of the total                                   table and not be subject to a capital directive order. There
  Net increase in short-term borrowings                 52         10         27                                                                                 capital must be in the form of Tier 1 capital).                                                  are no conditions or events since that notification that
  Proceeds from issuance of senior debt                700      1,260      1,230                                                                                    Under the guidelines, capital is cOl11.pared to the relative                                  management believes have changed the Bank's risk-based
  Repayment of senior debt                            (810)    (1,183)      (8ll)
                                                                                                                                                                 risk related to the balance sheet. To derive the risk included                                   capital category.
  Proceeds from issuance of
                                                                  800
                                                                                                                                                                 in the balance sheet, one of four risk weights (0%, 20%, 50%
    subordinated debt
  Repayment of subordinated debt                      (351)                   (210)
  Proceeds from issuance of guaranteed
    preferred beneficial interests in                                                                                                                            (in billions)                                                                                                                                                 To be well c~lpitali,ed
    Company's subordinated debentures                  153      1,186                                                                                                                                                                                                                          For capital                 under the FDICIA prompt
  Proceeds from i' 'uancc of preferred stock                      197                                                                                                                                                                                   Actual                          adequacy purposes                corrective anion provisions

  Proceeds from issuance of common stock               88         117           90                                                                                                                                               Amount                   Ratio             Amounr                   Ratio              Arnount                    Ratio
  Redemption of preferred stock                      (325)       (439)
  Repurchase of common stock                       (1,689)     (2,158)        (847)                                                                              As of December 31, 1997:
  Payment of cash dividends on                                                                                                                                     Total capital (to risk-weighted assets)
    preferred stock                                     (25)      (73)         (42)                                                                                  Wells Fargo & Company                                          $9.2                 11.49%               ~$6.4                ~8.00%
  Payment of c"sh dividends on                                                                                                                                       Wells Fargo Bank, N.A.                                          7.8                 11.18                ~ 5.6                ~8.00                 ~$7.0               ~   10.00%
    common stock                                      (463)      (429)        (225)
  Other, net                                           (ll)        42           16                                                                                 Tier 1 capital (to risk-weighted assets)
                                                               ---       --                                                                                          Wells Fargo & Company                                          $6.1                  7.61%               ~$3.2                ~4.00%
 Net cash used by financing activities             (2,681)       (670)        (772)
                                                                                                                                                                     Wells Fargo Bank, N.A.                                          5.8                  8.34                ~   2.8              ~4.00                 ~$4.2               ~     6.00%
   Net change in cash and cash
     equivalents (due from
                                                                                                                                                                   Tier I capital (to average assets)
     Wells Fargo Bank, N.A.)                           (336)     1,012               6
                                                                                                                                                                     (Leverage ratio)
 C"sh and cash equivalents at                                                                                                                                        Wells Fargo & Company                                          $6.1                  6.95%               ~$3.5                ~4.00% (I)
   beginning of year                                  1,043        31            25
                                                                                                                                                                     Wells Fargo Bank, N.A.                                          5.8                  7.21                ~   3.2              ~4.00      (I)        ~$4.0               2: 5.00%
 Cash and cash equivalents at
   end of year                                    $    707     $ 1,043    $     31
                                                                                                                                                                 (I) The leverage ratio consisrs ofller I capiml divided by quarterly average total assets, excluding goodwill and certain other items. The minimulll leverage ratio guideline is
 Noncash investing activities:                                                                                                                                      3% for banking organizmions lhat du not anticipate signifiall1t growth and that have well-diversified risk, excellem asset quality, high liquidity, guud earnings, effective
                                                                                                                                                                     managemenr and monitoring of marker risk and, in general, arc considered top#rateo, strong b~nking organizations.
  Transfers from invesrn~ent securities at cost
     to investment securities at fair value       $                       $ 147




                                                                                                                                                       .......
                                                                                                                                                                                                                                                                                                                                -   .


1~              DERIVATIVE FINANCIAL INSTRUMENTS
                                                                                                                                                                                               Interest rate futures contracts are contracts in which the
                                                                                                                                                                                           buyer agrees to purchase and the seller agrees to make deliv-
                                                                                                                                                                                                                                                                 Interest rate swap contracts are entered into primarily
                                                                                                                                                                                                                                                              as an asset/liability management strategy to reduce interest
The Company enters into a variety of financial contracts,                                     The Company is exposed to credit risk in the event of                                        elY of a specific financial instrument at a predetermined price    rate risk. Interest rate swap contracts are exchanges of inter-
which include interest rate futures and forward contracts,                                 nonpeJ{onnance by counterparties to financial instruments.                                      or yield. Gains and losses on futures contracts are settled        est payments, such as fixed-rate payments for floating-rate
interest rate floors and caps, options and interest rate swap                              The Company controls the credit risk of its financial con-                                      daily based on a notional (underlying) principal value and         payments, based on a notional principal amount. Payments
agreements. The contract or notional amounts of deriva-                                    tracts (except futures contracts and floor, cap, and option                                     do not involve an actual transfer of the specific instru-          related to the Company's swap contracts are made either
tives do not represent amounts exchanged by the parties                                    contracts written, for which credit risk is de minimus)                                         ment. Futures contracts are standardized and are traded on         monthly, quarterly or semi-annually by one of the parties
and therefore are not a measure of exposure through the                                    through credit approvals, limits and monitoring procedures.                                     exchanges. The exchange assumes the risk that a counter-           depending on the specific terms of the related contract.
use of derivatives. The amounts exchanged are determined                                   Credit risk related to derivative financial instruments is                                      party will not pay and generally requires margin payments          The primaLy risk associated with swaps is the exposure to
by reference to the notional amounts and the other terms                                   considered and, if material, provided for separately from the                                   to minimize such risk. Market risks arise from movements           movements in interest rates and the ability of the counter-
of the derivatives. The contract or notional amounts do                                    allowance for loan losses. As the Company generally enters                                      in interest rates and security values. The Company uses 90-        parties to meet the terms of the contract. At December 31,
not represent exposure to liquidity risk. The Company is                                   into transactions only with high quality counterparties,                                        to 120-day futures contracts on Eurodollar deposits and            1997, the Company had $16 billion of interest rate swaps
not a dealer but an end-user of these instruments and                                      losses associated with counterparty nonpel{ormance on                                           U.S. Treasury notes to shorten the interest rate maturity of       outstanding for interest rate risk management purposes on
does not use them speculatively. The Company also offers                                   derivative financial instruments have been immaterial.                                          deposits and to reduce the price risk of loans. Initial margin     which the Company receives payments based on fixed
contracts to its customers, but offsets such contracts by                                     The following table summarizes the aggregate notional                                        requirements on futures contracts are provided by invest-          interest rates and makes payments based on variable rates
purchasing other financial contracts or uses the contracts                                 or contractual amounts, credit risk amount and net fair                                         ment securities pledged as collateral. The net deferred losses     (i.e., one- or three-month LIBOR rate). Included in this
for asset/liability management.                                                            value for the Company's derivative financial instruments                                        related to interest rate futures contracts were $17 million at     amount, $11 billion was used to convert floating-rate loans
                                                                                           at December 31, 1997 and 1996.                                                                  December 31,1997, which will be fully amortized in 19098.          into fixed-rate assets. These contracts have a weighted
                                                                                                                                                                                              Interest rate floors and caps are interest rate protection      average maturity of 2 years and 3 months, a weighted aver-
                                                                                                                                                                                           instruments that involve the payment from the seller to the        age receive rate of 6.59% and a weighted average pay rate
(in millions)                                                                                                                                                            December 3 I ,    buyer of an interest differential. This differential represents    of 5.94%. An additional $4 billion was used to convert
                                                                                                                     1997                                                         1996     the difference between a short-tenn rate (e.g., three-month        fixed-rate deposits into floating-rate deposits. These con-
                                                                           Notional or       Credir risk         Esrimared             Notional or       Cre lir risk       Esrilllaretl   LlBOR) and an agreed-upon rate, the strike rate, applied           tracts have a weighted average maturity of 2 years and 11
                                                                            contractual         amounr     (2)   fair value            conrracCllfil       amoulll (2)      fair value
                                                                               amount                                                      am tine
                                                                                                                                                                                           to a notional principal amount. By purchasing a floor, the         months, a weighted average receive rate of 5.49% and a
                                                                                                                                                                                           Company will be paid the differential by a counterparty,           weighted average pay rate of 5.90%. The remaining swap
ASSET/LlAB1LITY MANAGEMENT HEDGES                                                                                                                                                          should the current short-term rate fall below the strike level     contracts used for interest rate risk management of $1 bil-
Imerest rate contracts:                                                                                                                                                                    of the agreement. The Company generally receives cash              lion at December 31, 1997 were used to hedge interest rate
  Swaps (I)                                                                  $16,301              $233               $174                $16,661             $217                $117      quarterly on purchased flo rs (when the current interest rate      risk of various other specific assets and liabilities.
  Futures                                                                      6,259                   -                 -                 5,188                 -                    -
                                                                                                                                                                                           falls below the strike rate) and purchased caps (when the
  Floors purchased (I)                                                        20,727                 63                 63                20,640               101                 101
                                                                                                                         1                   435                 3                   3     current interest rate exceeds the strike rate). The premiums
  Caps purchaseJ (I)                                                             240                  1
  Options purchased                                                               42                   -                 -                          -            -                    -    paid for interest rate purchased floor and cap agreements are
                                                                                                                                                                                           included with the assets or liabilities hedged. The primary
Foreign exchange contracts:                                                                                                                                                                risk associated with purchased floors and caps is the ability
  Forwards (I)                                                                      57                 1                 1                       64              -                    -
                                                                                                                                                                                           of the counterparties to meet the terms of the contract. Of
                                                                                                                                                                                           the total purchased floors for asset/liability management
CUSTOMER ACCOMMODATIONS
                                                                                                                                                                                           of $21 billion at December 31,1997, the Company had
Imerest rare contracts:
  Swaps (I)                                                                      3,158                13                 4                   2,325              12                    2    $16 billion of floors to protect variable-rate loans from a drop
  Futures                                                                        2,387                 -                 -                      10               -                    -    in interest rates. These contracts have a weighted average
  Floors purchased (I)                                                           1,141                13                13                     404                9                  9     maturity of 1 year and 10 months. Included in purchased
  Caps purchased (I)                                                             2,836                 8                 8                   2,088                4                  4
                                                                                                                                                                                           floors are forward starting contracts of $3 million starting
  Floors written                                                                 1,122                 -               (13)                    405                -                (10)
                                                                                                                        (9)                  2,174                -                 (4)    in February 1998, $2,000 million starting in October 1998,
  Cap written                                                                    2,871                 -
  Options purchased (I)                                                             37                 -                 -                          -             -                   -    $1,200 million starting in Janu3lY 1999, $20 million start-
  Options written (I)                                                               27                 -                 -                          -             -                   -    ing in March 1999, $63 million starting in June 1999 and
  Forwards (I)                                                                      59                 2                 2                          -             -                   -    $5 million starting in October 2000. The remaining pur-
                                                                                                                                                                                           chased floors of $5 billion and purchased caps of $.2 billion
Foreign exchange contracts:
                                                                                 1,853                29                 3                   1,313               14                   I    at December 31, 1997 were used to hedge interest rate risk
  ForwarJs and spars (1)
  Options purchased (I)                                                            110                 -                  -                         65            I                   I    of various other specific assets and liabilities.
  Options written                                                                  110                 -                  -                         59            -                  (I)


(I) The Company anricipares performance by sllbsranrially all of the counrerpanies for these or the underlying financial instruments.
(2) Credir risk amounts rcllect the replacement cust for those conuaCIS in a gain posirion in the event of nonperformance     by coutlLerparties.
           FAIR VALUE OF FINANCIAL INSTRUMENTS
                                                                                                                                         The following table presents a summary of the Company's financial instruments, as defined by FAS 107:

Statement of Financial Accounting Standards No. 107                 FINANCIAL ASSETS
(FAS 107), Disclosures about Fair Value of Firlancial                                                                                 (in millions)                                                                                                                                            December .31.
Instruments, requires that the Company disclose estimated                                                                                                                                                                                                           1997                                1996
fair values for its financial instruments. Fair value estimates,    SHORT-TERM FINANCIAL ASSETS
                                                                                                                                                                                                                                               Carrying       Estimated            Carrying       EsrimareJ
methods and assumptions set forth below for the Company's           This category includes cash and due from banks, federal                                                                                                                       amount       fair value           amount        fair vallie
financial instruments are made solely to comply with the            funds sold and securities purchased under resale agreements
                                                                                                                                      FINANCIAL ASSETS
requirements of FAS 107 and should be read in conjunction           and due from customers on acceptances. The carrying
with the financial statements and notes in this Annual                                                                                Cash and due from banks                                                                                 $ 8,169         $ 8,169              $11,736        $11,736
                                                                    amount is a reasonable estimate of fair value because of          Federal funds sold and securities purchased under resale agreements                                          82              82                  187            187
Report. The carrying amounts in the table are recorded              the relatively short period of time between the origination       Investment securities at fair value                                                                       9,888           9,888               13.505         13,505
in the Consolidated Balance Sheet under the indicated               of the instrument and its expected realization.                   Loans:
captions, except for the derivative financial instruments,                                                                              Commercial                                                                                                20,144          20,229            19,515            19,550
which are recorded in the specific asset or liability balance                                                                           Real estate 1-4 family fits[ mortgage                                                                      8,869           8,895            10,425            10,343
                                                                    INVESTMENT SECURITIES
                                                                                                                                        Other real estate mortgage                                                                                12,186          12,276            11,860            1l,772
being hedged or in other assets if the derivative financial
                                                                    Investment secutities at fair value at December 31,1997 and         Real estate construction                                                                                   2,320           2,351             2,303             2,319
instrument is a customer accommodation.                                                                                                 Consumer                                                                                                  18,089          17,410            20,114            19,149
                                                                    1996 are set forth in Note 4.
   Fair values are ba ed on estimates or calculations at                                                                                Lease financing                                                                                            4,047           4,005             3,003             3,022
the transaction level using present value techniques in                                                                                 Foreign                                                                                                       79              71               169               162
                                                                    LOANS                                                                                                                                                                     ---             ---                  ---            ---
instances where quoted market prices are not available.                                                                                                                                                                                           65,734          65,237            67,389            66,317
Because broadly traded markets do not exist for most of th~         The fair valuation calculation process differentiates loans         Less: Allowance for loan losses                                                                            1,828                             2,018
Company's financial instruments, the fair value calculations        based on their financial characteristics, such as product                 Net deferred fees on loan ommitments anti standby letters of credit
                                                                                                                                                                                                                                              ---
                                                                                                                                                                                                                                                      64
                                                                                                                                                                                                                                                                                   ---
                                                                                                                                                                                                                                                                                        76
attempt to incorporate the effect of current market condi-          classification, loan category, pricing features and remaini.ng              Ncr loans                                                                                         63,842          65,237            65,295            66,317
                                                                    maturity. Prepayment estimates are evaluated by product           Due from customers on acceptances                                                                               98              98               197               197
tions at a specific tim . Fair valuations are management's
                                                                                                                                      Nonmarketable equity investments                                                                             1,113           1,338             1,085             1,361
estimates of the values, and they are often calculated based        and loan rate. Discount rates presented in the paragraphs
                                                                                                                                      Other financial assets                                                                                       1,010           1,010               637               637
on current pricing policy, the economic and competitive             below have a wide range due to the Company's mix of fixed-
environment, the characteristics of the financial in truments       and variable-rate products. The Company used variable             FINANCIAL LIABILITIES
and other uch factors. These calculations are subjective            discount rates which incorporate relative credit quality          Deposits                                                                                                $72,199         $72,290              $81,821        $81,943
in nature, involve uncertainties and matters of significant         to reflect the credit risk, where appropriate, on the fair        Federal funds purchased and securities sold under repurchase agreements                                   3,576           3,576                2,029          2,029
                                                                    value calculation.                                                Commercial paper and other short-term borrQwings                                                            249             249                  401            401
judgment and do not include tax ramiJications; therefore,
                                                                                                                                      Acceptances outstnnding                                                                                      98              98                   197           197
the results cannot be determined with precision, substanti-            The fair value of commercial loans, other real estate
                                                                                                                                      Senior debt (I)                                                                                           1,924           1,990                2.053          2,117
ated by comparison to independent markets and may not               mortgage loans and real estate construction loan is calcu-        Subordinated debt                                                                                         2,585           2,447                2,940          2,806
be realized in an actual sale or immediate settlement of            lated by discounting contractual cash flows using discount        Guaranteed preferred beneficial interests in Company's subordinated debentures                            1,299           1,339                1,150          1,151
the instruments. There may be inherent weaknesses in any            rates that reflect the Company's current pricing for loans
                                                                    with similar characteristics and remaining maturity. Most         DERIVATIVE FINANCIAL INSTRUMENTS                   (2)
calculation technique, and changes in the underlying
                                                                                                                                      Interest rare contracts:
assumptions used, including discount rates and estimates            of the discount rates for commercial loans, other real estate
                                                                                                                                         Floors purchased                                                                                     $      76       $       76           $     82       $      110
of future cash flows, could significantly affect the results. The   mortgage loans and real e tate construction loans are                Floors wri tten                                                                                             (13)            (13)               (10)             (10)
Company has not included certain material items in its              between 7.75% and 10.0%,7.75% and 11.25%, and 7.25%                 Caps purchased                                                                                                10               9                  8                7
disclosure, such as the value of the long-term relationships        and 9.75%, respectively, at December 31, 1997. Most of              Caps wri tten                                                                                                 (9)             (9)                (4)              (4)
                                                                    the discount rates for the same portfolios in 1996 were             Swaps in a gain position                                                                                                    246                                  229
with the Company's deposit, credit card and trust customers,
                                                                                                                                        Swaps in a loss position                                                                                                    (68)                                (110)
since these intangibles are not financial instruments. For all      between 7.75% and 9.5%,7.75% and 12.25%, and 7.75%
                                                                                                                                         Forwards in a gain position                                                                                                   2
of these reasons, the aggregation of the fair value calculations    and 11.0%, respectively.                                          Foreign exchange contracts in a gain position                                                                   29              30                 15               15
presented herein do not represent, and should not be con-              For real estate 1-4 family first and junior lien mortgages,    Foreign exchange contracts in a loss position                                                                  (26)            (26)               (14)             (L4)
strued to represent, the underlying value of the Company.           fair value is calculated by discounting contractual cash
                                                                    flows, adjusted for prepayment estimates, using discount rates    (I) The carrying amount and fair value exclude obligations under capital leases of $59 million and $67 million at December     31, 1997 and 1996, respectively.
                                                                    based on current industly pricing for loans of similar size,      (2) The carrying amounts include unamortized fees paid or received, deferred gains or losses and gains or losses on derivative financial instruments receiving
                                                                                                                                          mark-to-market treatment.
                                                                    type, remaining maturity and repricing characteristics. Most
                                                                    of the discount rates applied to this portfolio are between
                                                                    5.5% and 7.75% at December 31, 1997 and 5.5% and 8.5%
                                                                    at December 31,1996.
                                                                       For credit card loans, the portfolio's yield is equal to the
                                                                    Company's current pricing and, therefore, the fair value is
                                                                    equal to book value.
                                                                                                                                 INDEPENDENT AUDITORS' REPORT



   For other consumer loans, the fair value is calculated by     on the discounted value of contractual cash Rows. The
discounting the contractual cash flows, adjusted for prepay-     discoum rate is estimated using the rates currently offered
ment estimates, based on the current rates offered by. the       for like deposits with similar remaining maturities.
Company for loans with similar characteristics. Most of the
discount rates applied to this portfolio are between 7.75%       SHORT-TERM FINANCIAL LIABILITIES
and 10.0% at December 31,1997 and 8.0% and 10.5% at              This category includes federal funds purchased and securities   The Board of Directors and Stockholders
December 31, 1996.                                               sold under repurchase agreements, commercial paper and          of Wells Fargo & Company:
   For auto lease financing, the fair value is calculated by     other short-term borrowings. The carrying amoum is a
discounting the contractual cash flows at the Company's          reasonable estimate of fair value because of the relatively
current pricing for items of similar remaining term, without      hort period of time between the origination of the instru-     We have audited the accompanying consolidated balance sheet of Wells Fargo & Company and Subsidiaries as of
including any tax benefits. The discount rate applied to this    ment and its expected realization.                              December 31, 1997 and 1996, and the related consolidated statements of income, changes in stockholders' equity, and
portfolio was 8.45% at December 31,1997 and 8.22% at                                                                             cash flows for each of the years in the three-year period ended December 31, 1997. These consolidated financial statements
December 31,1996.                                                SENIOR AND SUBORDINATED DEBT                                    are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated
   Commitments, standby letters of credit and commercial                                                                         financial statements based on our audits.
and similar letters of credit not included in the previous       The fair value of the Company's underwritten senior and
table have contractual values of$54,019 million, $2,612 mll-     subordinated d bt is estimated based on the quoted market
                                                                                                                                 We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan
lion and $337 million, respectively, at December 31,1997,        prices of the instruments. The fair value of the medium-term
                                                                                                                                 and pelfonn the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
and $55,236 million, $2,981 million and $406 million,            note programs, which are part of senior debt, is calculated
                                                                                                                                 An audit includes examining, on a test basis, evidence-supporting the amounts and disclosures in the financial statements.
respectively, at December 31, 1996. These instruments            based on the discounted value of comractual cash Rows.
                                                                 The discount rate is estimated using the rates currently
                                                                                                                                 An audit also includes assessing the accounting principles used and significant estimates made by management, as well as
generate ongoing fees at the Company's current pricing                                                                           evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
levels. Of the commitments at December 31,1997,64%               offered for new notes with similar remaining maturities.
mature within one year and 83% are commitments to                                                                                In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
                                                                 GUARANTEED PREFERRED BENEFICIAL
extend credit at a floating rate.                                                                                                position of Wells Fargo & Company and Subsidiaries as of December 31, 1997 and 1996, and the results of their operations
                                                                 INTERESTS IN COMPANY'S SUBORDINATED
                                                                 DEBENTURES
                                                                                                                                 and their cash flows for each of the years in the three-year period ended December 31, 1997, in conformity with generally
NONMARKETABLE EQUITY INVESTMENTS
                                                                                                                                 accepted accounting principles.
The Company's nonmarketable equity investments, includ-          The fair value of the Company's trust preferred securities is
ing securities, are carried at cost and have a book value        estimated based on the quoted market prices of the instru-
of$l,l13 million and $1,085 million and an estimated fair        ments.
value of$1,338 million and $1,361 million at December
31,1997 and 1996, respectively. There are restrictions on        DERIVATIVE FINANCIAL INSTRUMENTS
the sale and/or liquidation of the Company's interest,
which is generally in the form of limited partnerships; and      Derivative financial instruments are fair valued based
the Company has no direct control over the investment            on the estimated amounts that the Company would                 KPMG Peat Marwick LLP
decisions of the limited partnerships. To estimate fair value,   receive or pay to terminate the contracts at the reporting      Certified Public Accountants
a significant portion of the underlying limited partnerships'    date (i.e., mark-to-market value). Dealer quotes are avail-     San Francisco, Califomia
investments are valued based on market quotes.                   able for substantially all of the Company's derivative          January 19,1998
                                                                 financial instrumems.
FINANCIAL LIABILITIES
                                                                 LIMITATIONS
DEPOSIT LIABILITIES

FAS 107 states that the fai r value of deposits with no stated   These fair value disclosures are made solely to comply with
maturity, such as non interest-bearing demand deposits,          the requirements of FAS 107. The calculations represent
interest-bearing checking and market rate and other savings,     management's best estimates; however, due to the lack of
is equal to the amount payable on demand at the measure-         broad markets and the significant items excluded from this
ment date. Although the FASB's requirement for these             disclosure, the calculations do not represent the under-
categories is not consistent wirh the market practice of         lying value of the Company. The information presented is
using prevailing imerest rates to value these amounts, the       based on fair value calculations and market quotes as of
amount included for these deposits in the previous table         December 31, 1997 and 1996. These amounts have not been
is their carrying value at December 31, 1997 and 1996.           updated since year end; therefore, the valuations may have
The fair value of other time deposits is calculated based        changed significantly since that point in time.
                                                                                                                                                                                                                                                                                                                                            «
                             WELLS      FARGO           &   COMPANY               AND         SUBSiDIARIES




QUARTERLY FINANCIAL DATA



CONDENSED CONSOLIDATED STATEMENT OF INCOME - QUARTERLY                                                                                             AVERAGE BALANCES, YIEI:.DS AND RATES PAID (TAXABLE-EQUIVALENT BASIS) - QUARTERLY (I)

                                                                                                                                                   (in millions)                                                                              Quarter ended December 31, 1997                        Quarter ended Decembet 31,1996
(in millions)                                                                                    1997                                      1996
                                                                                       Quarter ended                               Quarter ended                                                                                             Average       Yields/    Interest                    Average        Yields/     Intetest
                                                                                                                                                                                                                                             balance        rates      ineome/                    balance          rates     income!
                                                            Dec. 31   Sept. 30    June 30    Mar. 31    Dec. 31   Sept. 30   June 30     Mar. 31                                                                                                                          expense                                              expense
                                                                                                                                                   EARNING ASSETS
                                                                                                                                        $L,006     Federal funds sold and secutities pmchased under resale agreements                    $      222           5.62%       $      3            $      570           5.88%       $       8
INTEREST INCOME                                             $1,706    $1,707      $1,716       $1,773   $1,812    $1,847     $1,858                Investment securities at fair value (2):
INTEREST EXPENSE                                               579       579         569          561      562       552        558        330       U.S. Treasury securities                                                                 2,602           6.02
                                                            ---                   ---                   --        --         --         --
                                                                                                                                                     Securities of U.S. government agencies and corporations                                  4,653           6.47
                                                                                                                                                                                                                                                                               39
                                                                                                                                                                                                                                                                               75
                                                                                                                                                                                                                                                                                                   2,624
                                                                                                                                                                                                                                                                                                   7,017
                                                                                                                                                                                                                                                                                                                   6.06                40
NET INTEREST INCOME                                          1,127        1,128       1,147     1,212    1,250      1,295     1,300        676                                                                                                                                                                     6.41               112
                                                                                                                                                     Private collateralized mortgage obligations                                              2,481           6.71             42                  3,105           6.67                52
Provision for loan losses                                      195          175         140       105       70         35                            Othet securities                                                                           315           5.83              4                    440           6.83                 7
Net interest income after                                                                                                                                 Toral investment securities at fair value                                          10,051           6.39            160                 13,186           6.42               211
 provision for loan losses                                     932         953        1,007     1,107    1,180      1,260     1,300         676
                                                                                                                                                   Loans:
                                                                                                                                                     Commerci,,1                                                                             19,141           9.09            438                 18,897           8.93            424
NON INTEREST INCOME                                                                                                                                  Real estate 1-4 family first mortgage                                                    9,098           7.56            172                 10,535           7.42            196
Fees and commissions                                           252         246         234       214     207          205       211         118      Other real estate mortgage                                                              11,889           9.35            280                 12,039           9.54            288
Service charges on deposit accounts                            212         214         214       221     233          254       258         122      Real estate construction                                                                 2,343           9.79             58                  2,311          10.52             61
Trust and investment services income                           113         117         112       109     110          104       104          59      Consumer:
                                                                            (1)          3         4       8                      3                    Real estate 1-4 family junior lien mortgage                                          5,876            9.56           141                    6,348           9.45           151
Investment securities gains (losses)                            14                                                                                     Credit card                                                                          4,961           14.66           182                    5,335          14.65           195
Other                                                          117         101         116        92       6           80        63          55
                                                            ---       ---         ---          ---      --        --         --         --             Other revolving credit and monthly payment                                           7,267            9.21
                                                                                                                                                                                                                                                                         ---
                                                                                                                                                                                                                                                                            169               ~                    9.47           203
  Toral noninterest income                                     708         677         679       640     564          643       639         354           Total consumer                                                                   18,104           10.81           492                 20,205            10.83           549
                                                                                                                                                     Lease financing                                                                        3,896            8.81            86                  2,936             8.71            64
NON INTEREST EXPENSE                                                                                                                                 Foreign                                                                                   74            7.15             1                    174             7.80             3
                                                                                                                                                                                                                                                                         ---
Salaries                                                       305         308         316       341      397         378       400         181           Toralloans                                                                       64,545            9,41         1,527                 67,097             9.42         1,585
Incentive compensation                                          52          54          49        41       80          53        61          32    Other                                                                                    1,094            7.16            19                    709             6.15            11
Employee benefits                                               75          80          81        95      112         105       102          54             Total earning assets                                                         $ 75,912            8.97         1,709               $ 81,562             8.88         1,815
Equipment                                                       96          97          98        94      L29         103       111          55
                                                                                                                                108          53    FUNDING SOURCES
Net occupancy                                                   95          96          95       102      109          96
                                                                                                                                                   Deposits:
Goodwill                                                        81          81          81        83       80          81        81           9      Lnterest-bearing checking                                                                1,672           1.46
                                                                                                                                                                                                                                         $                                      6             $ 3,000              1.28             LO
Core deposit intangible                                         62          64          67        62       73          78        82          10      Market rate and other savings                                                           30,452           2.68            206                 34,012           2.66            227
Operating losses                                                58          40         180        42       73          3L        27          14      Savings certificates                                                                    15,461           5.21            203                 L5,785           5.07            201
                                                                                                                      380       305         159      Other time deposits                                                                        247           4.75              3                    331           6.79              5
Other                                                          274         267         279       257      435
                                                            ---       ---                               --        --         --          --          Deposits in foreign offices                                                                394           5.33              5                    227           4.85              3
   Toral noninterest expense                                 1,098        1,087       1,246     1,117   1,488       L,305     L,277        567            Total interest-bearing deposits                                                    48,226           3,48            423                 53,355
                                                                                                                                         --                                                                                                                                                                        3.33            446
INCOME BEFORE INCOME TAX EXPENSE                               542         543         440        630      256        598      662         463     Federal funds purchased and securities sold under
                                                                                                                                                     repurchase agreements                                                                    3,234           5,47             45                  1,493          5.29                20
Income tax expense                                             244         253         212        291      133        277      299         199
                                                            ---       ---         ---          ---      --        --         --          --        Commercial paper and other short-term borrowings
                                                                                                                                                   Senior debt
                                                                                                                                                                                                                                                354           5.78              5                    416          3.66                 4
NET INCOME                                                  $ 298     $    290    $    228     $ 339    $ 123     $ 321      $ 363       $ 264                                                                                                2,210           6.26             35                  2,240          6.19                35
                                                                                                                                                   Subordinated debt                                                                          2,585           7.14             46                  2,941          6.90                51
NET INCOME APPLICABLE TO                                                                                                                           Guaranteed preferred beneficial interests in Company's
 COMMON STOCK                                               $ 294     $    285    $    222     $ 329    $ 103     $ 302      $ 344       $ 254       subordinated debentures                                                                1,298             7.81             25                  326            7.86               6
                                                                                                                                         --
                                                                                               $ 3.62   $ 1.12    $ 3.23     $ 3.61      $ 5.39           Toral interest-bearing liabilities                                               57,907             3.97            579               60,771            3.68             562
EARNINGS PER COMMON SHARE                                   $ 3,40    $ 3.26       $ 2.49
                                                                                                                                                   Portion of noninterest-bearing funding sources                                          18,005                                               20,791
EARNINGS PER COMMON SHARE -                                                                                                                                  Total funding sources                                                       $ 75,912            3.03             579             $ 81,562             2.74            562
  ASSUMING DILUTION                                         $ 3.36    $ 3.23       $ 2,47      $ 3.58   $ 1.11    $ 3.19     $ 3.56      $ 5.30
                                                                                                                                                   Net interest margin and net interest ·income
DIVIDENDS DECLARED PER COMMON SHARE                         $ 1.30    $ 1.30       $ 1.30      $ 1.30   $ 1.30    $ 1.30     $ 1.30      $ 1.30     on a taxable-equivalent basis (3)                                                                        5.94%       $1,130                                   6.14%       $1,253
Average common shares outstanding                             86.5         87_5        89.0      90.8     92.2       93.7      95.6        47.0    NONINTEREST-EARNING ASSETS
                                                                      ---                               --                   --                    Cash and due from banks                                                               $ 7,208                                              $ LO,539
Average common shares outstanding - assuming dilution         87.3         88,4        89.9      91.9     93.3       94.8      96.9        47.8    Goodwill                                                                                 7,108                                                  7,362
                                                                                                                                                   Other                                                                                    5,942                                                  7,845
                                                                                                                                                              Total noninrerest-earning assets                                           $ 20,258                                             $   25,746
                                                                                                                                                   NON INTEREST-BEARING FUNDING SOURCES
                                                                                                                                                   Deposits                                                                              $ 22,613                                             $ 27,979
                                                                                                                                                   Other liabilities                                                                        2,832                                                3,917
                                                                                                                                                   Preferred stockholders' equity                                                             275                                                  934
                                                                                                                                                   Com moo stockholders' equity                                                            12,543                                               13,707
                                                                                                                                                   Noninterest-bearing (unding sources used to (und earning assets                        (18,005)                                             (20,791)
                                                                                                                                                             Net noointerest-bearing funding sources                                     $ 20,258                                             $ 25,746
                                                                                                                                                   TOTAL ASSETS                                                                          $ 96,170                                             $107,308

                                                                                                                                                   (I) The average "rime rate of the Bank was 8.50% and 8.25% for the quarters ended December 31, 1997 and 1996, respectively. The average three-month Lonclon Interbank
                                                                                                                                                       Offered Rate (L1BOR) rate was 5.84% and 5.53% for the same quarters, respectively.
                                                                                                                                                   (2) Yields are based on amortized cost balances. The average ,mlOrtized cost balances for investment securities at fair value totaled $9,964 million and $13,145 million for the
                                                                                                                                                       quarters ended December 31, 1997 and 1996, respectively.
                                                                                                                                                   (3) Includes taxable.equivalent adjustments that primarily relate to income on certain loans and securiries that is exempt from federal and applicable state income taxes. The
                                                                                                                                                       federal statutory tax rare was 35% for both quarters presented.
                           WELLS    FARGO         &-   COMPANY          AND         SUBSIDIARIES




DIRECTORY


                                                                                                             WELLS FARGO MANAGEMENT
DIRECTORS
WELLS FARGO & COMPANY AND ITS PRINCIPAL SUBSIDIARY, WELLS FARGO BANK. N.A.




H. Jesse Arnelle                     Ellen M. Newman                         Daniel M. Tellep
                                                                                                             OFFICE OF THE CHAIRMAN              EXECUTIVE VICE PRESIDENTS   SENIOR VICE PRESIDENTS   Michael J. Conway
Of Counsel                           President                               Retired Chairman of the Board
                                                                             Lockheed Martin Corporation     Paul Hazen, Chairman &              Leslie L. Altick            N. Graham Allen          Anne D. Copeland
Womble Carlyle Sandridge             Ellen Newman Associates
                                                                                                              hief Executive Officer             Colleen M. Anderson         Richard S. Allen         Lou Cosso
& Rice                                                                                                                                                                                                Sherry A. Courtney
                                                                                                             Terri A. Dial, Vice Chairman        Robert W. Bissell           Nancy O. Altobello
                                     Philip J. Quigley                       Chang-Lin Tien                                                      Patricia R. Callahan        Scott R. Andrews         Barbara A. Crist
Michael R. Bowlin                    Retired Chairman, President             Professor of Engineering &      Rodney L. Jacobs, Vice Chairman &   Paul W. (Chip) Carlisle     Mats G. Arklind          Robert J. Crouch
 Chairman &                          & Chief Executive Officer               Fonner Chancellor               Chief Financial Officer             Iris S. Chan                Caryl J. Athanasiades    Harry L. Cuddy
 Chief Executive Officer             Pacific Telesis Group                   University of California,       Charles M. Johnson, Vice Chairman   A. Larry Chapman            Allen J. Ayvazian        Glen P. Cummings
                                                                             Berkeley                                                            Robert A. Chereck           Michael W. Azevedo       Steve A. Curtis
.Atlantic Richfield Company                                                                                  Clyde W. Ostler, Vice Chairman
                                                                                                                                                 Fenton E. Cross             Luann A. Bangsund        Terry R. Dallas
                                     Carl E. Reichardt                                                                                                                                                John D. Daughenbaugh
                                                                                                                                                 Charles W. Daggs III        Dennis Barnette
Edward M. Carson                     Retired Chairman &                      John A. Young                                                                                                            Joe W. DeFur
                                                                                                                                                 Donald E. Dana              Helen Beitz
Retired Chairman                     Chief Executive Officer                 Retired President &                                                 Thomas J. Davis             Stephen R. Belford       Carol E. deRemer
                                                                             Chief Executive Officer         VICE CHAIRMEN                                                                            Teddy De Rivera
of the Board                         Wells Fargo & Company                                                                                       Albert F. (Rick) Ehrke      Robert W. Belson
First Interstate Bancorp                                                     Hewlett-Packard Company         Michael J. Gillfillan               David Gonzales              Shelley Benson           Anthony M. DeRose
                                                                                                             David A. Hoyt                       Richard R. Green            Dale F. Bentz            Diane P. DeRousseau
                                     Donald B. Rice                                                                                                                                                   Nancy Diao
                                                                                                             Joseph P. Stiglich                  Arnold T. Grisham           Gail K. Bernstein
William S. Davila                    President &                                                                                                                                                      P. Steve Dobel
                                                                                                             Paul M. Watson                      Leonard A. Gucciardi        Marc L. Bernstein
President Emeritus                   Chief Executive Officer                                                                                     William W. Henderson        Joann N. Bertges         Marcia J. Donner
The Vons Companies, Inc.             UroGenesys, Inc.                                                                                            E. Alan Holroyde            George N. Bishop         Lesley A. Eckstein
                                                                                                             CIIiEF CREDIT OFFICER                                                                    Stephen M. Ellis
                                                                                                                                                 Seawadon L. Houston         Rita Bladow
                                     Richard J. Stegemeier                                                   Michael J. GilLfillan               Michael R. James            J. Edward Blakey         John Evans
Rayburn S. Dezember
                                                                                                                                                 J. Michael Johnson          Susan A. Blew            Robert J. Falkenberg
Retired Chairman                     Chairman Emeritus                                                       CHIEF COUNSEL AND SECRETARY                                                              Saturnino S. Fanlo
                                                                                                                                                 Margaret L. Kane            Effie E. Booker
of the Board                         Unocal Corporation                                                      Guy Rounsaville, Jr.                                                                     John P. Fay
                                                                                                                                                 Ross J. Kari                Thomas J. Booker
Central Pacific Corporation                                                                                                                      James K. Ketcham            Bryon J. Botsford        Charles H. Fedalen
                                                                                                             CONTROLLER
                                     Susan G. Swenson                                                                                            Ely L. Licht                Scott L. Bottles         George W. Fehlhaber
Paul Hazen                           President &                                                             Frank A. Moeslein                   Michael J. Loughlin         Jean Bourne              Michael Foglia
                                                                                                                                                 Kathleen H. Lucier          Joseph L. Brady III      Don A. Fracchia
Chairman &                           Chief Executive Officer                                                 GENERAL AUDITOR
                                                                                                                                                 Barry X Lynn                Dianne D. Breuer         Robert J. Frame
Chief Executive Officer              Cellular One
                                                                                                             Michael M. Patriarca                Robin W. Michel             Michael S. Brown         Shelley Freeman
Wells Fargo & Company                                                                                                                                                                                 Raymond A. Frese
                                                                                                                                                 Marshall R. Miller          Robert L. Brown
                                                                                                             FINANCE GROUP IIEAD                                                                      Russell S. Fujii
                                                                                                                                                 Frank A. Moeslein           Samuel Brown
Robert K. Jaedicke                                                                                           Ross J. Kari                        Dennis Mooradian            Kathleen A. Burke        Gary J. Garrett
Professor (Emeritus) of                                                                                                                          David J. Munio              Richard D. Byrd          Louis Gasparini
                                                                                                             TREASURER                                                                                John Gctz
Accounting and                                                                                                                                   Michael J. Niedermeyer      Katharine A. Byrne
                                                                                                             George W. Fehlhaber                 Dudley M. Nigg              Robert W. Byrne          Dennis P. Gibbons
Former Dean
                                                                                                                                                 George Passadore            Vito Carbone             Glenn Godkin
Graduate School of Business                                                                                  'HIEF LOAN EXAMINER                                                                      Margot Golding
                                                                                                                                                 Michael M. Patriarca        Douglas W. Carlson
Stanford University                                                                                          Eric D. Shand                                                                            Kevin Goldstein
                                                                                                                                                 Frank A. Petro, Jr.         Ron A. Caton
                                                                                                                                                 M. Lucile Reid              Henry J. Cavigli, Jr.    Robert Goldstone
 Thomas L. Lee                                                                                               PERSONNEL DIRECTOR                                                                       Leo Gonzalez
                                                                                                                                                 Lois R. Rice                Robert Chlebowski
 Chairman &                                                                                                  Kevin J. Sullivan                   Guy Rounsaville, Jr.        Kenneth R. Chrisman      Tanni Graichen
                                                                                                                                                 Richard T. Schliesmann      James V. Cimino          William Green
 Chief Executive Officer                                                                                     CORPORATE COMMUNICATIONS
                                                                                                                                                 Eric D. Shand               Philip C. Clark          Ronald D. Gregory
 The Newhall Land and                                                                                        DIRECTOR
                                                                                                                                                 Timothy J. Sloan            Gary W. Class            Shirley O. Griffin
 Farming Company                                                                                             Leslie L. Altick                                                                         Steven R.Hafen
                                                                                                                                                 Diana Starcher              Nicholas V. Colonna
                                                                                                                                                 Kevin J. Sullivan           Pamela M. Conboy         John Hanby, Jr.
                                                                                                             INVESTOR RELATIONS DIRECTOR
                                                                                                                                                 Linda M. Tubbs              Peter P. Connolly        Timothy G. Hanlon
                                                                                                             Cynthia A. Koehn                    Timothy W. Washburn                                  Lawrence M. HHrrigan
                                                                                                                                                 G. Hardy Watford
                                                                                                                                                 Karen Wegmann
                                                                                                                                                 DHvid J. Zuercher
                                                                                                            SHAREHOLDER                       INDEX OF SPECIAL TOPICS
                                                                                                            INFORMATION


                                                                                                                                                 18, 73    Average balances, yields and rates-annual and quarterly
                                                                                                            STOCK EXCHANGE
                                                                                                                                                     36    Balance sheet
                                                                                                            New York Stock Exchange              26,47     Charge-offs
                                                                             JOINT VENTURE                  Trading Symbol: WFC                  11,34     Common rock book value and market price
                                                                                                            Pacific Exchange                     30,66     Derivative financial instruments
Donald A. Hartmann         Susan McGovern            Carmie F. Saldana       Wells Fargo HSBC Trade Bank    Trading Symbol: WFC                      34    Dividends
Bruce Hartsough            Michael M. McNickle       Pamela A. Saldivar
                                                                                                                                                 10,62     Earnings per share
Douglas R. Hayek           Stephen S. Merchant       Jon w. Salmon           David J. Zuercher              London Stock Exchange
Richard A. Hayes           Lorraine B. Meuleners     Robert L. Sandberg      Chief Executive Officer        Trading Symbol: WFGO                     20   Earnings/rati . excluding goodwill and nonqualifying CDI
Douglas L. Hesse           Avid Modjtabai            Sanjiv S. Sanghvi                                     Frankfurt Srock Exchange                       Financial Accounting Standards Board statements:
Jon R. Hickman             Elizabeth A. Montgomery   Sara L. Satten          T.w.w. Haddon                 Trading Symbol: WEL                      58      FAS 123-Accounting for Stock-Based Compen ation
Michael Hogan              Ashok Moorthy             John Scally             Chief Operating Offtcer                                                41      FAS 125-Accounting for Transfers and Servicing of Financial
George D. Hoke             James H. Muir             Patricia A. Scates                                                                                       Assets and Extinguishment of Liabilities
Todd E. Hollander          Thomas J. Murphy          William P Sentenac      Maryann B. Graulich                                                 11,62      FAS 128-Earnings per Share
David Holvey               Timothy H. Murray         Sandra K. Shuman        Senior Vice President                                                  12      FAS 130-Reporting Comprehensive Income
                                                                                                           TRANSFER AGENT AND
                                                                                                                                                    15      FAS 131- Disclosures about Segments of an Enterprise and
Don Hughes                 Mark L. Myers             Timothy L. Silva                                      REGISTRAR OF
                                                                             Thomas J. Murphy                                                                 Related Information
Reed M. Hummel             Jame' P. Nagle            Mary M. Silverman                                     COMMON STOCK
George E. Huxtable         Paul G. Nalbandian        Robert N. Slesinger     Senior Vice President &                                               12     Five-year compound growth rate
Mark A. Ingram             Sherry D. Nash            Kathleen Slote          Chief Financial Officer       First Chicago Trust Company          35,72     Income statement-aIU1ual and quarterly
Stan R. Jeppsen            David L. Nelson           Brenda D. Smith                                        of New York                             13    Line of bu iness re ults
Walter L. Jones            Thomas O'Malley           Susan O. Snell           KeLU1eth E. Peterson
                                                                                                           PO, Box 2500                                   Loans:
Ch ristopher J. Jordan     Donovan E. Olson          Robert Snook           . Senior Vice President
                                                                                                           Jersey City, New Jersey               22, 23     Agricultural loans
Susan Kaysinger            Richard O. Olsson         Kristian P. Sorenson                                                                    18, 22, 73
Robert S. Kegley           Gary M. Orr               Theodore Sparks         Kenneth J. Petrilla           07303-2500                                       Average balances
                                                                             Senior Vice President         1-800-756-8200                    22,46,70       Commitments
Kim Kellogg                Sharon Osberg             Ronald W. Stavert                                                                          22,46       Mix at year end
Amru A. Khan               Michael G. Parks          Harold Steely                                         e-mail: fctc@em.fcnbd.com
                                                                                                                                                            Real estate loans:
John C. Kilhefner          Debra Paterson            Michael B. Sullivan     David J. Weber                website: http://www.fctc.com              22       Total commercial real estate loans
Edward Kim                 Susan C. Patterson        Linda M. Tanner         Senior Vice President &       TDD: 1-201-222-4955                       23       By state and type
John A. Knight             Michael A. Pazzi          Sean J. Thomas          Senior Credit Officer
                                                                                                                                                     29   Market risk
Cynthia A. Koehn           Andrew Peder on           Tamyra D. Thomas
                                                                                                                                                 10,43    Merger with First Interstate Bancorp
Jay J. Kornmayer           James D. Pendergrass      Mark Tobin                                            NOTICE To SHAREHOLDERS            16, 18, 73
Edward T. Kron             Wendy J. Peoples          Dale M. Van Dahm                                                                                     Net interest margin
Donald H. Kuemmeler        John D. Perry             Jae L. Walker                                         The annual meeting of                           Nonaccrual and restructured loans and foreclosed assets:
Catherine G. Kulkin        Kenneth E. Peterson       James R. Wallace                                                                               24       Five-year trend
                                                                                                           Wells Fargo & Company
Stephen C. Landry          David J. Pittman          Tracey B. Warson                                                                               25       Changes in nonaccrual loans
Michele J. Langstaff       Anthony N. Politopoulos   Bryan W. Waters                                       will be held at l p.m. on                25       Changes in foreclosed assets
Richard G. LaPorte         Richard Polver            David J. Weber                                        Tuesday, April 21, 1998, at
                                                                                                                                                           Notes to financial statements:
Joseph E. Laughlin         Mary Ellen Presnell       Roy M. Whitehead                                      Hotel Inter-Continental                  39       Summary of significant accounting policies
Yung S. Lew                Susan L. Price            Paul B. Whitney                                       251 South Olive Street                   43       Merger with First Interstate Bancorp
Melvin D. Lindsey          Stephen P. Prinz          George D. Wick                                        Los Angeles, Califomia                   43       Cash, loan and dividend restrictions
Luisa V. L10vert           Les L. Quock              Lisa T. Wilhelm                                                                                44       Investment securities
Clayton R. Lloyd           Matthew Raphaelson        Seth Williams                                                                                  46       Loans and allowance for loan losses
Rebecca Maciera-Kaufmann   Carlos Razo               Janice Wilson                                                                                  48       Premises, equipment, lease commitments and other assets
Jane F. Magpiong           Jeffrey C. Reed           Keith A. Wilton                                       FORM 10-K                                50       Deposits
                                                                                                                                                    50       Short-term borrowings
Heather Martin Maier       Stephen E. Reiter         William Wipprecht                                                                              51
                                                                                                           Readers wishing more                              Senior and subordinated debt
Michael F. Marino          Lawrence J. Remmers       William J. Wood                                                                                52       Guaranteed preferred beneficial interests in Company's
Andrew P. Mastorakis       Dean Rennell              Linda F. Woods                                        detailed information about
                                                                                                                                                               subordinated debentures
Stephanie McAuliffe        Neal Ringquist            Thomas V. Wornham                                     Wells Fargo & Company                   53        Preferred stock
T. Sean McCarthy           David E. Ritchie, Jr.     Anthony J. Xirtis                                     may obtain copies of the                54       Common srock, additional paid-in capital and stock plans
William J. McClung         Peter J. Roos             Patrick Yalung                                        Company's Form lO-K at no               58       Employee benefits and other expense
Stephen C. McClure         Debra B. Rossi            Kim Young                                             charge upon request from:               61       Income taxe
Kenneth C. McCorkle        Robert L. Roszkos         Kevin A. Zaney                                                                                62        Earnings per common share
Brad M. McCoy              Marci R. Rubin            Terry E. Zink                                         Wells Fargo & Company                   63       Parent company
                                                                                                           Public Relations Department             64       Legal actions
                                                                                                           MAC 0163-029                            65       Risk-based capital
                                                                                                                                                   66       Derivative financial instruments
                                                                                                           343 Sansome Street                      68       Fair value of financial instrument
                                                                                                           San Francisco, California 94163
                                                                                                                                                          Ratios:
                                                                                                           1-415-396 -0560                      10,11       Profitability (ROA and ROE)
                                                                                                                                                   11       Efficiency
                                                                                                                                                   11       Common stockholders' equity to assets
                                                                                                                                             11,28,65       Risk-based capital anclleverage
                                                                                                                                                   12     Six-year summary of selected financial dara
                                                                                                                Printed on Recycled Paper          20     Year 2000 (Y2K)

				
DOCUMENT INFO