<PAGE>

                        WELLS FARGO & COMPANY AND SUBSIDIARIES


FINANCIAL REVIEW


OVERVIEW
--------------------------------------------------------------------------------

Wells Fargo & Company (Parent) is a bank holding company whose principal
subsidiary is Wells Fargo Bank, N.A. (Bank). In this Annual Report, Wells Fargo
& Company and its subsidiaries are referred to as the Company.

   On April 1, 1996, the Company completed its acquisition (Merger) of First
Interstate Bancorp (First Interstate), which is being accounted for as a
purchase business combination. As a result, the financial information presented
in this Annual Report for the year ended December 31, 1996 reflects the effects
of the acquisition subsequent to the Merger's consummation. Since the Company's
results of operations subsequent to April 1, 1996 reflect amounts recognized
from the combined operations, they cannot be divided between or attributed
directly to either of the two former entities nor can they be directly compared
with prior periods.

   In substantially all of the Company's income and expense categories, the
increases in the amounts reported for the year ended December 31, 1996 compared
to the amounts reported in the corresponding period in 1995 resulted from the
Merger. The increases in substantially all of the categories of the Company's
balance sheet between amounts reported at December 31, 1996 and those reported
at December 31, 1995 also resulted from the Merger. Other significant factors
affecting the Company's results of operations and financial position are
described in the applicable sections below.


                 RETURN ON AVERAGE TOTAL ASSETS (ROA) (%)

                                [LINE GRAPH]

                 RETURN ON COMMON STOCKHOLDERS' EQUITY (ROE) (%)

                                [LINE GRAPH]

   Net income in 1996 was $1,071 million, compared with $1,032 million in 1995,
an increase of 4%. Net income per share was $12.21, compared with $20.37 in
1995, a decrease of 40%.

   The increase in earnings from a year ago reflected the results of the Merger,
substantially offset by a $163 million ($94 million after tax) gain resulting
from the sale of the Company's joint venture interest in Wells Fargo Nikko
Investment Advisors (WFNIA) in 1995 and a $105 million loan loss provision in
1996 compared with none in 1995.

   Return on average assets (ROA) was 1.15% and return on average common equity
(ROE) was 8.83% in 1996, compared with 2.03% and 29.70%, respectively, in 1995.

   Earnings before the amortization of goodwill and nonqualifying core deposit
intangible (CDI) ("cash" or "tangible" earnings) for the year ended December 31,
1996 were $16.74 per share, compared with $21.08 per share for the year ended
December 31, 1995. This decrease is substantially due to the estimated expenses
related to the First Interstate integration of about $440 million and a loan
loss provision of $105 million. On the same basis, ROA was 1.66% and ROE was
28.46% in 1996, compared with 2.12% and 34.92%, respectively, in 1995.

   Following the Merger, "cash" earnings, as well as "cash" ROA and ROE, are the
measures of performance which will be most comparable with prior periods. They
are also the most relevant measures of financial performance for shareholders
because they measure the Company's ability to support growth, pay dividends and
repurchase stock. (See page 17 for additional information.)

   Net interest income on a taxable-equivalent basis was $4,532 million in 1996,
compared with $2,655 million a year ago. The Company's net interest margin was
6.11% for 1996, compared with 5.80% in 1995. The increase in the margin was
primarily due to the mix of funding sources due to the Merger, as core deposits
replaced more expensive short-term borrowings.

   Noninterest income increased from $1,324 million in 1995 to $2,200 million in
1996, an increase of 66%. In addition to the effects of the Merger, the increase
reflects the loss on sale in 1995 of certain product types within the real
estate 1-4 family first mortgage portfolio. The increase in


6
<PAGE>

1996 was partially offset by the 1995 sale of the Company's joint venture
interest in WFNIA.

   Noninterest expense increased from $2,201 million in 1995 to $4,637 million
in 1996. In addition to the effect of combining operations of First Interstate
with the Company, the increase reflected goodwill and nonqualifying CDI
amortization, severance for Wells Fargo employees and other integration
expenditures.

   There was a provision for loan losses of $105 million in 1996, compared with
no provision in 1995. During 1996, net charge-offs were $640 million, or 1.05%
of average total loans, compared with $288 million, or .83%, during 1995. The
allowance for loan losses was $2,018 million, or 3.00% of total loans, at
December 31, 1996, compared with $1,794 million, or 5.04%, at December 31, 1995.

   At December 31, 1996, total nonaccrual and restructured loans were $724
million, or 1.1% of total loans, compared with $552 million, or 1.6%, at
December 31, 1995. Foreclosed assets were $219 million at December 31, 1996,
compared with $186 million at December 31, 1995.

   At December 31, 1996, the ratio of common stockholders' equity to total
assets was 12.41%, compared with 7.09% at December 31, 1995. The Company's total
risk-based capital (RBC) ratio at December 31, 1996 was 11.70% and its Tier 1
RBC ratio was 7.68%, exceeding the minimum regulatory guidelines of 8% and 4%,
respectively, for bank holding companies and the "well capitalized" guidelines
for banks of 10% and 6%, respectively. The Company's ratios at December 31, 1995
were 12.46% and 8.81%, respectively. The Company's leverage ratios were 6.65%
and 7.46% at December 31, 1996 and 1995, respectively, exceeding the minimum
regulatory guideline of 3% for bank holding companies and the "well capitalized"
guideline for banks of 5%. A discussion of RBC and leverage ratio guidelines is
in the Capital Adequacy/Ratios section.

   The Company has bought in the past, and will continue to buy, shares to
offset stock issued or expected to be issued under the Company's employee
benefit and dividend reinvestment plans. In addition to these shares, the Board
of Directors authorized in April 1996 the repurchase of up to 9.6 million shares
of the Company's outstanding common stock. The Company repurchased a total of
8.4 million shares of common stock during 1996, compared with 5.0 million shares
in 1995. The Company currently expects to repurchase approximately 1.5 million
shares per quarter in 1997.

   This Annual Report includes forward-looking statements that involve inherent
risks and uncertainties. The Company cautions readers that a number of important
factors could cause actual results to differ materially from those in the
forward-looking statements. Those factors include fluctuations in interest
rates, inflation, government regulations, the progress of integrating First
Interstate, economic conditions and competition in the geographic and business
areas in which the Company conducts its operations.

TABLE 1  RATIOS AND PER COMMON SHARE DATA
-------------------------------------------------------------------------------
                                                         Year ended December 31,
                                              ---------------------------------
                                                 1996         1995         1994
PROFITABILITY RATIOS
Net income to average total assets (ROA)         1.15%        2.03%        1.62%
Net income applicable to common stock
  to average common stockholders'
  equity (ROE)                                   8.83        29.70        22.41
Net income to average
  stockholders' equity                           8.81        26.99        20.61

EFFICIENCY RATIO (1)                             69.0%        55.3%        56.6%

CAPITAL RATIOS
At year end:
  Common stockholders' equity to assets         12.41%        7.09%        6.41%
  Stockholders' equity to assets                12.96         8.06         7.33
  Risk-based capital (2)
    Tier 1 capital                               7.68         8.81         9.09
    Total capital                               11.70        12.46        13.16
  Leverage (2)                                   6.65         7.46         6.89
Average balances:
  Common stockholders' equity to assets         12.17         6.57         6.86
  Stockholders' equity to assets                13.01         7.53         7.87

NET INCOME AND RATIOS
EXCLUDING GOODWILL AND
NONQUALIFYING CORE DEPOSIT
INTANGIBLE AMORTIZATION
AND BALANCES ("CASH" OR
"TANGIBLE") (3)
Net income applicable to common stock         $ 1,376      $ 1,025      $   833
Net income per common share                     16.74        21.08        15.45
ROA                                              1.66%        2.12%        1.71%
ROE                                             28.46        34.92        26.88
Efficiency ratio                                 62.2         54.5         55.7

PER COMMON SHARE DATA
Dividend payout (4)                                43%          23%          27%
Book value                                    $147.72      $ 75.93      $ 66.77
Market prices (5):
  High                                        $289.88      $229.00      $160.38
  Low                                          203.13       143.38       127.63
  Year end                                     269.75       216.00       145.00
-------------------------------------------------------------------------------

(1) The efficiency ratio is defined as noninterest expense divided by the total
    of net interest income and noninterest income.
(2) See the Capital Adequacy/Ratios section for additional information.
(3) Nonqualifying CDI amortization and average balance excluded from these
    calculations are, with the exception of the efficiency ratio, net of
    applicable taxes. The after-tax amounts for the amortization and average
    balance of nonqualifying CDI were $122 million and $922 million,
    respectively, for the year ended December 31, 1996. Goodwill amortization
    and average balance (which are not tax effected) were $250 million and
    $5,614 million, respectively, for the year ended December 31, 1996. See page
    17 for additional information.
(4) Dividends declared per common share as a percentage of net income per common
    share.
(5) Based on daily closing prices reported on the New York Stock Exchange
    Composite Transaction Reporting System.


                                                                               7
<PAGE>

TABLE 2  SIX-YEAR SUMMARY OF SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------------------
(in millions)                     1996         1995         1994         1993         1992         1991     % Change     Five-year
                                                                                                                1996/     compound
                                                                                                                1995   growth rate
<S>                            <C>          <C>          <C>          <C>            <C>          <C>         <C>         <C>

INCOME STATEMENT
Net interest income            $  4,521     $  2,654      $ 2,610      $ 2,657       $ 2,691      $ 2,520         70 %          12 %
Provision for loan losses           105            -          200          550         1,215        1,335          -           (40)
Noninterest income                2,200        1,324        1,200        1,093         1,059          889         66            20
Noninterest expense               4,637        2,201        2,156        2,162         2,035        2,020        111            18
Net income                        1,071        1,032          841          612           283           21          4           120
PER COMMON SHARE
Net income                     $  12.21     $  20.37      $ 14.78      $ 10.10       $  4.44      $   .04        (40)          214
Dividends declared                 5.20         4.60         4.00         2.25          1.50         3.50         13             8

BALANCE SHEET
(at year end)

Investment securities          $ 13,505     $  8,920      $11,608      $13,058       $ 9,338      $ 3,833         51 %          29 %
Loans                            67,389       35,582       36,347       33,099        36,903       44,099         89             9
Allowance for loan losses         2,018        1,794        2,082        2,122         2,067        1,646         12             4
Goodwill                          7,322          382          416          477           523          559          -            67
Assets                          108,888       50,316       53,374       52,513        52,537       53,547        116            15
Core deposits                    81,581       37,858       38,508       41,291        41,879       42,941        115            14
Common stockholders' equity      13,512        3,566        3,422        3,676         3,170        2,808        279            37
Stockholders' equity             14,112        4,055        3,911        4,315         3,809        3,271        248            34
Tier 1 capital                    6,565        3,635        3,562        3,776         3,287        2,714         81            19
Total capital                    10,000        5,141        5,157        5,446         5,255        4,784         95            16
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


MERGER WITH FIRST INTERSTATE BANCORP
--------------------------------------------------------------------------------

On April 1, 1996, the Company completed its acquisition of First Interstate.
As a condition of the Merger, the Company was required by regulatory agencies to
divest 61 First Interstate branches in California. In September, the Company 
completed the required divestiture of 61 branches to Home Savings of America. 
These branches had aggregate deposits of approximately $1.9 billion and loans 
of approximately $1.1 billion. The selling price of the divested branches
represented a premium of 8.11% on the deposits.

   As of the acquisition date, the California bank of First Interstate merged
into Wells Fargo Bank, N.A. In June 1996, the Company merged former First
Interstate bank subsidiaries in six states (Idaho, Nevada, New Mexico, Oregon,
Utah and Washington) into Wells Fargo Bank, N.A. In September 1996, Wells Fargo
Bank of Arizona, N.A. (formerly First Interstate Bank of Arizona, N.A.) merged
into Wells Fargo Bank, N.A. Each of these states has opted-in early under the
interstate branching provisions of the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994. In addition, the Company completed the sales
of the First Interstate banks in Wyoming, Montana and Alaska in the fourth
quarter of 1996. Each bank had three branches. The three banks had aggregate
assets of approximately $.6 billion and aggregate deposits of approximately $.5
billion. Banks in the other states retained by the Company are expected to merge
into Wells Fargo Bank, N.A. as soon as permitted by applicable state laws (i.e.,
Colorado in June 1997; Texas not earlier than September 1999).

   The Company expects to meet its pre-merger objective of realizing annual cost
savings of $800 million not later than 18 months after the date of the Merger.
About 50% ($100 million, or $400 million annualized) of the cost savings is
anticipated to be realized in the first quarter of 1997. The full impact of
revenue losses due to the Merger is expected to be recognized by the first
quarter of 1997, with revenue growth resuming in the second quarter of 1997. For
additional discussion of the Company's plan for branch closures and
consolidations and for pro forma information, see Note 2 to the Financial
Statements.


8
<PAGE>

LINE OF BUSINESS RESULTS
--------------------------------------------------------------------------------

The Company has identified six distinct lines of business for the purposes of
management reporting, as shown in Table 3.

   The line of business results show the financial performance of the major
business units. Line of business results are determined based on the Company's
management accounting process, which assigns balance sheet and income statement
items to each responsible business unit. This process is dynamic and somewhat
subjective. Unlike financial accounting, there is no comprehensive,
authoritative body of guidance for management accounting equivalent to generally
accepted accounting principles.

   The management accounting process measures the performance of the business
lines based on the management structure of the Company and is not necessarily
comparable with similar information for any other financial institution. First
Interstate results prior to April 1, 1996 are not included and, therefore, the
year 1996 is not comparable to 1995.

   The results incorporate estimates of cost allocations, transfers and
assignments reflecting management's current understanding of the First
Interstate businesses. The cost allocations are based on estimates of the steady
state level of expenses. Changes in management structure and/or the allocation
process may result in changes in allocations, transfers and assignments. In that
case, results for prior periods would be (and have been) restated to allow
comparability from one period to the next.

   The Company believes that cash earnings is the most relevant measure of
financial performance for shareholders. For this reason, goodwill and
nonqualifying core deposit intangible have not been allocated to the business
units in this presentation and are reported in "Other."

   Internal expense allocations are independently negotiated between business 
units and, where possible, service and price is measured against comparable 
services available in the external marketplace.

   The following describes the six major business units.

THE RETAIL DISTRIBUTION GROUP sells and services a complete line of retail
financial products for consumers and small businesses. In addition to the
24-hour Telephone Banking Centers and Wells Fargo's Online Financial Services
(the Company's personal computer banking services), the Group encompasses
Physical Distribution's network of traditional branches, in-store branches,
banking centers and ATMs. Retail Distribution also includes the consumer
checking business, which primarily uses the network as a source of new
customers.

   In 1996, the Retail Distribution Group completed the integration of First
Interstate into Wells Fargo with the consolidation of the two banks' physical
distribution networks. This consolidation consisted of the sale and closure of
traditional branches as well as the continued opening of in-store branches and
banking centers. The Company closed 107 traditional Wells Fargo branches and 176
traditional former First Interstate branches. The Company also divested 61
traditional former First Interstate branches to Home Savings of America and sold
the former First Interstate banks, including nine traditional branches, in
Alaska, Montana and Wyoming.

   The new in-store branches and banking centers are part of the ongoing effort
to provide higher-convenience, lower-cost service to customers. The in-store
banking centers (modularly designed kiosks equipped with an ATM, a customer
service telephone and staffed by a banking manager) are capable of providing
substantially all consumer services. As of December 31, 1996, there were 673
in-store branches and banking centers.

   The number of ATM locations continued to increase in 1996, reaching a total
of 2,672 at December 31, 1996 (including 1,295 former First Interstate ATM
locations).

   Average consumer checking core deposits for 1996 were $15.8 billion, compared
with $9.2 billion in 1995.

THE BUSINESS BANKING GROUP provides a full range of credit products and
financial services to small businesses and their owners. These include lines of
credit, receivables and inventory financing, equipment loans and leases, real
estate financing, SBA financing, cash management, deposit and investment
accounts, payroll services, retirement plans and credit and debit card
processing. Business Banking customers are small businesses with annual sales up
to $10 million in which the owner is also the principal financial decision
maker. Core deposits for 1996 averaged $11.2 billion, compared with $6.4 billion
in 1995. Loans averaged $4.3 billion, compared with $2.4 billion in 1995.

   Business Banking distributes credit products through national direct
marketing and 135 commercial loan specialists in small business lending offices
in 22 markets in the western United States. Business Banking jointly owns with
First Data Corp. a merchant card processing alliance, which acquires customers
through a 125-person sales force.

   Business Banking provides access to customers through a wide range of
channels. These include Business Banking Officers who are relationship managers
for the premier segment of small business customers, as well as Wells Fargo's
extensive network of traditional and in-store branches,


                                                                               9
<PAGE>

TABLE 3  LINE OF BUSINESS RESULTS (ESTIMATED)

<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------------------
(income/expense in millions,                                  Retail                    Business
average balances in billions)                     Distribution Group               Banking Group          Investment Group
                                                 -------------------        --------------------      --------------------
                                                   1996         1995           1996         1995           1996       1995
<S>                                              <C>            <C>           <C>           <C>           <C>        <C>

Net interest income (1)                          $  836         $463          $ 612         $372        $ 745        $ 472
Provision for loan losses (2)                        10            1             99           55            4            1
Noninterest income (3)                            1,046          560            265          144          475          464
Noninterest expense (3)                           1,858          961            428          276          626          425
                                                 ------         ----          -----         ----        -----        -----
Income before income tax expense (benefit)           14           61            350          185          590          510
Income tax expense (benefit) (4)                      6           26            144           79          243          216
                                                 ------         ----          -----         ----        -----        -----
  Net income (loss)                              $    8         $ 35          $ 206         $106        $ 347        $ 294
                                                 ------         ----          -----         ----        -----        -----
                                                 ------         ----          -----         ----        -----        -----
Average loans                                    $    -         $  -          $ 4.3         $2.4        $ 1.6        $ 0.5
Average assets                                      1.9          1.0            6.4          3.6          2.3          0.8
Average core deposits                              16.2          9.4           11.2          6.4         32.2         18.0
Return on equity (5)                                  1%           7%            28%          28%          50%          66%
Risk-adjusted efficiency ratio (6)                  109%         103%            73%          75%          62%          54%
--------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Net interest income is the difference between actual interest earned on
    assets (and interest paid on liabilities) owned by a group and a funding
    charge (and credit) based on the Company's cost of funds. 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 spread is the
    difference between the interest rate earned on an asset or paid on a
    liability and the Company's cost of funds rate.
(2) The provision allocated to the line groups for 1996 and 1995 is based on
    management's current assessment of the normalized net charge-off ratio for
    each line of business. 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 normalized provision and the
    Company provision is included in Other.
(3) Retail Distribution Group's charges to the product groups are shown as
    noninterest income to the branches and noninterest expense to the product
    groups. They amounted to $392 million and $206 million for 1996 and 1995,
    respectively. These charges are eliminated in the Other category in
    arriving at the Consolidated Company totals for noninterest income and
    expense.


banking centers, ATMs and, starting in 1997, business branches. Business Banking
also serves customers through its National Business Banking Center, a 24-hour
telephone center dedicated to the small business customer, and through Business
Gateway, a personal computer banking service exclusively for the small business
customer.

THE INVESTMENT GROUP is responsible for the sales and management of savings and
investment products, investment management and fiduciary and brokerage services
to institutions, retail customers and high net worth individuals. This includes
the Stagecoach and Overland Express families of mutual funds as well as personal
trust, employee benefit trust and agency assets. It also includes product
management for market rate accounts, savings deposits, Individual Retirement
Accounts (IRAs) and time deposits. Within this Group, Private Client Services
operates as a fully integrated financial services organization focusing on
banking/credit, trust services, investment management and full service and
discount brokerage.

   Significant integration activities in 1996 included the merger of the
Stagecoach and Pacifica families of mutual funds, the merger of personal trust
funds and the consolidation of investment management and private banking
operations. In addition, the Bank entered into an agreement with The Bank of New
York to sell the Corporate and Municipal Bond Administration (Corporate Trust)
business. The sale is scheduled to close during the first quarter of 1997. The
Corporate Trust business had net income for 1996 of approximately $4 million.

   Assets under management at December 31, 1996 were $57.3 billion, compared
with $34.2 billion in 1995. For 1996, average loans were $1.6 billion and
average core deposits were $32.2 billion, compared with average loans of $.5
billion and average core deposits of $18.0 billion in 1995.

THE REAL ESTATE GROUP provides a complete line of services supporting the
commercial real estate market. Products and services include construction loans
for commercial and residential development, land acquisition and development
loans, secured and unsecured lines of credit, interim financing arrangements for
completed structures, rehabilitation loans, affordable housing loans and letters
of credit. Secondary market services are provided through the Real Estate
Capital Markets Group. Its business includes purchasing distressed loans at a
discount, mezzanine financing, acquisition financing, origination of permanent
loans for securitization, syndications, commercial real estate loan servicing
and real estate pension fund advisory services. The Merger added lending offices
in Portland, Houston, San Diego and Phoenix. Integration activities completed


10
<PAGE>

<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------------
(income/expense in millions,                                Wholesale
average balances in billions)    Real Estate Group     Products Group     Consumer Lending             Other   Consolidated Company
                                 -----------------    ---------------     ----------------    --------------   --------------------
                                    1996      1995     1996      1995       1996      1995     1996     1995        1996       1995
<S>                              <C>          <C>     <C>       <C>       <C>        <C>      <C>      <C>     <C>           <C>

Net interest income (1)            $ 382      $242    $ 771     $ 396     $1,062     $ 641    $ 113    $  68      $4,521     $2,654
Provision for loan losses (2)         42        29       71        41        454       262     (575)    (389)        105          -
Noninterest income (3)                86        35      278       143        294       218     (244)    (240)      2,200      1,324
Noninterest expense (3)              113        82      433       202        495       298      684      (43)      4,637      2,201
                                   -----      ----    -----     -----     ------     -----    -----    -----      ------     ------
Income before income tax
 expense (benefit)                   313       166      545       296        407       299     (240)     260       1,979      1,777
Income tax expense (benefit) (4)     129        71      224       125        167       127       (5)     101         908        745
                                   -----      ----    -----     -----     ------     -----    -----    -----      ------     ------
  Net income (loss)                $ 184      $ 95    $ 321     $ 171     $  240     $ 172    $(235)   $ 159      $1,071     $1,032
                                   -----      ----    -----     -----     ------     -----    -----    -----      ------     ------
                                   -----      ----    -----     -----     ------     -----    -----    -----      ------     ------
Average loans                      $ 9.4      $6.3    $15.9     $ 9.1     $ 21.4     $10.8    $ 8.0    $ 5.4      $ 60.6     $ 34.5
Average assets                      10.0       6.8     19.9      10.2       22.1      11.2     30.8     17.2        93.4       50.8
Average core deposits                0.2       0.1      9.3       2.2        0.4       0.2      1.4      0.3        70.9       36.6
Return on equity (5)                  20%       15%      21%       22%        18%       24%       -%       -%          9%        30%
Risk-adjusted efficiency
  ratio (6)                           68%       83%      74%       70%        84%       73%       -%       -%          -%         -%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
 
(4)  Businesses are taxed at the Company's marginal (statutory) tax rate,
     adjusted for any nondeductible expenses. Any differences between the
     marginal and effective tax rate are in Other.
(5)  Equity is allocated to the lines of business based on an assessment of the
     inherent risk associated with each business so that the returns on
     allocated equity are on a risk-adjusted basis and comparable across
     business lines.
(6)  The risk-adjusted efficiency ratio is defined as noninterest expense plus
     the cost of capital divided by revenues (net interest income and
     noninterest income) less normalized loan losses.


in 1996 included operation and office consolidations. The Real Estate Group's
loans averaged $9.4 billion in 1996, compared with $6.3 billion in 1995.

THE WHOLESALE PRODUCTS GROUP serves businesses with annual sales in excess of $5
million and maintains relationships with major corporations throughout the
United States. The Group is responsible for soliciting and maintaining credit
and noncredit relationships with businesses by offering a variety of products
and services, including traditional commercial loans and lines, letters of
credit, international trade facilities, foreign exchange services, cash
management and electronic products. The Group includes the majority ownership
interest in the Wells Fargo HSBC Trade Bank established in October 1995 that
provides trade financing, letters of credit and collection services. Middle
market commercial banking distribution capability was enhanced through the
Merger with the addition of offices in the Pacific Northwest, Southwest and
Texas. The Merger also provided additional cash management and electronic
products market penetration, especially in the large corporate segment.
Integration activities completed in 1996 were the consolidations of the regional
commercial banking offices, cash management service centers and commercial loan
service centers. The Wholesale Products Group's loans averaged $15.9 billion in
1996, compared with $9.1 billion in 1995, and average core deposits were $9.3
billion, compared with $2.2 billion in 1995.

CONSUMER LENDING offers a full array of consumer loan products, including credit
cards, transportation (auto, recreational vehicle, marine) financing and leases,
home equity lines and loans, lines of credit and installment loans. The loan
portfolio for 1996 averaged $21.4 billion, consisting of $4.9 billion in credit
cards, $10.6 billion in equity/unsecured loans and $5.9 billion in
transportation financing. This compares with $3.5 billion in credit cards, $5.3
billion in equity/unsecured loans and $2.0 billion in transportation financing
in 1995.

THE OTHER category includes the Company's 1-4 family first mortgage portfolio,
the investment securities portfolio, goodwill and the nonqualifying core deposit
intangible, the difference between the normalized provision for the line groups
and the Company provision for loan losses, the net impact of transfer pricing
loan and deposit balances, the cost of external debt, the elimination of
intergroup noninterest income and expense, and any residual effects of
unallocated systems and other support groups. It also includes the impact of
asset/liability strategies the Company has put in place to manage the
sensitivity of net interest spreads.


                                                                              11
<PAGE>

EARNINGS PERFORMANCE
-------------------------------------------------------------------------------


The Bank generated net income of $1,006 million and $1,105 million in 1996 and
1995, respectively. The Parent (excluding its equity in earnings of
subsidiaries) and its other bank and nonbank subsidiaries had net income (loss)
of $65 million and $(73) million in 1996 and 1995, respectively.


NET INTEREST INCOME
--------------------------------------------------------------------------------

Net interest income is the difference between interest income (which includes
yield-related loan fees) and interest expense. Net interest income on a
taxable-equivalent basis was $4,532 million in 1996, compared with $2,655
million in 1995.

  Net interest income on a taxable-equivalent basis expressed as a percentage of
average total earning assets is referred to as the net interest margin, which
represents the average net effective yield on earning assets. For 1996, the net
interest margin was 6.11%, compared with 5.80% in 1995.

  Table 5 presents the individual components of net interest income and net
interest margin.

  The increase in the margin in 1996 compared with 1995 was primarily
attributable to the mix of funding sources due to the Merger, as core deposits
replaced more expensive short-term borrowings. The increase in net interest
income for 1996 compared with 1995 was primarily due to an increase in average
earning assets as a result of the Merger.

  Interest income included hedging income of $81 million in 1996, compared with
$4 million in 1995. Interest expense included hedging income of $3 million in
1996, compared with $15 million in 1995. The increase of $65 million in


                                NET INTEREST MARGIN %


                                     [LINE GRAPH]


hedging income resulted primarily from the swap hedges put in place to hedge
floating-rate loans and fixed-rate deposits, partially offset by lower gains
from futures used to hedge deposits.

  Net interest income and the net interest margin are expected to increase in
1997, assuming both loan growth and investment securities runoff and there is no
significant change in deposit rates.


NONINTEREST INCOME
--------------------------------------------------------------------------------

Table 4 shows the major components of noninterest income.

TABLE 4  NONINTEREST INCOME
---------------------------------------------------------------------
(in millions)                   Year ended December 31,      % Change
                                ----------------------   ------------
                                  1996    1995    1994   1996/   1995/
                                                         1995    1994

Service charges on
  deposit accounts              $  868  $  478  $  473     82 %     1 %
Fees and commissions:
  Credit card membership
    and other credit card fees     116      95      64     22      48
  Debit and credit card
    merchant fees                  112      65      55     72      18
  Charges and fees on loans        112      52      42    115      24
  Shared ATM network fees          102      51      43    100      19
  Mutual fund and
    annuity sales fees              61      33      64     85     (48)
  All other                        237     137     119     73      15
                                ------  ------  ------
    Total fees and
      commissions                  740     433     387     71      12
Trust and investment
  services income:
  Asset management
    and custody fees               214     129     124     66       4
  Mutual fund
    management fees                129      71      46     82      54
  All other                         34      41      33    (17)     24
                                ------  ------  ------
    Total trust and investment
      services income              377     241     203     56      19
Investment securities
  gains (losses)                    10     (17)      8      -       -
Sale of joint
  venture interest                   -     163       -   (100)      -
Income from equity
  investments accounted
  for by the:
    Cost method                    137      58      31    136      87
    Equity method                   24      39      31    (38)     26
Check printing charges              61      39      40     56      (3)
Gains (losses) on sales
  of loans                          22     (40)      4      -       -
Losses from dispositions
  of operations                    (95)    (89)     (5)     7       -
Losses on dispositions of
  premises and equipment           (46)    (31)    (12)    48     158
All other                          102      50      40    104      25
                                 ------ ------  ------

    Total                       $2,200  $1,324  $1,200     66 %    10 %
                                 ------ ------  ------    ---     ---
                                 ------ ------  ------    ---     ---
---------------------------------------------------------------------


12
<PAGE>


  The overall increase in noninterest income in 1996 compared with 1995
reflected the impact of the Merger.

  "All other" fees and commissions include mortgage loan servicing fees and the
related amortization expense for purchased mortgage servicing rights. Mortgage
loan servicing fees totaled $82 million and $55 million in 1996 and 1995,
respectively. The related amortization expense was $63 million and $39 million
in 1996 and 1995, respectively. The balance of purchased mortgage servicing
rights was $257 million and $152 million at December 31, 1996 and 1995,
respectively. The purchased mortgage loan servicing portfolio totaled $22
billion at December 31, 1996, compared with $13 billion at December 31, 1995.

  A major portion of the increase in trust and investment services income for
1996 was due to greater mutual fund management fees, reflecting the overall
growth in the fund families' net assets, including the Pacifica funds previously
managed by First Interstate. In September 1996, the Pacifica funds, totaling
$5.3 billion, were merged into the Stagecoach family of mutual funds. The
Company managed 28 of the Stagecoach family of mutual funds consisting of $14.2
billion of assets at December 31, 1996, compared with 15 mutual funds consisting
of $7.0 billion of assets at December 31, 1995. Of the merged Pacifica funds,
$2.4 billion was added to the Stagecoach institutional funds with the remaining
$2.9 billion merged into the Stagecoach retail funds. The Company also manages
the Overland Express family of 14 mutual funds, which had $5.1 billion of assets
under management at December 31, 1996, compared with 12 mutual funds consisting
of $3.7 billion at December 31, 1995, and is sold through brokers around the
country. In addition to managing Stagecoach and Overland Express Funds, the
Company also managed or maintained personal trust, corporate trust, employee
benefit trust and agency assets of approximately $300 billion (including $245
billion from First Interstate) and $51 billion at December 31, 1996 and 1995,
respectively. In addition, the increase in asset management and custody fees was
predominantly due to the Merger.

  The MasterWorks division along with the Company's joint venture interest in
Wells Fargo Nikko Investment Advisors were sold at year-end 1995, resulting in a
reduction of $.5 billion of the retail funds and the entire $1.8 billion in
institutional funds.

  Income from cost method equity investments in both 1996 and 1995 reflected net
gains on the sales of and distribution from nonmarketable equity investments.

  At December 31, 1995, the Company had a liability of $83 million related to 
the disposition of premises and, to a lesser extent, severance and 
miscellaneous expenses associated with scheduled branch dispositions. Of this 
amount, $13 million represented a third quarter 1995 accrual for the closure 
of 21 branches, of which 19 were closed in March 1996. The remaining amount 
consisted of a fourth quarter 1995 accrual for the disposition of 120 
branches, of which 88 branches were closed in the third quarter of 1996. In 
1996, the 1995 accrual was increased by approximately $7 million based on 
revised estimates of premise disposition and severance expenses. In October 
1996, the Company entered into definitive agreements with seven institutions 
to sell 12 traditional branches, including deposits, of Wells Fargo located 
in California. The sales, which had been included in the fourth quarter 1995 
accrual (and which are in addition to 20 former First Interstate California 
branches being sold), closed in the first quarter of 1997. In the fourth 
quarter, the Company evaluated the remaining 22 scheduled branch dispositions 
and decided to retain 11 branches. Of the other 11 branches, 10 were closed 
in the first quarter of 1997 and 1 is expected to be sold in the third 
quarter of 1997. The liability at December 31, 1996 for the remaining 11 
branches was $14.8 million. In addition, an expense accrual of $96 million 
was made in the fourth quarter of 1996, representing disposition of premises 
and, to a lesser extent, severance and communication expenses associated with 
the disposition of another 137 traditional branches in California in 1997.

  At December 31, 1996, the Company had 1,947 retail outlets, comprised of 1,274
traditional branches, 298 supermarket branches and 375 banking centers, in 10
western states. In 1996, the Company and Safeway Inc. signed an agreement in
principle that would allow the Company to open as many as 450 new retail outlets
(banking centers and branches) in Safeway stores in the western United States.

  During 1995, gains and losses on sales of loans included an estimated $83
million write-down to the lower of cost or estimated market due to the
reclassification of certain types of products within the real estate 1-4 family
first mortgage loan portfolio to mortgage loans held for sale. This write-down
was partially offset by gains on sales of two loans, resulting from the
assumption of the borrowers' loans by third parties.


                                                                              13
<PAGE>

<TABLE>
<CAPTION>

TABLE 5  AVERAGE BALANCES, YIELDS AND RATES PAID (TAXABLE-EQUIVALENT BASIS) (1)(2)
----------------------------------------------------------------------------------------------------------------------------------
(in millions)                                                                        1996                                     1995
                                                           ------------------------------          -------------------------------
                                                           AVERAGE     YIELDS/   INTEREST          Average      Yields/   Interest
                                                           BALANCE      RATES      INCOME/         balance       rates      income/
                                                                                  EXPENSE                                  expense
<S>                                                       <C>        <C>         <C>               <C>        <C>         <C>

EARNING ASSETS
Federal funds sold and securities purchased
  under resale agreements                                 $    522       5.55%     $   29          $    69        5.94%     $    4
Investment securities:
  At fair value (3):
    U.S. Treasury securities                                 2,460       5.77         142              499        6.34          31
    Securities of U.S. government agencies
      and corporations                                       6,980       6.20         435            1,426        5.55          81
    Private collateralized mortgage obligations              2,691       6.39         174            1,095        6.24          71
    Other securities                                           455       6.84          28               81       19.69          11
                                                          --------                 ------          -------                  ------
      Total investment securities at fair value             12,586       6.18         779            3,101        6.17         194
  At cost:
    U.S. Treasury securities                                     -          -           -            1,246        4.88          61
    Securities of U.S. government agencies
      and corporations                                           -          -           -            4,428        6.07         269
    Private collateralized mortgage obligations                  -          -           -            1,124        5.87          66
    Other securities                                             -          -           -              145        6.90          10
                                                          --------                 ------          -------                  ------
      Total investment securities at cost                        -          -           -            6,943        5.84         406
  At lower of cost or market                                     -          -           -                -           -           -
                                                          --------                 ------          -------                  ------
      Total investment securities                           12,586       6.18         779           10,044        5.94         600
Mortgage loans held for sale (3)                                 -          -           -            1,002        7.48          76
Loans:
  Commercial                                                16,640       9.02       1,501            8,635        9.88         853
  Real estate 1-4 family first mortgage                      9,601       7.43         713            5,867        7.36         432
  Other real estate mortgage                                11,470       9.31       1,068            8,046        9.50         765
  Real estate construction                                   2,093      10.43         218            1,146       10.16         116
  Consumer:
    Real estate 1-4 family junior lien mortgage              5,801       9.09         528            3,349        8.61         288
    Credit card                                              4,938      14.87         734            3,547       15.59         552
    Other revolving credit and monthly payment               7,329       9.57         701            2,397       10.68         257
                                                          --------                 ------          -------                  ------
      Total consumer                                        18,068      10.87       1,963            9,293       11.81       1,097
  Lease financing                                            2,557       8.82         226            1,498        9.22         138
  Foreign                                                      145       6.62          10               23        7.54           2
                                                          --------                 ------          -------                  ------
      Total loans (4)(5)                                    60,574       9.41       5,699           34,508        9.86       3,403
Other                                                          432       6.29          27               62        5.47           3
                                                          --------                 ------          -------                  ------
        Total earning assets                              $ 74,114       8.81       6,534          $45,685        8.93       4,086
                                                          --------                 ------          -------                  ------
                                                          --------                                 -------
FUNDING SOURCES
Deposits:
  Interest-bearing checking                               $  4,236       1.26          53         $  3,907        1.00          39
  Market rate and other savings                             29,482       2.64         777           15,552        2.61         405
  Savings certificates                                      14,433       4.93         712            8,080        5.25         424
  Other time deposits                                          385       6.64          27              385        6.14          24
  Deposits in foreign offices                                  336       5.19          17            1,771        5.91         105
                                                          --------                 ------          -------                  ------
      Total interest-bearing deposits                       48,872       3.25       1,586           29,695        3.36         997
Federal funds purchased and securities sold
  under repurchase agreements                                1,769       5.22          92            3,401        5.84         199
Commercial paper and other short-term borrowings               369       4.13          16              544        5.82          32
Senior debt                                                  2,213       6.13         136            1,618        6.67         107
Subordinated debt                                            2,403       6.93         166            1,459        6.55          96
Guaranteed preferred beneficial interests in 
  Company's subordinated debentures                             82       7.82           6                -           -           -
                                                          --------                 ------          -------                  ------
      Total interest-bearing liabilities                    55,708       3.59       2,002           36,717        3.90       1,431
Portion of noninterest-bearing funding sources              18,406          -           -            8,968           -           -
                                                          --------                 ------          -------                  ------
        Total funding sources                             $ 74,114       2.70       2,002          $45,685        3.13       1,431
                                                          --------                 ------          -------                  ------
                                                          --------                                 -------
NET INTEREST MARGIN AND NET INTEREST INCOME
  ON A TAXABLE-EQUIVALENT BASIS (6)                                      6.11%     $4,532                         5.80%     $2,655
                                                                        -----     -------                        -----      ------
                                                                        -----     -------                        -----      ------
NONINTEREST-EARNING ASSETS
Cash and due from banks                                   $  7,977                                 $ 2,681
Goodwill                                                     5,614                                     399
Other                                                        5,687                                   2,002
                                                          --------                                 -------
        Total noninterest-earning assets                  $ 19,278                                 $ 5,082
                                                          --------                                 -------
                                                          --------                                 -------

NONINTEREST-BEARING FUNDING SOURCES
Deposits                                                  $ 22,739                                 $ 9,085
Other liabilities                                            2,796                                   1,142
Preferred stockholders' equity                                 779                                     489
Common stockholders' equity                                 11,370                                   3,334
Noninterest-bearing funding sources
  used to fund earning assets                              (18,406)                                 (8,968)
                                                          --------                                 -------
        Net noninterest-bearing funding sources           $ 19,278                                 $ 5,082
                                                          --------                                 -------
                                                          --------                                 -------
TOTAL ASSETS                                              $ 93,392                                 $50,767
                                                          --------                                 -------
                                                          --------                                 -------
----------------------------------------------------------------------------------------------------------------------------------

(1)  The average prime rate of the Bank was 8.27%, 8.83%, 7.14%, 6.00% and 6.25%
     for 1996, 1995, 1994, 1993 and 1992, respectively. The average three-month
     London Interbank Offered Rate (LIBOR) was 5.51%, 6.04%, 4.75%, 3.29% and
     3.83% for the same years, respectively.
(2)  Interest rates and amounts include the effects of hedge and risk management
     activities associated with the respective asset and liability categories.
(3)  Yields are based on amortized cost balances. The average amortized cost
     balances for investment securities at fair value totaled $12,610 million,
     $3,144 million and $3,131 million in 1996, 1995 and 1994, respectively. The
     average amortized cost balance for mortgage loans held for sale totaled
     $1,012 million in 1995.


14
<PAGE>

<CAPTION>

----------------------------------------------------------------------------------------------------------------------------------
(in millions)                                                                        1994                                     1993
                                                           ------------------------------          -------------------------------
                                                           Average     Yields/   Interest          Average     Yields/    Interest
                                                           balance      rates      income/         balance       rates      income/
                                                                                  expense                                  expense
<S>                                                       <C>        <C>         <C>               <C>        <C>         <C>

EARNING ASSETS
Federal funds sold and securities purchased
  under resale agreements                                  $   189       3.51%     $    7          $   734        3.17%     $   23
Investment securities:
  At fair value (3):
    U.S. Treasury securities                                   190       6.66          13                -           -           -
    Securities of U.S. government agencies
      and corporations                                       1,547       5.82          93                -           -           -
    Private collateralized mortgage obligations              1,240       6.14          80                -           -           -
    Other securities                                            76      14.13           6                -           -           -
                                                           -------                  -----          -------                   -----
      Total investment securities at fair value              3,053       6.12         192                -           -           -
  At cost:
    U.S. Treasury securities                                 2,376       4.77         113            2,283        5.03         115
    Securities of U.S. government agencies
      and corporations                                       5,902       6.05         357            7,974        6.41         511
    Private collateralized mortgage obligations              1,242       5.74          71              864        4.16          36
    Other securities                                           133       5.75           8              189        5.67          11
                                                           -------                  -----          -------                   -----
      Total investment securities at cost                    9,653       5.69         549           11,310        5.95         673
  At lower of cost or market                                     -          -           -                -           -           -
                                                           -------                  -----          -------                   -----
      Total investment securities                           12,706       5.79         741           11,310        5.95         673
Mortgage loans held for sale (3)                                 -          -           -                -           -           -
Loans:
  Commercial                                                 7,092       9.19         652            7,154        9.36         670
  Real estate 1-4 family first mortgage                      8,484       6.85         581            6,787        7.92         538
  Other real estate mortgage                                 8,071       8.68         700            9,467        8.20         776
  Real estate construction                                     977       9.29          91            1,303        8.50         111
  Consumer:
    Real estate 1-4 family junior lien mortgage              3,387       7.75         262            3,916        6.97         273
    Credit card                                              2,703      15.39         416            2,587       15.62         404
    Other revolving credit and monthly payment               2,023       9.60         194            1,893        9.45         179
                                                           -------                  -----          -------                   -----
      Total consumer                                         8,113      10.75         872            8,396       10.19         856
  Lease financing                                            1,271       9.16         116            1,190        9.83         117
  Foreign                                                       31       5.06           2                7           -           -
                                                           -------                  -----          -------                   -----
      Total loans (4)(5)                                    34,039       8.85       3,014           34,304        8.94       3,068
Other                                                           54       5.89           3                -           -           -
                                                           -------                  -----          -------                   -----
        Total earning assets                               $46,988       8.00       3,765          $46,348        8.12       3,764
                                                           -------                  -----          -------                   -----
                                                           -------                                 -------
FUNDING SOURCES
Deposits:
  Interest-bearing checking                               $  4,622        .98          45         $  4,626        1.18          55
  Market rate and other savings                             18,921       2.34         442           19,333        2.26         438
  Savings certificates                                       7,030       4.28         301            7,948        4.37         347
  Other time deposits                                          304       7.35          22              331        7.19          24
  Deposits in foreign offices                                  925       4.75          44                7           -           -
                                                           -------                  -----          -------                   -----
      Total interest-bearing deposits                       31,802       2.69         854           32,245        2.68         864
Federal funds purchased and securities sold
  under repurchase agreements                                2,223       4.45          99            1,051        2.79          29
Commercial paper and other short-term borrowings               224       4.25          10              207        2.90           6
Senior debt                                                  1,930       5.29         102            2,174        4.75         103
Subordinated debt                                            1,510       5.94          90            1,958        5.23         103
Guaranteed preferred beneficial interests in
  Company's subordinated debentures                              -          -           -                -           -           -
                                                           -------                  -----          -------                   -----
      Total interest-bearing liabilities                    37,689       3.06       1,155           37,635        2.93       1,105
Portion of noninterest-bearing funding sources               9,299          -           -            8,713           -           -
                                                           -------                  -----          -------                   -----
        Total funding sources                              $46,988       2.45       1,155          $46,348        2.38       1,105
                                                           -------                  -----          -------                   -----
                                                           -------                                 -------
NET INTEREST MARGIN AND NET INTEREST INCOME
ON A TAXABLE-EQUIVALENT BASIS (6)                                        5.55%     $2,610                         5.74%     $2,659
                                                                        -----                                    -----
                                                                        -----                                    -----
                                                                        
Cash and due from banks                                    $ 2,618                                 $ 2,456
Goodwill                                                       458                                     501
Other                                                        1,785                                   1,805
                                                           -------                                 -------
        Total noninterest-earning assets                   $ 4,861                                 $ 4,762
                                                           -------                                 -------
                                                           -------                                 -------
NONINTEREST-BEARING FUNDING SOURCES
Deposits                                                   $ 9,019                                 $ 8,482
Other liabilities                                            1,062                                     997
Preferred stockholders' equity                                 521                                     639
Common stockholders' equity                                  3,558                                   3,357
Noninterest-bearing funding sources
  used to fund earning assets                               (9,299)                                 (8,713)
                                                           -------                                 -------
        Net noninterest-bearing funding sources            $ 4,861                                 $ 4,762
                                                           -------                                 -------
                                                           -------                                 -------
TOTAL ASSETS                                               $51,849                                 $51,110
                                                           -------                                 -------
                                                           -------                                 -------
----------------------------------------------------------------------------------------------------------------------------------

(4)  Interest income includes loan fees, net of deferred costs, of approximately
     $104 million, $41 million, $40 million, $41 million and $57 million in
     1996, 1995, 1994, 1993 and 1992, respectively.
(5)  Nonaccrual loans and related income are included in their respective loan
     categories.
(6)  Includes taxable-equivalent adjustments that primarily relate to income on
     certain loans and securities that is exempt from federal and applicable
     state income taxes.

<CAPTION>


-----------------------------------------------------------------------------------------
(in millions)                                                                        1992
                                                          -------------------------------
                                                           Average     Yields/    Interest
                                                           balance      rates      income/
                                                                                  expense
<S>                                                        <C>       <C>         <C>

EARNING ASSETS
Federal funds sold and securities purchased
  under resale agreements                                  $   919       3.62%     $   33
Investment securities:
  At fair value (3):
    U.S. Treasury securities                                     -          -           -
    Securities of U.S. government agencies
      and corporations                                           -          -           -
    Private collateralized mortgage obligations                  -          -           -
    Other securities                                             -          -           -
                                                           -------                  -----
      Total investment securities at fair value                  -          -           -
  At cost:
    U.S. Treasury securities                                 1,562       5.80          91
    Securities of U.S. government agencies
      and corporations                                       4,197       7.38         309
    Private collateralized mortgage obligations                  -          -           -
    Other securities                                           110       6.16           7
                                                           -------                  -----
      Total investment securities at cost                    5,869       6.93         407
  At lower of cost or market                                   108       8.73           9
                                                           -------                  -----
      Total investment securities                            5,977       6.97         416
Mortgage loans held for sale (3)                                 -          -           -
Loans:
  Commercial                                                 9,702       8.50         825
  Real estate 1-4 family first mortgage                      7,628       9.27         707
  Other real estate mortgage                                10,634       8.21         873
  Real estate construction                                   1,837       8.47         156
  Consumer:
    Real estate 1-4 family junior lien mortgage              4,585       8.14         373
    Credit card                                              2,771      15.93         441
    Other revolving credit and monthly payment               2,083       9.85         205
                                                           -------                  -----
      Total consumer                                         9,439      10.81       1,019
  Lease financing                                            1,165      10.36         121
  Foreign                                                        1          -           -
                                                           -------                  -----
      Total loans (4)(5)                                    40,406       9.16       3,701
Other                                                            1          -           -
                                                           -------                  -----
        Total earning assets                               $47,303       8.77       4,150
                                                           -------                  -----
                                                           -------
FUNDING SOURCES
Deposits:
  Interest-bearing checking                                $ 4,597       1.77          81
  Market rate and other savings                             18,534       2.88         533
  Savings certificates                                      10,763       4.94         532
  Other time deposits                                          444       7.52          34
  Deposits in foreign offices                                   43       7.89           3
                                                           -------                  -----
Total interest-bearing deposits                             34,381       3.44       1,183
Federal funds purchased and securities sold
  under repurchase agreements                                1,299       3.16          41
Commercial paper and other short-term borrowings               252       3.54           9
Senior debt                                                  2,175       5.77         126
Subordinated debt                                            1,872       4.99          93
Guaranteed preferred beneficial interests in
  Company's subordinated debentures                              -          -           -
                                                           -------                  -----
Total interest-bearing liabilities                          39,979       3.63       1,452
Portion of noninterest-bearing funding sources               7,324          -           -
                                                           -------                  -----
        Total funding sources                              $47,303       3.07       1,452
                                                           -------                  -----
                                                           -------
NET INTEREST MARGIN AND NET INTEREST INCOME
  ON A TAXABLE-EQUIVALENT BASIS (6)                                     5.70%      $2,698
                                                                       ------      ------
                                                                       ------      ------

NONINTEREST-EARNING ASSETS
Cash and due from banks                                    $ 2,536
Goodwill                                                       541
Other                                                        2,117
                                                           -------
        Total noninterest-earning assets                   $ 5,194
                                                           -------
                                                           -------
NONINTEREST-BEARING FUNDING SOURCES
Deposits                                                   $ 7,885
Other liabilities                                            1,060
Preferred stockholders' equity                                 608
Common stockholders' equity                                  2,965
Noninterest-bearing funding sources
  used to fund earning assets                               (7,324)
                                                           -------
        Net noninterest-bearing funding sources            $ 5,194
                                                           -------
                                                           -------
TOTAL ASSETS                                               $52,497
                                                           -------
                                                           -------
-----------------------------------------------------------------------------------------
</TABLE>


                                                                              15
<PAGE>

NONINTEREST EXPENSE
--------------------------------------------------------------------------------

Table 6 shows the major components of noninterest expense.

TABLE 6  NONINTEREST EXPENSE
-----------------------------------------------------------------
(in millions)               Year ended December 31,      % Change
                            -----------------------  ------------
                                 1996   1995   1994  1996/  1995/
                                                     1995   1994

Salaries                       $1,357 $  713 $  671    90 %    6 %
Incentive compensation            227    126    155    80    (19)
Employee benefits                 373    187    201    99     (7)
Equipment                         399    193    174   107     11
Net occupancy                     366    211    215    73     (2)
Contract services                 295    149    101    98     48
Goodwill                          250     35     36   614     (3)
Core deposit intangible:
  Nonqualifying (1)               206      -      -     -      -
  Qualifying                       37     42     49   (12)   (14)
Operating losses                  145     45     62   222    (27)
Telecommunications                140     58     49   141     18
Advertising and promotion         116     73     65    59     12
Outside professional services     112     45     33   149     36
Postage                            96     52     44    85     18
Travel and entertainment           78     36     30   117     20
Stationery and supplies            76     37     30   105     23
Security                           56     21     20   167      5
Outside data processing            55     11     10   400     10
Check printing                     43     25     29    72    (14)
Escrow and collection
  agency fees                      33     15     19   120    (21)
Federal deposit insurance          28     52    101   (46)   (49)
Foreclosed assets                   7      1      -   600      -
All other                         142     74     62    92     19
                               ------ ------ ------
  Total                        $4,637 $2,201 $2,156   111 %    2 %
                               ------ ------ ------   ---    ---
                               ------ ------ ------   ---    ---

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

(1) Amortization of core deposit intangibles acquired after February 1992 that
    are subtracted from stockholders' equity in computing regulatory capital
    for bank holding companies.


     In addition to the effect of combining operations of First Interstate 
with the Company, the overall increase in noninterest expense primarily 
reflected intangible amortization and other integration expenses, including 
severance, advertising and higher expenses for contract and outside 
professional services.

     Salaries, incentive compensation and employee benefits expense increased 
$931 million in 1996 compared with 1995. This was substantially due to higher 
staff levels after the consummation of the Merger. Salaries and employee 
benefits expense during 1996 included integration-related severance expense 
of $78 million. Additional severance expense may be incurred in 1997 as the 
Company continues the integration process. The Company's active full-time 
equivalent (FTE) staff, including hourly employees, was 36,902 at December 
31, 1996, compared with 19,249 at December 31, 1995. First Interstate had 
27,200 average FTE in December 1995. The Company currently expects to have 
less than 35,000 active FTE by the third quarter of 1997.

     Excluding the effects of the Merger, increases in equipment expense in 
1996 compared with 1995 were primarily due to a higher level of spending on 
software and technology for product development and increased depreciation 
expense on equipment related to business initiatives and system upgrades.

     Goodwill and CDI amortization resulting from the Merger were $216 million 
and $206 million, respectively, for the year ended December 31, 1996. The 
core deposit intangible is amortized on an accelerated basis based on an 
estimated useful life of 15 years. The impact on noninterest expense from the 
amortization of the nonqualifying core deposit intangible in 1997, 1998 and 
1999 is expected to be $241 million, $211 million and $186 million, 
respectively. The related impact on income tax expense is expected to be a 
benefit of $99 million, $87 million and $76 million in 1997, 1998 and 1999, 
respectively.

     The decrease in federal deposit insurance expense in 1996, compared with 
1995, was substantially due to the revised rate structure effective June 1, 
1995, partially offset by the passage of the Deposit Insurance Funds Act of 
1996 (DIFA). DIFA was enacted, in part, to increase the Federal Deposit 
Insurance Corporation Savings Association Insurance Fund reserve ratio to 
1.25% and levied a 65.7 cent fee on every $100 of thrift deposits held on 
March 31, 1995. The Company acquired thrift deposits through the Merger. 
Accordingly, $22 million was paid in 1996 based on the thrift deposits of 
First Interstate.

     The Company expects noninterest expense, excluding goodwill and 
nonqualifying CDI amortization, to decrease in 1997 compared with 1996. By 
the fourth quarter of 1997, noninterest expense is expected to reflect the 
full impact of integrating the two separate companies, by reducing 
noninterest expense by $200 million per quarter from the pre-merger combined 
amounts.


INCOME TAXES
--------------------------------------------------------------------------------

The Company's effective tax rate was 46% for 1996 and 42% for 1995. The increase
in the effective tax rate for 1996 was due to increased goodwill amortization
related to the Merger, which is not tax deductible.


16
<PAGE>

EARNINGS/RATIOS EXCLUDING GOODWILL AND NONQUALIFYING CDI
--------------------------------------------------------------------------------

Table 7 reconciles reported earnings to net income excluding goodwill and
nonqualifying core deposit intangible ("cash" or "tangible") for the year ended
December 31, 1996.

TABLE 7   EARNINGS EXCLUDING GOODWILL
          AND NONQUALIFYING CDI
--------------------------------------------------------------------
(in millions)                           Year ended December 31, 1996
                           -----------------------------------------
                           Reported            Amortization   "Cash"
                           earnings ----------------------- earnings
                                    Goodwill Nonqualifying
                                              core deposit
                                                intangible

Income before
  income tax expense         $1,979    $ 250         $ 206    $2,435
  Income tax expense            908        -            84       992
                             ------    -----         -----    ------
Net income                    1,071      250           122     1,443
  Preferred stock
    dividends                    67        -             -        67
                             ------    -----         -----    ------
Net income applicable
  to common stock            $1,004    $ 250         $ 122    $1,376
                             ------    -----         -----    ------
                             ------    -----         -----    ------
Per common share             $12.21    $3.05         $1.48    $16.74
                             ------    -----         -----    ------
                             ------    -----         -----    ------
--------------------------------------------------------------------


    Table 8 presents the calculation of the ROA, ROE and efficiency ratios 
excluding goodwill and nonqualifying core deposit intangible amortization and 
balances for the year ended December 31, 1996. These calculations were 
specifically formulated by the Company and may not be comparable to similarly 
titled measures reported by other companies. Also, "cash" or "tangible" 
earnings are not entirely available for use by management. See the 
Consolidated Statement of Cash Flows and Note 3 to the Financial Statements 
for other information regarding funds available for use by management.

TABLE 8  RATIOS EXCLUDING GOODWILL AND NONQUALIFYING CDI
--------------------------------------------------------------------------------
(in millions)                                       Year ended December 31, 1996

                   ----------------------------------------
                   ROA:           A/(C-E)   =         1.66%
                   ROE:           B/(D-E)   =        28.46%
                   Efficiency:    (F-G)/H   =         62.2%
                   ----------------------------------------

Net income                                                   $  1,443  (A)
Net income applicable to common stock                           1,376  (B)
Average total assets                                           93,392  (C)
Average common stockholders' equity                            11,370  (D)
Average goodwill ($5,614) and after-tax nonqualifying
  core deposit intangible ($922)                                6,536  (E)
Noninterest expense                                             4,637  (F)
Amortization expense for goodwill and nonqualifying
  core deposit intangible                                         456  (G)
Net interest income plus noninterest income                     6,721  (H)

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


BALANCE SHEET ANALYSIS
--------------------------------------------------------------------------------

A comparison between the year-end 1996 and 1995 balance sheets is discussed
below. The Bank's assets of $98.7 billion and $48.6 billion at December 31, 1996
and 1995, respectively, represented more than 90% of the Company's consolidated
assets at those dates.

INVESTMENT SECURITIES
--------------------------------------------------------------------------------

Primarily as a result of the Merger, total investment securities averaged $12.6
billion in 1996, a 26% increase from $10.0 billion in 1995. Total investment
securities were $13.5 billion at December 31, 1996, a 52% increase from $8.9
billion at December 31, 1995. Investment securities are expected to decrease in
the future as the cash received from their maturities is used to fund loan
growth.

     Table 9 provides expected remaining maturities and yields 
(taxable-equivalent basis) of debt securities within the investment 
portfolio. The weighted average expected remaining maturity of the debt 
securities portfolio was 2 years and 2 months at December 31, 1996, compared 
with 2 years and 1 month at December 31, 1995. In replacing the maturing 
securities with new securities, it has been the intention of the Company to 
maintain a short-term expected maturity position in order to provide 
additional liquidity and to fund future loan growth. Expected remaining 
maturities will differ from remaining contractual maturities because 
borrowers may have the right to prepay certain obligations with or without 
penalties. It is more appropriate to monitor investment security maturities 
and yields using prepayment


                                                                              17
<PAGE>

<TABLE>
<CAPTION>

TABLE 9  INVESTMENT SECURITIES
         EXPECTED REMAINING MATURITIES AND YIELDS
---------------------------------------------------------------------------------------------------------------------------------
                                                                                                                December 31, 1996
(in millions)             -------------------------------------------------------------------------------------------------------
                            Total Weighted     Weighted   Within one year     After one year  After five years    After ten years
                           amount  average      average                   through five years through ten years                   
                                     yield     expected   --------------- ------------------ -----------------    ---------------
                                              remaining    Amount   Yield Amount       Yield Amount      Yield    Amount    Yield
                                           maturity (in 
                                              yrs.-mos.) 
<S>                       <C>     <C>      <C>            <C>       <C>   <C>          <C>   <C>         <C>      <C>       <C>  

AVAILABLE-FOR-SALE 
SECURITIES (1): 

U.S. Treasury securities  $ 2,824     5.98%        1-10   $  689    5.76%  $2,129      6.05%   $  5      6.26%     $  1     6.85%
Securities of U.S.                                                                     
government agencies                                                                    
and corporations            7,043     6.56          2-3    2,614    6.13    3,831      6.73     498      7.28       100     7.33 
Private collateralized                                                                                                           
mortgage obligations        3,237     6.64          2-1    1,081    6.50    2,108      6.70      48      6.71         -        - 
Other                         342     7.00          2-0      101    6.68      236      7.14       3      6.72         2     6.71 
                          -------                         ------           ------              ----                ----          
TOTAL COST OF                                                                          
DEBT SECURITIES           $13,446     6.47%         2-2   $4,485    6.18%  $8,304      6.56%   $554      7.22%     $103     7.32%
                          -------     ----         ----   ------    ----   ------      ----    ----      ----      ----     ---- 
                          -------     ----         ----   ------    ----   ------      ----    ----      ----      ----     ---- 
ESTIMATED FAIR VALUE      $13,460                         $4,490           $8,313              $554                $103          
                          -------                         ------           ------              ----      ----      ----          
                          -------                         ------           ------              ----      ----      ----          
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) The weighted average yield is computed using the amortized cost of
    available-for-sale investment securities carried at fair value. See Note 4
    to the Financial Statements for fair value of available-for-sale securities
    by type of security.


assumptions since this better reflects what the Company expects to occur. (Note
4 to the Financial Statements shows the remaining contractual principal
maturities and yields of debt securities.)

    The available-for-sale portfolio includes both debt and marketable equity 
securities. At December 31, 1996, the available-for-sale securities portfolio 
had an unrealized net gain of $41 million, comprised of unrealized gross 
gains of $107 million and unrealized gross losses of $66 million. At December 
31, 1995, the available-for-sale securities portfolio had an unrealized net 
gain of $47 million, comprised of unrealized gross gains of $88 million and 
unrealized gross losses of $41 million. The unrealized net gain or loss on 
available-for-sale securities is reported on an after-tax basis as a 
valuation allowance that is a separate component of stockholders' equity. At 
December 31, 1996, the valuation allowance amounted to an unrealized net gain 
of $23 million, compared with an unrealized net gain of $26 million at 
December 31, 1995.

    The unrealized net gain in the debt securities portion of the 
available-for-sale portfolio at December 31, 1996 was predominantly 
attributable to U.S. Treasury securities, reflecting a decrease in market 
interest rates since the time of purchase. The Company may decide to sell 
certain of the available-for-sale securities to manage the level of earning 
assets (for example, to offset loan growth that may exceed expected 
maturities and prepayments of securities). (See Note 4 to the Financial 
Statements for investment securities at fair value and at cost by security 
type.)

    At December 31, 1996, mortgage-backed securities included in securities 
of U.S. government agencies and corporations consisted of pass-through 
securities and collateralized mortgage obligations (CMOs) and substantially 
all were issued or backed by federal agencies. These securities, along with 
the private CMOs, represented $10,280 million, or 76% of the Company's 
investment securities portfolio at December 31, 1996. The CMO securities held 
by the Company (including the private issues) are primarily shorter-maturity 
class bonds that were structured to have more predictable cash flows by being 
less sensitive to prepayments during periods of changing interest rates. As 
an indication of interest rate risk, the Company has estimated the impact of 
a 200 basis point increase in interest rates on the value of the 
mortgage-backed securities and the corresponding expected remaining 
maturities. Based on this rate scenario, mortgage-backed securities would 
decrease in fair value from $10,280 million to $9,784 million and the 
expected remaining maturity of these securities would increase from 2 years 
and 3 months to 2 years and 7 months.


18
<PAGE>

LOAN PORTFOLIO
--------------------------------------------------------------------------------

A comparative schedule of average loan balances is presented in Table 5;
year-end balances are presented in Note 5 to the Financial Statements.

    Loans averaged $60.6 billion in 1996, compared with $34.5 billion in 
1995. Total loans at December 31, 1996 were $67.4 billion, compared with 
$35.6 billion at year-end 1995. Most of the increase resulted from the 
Merger. The most significant increases for average loans were in commercial 
and the other revolving monthly payment portfolios. The Company's total 
unfunded loan commitments grew to $55.2 billion at December 31, 1996, from 
$24.2 billion at December 31, 1995.

    Commercial loans grew 99% to $19.5 billion at year-end 1996, from $9.8 
billion at December 31, 1995. This increase of $9.7 billion was due to the 
Merger. Total unfunded commercial loan commitments grew from $8.4 billion at 
December 31, 1995 to $28.1 billion at December 31, 1996. Included in the 
commercial loan portfolio are agricultural loans of $1,409 million and $1,029 
million at December 31, 1996 and 1995, respectively. Agricultural loans 
consist of loans to finance agricultural production and other loans to 
farmers.

    Table 10 presents comparative period-end commercial real estate loans.

TABLE 10  COMMERCIAL REAL ESTATE LOANS
-----------------------------------------------------------------
(in millions)                           December 31,     % Change
                            -----------------------  ------------
                              1996     1995    1994   1996/ 1995/
                                                      1995  1994

Commercial loans to
  real estate developers
  and REITs (1)            $ 1,070  $   700  $  525     53%   33 %
Other real estate
  mortgage (2)              11,860    8,263   8,079     44     2
Real estate construction     2,303    1,366   1,013     69    35
                           -------  -------  ------
  Total                    $15,233  $10,329  $9,617     47%    7 %
                           -------  -------  ------    ---   ---
                           -------  -------  ------    ---   ---
Nonaccrual loans           $   376  $   371  $  416      1%  (11)%
                           -------  -------  ------    ---   ---
                           -------  -------  ------    ---   --- 
Nonaccrual loans as a
  % of total                   2.5%     3.6%    4.3%
                           -------  -------  ------
                           -------  -------  ------

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

(1) Included in commercial loans. REITs are real estate investment trusts.
(2) Includes agricultural loans that are primarily secured by real estate of
    $325 million, $250 million and $256 million at December 31, 1996, 1995 and
    1994, respectively.


                               LOAN MIX AT YEAR END (%)


                                     [BAR GRAPH]



    Table 11 summarizes other real estate mortgage loans by state and 
property type. Table 12 summarizes real estate construction loans by state 
and project type.


                                                                              19
<PAGE>

<TABLE>
<CAPTION>

TABLE 11  REAL ESTATE MORTGAGE LOANS BY STATE AND TYPE
          (EXCLUDING 1-4 FAMILY FIRST MORTGAGE LOANS)
---------------------------------------------------------------------------------------------------------------------------------
(in millions)                                                                                                   December 31, 1996
                       ---------------------------------------------------------------------------------------------------------- 
                           California           Texas      Washington         Nevada  Other states (2)       All states      Non- 
                       --------------  --------------  --------------  -------------  ----------------  ---------------  accruals 
                       Total     Non-  Total     Non-  Total     Non-  Total    Non-  Total       Non-   Total     Non-    as a % 
                       loans  accrual  loans  accrual  loans  accrual  loans accrual  loans    accrual   loans  accrual  of total 
                                                                                                                          by type 
<S>                   <C>     <C>       <C>   <C>      <C>    <C>      <C>   <C>       <C>      <C>      <C>      <C>    <C>      

Office buildings      $2,285     $144    $128     $ 1  $   87      $-   $ 96      $-  $  582       $29  $ 3,178    $174         5%
Industrial             1,425       25      69       1      18       -     24       -     195         2    1,731      28         2 
Apartments               919       32      66       -     150       -     19       -     190         -    1,344      32         2 
Shopping centers         572       12     171       -      83       -     11       -     285         3    1,122      15         1 
Hotels/motels            360        5      81       -      19       -    350       -     399         -    1,209       5         - 
Retail buildings                                                                                                                  
  (other than                                                                                                                     
  shopping centers)      568       14      74       3      42       -     11       -     179         -      874      17         2 
Institutional            859       28     129       3     200       2     35       -     278         3    1,501      36         2 
Land                     179       18      21       -       -       -      2       -      44         -      246      18         7 
Agricultural             249        8       5       -      13       -      -       -      59         2      326      10         3 
1-4 family (1):                                                                                                                   
  Land                     1        -       -       -       -       -      -       -       -         -        1       -         - 
  Structures              16        1       -       -      14       -      -       -       1         -       31       1         3 
Other                    138        3      23       2       6       -     11       1     119(3)      7      297      13         4 
                      ------     ----    ----     ---    ----      --   ----      --  ------       ---  -------    ----           
  Total by state      $7,571     $290    $767     $10    $632      $2   $559      $1  $2,331       $46  $11,860    $349         3%
                      ------     ----    ----     ---    ----      --   ----      --  ------       ---  -------    ----         - 
                      ------     ----    ----     ---    ----      --   ----      --  ------       ---  -------    ----         - 
  % of total loans        64%               6%              5%             5%             20%               100%                  
                      ------             ----            ----           ----          ------            -------
                      ------             ----            ----           ----          ------            -------
  Nonaccruals as a %
    of total by state               4%              1%              -%             -%                2% 
                                 ----             ---              --             --               ---  
                                 ----             ---              --             --               ---  
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Represents loans to real estate developers secured by 1-4 family 
    residential developments.
(2) Consists of 40 states; no state had loans in excess of $421 million at 
    December 31, 1996.
(3) Includes loans secured by collateral pools of approximately $28 million 
    (where the pool is a mixture of various real estate property types located 
    in various states, non-real estate-related assets and other guarantees).

<TABLE>
<CAPTION>

TABLE 12  REAL ESTATE CONSTRUCTION LOANS BY STATE AND TYPE
------------------------------------------------------------------------------
(in millions)
                         -------------------------------------------------------------------------------------
                             California  Nevada (1)          Texas  Oregon (1)  Arizona (1)   Other states (2) 
                         --------------  ----------  -------------  ----------  -----------  ----------------- 
                         Total     Non-       Total  Total    Non-       Total        Total  Total        Non- 
                         loans  accrual       loans  loans accrual       loans        loans  loans     accrual 
<S>                      <C>    <C>      <C>     <C>  <C>      <C>       <C>     <C>           <C>       <C>   

1-4 family:
  Land                   $  289     $ 3        $ 37   $  -      $-         $ -          $ -   $ 63         $ -  
  Structures                206       6          25     32       -           4           41     53           -  
Shopping centers             70       -           1      3       -           -            4    282           -  
Land (excluding                                                                                                 
  1-4 family)               143       -          25      8       -           3            4     53           9  
Apartments                  122       5          24     14       -          27            2     93           -  
Industrial                   73       -           9      7       -           1            1     13           -  
Office buildings             44       -           2      2       -           6           12     27           -  
Hotels/motels                34       -          59     14       -          21            -      1           -  
Retail buildings (other                                                                                         
  than shopping centers)     56       -           -     15       -           2            3     10           -  
Institutional                27       -           3     53       1          31           16     29           1  
Agricultural                  6       -           -      -       -           -            2      -           -  
Other                        13       -           3     12       -           2            2     64           -  
                         ------     ---        ----   ----      --         ---          ---   ----         ---  
  Total by state         $1,083     $14        $188   $160      $1         $97          $87   $688         $10  
                         ------     ---        ----   ----      --         ---          ---   ----         ---  
                         ------     ---        ----   ----      --         ---          ---   ----         ---  
  % of total loans           47%                  8%     7%                  4%           4%    30%             
                         ------                ----   ----                 ---          ---   ----              
                         ------                ----   ----                 ---          ---   ----              
  Nonaccruals as a %                                                                                            
    of total by state                 1%                         1%                                          1% 
                                    ---                         --                                         ---  
                                    ---                         --                                         ---  
                                                                                    
<CAPTION>

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


                                 December 31, 1996
                          ------------------------
                              All states      Non-
                          --------------  accruals
                           Total    Non-    as a %
                           loans accrual  of total
                                           by type
<S>                        <C>    <C>     <C>

1-4 family: 
  Land                    $  389     $ 3         1%
  Structures                 361       6         2
Shopping centers             360       -         -
Land (excluding 
  1-4 family)                236       9         4
Apartments                   282       5         2
Industrial                   104       -         -
Office buildings              93       -         -
Hotels/motels                129       -         -
Retail buildings (other 
  than shopping centers)      86       -         -
Institutional                159       2         1
Agricultural                   8       -         -
Other                         96       -         -
                          ------     ---
  Total by state          $2,303     $25         1%
                          ------     ---         -
                          ------     ---         -
  % of total loans           100%
                          ------
                          ------
  Nonaccruals as a %
    of total by state
--------------------------------------------------
</TABLE>

(1) There were no loans on nonaccrual at December 31, 1996.
(2) Consists of 23 states; no state had loans in excess of $70 million at
    December 31, 1996.


                                                                              20
<PAGE>

NONACCRUAL AND RESTRUCTURED LOANS AND OTHER ASSETS
--------------------------------------------------------------------------------

Table 13 presents comparative data for nonaccrual and restructured loans and
other assets. Management's classification of a loan as nonaccrual or
restructured does not necessarily indicate that the principal of the loan is
uncollectible in whole or in part. Table 13 excludes loans that are
contractually past due 90 days or more as to interest or principal, but are both
well-secured and in the process of collection or are real estate 1-4 family
first mortgage loans or consumer loans that are exempt under regulatory rules
from being classified as nonaccrual. This information is presented in Table 17.
Notwithstanding, real estate 1-4 family loans (first and junior liens) are
placed on nonaccrual within 150 days of becoming past due and are shown in the
table below. (Notes 1 and 6 to the Financial Statements describe the Company's
accounting policies relating to nonaccrual and restructured loans and foreclosed
assets, respectively.)


                            NONACCRUAL LOANS ($ BILLIONS)


                                     [LINE GRAPH]


                     NEW LOANS PLACED ON NONACCRUAL ($ BILLIONS)


                                     [LINE GRAPH]

<TABLE>
<CAPTION>

TABLE 13  NONACCRUAL AND RESTRUCTURED LOANS AND OTHER ASSETS
----------------------------------------------------------------------------------------------------------------------
(in millions)                                                                                              December 31,
                                                                  ----------------------------------------------------
                                                                  1996        1995        1994        1993        1992
<S>                                                               <C>         <C>        <C>        <C>         <C>

Nonaccrual loans:
  Commercial (1)(2)                                               $223        $112       $  88      $  252      $  560
  Real estate 1-4 family first mortgage                             99          64          81          99          96
  Other real estate mortgage (3)                                   349         307         328         578       1,207
  Real estate construction                                          25          46          58         235         235
  Consumer: 
    Real estate 1-4 family junior lien mortgage                     15           8          11          27          29
    Other revolving credit and monthly payment                       1           1           1           3           7
  Lease financing                                                    2           -           -           -           -
                                                                  ----        ----        ----      ------      ------
      Total nonaccrual loans (4)                                   714         538         567       1,194       2,134
Restructured loans (5)                                              10          14          15           6           8
                                                                  ----        ----        ----      ------      ------
Nonaccrual and restructured loans (6)                              724         552         582       1,200       2,142
As a percentage of total loans                                     1.1%        1.6%        1.6%        3.6%        5.8%

Foreclosed assets (7)(8)                                           219         186         272         348         510
Real estate investments (9)                                          4          12          17          15          40
                                                                  ----        ----        ----      ------      ------
Total nonaccrual and restructured loans and other assets          $947        $750        $871      $1,563      $2,692
                                                                  ----        ----        ----      ------      ------
                                                                  ----        ----        ----      ------      ------
----------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Includes loans (primarily unsecured) to real estate developers and REITs of
    $2 million, $18 million, $30 million, $91 million and $86 million at
    December 31, 1996, 1995, 1994, 1993 and 1992, respectively.
(2) Includes agricultural loans of $13 million, $6 million, $1 million, $9
    million and $18 million at December 31, 1996, 1995, 1994, 1993 and 1992,
    respectively.
(3) Includes agricultural loans secured by real estate of $10 million, $1
    million, $3 million, $24 million and $28 million at December 31, 1996,
    1995, 1994, 1993 and 1992, respectively.
(4) Of the total nonaccrual loans, $493 million and $408 million at December
    31, 1996 and 1995, respectively, were considered impaired under FAS 114
    (Accounting by Creditors for Impairment of a Loan).
(5) In addition to originated loans that were subsequently restructured, there
    were loans of $50 million at both December 31, 1996 and 1995 that were
    purchased at a steep discount whose contractual terms were modified after
    acquisition. The modified terms did not affect the book balance nor the
    yields expected at the date of purchase. Of the total restructured loans
    and loans purchased at a steep discount, $50 million were considered
    impaired under FAS 114 at December 31, 1996 and 1995.
(6) Related commitments to lend additional funds were approximately $44 million
    at December 31, 1996.
(7) Includes agricultural properties of $17 million, $22 million, $23 million,
    $26 million and $55 million at December 31, 1996, 1995, 1994, 1993 and
    1992, respectively.
(8) Excludes in-substance foreclosures (ISFs) of $99 million reclassified to
    nonaccrual loans at June 30, 1993 due to clarification of criteria used in
    determining when a loan is in-substance foreclosed. Complete information is
    not available for prior periods; however, any ISFs that would be
    reclassified in prior periods would not be materially higher than $99
    million.
(9) Represents the amount of real estate investments (contingent interest loans
    accounted for as investments) that would be classified as nonaccrual if
    such assets were loans. Real estate investments totaled $154 million, $95
    million, $54 million, $34 million and $93 million at December 31, 1996,
    1995, 1994, 1993 and 1992, respectively.


                                                                              21
<PAGE>

   Table 14 summarizes the quarterly trend of the approximate changes in
nonaccrual loans. The Company anticipates normal influxes of nonaccrual loans as
it further increases its lending activity as well as resolutions of loans in the
nonaccrual portfolio. The performance of any individual loan can be impacted by
external factors, such as the interest rate environment or factors particular to
a borrower such as actions taken by a borrower's management. In addition, from
time to time, the Company purchases loans from other financial institutions that
may be classified as nonaccrual based on its policies.

<TABLE>
<CAPTION>

TABLE 14  QUARTERLY TREND OF CHANGES IN NONACCRUAL LOANS
--------------------------------------------------------------------------------------------------------------
(in millions)                                                                                    Quarter ended
                                                --------------------------------------------------------------
                                                 DECEMBER 31,  September 30,  June 30,  March 31,  December 31,
                                                        1996           1996      1996       1996          1995
<S>                                             <C>           <C>            <C>       <C>        <C>

BALANCE, BEGINNING OF QUARTER                          $ 717           $731      $525       $538          $586
Nonaccrual loans of First Interstate                       -              -       201          -             -
New loans placed on nonaccrual                           213            156       173        113           106
Charge-offs                                              (48)           (43)      (48)        (9)          (27)
Payments                                                (117)           (54)      (87)       (54)          (71)
Transfers to foreclosed assets                           (16)           (36)      (19)       (30)          (22)
Loans returned to accrual                                (35)           (37)      (14)       (33)          (34)
                                                       -----           ----      ----       ----          ----
BALANCE, END OF QUARTER                                $ 714           $717      $731       $525          $538
                                                       -----           ----      ----       ----          ----
                                                       -----           ----      ----       ----          ----
--------------------------------------------------------------------------------------------------------------
</TABLE>

    The Company generally identifies loans to be evaluated for impairment 
under FAS 114 (Accounting by Creditors for Impairment of a Loan) when such 
loans are on nonaccrual or have been restructured. However, not all 
nonaccrual loans are impaired. Generally, a loan is placed on nonaccrual 
status upon becoming 90 days past due as to interest or principal (unless 
both well-secured and in the process of collection), when the full timely 
collection of interest or principal becomes uncertain or when a portion of 
the principal balance has been charged off. Real estate 1-4 family loans 
(both first liens and junior liens) are placed on nonaccrual status within 
150 days of becoming past due as to interest or principal, regardless of 
security. In contrast, under FAS 114, loans are considered impaired when it 
is probable that the Company will be unable to collect all amounts due 
according to the contractual terms of the loan agreement, including scheduled 
interest payments. For a loan that has been restructured, the contractual 
terms of the loan agreement refer to the contractual terms specified by the 
original loan agreement, not the contractual terms specified by the 
restructuring agreement. Not all impaired loans are necessarily placed on 
nonaccrual status. That is, restructured loans performing under restructured 
terms beyond a specified performance period are classified as accruing but 
may still be deemed impaired under FAS 114.

     For loans covered under FAS 114, the Company makes an assessment for 
impairment when and while such loans are on nonaccrual, or the loan has been 
restructured. When a loan with unique risk characteristics has been 
identified as being impaired, the amount of impairment will be measured by 
the Company using discounted cash flows, except when it is determined that 
the sole (remaining) source of repayment for the loan is the operation or 
liquidation of the underlying collateral. In such cases, the current fair 
value of the collateral, reduced by costs to sell, will be used in place of 
discounted cash flows. Additionally, some impaired loans with commitments of 
less than $1 million are aggregated for the purpose of measuring impairment 
using historical loss factors as a means of measurement.

     If the measurement of the impaired loan is less than the recorded 
investment in the loan (including accrued interest, net deferred loan fees or 
costs and unamortized premium or discount), an impairment is recognized by 
creating or adjusting an existing allocation of the allowance for loan 
losses. FAS 114 does not change the timing of charge-offs of loans to reflect 
the amount ultimately expected to be collected.


22
<PAGE>

    If interest due on the book balances of all nonaccrual and restructured 
loans (including loans no longer on nonaccrual or restructured at year end) 
had been accrued under their original terms, $60 million of interest would 
have been recorded in 1996, compared with $27 million actually recorded. In 
addition, the interest that would have been recorded under the original terms 
for the $50 million of loans purchased at a steep discount (see Table 13, 
footnote 5) for the year ended December 31, 1996 was $8 million, compared 
with $6 million actually recorded.

    Table 15 summarizes the quarterly trend in foreclosed assets. Table 16 
summarizes foreclosed assets by state and type at December 31, 1996. 
Foreclosed assets at December 31, 1996 increased to $219 million from $186 
million at December 31, 1995. Approximately 51% of foreclosed assets at 
December 31, 1996 have been in the portfolio three years or less, with land 
and agricultural properties representing substantially all of the amount 
greater than three years old.

<TABLE>
<CAPTION>

TABLE 15  QUARTERLY TREND OF CHANGES IN FORECLOSED ASSETS
--------------------------------------------------------------------------------------------------------------------
(in millions)                                                                                          Quarter ended
                                                --------------------------------------------------------------------
                                                 DECEMBER 31,  September 30,     June 30,     March 31,  December 31,
                                                        1996           1996         1996          1996          1995
<S>                                             <C>           <C>               <C>          <C>        <C>

BALANCE, BEGINNING OF QUARTER                           $227           $238         $198          $186          $214
Foreclosed assets of First Interstate                      -              -           51             -             -
Additions                                                 34             35           37            35            24
Sales                                                    (36)           (42)         (33)          (18)          (49)
Charge-offs                                               (2)            (3)         (12)           (3)           (2)
Write-downs                                               (2)            (1)          (1)           (1)           (1)
Other deductions                                          (2)             -           (2)           (1)            -
                                                        ----           ----         ----          ----          ----
BALANCE, END OF QUARTER                                 $219           $227         $238          $198          $186
                                                        ----           ----         ----          ----          ----
                                                        ----           ----         ----          ----          ----
--------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>

TABLE 16  FORECLOSED ASSETS BY STATE AND TYPE
----------------------------------------------------------------------------------------------------------------------------
(in millions)                                                                                              December 31, 1996
                                  ------------------------------------------------------------------------------------------
                                  California           Texas      Washington           Other             All      % of total
                                                                        D.C.      states (1)          states      foreclosed
                                                                                                                      assets
<S>                               <C>                  <C>        <C>              <C>                <C>         <C>

Land (excluding 1-4 family)             $ 73              $1              $-             $ 6            $ 80              37%
1-4 family                                37               1               -               3              41              19
Shopping centers                          19               -               7               -              26              12
Agricultural                              17               -               -               -              17               8
Industrial buildings                       1               1               -               -               2               1
Office buildings                          14               5               -               1              20               9
Apartments                                 3               -               -               -               3               1
Hotels/motels                              4               -               -               -               4               2
Other                                     26               -               -               -              26              11
                                        ----              --              --             ---            ----             ---
  Total by state                        $194              $8              $7             $10            $219             100%
                                        ----              --              --             ---            ----             ---
                                        ----              --              --             ---            ----             ---

  % of total foreclosed assets            88%              4%              3%              5%            100%
                                        ----              --              --             ---            ----
                                        ----              --              --             ---            ----
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Consists of fifteen states; no state had foreclosed assets in excess of $4
    million at December 31, 1996.


                                                                              23
<PAGE>

LOANS 90 DAYS OR MORE PAST DUE
AND STILL ACCRUING

Table 17 shows loans contractually past due 90 days or more as to interest or
principal, but not included in the nonaccrual or restructured categories. All
loans in this category are both well-secured and in the process of collection or
are real estate 1-4 family first mortgage loans or consumer loans that are
exempt under regulatory rules from being classified as nonaccrual because they
are automatically charged off after being past due for a prescribed period
(generally, 180 days). Notwithstanding, real estate 1-4 family loans (first
liens and junior liens) are placed on nonaccrual within 150 days of becoming
past due and such nonaccrual loans are excluded from Table 17.

TABLE 17  LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING
-------------------------------------------------------------------------------
(in millions)                                                       December 31,
                              -------------------------------------------------
                              1996       1995       1994       1993       1992

Commercial                    $ 65       $ 12       $  6       $  4       $  4
Real estate
  1-4 family
  first mortgage                42          8         18         19         29
Other real estate
  mortgage                      59         24         47         14         22
Real estate
  construction                   4          -          -          8         11
Consumer:
  Real estate
    1-4 family junior
    lien mortgage               23          4          4          6          9
  Credit card                  120         95         42         43         55
  Other revolving
    credit and
    monthly
    payment                     20          1          1          1          2
                              ----       ----       ----        ---       ----
    Total consumer             163        100         47         50         66
Lease financing                  -          -          -          -          1
                              ----       ----       ----        ---       ----
  Total                       $333       $144       $118        $95       $133
                              ----       ----       ----        ---       ----
                              ----       ----       ----        ---       ----
-------------------------------------------------------------------------------


ALLOWANCE FOR LOAN LOSSES
--------------------------------------------------------------------------------

An analysis of the changes in the allowance for loan losses, including
charge-offs and recoveries by loan category, is presented in Note 5 to the
Financial Statements. At December 31, 1996, the allowance for loan losses was
$2,018 million, or 3.00% of total loans, compared with $1,794 million, or 5.04%,
at December 31, 1995. The provision for loan losses was $105 million in 1996,
compared with none and $200 million in 1995 and 1994, respectively. During 1991
and 1992, the Company had a significantly higher provision for loan losses than
in the years prior resulting from a nationwide (particularly California)
recession as well as the Company's examination process and that of its
regulators. As both the economic environment and the credit quality of the
Company's loan portfolio improved, the Company began reducing its provision in
1993 and 1994. In 1995, as California continued to make progress in its economic
recovery and as the Company considered the allowance for loan losses adequate in
relation to its existing loan portfolio, no provision was made. The Company made
a $35 million and $70 million provision in the third and fourth quarters of
1996, respectively, which were the first provisions since the fourth quarter of
1994. The Company anticipates that it will continue making incremental increases
to the provision of approximately $35 million through the fourth quarter of
1997, when it is expected that the provision will approximate net charge-offs.
In addition, the Company absorbed the $770 million in allowance for loan losses
of First Interstate as a result of the Merger. Net charge-offs in 1996 were $640
million, or 1.05% of average total loans, compared with $288 million, or .83%,
in 1995. Loan loss recoveries were $220 million in 1996, compared with $134
million in 1995. Table 18 summarizes net charge-offs by loan category.

     The largest category of net charge-offs in 1996 was credit card loans,
comprising more than 50% of the total net charge-offs. During 1996, credit card
gross charge-offs due to bankruptcies were $171 million, or 42%, of total credit
card charge-offs, compared with $82 million, or 39%, and $54 million, or 39%, in
1995 and 1994, respectively. In addition, credit card loans 30 to 89 days past
due and still accruing totaled $199 million at December 31, 1996, compared with
$127 million and $73 million at December 31, 1995 and 1994, respectively.

     During 1994 and the first half of 1995, the Company grew its credit card 
loan portfolio through nationwide direct mail campaigns as well as through 
retail outlets. The objective of the direct mail campaigns was 
higher-yielding loans to higher-risk cardholders. As these loans continue to 
mature, the total amount of credit card charge-offs and the percentage of net 
charge-offs to average credit card loans are expected to continue at levels 
higher than experienced prior to the campaigns. The Company continuously 
evaluates and monitors its selection criteria for direct mail campaigns and 
other account acquisition methods to accomplish the desired risk/customer mix 
within the credit card portfolio.


24
<PAGE>

<TABLE>
<CAPTION>

TABLE 18  NET CHARGE-OFFS BY LOAN CATEGORY
------------------------------------------------------------------------------------------------------------------------
(in millions)                                                                                     Year ended December 31,
                                                     -------------------------------------------------------------------
                                                                    1996                    1995                    1994
                                                     -------------------      ------------------      ------------------

                                                     AMOUNT        % OF      Amount        % of      Amount        % of
                                                                AVERAGE                 average                 average
                                                                  LOANS                   loans                   loans
<S>                                                  <C>        <C>          <C>        <C>          <C>        <C>

Commercial                                             $ 86         .50 %     $  17         .19 %     $  17         .23 %
Real estate 1-4 family first mortgage                    10         .11          10         .17          12         .14
Other real estate mortgage                               (7)       (.06)         (1)       (.02)         44         .55
Real estate construction                                  2         .09           9         .80           4         .34
Consumer:
  Real estate 1-4 family junior lien mortgage            19         .33          13         .40          20         .59
  Credit card                                           368        7.44         195        5.46         120        4.45
  Other revolving credit and monthly payment            139        1.91          41        1.73          25        1.26
                                                       ----                    ----                    ----
    Total consumer                                      526        2.91         249        2.67         165        2.04
Lease financing                                          23         .89           4         .31          (2)       (.15)
                                                       ----                    ----                    ----
  Total net loan charge-offs                           $640        1.05 %      $288         .83 %      $240         .70 %
                                                       ----        ----        ----        ----        ----        ----
                                                       ----        ----        ----        ----        ----        ----
------------------------------------------------------------------------------------------------------------------------
</TABLE>

    Any loan that is past due as to principal or interest and that is not 
both well-secured and in the process of collection is generally charged off 
(to the extent that it exceeds the fair value of any related collateral) 
after a predetermined period of time that is based on loan category. For 
example, credit card loans generally are charged off within 180 days of 
becoming past due. Additionally, loans are charged off when classified as a 
loss by either internal loan examiners or regulatory examiners.

    The Company has an established process to determine the adequacy of the 
allowance for loan losses which assesses the risk and losses inherent in its 
portfolio. This process provides an allowance consisting of two components, 
allocated and unallocated. To arrive at the allocated component of the 
allowance, the Company combines estimates of the allowances needed for loans 
analyzed individually (including impaired loans subject to FAS 114) and loans 
analyzed on a pool basis. While coverage of one year's losses is often 
adequate (particularly for homogeneous pools of loans), the time period 
covered by the allowance may vary by portfolio, based on the Company's best 
estimate of the inherent losses in the entire portfolio as of the evaluation 
date. The Company has deemed it prudent, when reviewing the overall 
allowance, to maintain a total allowance in excess of projected losses. To 
mitigate the imprecision inherent in most estimates of expected credit 
losses, the allocated component of the allowance is supplemented by an 
unallocated component. The unallocated component includes management's 
judgmental determination of the amounts necessary for concentrations, 
economic uncertainties and other subjective factors; correspondingly, the 
relationship of the unallocated component to the total allowance for loan 
losses may fluctuate from period to period. Although management has allocated 
a portion of the allowance to specific loan categories, the adequacy of the 
allowance must be considered in its entirety.

    The Company's determination of the level of the allowance and, 
correspondingly, the provision for loan losses rests upon various judgments 
and assumptions, including general (particularly California's) economic 
conditions, loan portfolio composition, prior loan loss experience and the 
Company's ongoing examination process and that of its regulators. The Company 
has an internal risk analysis and review staff that reports to the Board of 
Directors and continuously reviews loan quality. Such reviews also assist 
management in establishing the level of the allowance. Similar to a number of 
other large national banks, the Bank has been for several years and continues 
to be examined by its primary regulator, the Office of the Comptroller of the 
Currency (OCC), and has OCC examiners in residence. These examinations occur 
throughout the year and target various activities of the Bank, including 
specific segments of the loan portfolio (for example, commercial real estate 
and shared national credits). In addition to the Bank being examined by the 
OCC, the Parent and its nonbank subsidiaries are examined by the Federal 
Reserve.

    The Company considers the allowance for loan losses of $2,018 million 
adequate to cover losses inherent in loans, commitments to extend credit and 
standby letters of credit at December 31, 1996.


                                                                              25
<PAGE>

                CORE DEPOSITS AT YEAR END ($ BILLIONS)

                              [BAR GRAPH]



DEPOSITS
--------------------------------------------------------------------------------

Comparative detail of average deposit balances is presented in Table 5. Average
core deposits increased 94% in 1996 compared with 1995 primarily due to the
Merger. Average core deposits funded 76% and 72% of the Company's average total
assets in 1996 and 1995, respectively.

    Year-end deposit balances are presented in Table 19.


TABLE 19  DEPOSITS
--------------------------------------------------------------------------------
(in millions)                                   December 31,               %
                                     ----------------------           Change
                                        1996           1995                 

Noninterest-bearing                  $29,073        $10,391              180 %
Interest-bearing checking              2,792            887              215
Market rate and 
  other savings                       33,947         17,944               89
Savings certificates                  15,769          8,636               83
                                     -------        -------
  Core deposits                       81,581         37,858              115
Other time deposits                      186            248              (25)
Deposits in foreign offices               54            876              (94)
                                     -------        -------
    Total deposits                   $81,821        $38,982              110 %
                                     -------        -------              ---
                                     -------        -------              ---
--------------------------------------------------------------------------------


CERTAIN FAIR VALUE INFORMATION
--------------------------------------------------------------------------------

FAS 107 requires that the Company disclose estimated fair values for certain
financial instruments. Quoted market prices, when available, are used to reflect
fair values. If market quotes are not available, which is the case for most of
the Company's financial instruments, management has provided its best estimate
of the calculation of the fair values using discounted cash flows. Fair value
amounts differ from book balances because fair values attempt to capture the
effect of current market conditions (for example, interest rates) on the
Company's financial instruments.

    There was a decrease in the excess (premium) of the fair value over the
carrying value of the Company's financial instruments at December 31, 1996
compared with December 31, 1995. The Company's FAS 107 disclosures are presented
in Note 19 to the Financial Statements.


CAPITAL ADEQUACY/RATIOS
--------------------------------------------------------------------------------

The Company uses a variety of measures to evaluate capital adequacy. Management
reviews the various capital measures monthly and takes appropriate action to
ensure that they are within established internal and external guidelines. The
Company's current capital position exceeds current guidelines established by
industry regulators.

RISK-BASED CAPITAL RATIOS

The Federal Reserve Board (FRB) and the OCC issue risk-based capital (RBC)
guidelines for bank holding companies and national banks, respectively. The FRB
is the primary regulator for the Parent and the OCC is the primary regulator for
the Bank. RBC guidelines establish a risk-adjusted ratio relating capital to
different categories of assets and off-balance sheet exposures. (See Note 17 to
the Financial Statements for additional information.)

    The Company's total RBC ratio at December 31, 1996 was 11.70% and its Tier
1 RBC ratio was 7.68%, exceeding the minimum guidelines of 8% and 4%,
respectively. The ratios at December 31, 1995 were 12.46% and 8.81%,
respectively. The decrease in the Company's total and Tier 1 RBC ratios at
December 31, 1996 compared with 1995 resulted primarily from an overall increase
in risk-weighted assets due to the Merger.

    The Company's risk-weighted assets are calculated as shown in Table 20.
Risk-weighted balance sheet assets were $26.7 billion and $11.1 billion less
than total assets on the consolidated balance sheet of $108.9 billion and $50.3
billion at December 31, 1996 and 1995, respectively, as a result of weighting
certain types of assets at less than 100%; such assets, for both December 31,
1996 and 1995, substantially consisted of claims on or guarantees by the U.S.
government or its agencies (risk-weighted at 0% to 20%), cash and due from banks
(0% to 20%), 1-4 family first mortgage loans (50%) and private collateralized
mortgage obligations backed by 1-4 family first mortgage loans (50%).


26
<PAGE>


Table 20  RISK-BASED CAPITAL AND LEVERAGE RATIOS
-------------------------------------------------------------------------
(in billions)                                                 December 31, 
                                                    --------------------- 
                                                      1996           1995 
Tier 1:
  Common stockholders' equity                       $ 13.5         $  3.6 
  Preferred stock (1)                                   .4             .5 
  Guaranteed preferred beneficial interests in
    Company's subordinated debentures                  1.2              - 
  Goodwill and other deductions (2)                   (8.5)           (.5)
                                                    ------         ------ 
    Total Tier 1 capital                               6.6            3.6 
                                                    ------         ------ 
Tier 2:
  Mandatory convertible deb                             .2              - 
  Subordinated debt and unsecured senior debt          2.1            1.0 
  Allowance for loan losses allowable in Tier 2        1.1             .5 
                                                    ------         ------ 
    Total Tier 2 capital                               3.4            1.5 
                                                    ------         ------ 
      Total risk-based capital                      $ 10.0         $  5.1 
                                                    ------         ------ 
                                                    ------         ------ 
Risk-weighted balance sheet assets                  $ 82.2         $ 39.2 
Risk-weighted off-balance sheet items:
  Commitments to make or purchase loans               10.1            2.7 
  Standby letters of credit                            2.1             .7 
  Other                                                 .5             .4 
                                                    ------         ------ 
    Total risk-weighted off-balance sheet items       12.7            3.8 
                                                    ------         ------ 
Goodwill and other deductions (2)                     (8.5)           (.5)
Allowance for loan losses not included in Tier 2       (.9)          (1.3)
                                                    ------         ------ 
      Total risk-weighted assets                    $ 85.5         $ 41.2 
                                                    ------         ------ 
                                                    ------         ------ 
Risk-based capital ratios:
  Tier 1 capital (4% minimum requirement)             7.68 %         8.81 %
  Total capital (8% minimum requirement)             11.70          12.46 
Leverage ratio (3% minimum requirement) (3)           6.65 %         7.46 %
--------------------------------------------------------------------------

(1) Excludes $175 million of Series D preferred stock due to the Company's 
    December 1996 announcement to redeem this series in March 1997.
(2) Other deductions include CDI acquired after February 1992 (nonqualifying
    CDI) and the unrealized net gain (loss) on available-for-sale investment
    securities carried at fair value.
(3) Tier 1 capital divided by quarterly average total assets (excluding
    goodwill, nonqualifying CDI and other items which were deducted to arrive at
    Tier 1 capital).


LEVERAGE RATIO

To supplement the RBC guidelines, the FRB established a leverage ratio
guideline. The leverage ratio consists of Tier 1 capital divided by quarterly
average total assets, excluding goodwill and certain other items. The minimum
leverage ratio guideline is 3% for banking organizations that do not anticipate
significant growth and that have well-diversified risk, excellent asset quality,
high liquidity, good earnings and, in general, are considered top-rated, strong
banking organizations. Other banking organizations are expected to have ratios
of at least 4% to 5%, depending upon their particular condition and growth
plans. Higher leverage ratios could be required by the particular circumstances
or risk profile of a given banking organization. The Company's leverage ratios
were 6.65% and 7.46% at December 31, 1996 and 1995, respectively. The decrease
in the leverage ratio at December 31, 1996 compared with December 31, 1995
resulted primarily from an overall increase in quarterly average total assets
due to the Merger.


FEDERAL DEPOSIT INSURANCE CORPORATION 
IMPROVEMENT ACT OF 1991 (FDICIA)

In addition to adopting a risk-based assessment system, FDICIA required that the
federal regulatory agencies adopt regulations defining five capital tiers: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized. Under the regulations, a "well
capitalized" institution must have a Tier 1 RBC ratio of at least 6%, a total
capital ratio of at least 10% and a leverage ratio of at least 5% and not be
subject to a capital directive order. The Bank had a Tier 1 RBC ratio of 8.53%,
a total capital ratio of 11.00% and a leverage ratio of 6.81% at December 31,
1996, compared with 10.12%, 13.23% and 7.89% at December 31, 1995, respectively.


ASSET/LIABILITY MANAGEMENT
--------------------------------------------------------------------------------

The principal objectives of asset/liability management are to manage the
sensitivity of net interest spreads to potential changes in interest rates and
to enhance profitability in ways that promise sufficient reward for understood
and controlled risk. Funding positions are kept within predetermined limits
designed to ensure that risk-taking is not excessive and that liquidity is
properly managed.

    Interest rate risk occurs when assets and liabilities reprice at different
times as interest rates change. For example, if fixed-rate assets are funded
with floating-rate debt, the spread between asset and liability rates will
decline or turn negative if rates increase. The Company refers to this type of
risk as "term structure risk." There is, however, another source of interest
rate risk, which results from changing spreads between loan and deposit rates.
These changing spreads are not highly correlated to changes in the level of
interest rates and are driven by other market conditions. The Company calls this
type of risk "basis risk"; it is the Company's main source of interest rate risk
and is significantly more difficult to quantify and manage than term structure
risk.

    One way to measure the impact that future changes in interest rates will
have on net interest income is through a cumulative gap measure. The gap
represents the net position of assets and liabilities subject to repricing in
specified time periods. Table 21 shows in summary form the Company's interest
rate sensitivity based on expected interest rate 


                                                                              27
<PAGE>

repricing intervals in specific time frames for the balance sheet and swaps as
of December 31, 1996. A more detailed report of the Company's interest rate
sensitivity by major asset and liability categories, together with an adjusted
cumulative gap measure is presented in Table 22. In addition, a detailed swap
maturity schedule is included in Table 24.

    In categorizing assets and liabilities according to expected repricing time
frames, management makes certain judgments and approximations. For example, a
new three-year loan with a rate that is adjusted every 30 days would be included
in the "0-3 months" category rather than the "over 1-5 years" category. There
are also balance sheet categories that have a fixed rate and an unspecified
maturity, or a rate that is administered but changes slowly or not at all as
market rates change. An example of this type of account is interest-bearing
checking, which has balances available on demand and pays a rate that changes
infrequently. The balances are relatively stable from quarter to quarter, but
could decline because of disintermediation if rates increased substantially.
Another example is the revolving credit feature of fixed-rate credit card loans,
which differentiates these loans from loans with specified contractual
maturities. Given the unusual rate maturity characteristics of these balance
sheet items, they are placed in a "nonmarket category." This category is
generally viewed as being relatively stable in terms of interest rate
variability and the net nonmarket liabilities are viewed as funding fixed-rate
assets with maturities greater than one year. Nonmarket assets include
noninterest-earning assets, fixed-rate credit card loans, nonaccrual loans and
equity securities. Nonmarket liabilities and stockholders' equity include
savings deposits, interest-bearing checking, noninterest-bearing deposits, other
noninterest-bearing liabilities, common stockholders' equity and fixed-rate
perpetual preferred stock.

    Some asset/liability managers allocate these nonmarket assets and
liabilities to the various maturity categories. The Company believes that these
allocations are mostly arbitrary and tend to provide a false sense that the gap
structure is accurately defined. For this reason, they remain in the nonmarket
category, in order to maintain the Company's focus on their unusual rate
maturity characteristics.

    Mortgage-backed investment securities and fixed-rate loans in the real
estate 1-4 family first mortgage, other real estate mortgage and consumer loan
categories are based on expected maturities rather than on contractual
maturities. Expected maturities are estimated based on dealer prepayment
projections to the extent that such projections are available. For certain types
of adjustable-rate mortgages and consumer loans where dealer prepayment
projections are not available, the Company uses its historical experience. The
gap structure also does not allocate Prime-based loans and market rate account
(MRA) savings deposits, included in market rate and other savings, to specific
maturity categories. Statistical evidence indicates that both Prime-based loans
and MRA savings deposits have relatively short maturities, with that of MRA
savings deposits being somewhat longer. Keeping them in distinct categories (as
with nonmarket) helps maintain focus on these rates, since most of the Company's
short-term net interest income variability depends on their relative movements.

    The Company uses interest rate derivative financial instruments as an
asset/liability management tool to hedge mismatches in interest rate maturities.
They are used to reduce the Company's exposure to interest rate fluctuations and
provide more stable spreads between loan yields and the rates on their funding
sources. For example, the Company uses interest rate futures to shorten the rate
maturity of MRA savings deposits to better match the maturity of Prime-based
loans.

<TABLE>
<CAPTION>

TABLE 21  SUMMARY OF INTEREST RATE SENSITIVITY
------------------------------------------------------------------------------------------------------------------------------
(in millions)                                                                                                December 31, 1996 
                                       --------------------------------------------------------------------------------------- 
                                        Prime-       MRA       0-3      >3-6     >6-12      >1-5        >5      Non-     Total 
                                         based   savings    months    months    months     years     years    market 
                                         loans 
<S>                                    <C>      <C>       <C>        <C>       <C>       <C>       <C>      <C>       <C>      

Assets                                 $20,477  $      -  $ 19,959   $ 5,061   $ 6,305   $22,831   $13,121  $ 21,134  $108,888 
Liabilities and stockholders' equity         -    18,344    11,268     3,901     3,902     4,003     3,817    63,653   108,888 
                                       -------  --------  --------   -------   -------   -------   -------  --------  -------- 
Gap before interest rate swaps         $20,477  $(18,344) $  8,691   $ 1,160   $ 2,403   $18,828   $ 9,304  $(42,519) $      - 
Interest rate swaps                          -         -   (15,774)   (3,268)    3,253    14,591     1,198         -         - 
                                       -------  --------  --------   -------   -------   -------   -------  --------  -------- 
Gap adjusted for interest rate swaps   $20,477  $(18,344) $ (7,083)  $(2,108)  $ 5,656   $33,419   $10,502  $(42,519) $      - 
                                       -------  --------  --------   -------   -------   -------   -------  --------  -------- 
                                       -------  --------  --------   -------   -------   -------   -------  --------  -------- 
Cumulative gap                         $     -  $  2,133  $ (4,950)  $(7,058)  $(1,402)  $32,017   $42,519  $      - 
                                       -------  --------  --------   -------   -------   -------   -------  --------  
                                       -------  --------  --------   -------   -------   -------   -------  --------
------------------------------------------------------------------------------------------------------------------------------
</TABLE>


28
<PAGE>

    The under-one-year net liability position at December 31, 1996 was $1,402
million (1.3% of total assets), compared with the under-one-year net liability
position of $394 million at December 31, 1995 (.8% of total assets). This
measure of term structure risk would indicate a nearly balanced interest rate
risk position. A significant under-one-year net liability position (greater than
4% of total assets) would indicate that the Company's net interest income is
exposed to rising short-term interest rates, while a similar size net asset
position would mean an exposure to declining short-term interest rates. The
average under-one-year net liability positions during 1996 and 1995 were $761
million and $555 million, respectively.

    The two adjustments to the cumulative gap amount shown on Table 22 provide
comparability with those bank holding companies that present interest rate
sensitivity information in an alternative manner. However, management does not
believe that these adjustments depict its interest rate risk. The first
adjustment line excludes noninterest-earning assets, noninterest-bearing
liabilities and stockholders' equity from the cumulative gap calculation so that
only earning assets, interest-bearing liabilities and all interest rate swap
contracts used to hedge such assets and liabilities are reported. The second
adjustment line moves interest-bearing checking and market rate and other
savings deposits in the nonmarket liability category to the shortest rate
maturity category. This second adjustment reflects the availability of these
deposits for immediate withdrawal. The resulting adjusted under-one-year
cumulative gap (net liability position) was $12.5 billion and $8.7 billion at
December 31, 1996 and 1995, respectively.

    In addition, the Company performs earnings at risk analysis and net
interest income simulations based on multiple interest rate scenarios and
projected on- and off-balance sheet changes to estimate the potential effects of
changing interest rates. The Company uses four standard scenarios - rates
unchanged, expected rates, high rates and low rates in analyzing interest rate
sensitivity for policy measurement. The expected rates scenario is based on the
Company's projected future interest rates, while the high rates and low rates
scenarios cover 90% probable upward and downward rate movements based on the
Company's own interest rate models. Earnings at risk may be estimated by
multiplying the short-term gap positions by possible changes in interest rates.
The potential adverse impact on earnings over the next 12 months is compared to
an interest rate risk limit with a sublimit for the term structure risk. The
current interest rate risk limit allows up to 30 basis points of sensitivity in
the average net interest margin over the next year. The term structure risk
sublimit is currently 2 percent of annual net interest income based on the
earnings at risk analysis. Subject to these limits, the Company may maintain a
particular gap position to achieve a more desirable risk/return tradeoff.
Earnings at risk analysis and net interest income simulations allow the Company
to fully explore the complex relationships within the gap over time and for
various rate environments. The results during the year showed that the Company's
interest rate sensitivity was well within the policy limit. The net interest
income simulation at December 31, 1996 showed a sensitivity of 3 basis points
between the net interest margins for the high and the expected rate scenarios
over the next year.

    To get a complete picture of its current interest rate risk position, the
Company must look at both term structure risk and basis risk. The two most
significant components of basis risk are the Prime/MRA spread and the rate paid
on savings and interest-bearing checking accounts. At the peak of the rate cycle
in 1989 and during the first quarter of 1991, the Prime/MRA spreads as well as
lagged movements in other deposit rates caused spreads to increase to historic
levels. During this time, interest rate contracts were purchased by the Company
to hedge against margin compression due to declining interest rates. As interest
rates once again began to rise in early 1994 and continued through mid-1995, the
spread between loans and deposits began to rise again as the Prime rate
increased rapidly and deposit rates were slow to react. As a result of this
movement, the decline in hedging income was roughly offset by the increasing
loan/deposit spread. During 1996, the Company incorporated First Interstate's
interest rate risk position into its own balance sheet and assessed the newly
combined term structure risk and basis risk positions.

     Looking toward managing interest rate risk in 1997, the Company is 
confronted with several risk scenarios. If interest rates rise, net interest 
income may actually increase if deposit rates lag increases in market rates. 
The Company could, however, experience significant pressure on net interest 
income if there is a substantial movement in deposit rates relative to market 
rates. This basis risk potentially could be hedged with interest rate caps, 
but the Company believes they are not cost-effective in relation to the risk 
they would mitigate.

     A declining interest rate environment might result in a decrease in loan 
rates, while deposit rates remain relatively stable, since they did not 
significantly increase between 1994 and 1996. This rate scenario could also 
create significant risk to net interest income. The Company has partially 
hedged against this risk with interest rate floor contracts purchased in 1996 
and those remaining from previous years. Based on its current and projected 
balance sheet, the Company does not expect that a change in interest rates 
would affect its liquidity position.

                                                                              29
<PAGE>

<TABLE>
<CAPTION>

Table 22  INTEREST RATE SENSITIVITY
------------------------------------------------------------------------------------------------------------------------------
(in millions)                                                                                                December 31, 1996
                                        --------------------------------------------------------------------------------------
                                        Prime-       MRA       0-3      >3-6     >6-12      >1-5        >5      Non-     Total 
                                         based   savings    months    months    months     years     years    market 
                                         loans 
<S>                                    <C>      <C>       <C>       <C>       <C>        <C>       <C>      <C>       <C>     
 
ASSETS
Federal funds sold and securities 
  purchased under resale agreements    $     -  $      -  $    187   $     -   $     -   $     -   $     -  $      -  $    187 
Investment securities (1)                    -         -     1,435     1,257     1,798     8,313       657        45    13,505 
Loans:
  Commercial                             8,673         -     7,320       631       288     1,021       416     1,166    19,515 
  Real estate 1-4 family first
   mortgage                                 85         -     2,120     1,070     1,483     3,882     1,686        99    10,425 
  Other real estate mortgage             2,885         -     3,754       804       722     1,889     1,458       348    11,860 
  Real estate construction               1,213         -       799        62        21       119        64        25     2,303 
  Consumer                               7,599         -     3,355       787     1,211     3,510       762     2,890    20,114 
  Lease financing                            -         -       298       269       468     1,884        82         2     3,003 
  Foreign                                   22         -       100        25         2        11         -         9       169 
                                       -------  --------  --------  --------  --------   -------   -------  --------  -------- 
    Total loans (2)                     20,477         -    17,746     3,648     4,195    12,316     4,468     4,539    67,389 
                                       -------  --------  --------  --------  --------   -------   -------  --------  -------- 
Other earning assets (3)                     -         -        71         -         -         -         -       397       468 
                                       -------  --------  --------  --------  --------   -------   -------  --------  -------- 
    Total earning assets                20,477         -    19,439     4,905     5,993    20,629     5,125     4,981    81,549 
Noninterest-earning assets                   -         -       520       156       312     2,202     7,996    16,153    27,339 
                                       -------  --------  --------  --------  --------   -------   -------  --------  -------- 
    Total assets                       $20,477  $      -  $ 19,959   $ 5,061   $ 6,305   $22,831   $13,121  $ 21,134  $108,888 
                                       -------  --------  --------  --------  --------   -------   -------  --------  -------- 
LIABILITIES AND 
STOCKHOLDERS' EQUITY
Deposits:
  Interest-bearing checking            $     -  $      -  $      -   $     -   $     -   $     -   $     -  $  2,792  $  2,792 
  Market rate and other savings              -    18,344       959         -         -         -         -    14,644    33,947 
  Savings certificates                       -         -     5,377     3,756     3,648     2,748       157        83    15,769 
  Other time deposits                        -         -        93        52        38         3         -         -       186 
  Deposits in foreign offices                -         -        34         -         -        20         -         -        54 
                                       -------  --------  --------  --------  --------   -------   -------  --------  -------- 
    Total interest-bearing deposits          -    18,344     6,463     3,808     3,686     2,771       157    17,519    52,748 
Short-term borrowings                        -         -     2,426         4         -         -         -         -     2,430 
Senior debt                                  -         -     1,512         4        34       482        88         -     2,120 
Subordinated debt                            -         -       602        70         2       325     1,941         -     2,940 
Guaranteed preferred beneficial
  interests in Company's
  subordinated debentures                    -         -         -         -         -         -     1,150         -     1,150 
                                       -------  --------  --------  --------  --------   -------   -------  --------  -------- 
    Total interest-bearing
     liabilities                             -    18,344    11,003     3,886     3,722     3,578     3,336    17,519    61,388 
Noninterest-bearing liabilities              -         -        15        15        30       225       481    32,622    33,388 
Stockholders' equity                         -         -       250         -       150       200         -    13,512    14,112 
                                       -------  --------  --------  --------  --------   -------   -------  --------  -------- 
     Total liabilities and
      stockholders' equity             $     -  $ 18,344  $ 11,268   $ 3,901   $ 3,902   $ 4,003   $ 3,817  $ 63,653  $108,888 
                                       -------  --------  --------  --------  --------   -------   -------  --------  -------- 
Gap before interest rate swaps         $20,477  $(18,344) $  8,691   $ 1,160   $ 2,403   $18,828   $ 9,304  $(42,519) $      - 
Interest rate swaps:
  Receive fixed                              -         -   (15,774)   (3,268)    3,253    14,591     1,198         -         - 
                                       -------  --------  --------  --------  --------   -------   -------  --------  -------- 
Gap adjusted for interest rate swaps   $20,477  $(18,344) $ (7,083)  $(2,108)  $ 5,656   $33,419   $10,502  $(42,519) $      - 
                                       -------  --------  --------  --------  --------   -------   -------  --------  -------- 
                                       -------  --------  --------  --------  --------   -------   -------  --------  -------- 
Cumulative gap                         $     -  $  2,133  $ (4,950)  $(7,058)  $(1,402)  $32,017   $42,519  $      - 
                                       -------  --------  --------  --------  --------   -------   -------  --------  
                                       -------  --------  --------  --------  --------   -------   -------  --------  
Adjustments:
  Exclude noninterest-earning assets, 
    noninterest-bearing liabilities
    and stockholders' equity                 -         -      (255)     (141)     (132)   (1,777)   (7,515)   29,981 
  Move interest-bearing checking and
    market rate savings from
    nonmarket to shortest maturity           -         -   (10,577)        -         -         -         -    10,577 
                                       -------  --------  --------  --------  --------   -------   -------  -------- 
Adjusted cumulative gap                $20,477  $  2,133  $(15,782) $(18,031) $(12,507)  $19,135   $22,122  $ 20,161 
                                       -------  --------  --------  --------  --------   -------   -------  -------- 
                                       -------  --------  --------  --------  --------   -------   -------  -------- 
------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) The nonmarket column consists of marketable equity securities.
(2) The nonmarket column consists of nonaccrual loans of $714 million, fixed-
    rate credit card loans of $3,025 million (including $134 million in
    commercial credit card loans) and overdrafts of $800 million.
(3) The nonmarket column consists of Federal Reserve Bank stock.


30
<PAGE>

DERIVATIVE FINANCIAL INSTRUMENTS
--------------------------------------------------------------------------------

The Company uses interest rate derivative financial instruments as an
asset/liability management tool to hedge the Company's exposure to interest rate
fluctuations. The Company also offers contracts to its customers, but hedges
such contracts by purchasing other financial contracts or uses the contracts for
asset/liability management.

    Table 23 reconciles the beginning and ending notional or contractual
amounts for derivative financial instruments for 1996 and shows the expected
remaining maturity at year-end 1996. Table 24 summarizes the notional amount,
expected maturities and weighted average interest rates associated with amounts
to be received or paid on interest rate swap agreements, together with an
indication of the asset/liability hedged. For a further discussion of derivative
financial instruments, refer to Note 18 to the Financial Statements.


<TABLE>
<CAPTION>

TABLE 23  DERIVATIVE ACTIVITIES
---------------------------------------------------------------------------------------------------------------------------------
(notional or contractual amounts in millions)                                                        Year ended December 31, 1996
                                      -------------------------------------------------------------------------------------------
                                      Beginning       First     Additions   Expirations   Terminations(3)   Ending       Weighted
                                        balance  Interstate                                                balance        average
                                                  Additions(1)                                                           expected
                                                                                                                        remaining
                                                                                                                     maturity (in
                                                                                                                        yrs.-mos.)
<S>                                   <C>        <C>            <C>         <C>           <C>              <C>       <C>         

Interest rate contracts:
  Futures contracts                     $ 5,395      $    -       $21,908       $21,373(2)        $732     $ 5,198            0-3
  Floors written                            105          15           285             -              -         405            3-6
  Caps written                            1,170         982           813           675            116       2,174            1-9
  Floors purchased                       15,627       3,935         2,284           790             12      21,044(4)         2-8
  Caps purchased                          1,530       1,001           832           731            109       2,523           1-10
  Futures options purchased                   -           -            12             -             12           -              -
  Swap contracts                          7,832       4,758        19,329        12,778            155      18,986(5)         3-7
Foreign exchange contracts:
  Forwards and spot contracts               934           -        35,994        35,551              -       1,377            0-2
  Option contracts purchased                 29           -            91            55              -          65            0-3
  Option contracts written                   23           -            88            52              -          59            0-6

----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Derivatives acquired from First Interstate on April 1, 1996 (the Merger
    date).
(2) To facilitate the settlement process, the Company enters into offsetting
    contracts 2 to 45 days prior to their maturity date. Concurrent with the
    closing of these positions, the Company generally enters into new interest
    rate futures and forward contracts with a later expiration date since the
    Company's use of these contracts predominantly relates to ongoing hedging
    programs.
(3) Terminations occur if a customer that purchased a contract decides to cancel
    it before the maturity date. If the customer contract was hedged, the
    Company terminates the interest rate derivative instrument used to hedge the
    customer's contract upon cancellation. The impact of terminations on income
    before income taxes for 1996 was a loss of less than $.5 million.
(4) Includes forward floors, which will hedge loans, of $155 million starting in
    January 1997, $300 million starting in March 1997, $225 million starting in
    April 1997, $475 million starting in May 1997 and $2,000 million starting
    October 1998.
(5) See Table 24 for further details of maturities and average rates received or
    paid.


                                                                              31
<PAGE>

<TABLE>
<CAPTION>

TABLE 24  INTEREST RATE SWAP MATURITIES AND AVERAGE RATES (1)
------------------------------------------------------------------------------------------------------------------
(notional amounts in millions)             1997        1998          1999          2000     Thereafter       Total
<S>                                      <C>         <C>           <C>           <C>        <C>            <C>    

Receive-fixed rate (hedges loans)
  Notional amount                        $  436      $1,883        $2,570        $3,649         $2,672     $11,210
  Weighted average rate received           5.06%       5.95%         6.85%         6.74%          6.59%       6.53%
  Weighted average rate paid               5.74        5.64          5.58          5.61           5.61        5.61

Receive-fixed rate (hedges senior debt)
  Notional amount                        $   12      $   67        $    -        $    -         $1,472     $ 1,551
  Weighted average rate received           5.95%       8.38%            -%            -%          7.43%       7.46%
  Weighted average rate paid               9.38        5.97             -             -           5.73        5.77

Receive-fixed rate (hedges purchased 
  mortgage servicing rights)
  Notional amount                        $    -      $  200        $    -        $    -         $  200     $   400
  Weighted average rate received              -%       5.92%            -%            -%          5.67%       5.80%
  Weighted average rate paid                  -        5.61             -             -           5.59        5.60

Receive-fixed rate (hedges deposits)
  Notional amount                        $    -      $    -        $  250        $1,600         $1,650     $ 3,500
  Weighted average rate received              -%          -%         6.07%         5.36%          5.54%       5.49%
  Weighted average rate paid                  -           -          5.64          5.60           5.61        5.61

Other swaps (2)
  Notional amount                        $  643      $  494        $  300        $  186         $  702     $ 2,325
  Weighted average rate received           5.50%       6.11%         6.02%         6.29%          5.94%       5.89%
  Weighted average rate paid               5.47        6.03          6.02          6.09           5.87        5.83

Total notional amount                    $1,091      $2,644        $3,120        $5,435         $6,696     $18,986
                                         ------      ------        ------        ------         ------     -------
                                         ------      ------        ------        ------         ------     -------
------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Variable interest rates are presented on the basis of rates in effect at
    December 31, 1996. These rates may change substantially in the future due to
    open market factors.
(2) Represents customer accommodation swaps not used for asset/liability
    management purposes. The notional amount reflects customer accommodations as
    well as the swaps used to hedge the customer accommodations.


LIQUIDITY MANAGEMENT
--------------------------------------------------------------------------------

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

    In recent years, core deposits have provided the Company with a sizable
source of relatively stable and low-cost funds. The Company's average core
deposits and stockholders' equity funded 89% and 80% of its average total assets
in 1996 and 1995, respectively.

    The remaining funding of average total assets was primarily provided by
senior and subordinated debt, deposits in foreign offices, short-term borrowings
(comprised of federal funds purchased and securities sold under repurchase
agreements, commercial paper and other short-term borrowings) and trust
preferred securities. Senior and subordinated debt averaged $4.6 billion and
$3.1 billion in 1996 and 1995, respectively. Short-term borrowings averaged $2.1
billion and $3.9 billion in 1996 and 1995, respectively. Trust preferred
securities averaged $82 million in 1996.

    The weighted average expected remaining maturity of the debt securities
within the investment securities portfolio was 2 years and 2 months at December
31, 1996. Of the $13.4 billion debt securities that were available for sale at
December 31, 1996, $4.5 billion, or 33%, is expected to mature or be prepaid in
1997 and an additional $3.7 billion, or 28%, is expected to mature or be prepaid
in 1998. The Company purchased shorter-term debt securities to maintain asset
liquidity and to fund loan growth.

    Other sources of liquidity include maturity extensions of short-term
borrowings and sale or runoff of assets. Commercial and real estate loans
totaled $44.1 billion at December 31, 1996. Of these loans, $15.1 billion
matures in one year or less, $14.0 billion matures in over one year through five
years and $15.0 billion matures in over five years. Of the $29.0 billion that
matures in over one year, $17.8 billion has floating or adjustable rates and
$11.2 billion has fixed rates. Of the $11.2 billion of fixed-rate loans, 


32
<PAGE>

approximately $2.2 billion represents fixed initial-rate mortgage (FIRM) loans.
FIRM loans carry fixed rates for a minimum of 3 years to a maximum of 10 years
of the loan term and carry adjustable rates thereafter. (Refer to the
Consolidated Statement of Cash Flows for further information on the Company's
cash flows from its operating, investing and financing activities.)

    Liquidity for the Parent Company and its subsidiaries is generated through
its ability to raise funds in a variety of domestic and international money and
capital markets, and through dividends from subsidiaries and lines of credit. In
1996, the Company filed a shelf registration with the Securities and Exchange
Commission (SEC) that allows for the issuance of $3.5 billion of senior or
subordinated debt or preferred stock. The proceeds from the sale of any
securities will be used for general corporate purposes. The Company issued $200
million of preferred stock under this shelf registration. At December 31, 1996,
$3.3 billion of securities remained unissued. No additional securities have been
issued under this shelf registration.

    In 1996, the Company also filed a universal shelf registration statement of
$750 million with the SEC which includes senior and subordinated debt, preferred
stock and common stock of the Company and preferred securities of special
purpose subsidiary trusts. The registration allows each special purpose
subsidiary to issue trust preferred securities which qualify as Tier 1 capital
of the Company for regulatory purposes. The special purpose subsidiary will hold
junior subordinated deferrable interest debentures of the Company. Interest paid
on these debentures will be distributed to the holders of the trust preferred
securities. As a result, distributions to the holders of the trust preferred
securities will be tax deductible and treated as interest expense in the
consolidated statement of income. This provides the Company with a more
cost-effective means of obtaining Tier 1 capital than if the Company itself were
to issue additional preferred stock. In December 1996, the Company issued $400
million in trust preferred securities through one trust, Wells Fargo Capital I.
The proceeds from the sale of these debentures will be used by the Company for
general corporate purposes. At December 31, 1996, $350 million remained unissued
under this shelf registration. (See Note 10 to the Financial Statements.) In
January 1997, the Company issued an additional $150 million in trust preferred
securities through a new trust, Wells Fargo Capital II.

    In addition to the publicly registered trust preferred securities, the
Company established in 1996 three special purpose trusts, which collectively
issued $750 million of trust preferred securities in private placements (see
Note 10 to the Financial Statements). The proceeds from these issuances were
invested in junior subordinated deferrable interest debentures of the Company.
The proceeds from the sale of these debentures were used by the Company for
general corporate purposes. Similar to the registered trust preferred securities
above, these preferred securities qualify as Tier 1 capital for regulatory
purposes and the interest on the debentures is paid as tax deductible
distributions to the trust preferred security holders.

    In 1996, a significant portion of the Parent's source of funding was due to
dividends paid by the Bank totaling $1,461 million. The dividends received
helped to fund the Company's stock repurchase program. The Company expects the
Parent to continue to receive dividends from the Bank in 1997. (See Notes 3 and
15 to the Financial Statements for a discussion of the restrictions on the
Bank's ability to pay dividends and the Parent Company's financial statements,
respectively.)

    To accommodate future growth and current business needs, the Company has a
capital expenditure program. Capital expenditures for 1997 are estimated at
about $275 million for equipment for supermarket branches, relocation and
remodeling of Company facilities and routine replacement of furniture and
equipment. The Company will fund these expenditures from various sources,
including retained earnings of the Company and borrowings of various maturities.


                                                                             33
<PAGE>

COMPARISON OF 1995 VERSUS 1994
--------------------------------------------------------------------------------

Net income in 1995 was $1,032 million, compared with $841 million in 1994, an
increase of 23%. Net income per share was $20.37, compared with $14.78 in 1994,
an increase of 38%. The percentage increase in per share earnings was greater
than the percentage increase in net income due to the Company's stock repurchase
program. Return on average assets (ROA) was 2.03% and return on average common
equity (ROE) was 29.70% in 1995, compared with 1.62% and 22.41%, respectively,
in 1994.

    The increase in earnings in 1995 compared with 1994 reflected a $163 
million ($94 million after tax) gain resulting from the sale of the Company's 
joint venture interest in Wells Fargo Nikko Investment Advisors (WFNIA) and a 
zero loan loss provision, compared with $200 million in 1994.

    Net interest income on a taxable-equivalent basis was $2,655 million in 
1995, compared with $2,610 million in 1994. The Company's net interest margin 
was 5.80% for 1995, compared with 5.55% in 1994. The increase in the margin 
was attributable to an increase in the spread between loans and deposits and 
a change in the mix of average earning assets, as higher-yielding loans, such 
as credit card and small business, replaced lower-yielding securities and 
single family loans.

    Noninterest income was $1,324 million in 1995, compared with $1,200 million
in 1994. Credit card membership and other credit card fees increased from $64
million in 1994 to $95 million in 1995, an increase of 48%. The growth was
predominantly due to late fees and other transaction fees incurred by customers.
The decrease in mutual fund and annuity sales fees from $64 million in 1994 to
$33 million in 1995 substantially reflected a lower sales volume of
commission-based fixed-rate annuities. The increase in "other" fees and
commissions in 1995 compared with 1994 includes mortgage loan servicing fees of
$55 million and $17 million, respectively, offset by the related amortization
expense of $39 million and $8 million, respectively.

    Trust and investment services income increased 19% to $241 million in 1995
compared with 1994 and was primarily due to greater mutual fund investment
management fees, reflecting the overall growth in the net assets of fund
families. These fees amounted to $71 million in 1995 compared with $46 million
in 1994. The investment securities losses of $17 million in 1995 largely
resulted from the sale of debt securities from the available-for-sale portfolio.
The investment securities gains of $8 million in 1994 reflected the sale of both
corporate debt and marketable equity securities from the available-for-sale
portfolio.

    In December 1995, the Company sold its joint venture interest in WFNIA as
well as its MasterWorks division to Barclays PLC of the U.K., resulting in a
$163 million pre-tax gain. The Company's joint venture interest in WFNIA was
accounted for as an equity investment under the equity method. The income from
the equity investment in WFNIA, included in noninterest income, totaled $27
million and $21 million in 1995 and 1994, respectively. Noninterest income from
the MasterWorks division, included in "all other" trust and investment services
income, totaled $26 million and $20 million in 1995 and 1994, respectively.

    In 1995, losses from dispositions of operations included a $70 million
fourth quarter accrual related to the disposition of premises and, to a lesser
extent, severance and miscellaneous expenses associated with the scheduled
closures of 120 traditional retail branch locations. In addition to the $70
million accrual, there was also a $13 million liability at December 31, 1995,
representing a third quarter 1995 accrual for the closure of 21 branches. In
1994, losses from dispositions of operations included fourth quarter accruals
for the disposition of premises and, to a lesser extent, severance of $14
million associated with scheduled branch closures and $10 million associated
with ceasing the direct origination of 1-4 family first mortgage loans by the
Company's mortgage lending unit. Partially offsetting these accruals was an $8
million payment received in the first quarter of 1994 that was contingent upon
performance in relation to the alliance formed with Card Establishment Services
(CES). Additional payments from the CES agreement are also contingent upon
future performance.


34
<PAGE>

    Gains and losses on sales of loans for 1995 included a first quarter $83
million write-down to the lower of cost or estimated market resulting from the
reclassification of certain types of products within the real estate 1-4 family
first mortgage loan portfolio to mortgage loans held for sale. During the second
half of 1995, as all mortgage loans held for sale were sold and because such
sales were at prices greater than originally estimated, the Company recorded a
$19 million gain on sale.

    Noninterest expense increased from $2,156 million in 1994 to $2,201 million
in 1995. The increase in salaries expense in 1995 compared with 1994 was
primarily attributable to increased temporary help expense and higher salary
levels. The Company's full-time equivalent staff, including hourly employees,
averaged 19,520 in 1995, compared with 19,558 in 1994.

    The decrease in incentive compensation from $155 million in 1994 to $126
million in 1995 was predominantly due to a differing mix of product sales,
reflecting a shift away from commissioned retail products, such as fixed-rate
annuities. Additionally, the decrease reflected a decline 
in incentive compensation related to Mortgage Business' decision at year-end
1994 to cease the origination of first mortgages.

    The increase in equipment expense to $193 million in 1995 compared with
$174 million in 1994 was related to a higher level of spending on software and
technology for product development and increased depreciation expense on
equipment related to business initiatives and system upgrades.

    In August 1995, the FDIC significantly reduced the deposit insurance
premiums paid by most banks. Under the revised rate structure (retroactive to
June 1, 1995), the best-rated institutions insured by the Bank Insurance Fund
(BIF) paid four cents per $100 of domestic deposits, down from the previous rate
of 23 cents per $100. In the third quarter of 1995, the Company received a $23
million refund for the overpayment of assessments made for the period June 1
through September 30, 1995. In November 1995, the FDIC further reduced the rate
by four cents per $100 of domestic deposits, effective January 1, 1996. Under
the most recent rate structure, the best-rated institutions insured by the BIF
pay the statutory annual minimum assessment of $2,000.

    In the fourth quarter of 1995, the Company adopted Financial Accounting
Standard Nos. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of (FAS 121), and 122, Accounting for Mortgage
Servicing Rights (FAS 122). These adoptions did not have a material impact on
the financial statements. For a further discussion of FAS 121 and 122, refer to
Note 6 of the Financial Statements.

    Total loans were $35.6 billion at December 31, 1995, a 2% decrease from
December 31, 1994. The decrease resulted from the sale of $4.4 billion of real
estate 1-4 family first mortgages in 1995, mostly offset by increases in other
loan portfolios.

    There was no provision for loan losses in 1995, compared with $200 million
in 1994. Net charge-offs in 1995 were $288 million, or .83% of average total
loans, compared with $240 million, or .70%, in 1994. Loan loss recoveries were
$134 million in 1995, compared with $129 million in 1994. The allowance for loan
losses was 5.04% of total loans at December 31, 1995, compared with 5.73% at
December 31, 1994.

    Total nonaccrual and restructured loans were $552 million, or 1.6% of total
loans, at December 31, 1995, compared with $582 million, or 1.6% of total loans,
at December 31, 1994. Foreclosed assets were $186 million at December 31, 1995,
compared with $272 million at December 31, 1994.

    The average volume of core deposits in 1995 was $36.6 billion, 7% lower
than in 1994. Average core deposits funded 72% of the Company's average total
assets in 1995, compared with 76% in 1994.


                                                                             35
<PAGE>

ADDITIONAL INFORMATION
--------------------------------------------------------------------------------

Common stock of the Company is traded on the New York Stock Exchange, the
Pacific Stock Exchange, the London Stock Exchange and the Frankfurt Stock
Exchange. The high, low and end-of-period annual and quarterly closing prices of
the Company's stock as reported on the New York Stock Exchange Composite
Transaction Reporting System are presented in the graphs. The number of holders
of record of the Company's common stock was 42,254 as of January 31, 1997.


                     PRICE RANGE OF COMMON STOCK-ANNUAL ($)

                                 [LINE GRAPH]


                     PRICE RANGE OF COMMON STOCK-QUARTERLY ($)

                                 [LINE GRAPH]


     Common dividends declared per share totaled $5.20 in 1996, $4.60 in 1995
and $4.00 in 1994. The dividend was increased in the first quarter of 1995 from
$1.00 per share to $1.15 per share and increased again to $1.30 per share in
January 1996. Quarterly dividends are considered at the Board of Directors
meeting the month following quarter end. Dividends declared are payable the
second month after quarter end. The Company, with the approval of the Board of
Directors, intends to continue its present policy of paying quarterly cash
dividends to stockholders. The level of future dividends will be determined by
the Board of Directors in light of the earnings and financial condition of the
Company.

     In 1991, the FRB approved an application by Berkshire Hathaway, Inc.
(Berkshire) to purchase additional shares of the Company's common stock in the
open market, up to a total of 22%. Berkshire entered into a passivity agreement
with the Company, in which it agreed not to exercise any control over the
Company's management or policies. Accordingly, Berkshire granted its proxy to
the Company to vote Berkshire's shares in accordance with the recommendations of
the Board of Directors of the Company. As a result of the issuance of additional
Company common stock in the Merger, Berkshire's percentage ownership of the
Company's stock was reduced from approximately 14.5% at December 31, 1995 to
approximately 7.6%. Based on this reduction in percentage ownership to below
10%, Berkshire communicated to the FRB and to Wells Fargo its desire to
terminate commitments previously made, including the passivity agreement. The
FRB and the Company agreed to Berkshire's request.


36
<PAGE>
                     WELLS FARGO & COMPANY AND SUBSIDIARIES


CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>

(in millions)                                                                                Year ended December 31,
                                                                              -------------------------------------
                                                                                 1996           1995           1994
<S>                                                                          <C>            <C>            <C>

INTEREST INCOME
Federal funds sold and securities purchased under resale agreements            $   29         $    4         $    7
Investment securities                                                             779            599            740
Mortgage loans held for sale                                                        -             76              -
Loans                                                                           5,688          3,403          3,015
Other                                                                              27              3              3
                                                                               ------         ------         ------
     Total interest income                                                      6,523          4,085          3,765
                                                                               ------         ------         ------
INTEREST EXPENSE
Deposits                                                                        1,586            997            854
Federal funds purchased and securities sold under repurchase agreements            92            199             99
Commercial paper and other short-term borrowings                                   16             32             10
Senior and subordinated debt                                                      302            203            192
Guaranteed preferred beneficial interests in Company's subordinated debentures      6              -              -
                                                                               ------         ------         ------
     Total interest expense                                                     2,002          1,431          1,155
                                                                               ------         ------         ------
NET INTEREST INCOME                                                             4,521          2,654          2,610
Provision for loan losses                                                         105              -            200
                                                                               ------         ------         ------
Net interest income after provision for loan losses                             4,416          2,654          2,410
                                                                               ------         ------         ------
NONINTEREST INCOME
Service charges on deposit accounts                                               868            478            473
Fees and commissions                                                              740            433            387
Trust and investment services income                                              377            241            203
Investment securities gains (losses)                                               10            (17)             8
Sale of joint venture interest                                                      -            163              -
Other                                                                             205             26            129
                                                                               ------         ------         ------
     Total noninterest income                                                   2,200          1,324          1,200
                                                                               ------         ------         ------
NONINTEREST EXPENSE
Salaries                                                                        1,357            713            671
Incentive compensation                                                            227            126            155
Employee benefits                                                                 373            187            201
Equipment                                                                         399            193            174
Net occupancy                                                                     366            211            215
Goodwill                                                                          250             35             36
Core deposit intangible                                                           243             42             49
Other                                                                           1,422            694            655
                                                                               ------         ------         ------
     Total noninterest expense                                                  4,637          2,201          2,156
                                                                               ------         ------         ------
INCOME BEFORE INCOME TAX EXPENSE                                                1,979          1,777          1,454
Income tax expense                                                                908            745            613
                                                                               ------         ------         ------
NET INCOME                                                                     $1,071         $1,032         $  841
                                                                               ------         ------         ------
                                                                               ------         ------         ------
NET INCOME APPLICABLE TO COMMON STOCK                                          $1,004         $  990         $  798
                                                                               ------         ------         ------
                                                                               ------         ------         ------
PER COMMON SHARE
Net income                                                                     $12.21         $20.37         $14.78
                                                                               ------         ------         ------
                                                                               ------         ------         ------
Dividends declared                                                             $ 5.20         $ 4.60         $ 4.00
                                                                               ------         ------         ------
                                                                               ------         ------         ------
Average common shares outstanding                                                82.2           48.6           53.9
                                                                               ------         ------         ------
                                                                               ------         ------         ------
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.


                                                                              37
<PAGE>

                     WELLS FARGO & COMPANY AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>

(in millions)                                                                            December 31,
                                                                             -----------------------
                                                                                 1996           1995
<S>                                                                         <C>            <C>

ASSETS

Cash and due from banks                                                      $ 11,736        $ 3,375
Federal funds sold and securities purchased under resale agreements               187            177
Investment securities at fair value                                            13,505          8,920

Loans                                                                          67,389         35,582
Allowance for loan losses                                                       2,018          1,794
                                                                             --------       --------
     Net loans                                                                 65,371         33,788
                                                                             --------       --------
Due from customers on acceptances                                                 197             98
Accrued interest receivable                                                       665            308
Premises and equipment, net                                                     2,406            862
Core deposit intangible                                                         2,038            166
Goodwill                                                                        7,322            382
Other assets                                                                    5,461          2,240
                                                                             --------       --------
     Total assets                                                            $108,888        $50,316
                                                                             --------       --------
                                                                             --------       --------

LIABILITIES

Noninterest-bearing deposits                                                 $ 29,073        $10,391
Interest-bearing deposits                                                      52,748         28,591
                                                                             --------       --------
     Total deposits                                                            81,821         38,982
Federal funds purchased and securities sold under repurchase agreements         2,029          2,781
Commercial paper and other short-term borrowings                                  401            195
Acceptances outstanding                                                           197             98
Accrued interest payable                                                          171             85
Other liabilities                                                               3,947          1,071
Senior debt                                                                     2,120          1,783
Subordinated debt                                                               2,940          1,266
Guaranteed preferred beneficial interests in Company's subordinated debentures  1,150              -


STOCKHOLDERS' EQUITY

Preferred stock                                                                   600            489
Common stock-$5 par value, authorized 150,000,000 shares;
  issued and outstanding 91,474,425 shares and 46,973,319 shares                  457            235
Additional paid-in capital                                                     10,287          1,135
Retained earnings                                                               2,749          2,174
Cumulative foreign currency translation adjustments                                (4)            (4)
Investment securities valuation allowance                                          23             26
                                                                             --------       --------
     Total stockholders' equity                                                14,112          4,055
                                                                             --------       --------
     Total liabilities and stockholders' equity                              $108,888        $50,316
                                                                             --------       --------
                                                                             --------       --------
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.


38
<PAGE>

                     WELLS FARGO & COMPANY AND SUBSIDIARIES


CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
(in millions)                  Preferred         Common   Additional     Retained        Foreign     Investment        Total
                                   stock          stock      paid-in     earnings       currency     securities       stock-
                                                             capital                 translation      valuation     holders'
                                                                                     adjustments      allowance       equity
<S>                             <C>            <C>          <C>          <C>            <C>            <C>          <C>

BALANCE DECEMBER 31, 1993        $   639        $   279      $   551      $ 2,829        $    (4)       $    21      $ 4,315
                                 -------        -------      -------      -------        -------        -------      -------
Net income-1994                                                               841                                        841
Common stock issued under
   employee benefit and
   dividend reinvestment plans                        3           54                                                      57
Preferred stock redeemed            (150)                                                                               (150)
Common stock repurchased                            (26)        (734)                                                   (760)
Preferred stock dividends                                                     (43)                                       (43)
Common stock dividends                                                       (218)                                      (218)
Change in unrealized net gains,
   after applicable taxes                                                                                  (131)        (131)
Transfer                                                       1,000       (1,000)                                         -
                                 -------        -------      -------      -------        -------        -------      -------
Net change                          (150)           (23)         320         (420)             -           (131)        (404)
                                 -------        -------      -------      -------        -------        -------      -------
BALANCE DECEMBER 31, 1994            489            256          871        2,409             (4)          (110)       3,911
                                 -------        -------      -------      -------        -------        -------      -------
Net income-1995                                                             1,032                                      1,032
Common stock issued under
   employee benefit and
   dividend reinvestment plans                        4           86                                                      90
Common stock repurchased                            (25)        (822)                                                   (847)
Preferred stock dividends                                                     (42)                                       (42)
Common stock dividends                                                       (225)                                      (225)
Change in unrealized net losses,
   after applicable taxes                                                                                   136          136
Transfer                                                       1,000       (1,000)                                         -
                                 -------        -------      -------      -------        -------        -------      -------
Net change                             -            (21)         264         (235)             -            136          144
                                 -------        -------      -------      -------        -------        -------      -------
BALANCE DECEMBER 31, 1995            489            235        1,135        2,174             (4)            26        4,055
                                 -------        -------      -------      -------        -------        -------      -------
Net income-1996                                                             1,071                                      1,071
Preferred stock issued to
   First Interstate stockholders     350                          10                                                     360
Preferred stock issued,
   net of issuance costs             200                          (3)                                                    197
Common stock issued to
   First Interstate stockholders                    260       11,037                                                  11,297
Common stock issued under
   employee benefit and
   dividend reinvestment plans                        4          113                                                     117
Preferred stock redeemed            (439)                                                                               (439)
Common stock repurchased                            (42)      (2,116)                                                 (2,158)
Preferred stock dividends                                                     (67)                                       (67)
Common stock dividends                                                       (429)                                      (429)
Change in unrealized net gains,
   after applicable taxes                                                                                    (3)          (3)
Fair value adjustment related to
   First Interstate stock options                                111                                                     111
                                 -------        -------      -------      -------        -------        -------      -------
Net change                           111            222        9,152          575              -             (3)      10,057
                                 -------        -------      -------      -------        -------        -------      -------
BALANCE DECEMBER 31, 1996        $   600        $   457      $10,287      $ 2,749        $    (4)       $    23      $14,112
                                 -------        -------      -------      -------        -------        -------      -------
                                 -------        -------      -------      -------        -------        -------      -------
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.


                                                                              39
<PAGE>

                     WELLS FARGO & COMPANY AND SUBSIDIARIES


CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>

(in millions)                                                                                               Year ended December 31,
                                                                                             -------------------------------------
                                                                                                1996           1995           1994
<S>                                                                                         <C>            <C>            <C>

CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                                                 $ 1,071        $ 1,032        $   841
  Adjustments to reconcile net income to net cash provided by operating activities:
    Provision for loan losses                                                                    105              -            200
    Depreciation and amortization                                                                809            272            246
    Losses on disposition of operations                                                           95             89              5
    Gain on sale of joint venture interest                                                         -           (163)             -
    Deferred income tax expense (benefit)                                                        169             17            (32)
    Increase (decrease) in net deferred loan fees                                                 22             (6)            (8)
    Net (increase) decrease in accrued interest receivable                                       (49)            20            (31)
    Writedown on mortgage loans held for sale                                                      -             64              -
    Net (decrease) increase in accrued interest payable                                           (1)            25             (3)
    Net decrease (increase) in loans acquired for sale                                           390           (535)             -
    Other, net                                                                                (1,536)          (139)           (74)
                                                                                             -------        -------        -------
Net cash provided by operating activities                                                      1,075            676          1,144
                                                                                             -------        -------        -------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Investment securities:
    At fair value:
      Proceeds from sales                                                                        719            673             18
      Proceeds from prepayments and maturities                                                 5,047            229            670
      Purchases                                                                               (2,759)           (77)          (724)
    At cost:
      Proceeds from prepayments and maturities                                                     -          2,191          3,866
      Purchases                                                                                    -           (104)        (2,598)
  Cash acquired from First Interstate                                                          6,030              -              -
  Proceeds from sales of mortgage loans held for sale                                              -          4,273              -
  Net (increase) decrease in loans resulting from originations and collections                 2,301         (3,700)        (3,338)
  Proceeds from sales (including participations) of loans                                        364            770            134
  Purchases (including participations) of loans                                                 (133)          (233)          (375)
  Proceeds from sales of foreclosed assets                                                       155            202            240
  Net decrease in federal funds sold and securities purchased
    under resale agreements                                                                    2,064             83          1,408
  Other, net                                                                                    (756)          (172)          (264)
                                                                                             -------        -------        -------
Net cash provided (used) by investing activities                                              13,032          4,135           (963)
                                                                                             -------        -------        -------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net (decrease) increase in deposits                                                         (4,609)        (3,350)           688
  Net (decrease) increase in short-term borrowings                                              (892)          (235)         1,944
  Proceeds from issuance of senior debt                                                        1,260          1,230            248
  Repayment of senior debt                                                                    (1,183)          (811)        (1,101)
  Proceeds from issuance of subordinated debt                                                    800              -              -
  Repayment of subordinated debt                                                                   -           (210)          (526)
  Proceeds from issuance of guaranteed preferred beneficial interests in
    Company's subordinated debentures                                                          1,150              -              -
  Proceeds from issuance of preferred stock                                                      197              -              -
  Proceeds from issuance of common stock                                                         117             90             57
  Redemption of preferred stock                                                                 (439)             -           (150)
  Repurchase of common stock                                                                  (2,158)          (847)          (760)
  Payment of cash dividends on preferred stock                                                   (73)           (42)           (34)
  Payment of cash dividends on common stock                                                     (429)          (225)          (218)
  Other, net                                                                                     513            (10)             1
                                                                                             -------        -------        -------
Net cash provided (used) by financing activities                                              (5,746)        (4,410)           149
                                                                                             -------        -------        -------
  NET CHANGE IN CASH AND CASH EQUIVALENTS (DUE FROM BANKS)                                     8,361            401            330
Cash and cash equivalents at beginning of year                                                 3,375          2,974          2,644
                                                                                             -------        -------        -------
CASH AND CASH EQUIVALENTS AT END OF YEAR                                                     $11,736        $ 3,375        $ 2,974
                                                                                             -------        -------        -------
                                                                                             -------        -------        -------
Supplemental disclosures of cash flow information:
  Cash paid during the year for:
    Interest                                                                                 $ 1,916        $ 1,406        $ 1,158
    Income taxes                                                                             $   641        $   618        $   680
  Noncash investing and financing activities:
    Transfers from investment securities at cost to investment securities at fair value      $     -        $ 6,532        $      -
    Transfers from loans to foreclosed assets                                                $   141        $   115        $   174
    Transfers from loans to mortgage loans held for sale                                     $     -        $ 4,440        $     -
    Acquisition of First Interstate:
      Common stock issued                                                                    $11,297        $     -        $     -
      Fair value of preferred stock issued                                                       360              -              -
      Fair value of stock options                                                                111              -              -
      Fair value of assets acquired                                                           55,797              -              -
      Fair value of liabilities assumed                                                       51,214              -              -
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.


40
<PAGE>

                     WELLS FARGO & COMPANY AND SUBSIDIARIES


NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

1    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Wells Fargo & Company (Parent) is a bank holding company whose principal
subsidiary is Wells Fargo Bank, N.A. (Bank). Besides servicing millions of
customers in ten western states, Wells Fargo & Company and Subsidiaries
(Company) provide a full range of banking and financial services to commercial,
agribusiness, real estate and small business customers across the nation.

     The accounting and reporting policies of the Company conform with generally
accepted accounting principles (GAAP) and prevailing practices within the
banking industry. The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial
statements and income and expenses during the reporting period. Actual results
could differ from those estimates. Certain amounts in the financial statements
for prior years have been reclassified to conform with the current financial
statement presentation. The following is a description of the significant
accounting policies of the Company.


CONSOLIDATION
--------------------------------------------------------------------------------

The consolidated financial statements of the Company include the accounts of the
Parent, the Bank and other bank and nonbank subsidiaries of the Parent.

     Significant majority-owned subsidiaries are consolidated on a line-by-line
basis. Significant intercompany accounts and transactions are eliminated in
consolidation. Other subsidiaries and affiliates in which there is at least 20%
ownership are generally accounted for by the equity method; those in which there
is less than 20% ownership are generally carried at cost. Subsidiaries and
affiliates that are accounted for by either the equity or cost method are
included in other assets.


SECURITIES
--------------------------------------------------------------------------------

Securities are accounted for according to their purpose and holding period.


INVESTMENT SECURITIES

Securities generally acquired to meet long-term investment objectives, including
yield and liquidity management purposes, are classified as investment
securities. Realized gains and losses are recorded in noninterest income using
the identified certificate method. For certain debt securities (for example,
Government National Mortgage Association securities), the Company anticipates
prepayments of principal in the calculation of the effective yield.

SECURITIES AT FAIR VALUE  Debt securities that may not be held until maturity 
and marketable equity securities are considered available for sale and, as such,
are classified as securities carried at fair value, with unrealized gains and
losses, after applicable taxes, reported in a separate component of
stockholders' equity. The estimated fair value of investments is determined
based on current quotations, where available. Where current quotations are not
available, the estimated fair value is determined based primarily on the present
value of future cash flows, adjusted for the quality rating of the securities,
prepayment assumptions and other factors. Declines in the value of debt
securities and marketable equity securities that are considered other than
temporary are recorded in noninterest income as a loss on investment securities.

SECURITIES AT COST  Debt securities acquired with the positive intent and 
ability to hold to maturity are classified as securities carried at historical
cost, adjusted for amortization of premium and accretion of discount, where
appropriate. If it is probable that the carrying value of any debt security will
not be realized due to other-than-temporary impairment, the estimated loss is
recorded in noninterest income as a loss on investment securities. If a decision
is made to dispose of securities at cost or should the Company become unable to
hold securities until maturity, they would be reclassified to securities at fair
value.


                                                                              41
<PAGE>

TRADING SECURITIES

Securities acquired for short-term appreciation or other trading purposes are
recorded in a trading portfolio and are carried at fair value, with unrealized
gains and losses recorded in noninterest income.


NONMARKETABLE EQUITY SECURITIES

Nonmarketable equity securities are acquired for various purposes, such as
troubled debt restructurings and as a regulatory requirement (for example,
Federal Reserve Bank stock). These securities are accounted for at cost and are
included in other assets as they do not fall within the definition of an
investment security since there are restrictions on their sale or liquidation.
The asset value is reduced when declines in value are considered to be other
than temporary and the estimated loss is recorded in noninterest income as a
loss from equity investments.


LOANS
--------------------------------------------------------------------------------

Loans are reported at the principal amount outstanding, net of unearned income.
Unearned income, which includes deferred fees net of deferred direct incremental
loan origination costs, is amortized to interest income generally over the
contractual life of the loan using an interest method or the straight-line
method if it is not materially different.

     Loans identified as held for sale are carried at the lower of cost or
market value. Nonrefundable fees, related direct loan origination costs and
related hedging gains or losses, if any, are deferred and recognized as a
component of the gain or loss on sale recorded in noninterest income.

NONACCRUAL LOANS  Loans are placed on nonaccrual status upon becoming 90 days
past due as to interest or principal (unless both well-secured and in the
process of collection), when the full timely collection of interest or principal
becomes uncertain or when a portion of the principal balance has been charged
off. Real estate 1-4 family loans (both first liens and junior liens) are placed
on nonaccrual status within 150 days of becoming past due as to interest or
principal, regardless of security. Generally, consumer loans not secured by real
estate are only placed on nonaccrual status when a portion of the principal has
been charged off. Generally, such loans are entirely charged off within 180 days
of becoming past due.

     When a loan is placed on nonaccrual status, the accrued and unpaid interest
receivable is reversed and the loan is accounted for on the cash or cost
recovery method thereafter, until qualifying for return to accrual status.
Generally, a loan may be returned to accrual status when all delinquent interest
and principal become current in accordance with the terms of the loan agreement
or when the loan is both well-secured and in the process of collection.

IMPAIRED LOANS  Effective January 1, 1995, the Company adopted Statement of 
Financial Accounting Standards No. 114 (FAS 114), Accounting by Creditors for 
Impairment of a Loan, as amended by FAS 118 (collectively referred to as FAS 
114). These Statements address the accounting treatment of certain impaired 
loans and amend FASB Statement Nos. 5 and 15. However, these Statements do 
not address the overall adequacy of the allowance for loan losses and do not 
apply to large groups of smaller-balance homogeneous loans, such as most 
consumer, real estate 1-4 family first mortgage and small business loans, 
unless they have been involved in a restructuring.

     A loan within the scope of FAS 114 is considered impaired when, based on
current information and events, it is probable that the Company will be unable
to collect all amounts due according to the contractual terms of the loan
agreement, including scheduled interest payments. For a loan that has been
restructured, the contractual terms of the loan agreement refer to the
contractual terms specified by the original loan agreement, not the contractual
terms specified by the restructuring agreement.

     For loans covered by these Statements, the Company makes an assessment for
impairment when and while such loans are on nonaccrual, or the loan has been
restructured. When a loan with unique risk characteristics has been identified
as being impaired, the amount of impairment will be measured by the Company
using discounted cash flows, except when it is determined that the sole
(remaining) source of repayment for the loan is the operation or liquidation of
the underlying collateral. In such cases, the current fair value of the
collateral, reduced by costs to sell, will be used in place of discounted cash
flows. Additionally, some impaired loans with commitments of less than $1
million are aggregated for the purpose of measuring impairment using historical
loss factors as a means of measurement.

     If the measurement of the impaired loan is less than the recorded
investment in the loan (including accrued interest, net deferred loan fees or
costs and unamortized premium or discount), an impairment is recognized by
creating or adjusting an existing allocation of the allowance for loan losses.
FAS 114 does not change the timing of charge-offs of loans to reflect the amount
ultimately expected to be collected.


42
<PAGE>

RESTRUCTURED LOANS  In cases where a borrower experiences financial difficulties
and the Company makes certain concessionary modifications to contractual terms,
the loan is classified as a restructured (accruing) loan. Subsequent to the
adoption of FAS 114, loans restructured at a rate equal to or greater than that
of a new loan with comparable risk at the time the contract is modified may be
excluded from the impairment assessment and may cease to be considered impaired
loans in the calendar years subsequent to the restructuring if they are not
impaired based on the modified terms.

     Generally, a nonaccrual loan that is restructured remains on nonaccrual for
a period of six months to demonstrate that the borrower can meet the
restructured terms. However, performance prior to the restructuring, or
significant events that coincide with the restructuring, are included in
assessing whether the borrower can meet the new terms and may result in the loan
being returned to accrual at the time of restructuring or after a shorter
performance period. If the borrower's ability to meet the revised payment
schedule is uncertain, the loan remains classified as a nonaccrual loan.

ALLOWANCE FOR LOAN LOSSES  The Company's determination of the level of the
allowance for loan losses rests upon various judgments and assumptions,
including general economic conditions, loan portfolio composition, prior loan
loss experience, evaluation of credit risk related to certain individual
borrowers and the Company's ongoing examination process and that of its
regulators. The Company considers the allowance for loan losses adequate to
cover losses inherent in loans, loan commitments and standby letters of credit.


PREMISES AND EQUIPMENT
--------------------------------------------------------------------------------

Premises and equipment are stated at cost less accumulated depreciation and
amortization. Capital leases are included in premises and equipment, at the
capitalized amount less accumulated amortization.

     Depreciation and amortization are computed primarily using the straight-
line method. Estimated useful lives range up to 40 years for buildings, 2 to 10
years for furniture and equipment, and up to the lease term for leasehold
improvements. Capitalized leased assets are amortized on a straight-line basis
over the lives of the respective leases, which generally range from 20 to 35
years.


GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS
--------------------------------------------------------------------------------

Goodwill, representing the excess of purchase price over the fair value of net
assets acquired, results from acquisitions made by the Company. Substantially
all of the Company's goodwill is being amortized using the straight-line method
over 25 years. The remaining period of amortization, on a weighted average
basis, approximated 24 years at December 31, 1996.

     Core deposit intangibles are amortized on an accelerated basis based on an
estimated useful life of 10 to 15 years. Certain identifiable intangible assets
that are included in other assets are generally amortized using an accelerated
method over an original life of 5 to 15 years. Approximately 38% of the December
31, 1996 remaining balance will be amortized in 3 years.

     The Company reviews its intangible assets periodically for other-than-
temporary impairment. If such impairment is indicated, recoverability of the
asset is assessed based on expected undiscounted net cash flows.


INCOME TAXES
--------------------------------------------------------------------------------

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

     Deferred income tax assets and liabilities are determined using the
liability (or balance sheet) method. Under this method, the net deferred tax
asset or liability is determined based on the tax effects of the differences
between the book and tax bases of the various balance sheet assets and
liabilities and gives current recognition to changes in tax rates and laws.


DERIVATIVE FINANCIAL INSTRUMENTS
--------------------------------------------------------------------------------

INTEREST RATE DERIVATIVES  The Company uses interest rate derivative financial
instruments (futures, caps, floors and swaps) primarily to hedge mismatches in
the rate maturity of loans and their funding sources. Gains and losses on
interest rate futures are deferred and amortized as a component of the interest
income or expense reported on the asset or liability hedged. Amounts payable or
receivable for swaps, caps and floors are accrued with the passage of time, the
effect of which is included in the interest income


                                                                              43
<PAGE>

or expense reported on the asset or liability hedged; fees on these financial
contracts are amortized over their contractual life as a component of the
interest reported on the asset or liability hedged. If a hedged asset or
liability settles before maturity of the interest rate derivative financial
instruments used as a hedge, the derivatives are closed out or settled, and
previously unrecognized hedge results and the net settlement upon close-out or
termination are accounted for as part of the gains and losses on the asset or
liability hedged. If interest rate derivative financial instruments used in an
effective hedge are closed out or terminated before the hedged item, previously
unrecognized hedge results and the net settlement upon close-out or termination
are deferred and amortized over the life of the asset or liability hedged. Cash
flows resulting from interest rate derivative financial instruments that are
accounted for as hedges of assets and liabilities are classified in the same
category as the cash flows from the items being hedged.

     Interest rate derivative financial instruments entered into as an
accommodation to customers and interest rate derivative financial instruments
used to offset the interest rate risk of those contracts are carried at fair
value with unrealized gains and losses recorded in noninterest income. Cash
flows resulting from interest rate derivative financial instruments carried at
fair value are classified as operating cash flows.

     Credit risk related to interest rate derivative financial instruments is
considered and, if material, provided for separately from the allowance for loan
losses.

FOREIGN EXCHANGE DERIVATIVES  The Company enters into foreign exchange 
derivative financial instruments (forward and spot contracts and options) 
primarily as an accommodation to customers and offsets the related foreign 
exchange risk with other foreign exchange derivative financial instruments. All
contracts are carried at fair value with unrealized gains and losses recorded 
in noninterest income. Cash flows resulting from foreign exchange derivative 
financial instruments are classified as operating cash flows. Credit risk 
related to foreign exchange derivative financial instruments is considered and,
if material, provided for separately from the allowance for loan losses.


NET INCOME PER COMMON SHARE
--------------------------------------------------------------------------------

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


ACCOUNTING STANDARDS TO BE ADOPTED IN FUTURE PERIODS
--------------------------------------------------------------------------------

In June 1996, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard No. 125 (FAS 125), Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities. This Statement
provides guidance for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings. FAS 125 supersedes FAS 76, 77
and 122, while amending both FAS 65 and 115. The Statement is effective January
1, 1997 and is to be applied prospectively. Earlier implementation is not
permitted. In December 1996, the FASB issued FAS 127 which defers certain
provisions of FAS 125 for one year.

     A transfer of financial assets in which control is surrendered over those
assets is accounted for as a sale to the extent that consideration other than
beneficial interests in the transferred assets is received in the exchange.
Liabilities and derivatives incurred or obtained by the transfer of financial
assets are required to be measured at fair value, if practicable. Also, any
servicing assets and other retained interests in the transferred assets must be
measured by allocating the previous carrying value between the asset sold and
the interest retained, if any, based on their relative fair values at the date
of transfer. For each servicing contract in existence before January 1, 1997,
previously recognized servicing rights and excess servicing receivables that do
not exceed contractually specified servicing are required to be combined, net of
any previously recognized servicing obligations under that contract, as a
servicing asset or liability. Previously recognized servicing receivables that
exceed contractually specified servicing fees are required to be reclassified as
interest-only strips receivable.

     The Statement also requires an assessment of interest-only strips, loans,
other receivables and retained interests in securitizations. If these assets can
be contractually prepaid or otherwise settled such that the holder would not
recover substantially all of its recorded investment, the asset will be measured
like available-for-sale securities or trading securities, under FAS 115. This
assessment is required for financial assets held on or acquired after January 1,
1997.

     The adoption of FAS 125 is not expected to have a material effect on the
Company's financial statements.


44
<PAGE>

2    MERGER WITH FIRST INTERSTATE BANCORP
--------------------------------------------------------------------------------

On April 1, 1996, the Company completed its acquisition (Merger) of First
Interstate Bancorp (First Interstate), the 14th largest bank holding company in
the nation as of March 31, 1996 with 405 offices in California and a total of
approximately 1,150 offices in 13 western states. The Merger resulted in the
creation of the eighth largest bank holding company in the United States based
on assets as of December 31, 1996. The purchase price of the transaction was
approximately $11.3 billion based on Wells Fargo's share price on January 19,
1996, the last trading day before Wells Fargo and First Interstate agreed on an
exchange ratio. First Interstate shareholders received two-thirds of a share of
Wells Fargo common stock for each share of common stock owned; 52,001,970 shares
of the Company's common stock were issued. Each share of First Interstate
preferred stock was converted into the right to receive one share of the
Company's preferred stock. Each outstanding and unexercised option granted by
First Interstate was converted into an option to purchase Company common stock
based on the original plan and the agreed upon exchange ratio.

     The Merger was accounted for as a purchase transaction. Accordingly, the
results of operations of First Interstate are included with those of the Company
for periods subsequent to the date of the Merger (i.e., the financial
information for periods prior to April 1, 1996 included in this Annual Report
excludes First Interstate). The name of the combined company is Wells Fargo &
Company.

     The major components of management's plan for the combined company 
include the realignment of First Interstate's businesses to reflect Wells 
Fargo's structure, consolidation of retail branches and administrative 
facilities and reduction in staffing levels. As a result of this plan, the 
adjustments to goodwill included accruals totaling approximately $302 million 
($178 million after tax) related to the disposition of premises, including an 
accrual of $116 million ($68 million after tax) associated with the 
dispositions of traditional former First Interstate branches in California 
and out of state. The California dispositions included 176 branch closures 
during 1996. The Company has also entered into definitive agreements with 
several institutions to sell 20 former First Interstate branches, including 
deposits, located in California. The sales of 17 of these branches were 
closed in the first quarter of 1997. The out-of-state dispositions associated 
with the goodwill adjustment are expected to be completed in 1997. 
Additionally, the adjustments to goodwill included accruals of approximately 
$415 million ($245 million after tax) related to severance of former First 
Interstate employees throughout the Company who will be displaced through 
December 31, 1997. Severance payments of $151 million were paid during 1996.

     As a condition of the Merger, the Company was required by regulatory
agencies to divest 61 First Interstate branches in California. The Company
completed the sale of these branches to Home Savings of America, principal
subsidiary of H.F. Ahmanson & Company, in September 1996. In addition, the
Company completed the sale of the former First Interstate banks in Wyoming,
Montana and Alaska in the fourth quarter of 1996. The 61 branches and the three
banks had aggregate assets of approximately $1.7 billion and aggregate deposits
of approximately $2.4 billion.

     The Company entered into an agreement with The Bank of New York to sell 
the Corporate and Municipal Bond Administration business. The sale is 
scheduled to close during the first quarter of 1997. 

     Other significant adjustments to goodwill included the write-off of 
First Interstate's existing goodwill and other intangibles of $701 million.

     The unaudited pro forma amounts in the table below are presented for
informational purposes and are not necessarily indicative of the results of
operations of the combined company for the periods presented. These amounts are
also not necessarily indicative of the future results of operations of the
combined company. In particular, the Company expects to achieve significant
operating cost savings as a result of the Merger, which have not been included
in the unaudited pro forma amounts.

     The following unaudited pro forma combined summary of income gives effect
to the combination as if the Merger was consummated on January 1, 1995.

UNAUDITED PRO FORMA COMBINED
FINANCIAL DATA
-------------------------------------------------------------------------------
(in millions, except per share data)                     Year ended December 31,
                                                        -----------------------
                                                            1996           1995

SUMMARY OF INCOME
Net interest income                                       $5,125         $5,234
Provision for loan losses                                    105              -
Noninterest income                                         2,505          2,428
Noninterest expense (1)                                    4,826          4,870
Net income (1)                                             1,481          1,580

PER COMMON SHARE
Net income (1)                                            $15.37         $15.19
Dividends declared                                          5.20           4.60

AVERAGE COMMON SHARES OUTSTANDING                           91.5           99.1
-------------------------------------------------------------------------------

(1)  Noninterest expense excludes $251 million ($245 million after tax) and $28
     million ($28 million after tax) for the years ended December 31, 1996 and
     1995, respectively, of nonrecurring merger-related expenses recorded by
     First Interstate.


                                                                              45
<PAGE>

    The unaudited pro forma combined net income of $1,481 million for the year
ended December 31, 1996 consists of second, third and fourth quarter 1996 net
income of the combined company of $807 million, first quarter 1996 net income of
the Company of $264 million and a first quarter net loss of First Interstate of
$23 million, plus unaudited pro forma adjustments of $433 million. The unaudited
pro forma combined net income of $1,580 million for the year ended December 31,
1995 consists of net income of the Company of $1,032 million and First
Interstate of $885 million, less unaudited pro forma adjustments of $337
million. The unaudited pro forma combined net income for both periods includes
amortization of $288 million relating to $7,191 million excess purchase price
over fair value of First Interstate's net assets acquired (goodwill). Goodwill
is amortized using the straight-line method over 25 years.

    Goodwill may change as certain estimates and contingencies are finalized,
although any adjustments are not expected to have a significant effect on the
ultimate amount of goodwill.

    In addition to First Interstate premise and severance costs affecting
goodwill, an estimated $60 million, $80 million and $300 million of costs
related to the Company's premises, employees and operations as well as all costs
relating to systems conversions and other indirect, integration costs were
expensed during the second, third and fourth quarters, respectively. The Company
expects to incur additional integration costs, which will be expensed as
incurred. With respect to timing, it is assumed that the integration will be
completed and that such costs will be incurred not later than 18 months after
the closing of the Merger.


3  CASH, LOAN AND DIVIDEND RESTRICTIONS
--------------------------------------------------------------------------------

Federal Reserve Board regulations require reserve balances on deposits to be
maintained by the Company's banking subsidiaries with the Federal Reserve Banks.
The average required reserve balance was $2.0 billion and $1.2 billion in 1996
and 1995, respectively.

    The Bank is subject to certain restrictions under the Federal Reserve Act,
including restrictions on extensions of credit to its affiliates. In particular,
the Bank is prohibited from lending to the Parent and its nonbank subsidiaries
unless the loans are secured by specified collateral. Such secured loans and
other regulated transactions made by the Bank (including its subsidiaries) are
limited in amount as to each of its affiliates, including the Parent, to 10% of
the Bank's capital stock and surplus (as defined, which for this purpose
represents Tier 1 and Tier 2 capital, as calculated under the risk-based capital
guidelines, plus the balance of the allowance for loan losses excluded from Tier
2 capital) and, in the aggregate to all of its affiliates, to 20% of the Bank's
capital stock and surplus. The capital stock and surplus at December 31, 1996
was $9 billion.

    Dividends payable by the Bank to the Parent without the express approval of
the Office of the Comptroller of the Currency (OCC) are limited to the Bank's
retained net profits for the preceding two calendar years plus retained net
profits up to the date of any dividend declaration in the current calendar year.
Retained net profits are defined by the OCC as net income, less dividends
declared during the period, both of which are based on regulatory accounting
principles. Based on this definition, the Bank declared dividends in 1996 and
1995 of $650 million in excess of its net income of $2,431 million for those
years. Therefore, before it can declare dividends in 1997 without the approval
of the OCC, the Bank must have net income of $650 million plus an amount equal
to or greater than the dividends declared in 1997. Dividends declared by the
Bank in 1996, 1995 and 1994 were $1,461 million, $1,620 million (including a
$489 million deemed dividend) and $1,001 million, respectively.

    The Company's other banking subsidiaries are subject to the same
restrictions as the Bank. However, any such restrictions have not had a material
impact on the banking subsidiaries or the Company.


46

<PAGE>

4  INVESTMENT SECURITIES
--------------------------------------------------------------------------------

The following table provides the major components of investment securities at
fair value and at cost:

<TABLE>
<CAPTION>

---------------------------------------------------------------------------------
(in millions)                                                         December 31,
                                 ------------------------------------------------
                                                                             1996
                                 ------------------------------------------------
                                   COST     ESTIMATED     ESTIMATED     ESTIMATED
                                           UNREALIZED    UNREALIZED    FAIR VALUE
                                          GROSS GAINS  GROSS LOSSES
<S>                             <C>       <C>          <C>             <C>

AVAILABLE-FOR-SALE
SECURITIES AT
FAIR VALUE:
U.S. Treasury securities        $ 2,824          $ 16           $ 3       $ 2,837
Securities of U.S.
  government agencies
  and corporations (1)            7,043            46            39         7,050
Private collateralized
  mortgage obligations (2)        3,237            16            23         3,230
Other                               342             2             1           343
                                -------          ----           ---       -------
    Total debt securities        13,446            80            66        13,460
Marketable equity securities         18            27             -            45
                                -------          ----           ---       -------
    Total                       $13,464          $107           $66       $13,505
                                -------          ----           ---       -------
                                -------          ----           ---       -------

HELD-TO-MATURITY
SECURITIES AT COST:
U.S. Treasury securities        $     -          $  -           $ -       $     -
Securities of U.S.
  government agencies
  and corporations (1)                -             -             -             -
Private collateralized
  mortgage obligations (2)            -             -             -             -
Other                                 -             -             -             -
                                -------          ----           ---       -------
    Total                       $     -          $  -           $ -       $     -
                                -------          ----           ---       -------
                                -------          ----           ---       -------

<CAPTION>

-------------------------------------------------------------------------------------------------------------
(in millions)                                                                                     December 31,
                            ---------------------------------------------------------------------------------
                                                                              1995                       1994
                            ------------------------------------------------------        -------------------
                                   Cost     Estimated     Estimated     Estimated          Cost     Estimated
                                           unrealized    unrealized    fair value                  fair value
                                          gross gains  gross losses
<S>                              <C>      <C>          <C>             <C>                <C>      <C>

AVAILABLE-FOR-SALE
SECURITIES AT
FAIR VALUE:
U.S. Treasury securities         $1,347           $13           $ 3        $1,357        $  372        $  362
Securities of U.S.
  government agencies
  and corporations (1)            5,218            35            30         5,223         1,476         1,380
Private collateralized
  mortgage obligations (2)        2,121             9             8         2,122         1,290         1,178
Other                               169            12             -           181            24            38
                                 ------           ---           ---        ------        ------        ------
    Total debt securities         8,855            69            41         8,883         3,162         2,958
Marketable equity securities         18            19             -            37            16            31
                                 ------           ---           ---        ------        ------        ------
    Total                        $8,873           $88           $41        $8,920        $3,178        $2,989
                                 ------           ---           ---        ------        ------        ------
                                 ------           ---           ---        ------        ------        ------

HELD-TO-MATURITY
SECURITIES AT COST:
U.S. Treasury securities         $    -           $ -           $ -        $    -        $1,772        $1,720
Securities of U.S.
  government agencies
  and corporations (1)                -             -             -             -         5,394         5,101
Private collateralized
  mortgage obligations (2)            -             -             -             -         1,306         1,221
Other                                 -             -             -             -           147           143
                                 ------           ---           ---        ------        ------        ------
    Total                        $    -           $ -           $ -        $    -        $8,619        $8,185
                                 ------           ---           ---        ------        ------        ------
                                 ------           ---           ---        ------        ------        ------
-------------------------------------------------------------------------------------------------------------
</TABLE>

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


    In November 1995, the FASB permitted a one-time opportunity for companies
to reassess by December 31, 1995 their classification of securities under
Statement of Financial Accounting Standards No. 115 (FAS 115), Accounting for
Certain Investments in Debt and Equity Securities. As a result, on November 30,
1995, the Company reclassified all of its held-to-maturity securities at cost
portfolio of $6.5 billion to the available-for-sale securities at fair value
portfolio in order to provide increased liquidity flexibility to meet
anticipated loan growth. A related unrealized net after-tax loss of $6 million
was recorded in stockholders' equity.

    Proceeds from the sale of securities in the available-for-sale portfolio
totaled $719 million, $674 million and $18 million in 1996, 1995 and 1994,
respectively. The sales of debt securities in the available-for-sale portfolio
resulted in a $1 million gain, a $13 million loss and a $5 million gain in 1996,
1995 and 1994, respectively. These were sold for asset/liability management
purposes. Additionally, a $1 million loss was realized in 1994 resulting from a
write-down due to other-than-temporary impairment in the fair value of certain
debt securities. The sales of marketable equity securities in the
available-for-sale portfolio resulted in a gain of $9 million, none and $4
million in 1996, 1995 and 1994, respectively. Additionally, a $4 million loss
was realized in 1995 resulting from a write-down of certain equity securities
due to other-than-temporary impairment.


                                                                              47
<PAGE>

    The following table provides the remaining contractual principal maturities
and yields (taxable-equivalent basis) of debt securities within the investment
portfolio. The remaining contractual principal maturities for mortgage-backed
securities were allocated assuming no prepayments. Expected remaining maturities
will differ from contractual maturities because borrowers may have the right to
prepay obligations with or without penalties. (See the Investment Securities
section of the Financial Review for expected remaining maturities and yields.)

<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------------------------------
(in millions)                                                                                                   December 31, 1996
                                 ------------------------------------------------------------------------------------------------
                                   Total       Weighted       Weighted                   Remaining contractual principal maturity
                                  amount        average        average         --------------------------------------------------
                                                  yield      remaining               Within one year               After one year
                                                          maturity (in                                         through five years
                                                            yrs.-mos.)        ---------------------         ---------------------
                                                                              Amount          Yield         Amount          Yield
<S>                              <C>           <C>        <C>                  <C>             <C>           <C>             <C>

AVAILABLE-FOR-SALE
SECURITIES (1):
U.S. Treasury securities        $ 2,824           5.98%          1-10         $  689           5.76%        $2,129           6.05%
Securities of U.S.
  government agencies
  and corporations                7,043           6.56            5-1          1,439           6.25          3,173           6.51
Private collateralized
  mortgage obligations            3,237           6.64            7-6            395           6.34          1,056           6.34
Other                               342           7.00            2-6             62           8.14            177           6.63
                                -------                                       ------                        ------
TOTAL COST OF
DEBT SECURITIES                 $13,446           6.47%          4-11         $2,585           6.18%        $6,535           6.33%
                                -------           ----           ----         ------           ----         ------           ----
                                -------           ----           ----         ------           ----         ------           ----
ESTIMATED FAIR
VALUE                           $13,460                                       $2,588                        $6,542
                                -------                                       ------                        ------
                                -------                                       ------                        ------
---------------------------------------------------------------------------------------------------------------------------------

<CAPTION>

------------------------------------------------------------------------------------
(in millions)                                                      December 31, 1996
                                 ---------------------------------------------------
                                            Remaining contractual principal maturity
                                 ---------------------------------------------------
                                       After five years              After ten years
                                      through ten years
                                 ----------------------        ---------------------
                                 Amount          Yield         Amount          Yield
<S>                              <C>             <C>           <C>             <C>

AVAILABLE-FOR-SALE
SECURITIES (1):
U.S. Treasury securities         $    5           6.26%        $    1           6.84%
Securities of U.S.
  government agencies
  and corporations                1,327           6.99          1,104           6.63
Private collateralized
  mortgage obligations              779           7.46          1,007           6.44
Other                                44           6.65             59           7.44
                                 ------                        ------
TOTAL COST OF
DEBT SECURITIES                  $2,155           7.15%        $2,171           6.56%
                                 ------          -----         ------          -----
                                 ------          -----         ------          -----
ESTIMATED FAIR
VALUE                            $2,157                        $2,173
                                 ------                        ------
                                 ------                        ------
-------------------------------------------------------------------------------------
</TABLE>

(1) The weighted average yield is computed using the amortized cost of
    available-for-sale investment securities carried at fair value.

    There was no dividend income in 1996, 1995 and 1994 included in interest
income on investment securities in the Consolidated Statement of Income.
Substantially all income on investment securities is taxable.

    Investment securities pledged primarily to secure trust and public deposits
and for other purposes as required or permitted by law was $5.3 billion, $4.8
billion and $3.1 billion at December 31, 1996, 1995 and 1994, respectively.


5  LOANS AND ALLOWANCE FOR LOAN LOSSES
--------------------------------------------------------------------------------

A summary of the major categories of loans outstanding and related unfunded
commitments to extend credit is shown in the table on the next page. At December
31, 1996 and 1995, the commercial loan category and related commitments did not
have an industry concentration that exceeded 10% of total loans and commitments.
Tables 11 and 12 in the Loan Portfolio section of the Financial Review summarize
real estate mortgage loans (excluding 1-4 family first mortgage loans) by state
and property type and real estate construction loans by state and project type.
A majority of the Company's real estate 1-4 family first mortgages and consumer
loans are with customers located in California.


48

<PAGE>

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
(in millions)                                                                                               December 31,
                                                               --------------------------------------------------------
                                                                                    1996                          1995
                                                               --------------------------    --------------------------
                                                               OUTSTANDING    COMMITMENTS    Outstanding    Commitments
                                                                                TO EXTEND                     to extend
                                                                                   CREDIT                        credit
<S>                                                            <C>            <C>            <C>            <C>

Commercial (1)                                                     $19,515        $28,125        $ 9,750        $ 8,368
Real estate 1-4 family first mortgage (2)                           10,425            778          4,448            723
Other real estate mortgage                                          11,860            872          8,263            563
Real estate construction                                             2,303          1,719          1,366            859
Consumer:
  Real estate 1-4 family junior lien mortgage                        6,278          4,781          3,358          3,053
  Credit card                                                        5,462         15,737          4,001          8,644
  Other revolving credit and monthly payment                         8,374          3,123          2,576          2,035
                                                                   -------        -------        -------        -------
      Total consumer                                                20,114         23,641          9,935         13,732
Lease financing                                                      3,003              -          1,789              -
Foreign                                                                169            101             31              -
                                                                   -------        -------        -------        -------
      Total loans (3)                                              $67,389        $55,236        $35,582        $24,245
                                                                   -------        -------        -------        -------
                                                                   -------        -------        -------        -------
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Outstanding balances include loans (primarily unsecured) to real estate
    developers and REITs of $1,070 million and $700 million at December 31,
    1996 and 1995, respectively.
(2) Substantially all the commitments to extend credit relate to those equity
    lines that are effectively first mortgages.
(3) Outstanding loan balances at December 31, 1996 and 1995 are net of unearned
    income, including net deferred loan fees, of $654 million and $463 million,
    respectively.


    In the course of evaluating the credit risk presented by a customer and the
pricing that will adequately compensate the Company for assuming that risk,
management determines a requisite amount of collateral support. The type of
collateral held varies, but may include accounts receivable, inventory, land,
buildings, equipment, income-producing commercial properties and residential
real estate. The Company has the same collateral policy for loans whether they
are funded immediately or on a delayed basis (commitment).

    A commitment to extend credit is a legally binding agreement to lend funds
to a customer and is usually for a specified interest rate and purpose. These
commitments have fixed expiration dates and generally require a fee. The
extension of a commitment gives rise to credit risk. The actual liquidity needs
or the credit risk that the Company will experience will be lower than the
contractual amount of commitments to extend credit shown in the table above
because a significant portion of these commitments is expected to expire without
being drawn upon. Certain commitments are subject to a loan agreement containing
covenants regarding the financial performance of the customer that must be met
before the Company is required to fund the commitment. The Company uses the same
credit policies in making commitments to extend credit as it does in making
loans.

    In addition, the Company manages the potential credit risk in commitments
to extend credit by limiting the total amount of arrangements, both by
individual customer and in the aggregate; by monitoring the size and maturity
structure of these portfolios; and by applying the same credit standards
maintained for all of its credit activities. The credit risk associated with
these commitments is considered in management's determination of the allowance
for loan losses.

    Standby letters of credit totaled $2,981 million and $921 million at
December 31, 1996 and 1995, respectively. Standby letters of credit are issued
on behalf of customers in connection with contracts between the customers and
third parties. Under a standby letter of credit, the Company assures that the
third party will receive specified funds if a customer fails to meet his
contractual obligation. The liquidity risk to the Company arises from its
obligation to make payment in the event of a customer's contractual default. The
credit risk involved in issuing letters of credit and the Company's management
of that credit risk is considered in management's determination of the allowance
for loan losses. At December 31, 1996 and 1995, standby letters of credit
included approximately $243 million and $159 million, respectively, of
participations purchased, net of approximately $61 million and $90 million,
respectively, of participations sold. Approximately 72% of the Company's


                                                                              49
<PAGE>

year-end 1996 standby letters of credit had maturities of one year or less and
substantially all had maturities of seven years or less.

    Included in standby letters of credit are those that back financial
instruments (financial guarantees). The Company had issued or purchased
participations in financial guarantees of approximately $1,798 million and $450
million at December 31, 1996 and 1995, respectively. The Company also had
commitments for commercial and similar letters of credit of $406 million and
$209 million at December 31, 1996 and 1995, respectively. Substantially all fees
received from the issuance of financial guarantees are deferred and amortized on
a straight-line basis over the term of the guarantee. Losses on standby letters
of credit and other similar letters of credit have been immaterial.

    The Company considers the allowance for loan losses of $2,018 million
adequate to cover losses inherent in loans, loan commitments and standby letters
of credit at December 31, 1996. However, no assurance can be given that the
Company will not, in any particular period, sustain loan losses that are sizable
in relation to the amount reserved, or that subsequent evaluations of the loan
portfolio, in light of the factors then prevailing, including economic
conditions and the Company's ongoing examination process and that of its
regulators, will not require significant increases in the allowance for loan
losses.

    Loans held for sale are included in their respective loan categories and
recorded at the lower of cost or market. At December 31, 1996 and 1995, loans
held for sale were $308 million and $640 million, respectively.

    Changes in the allowance for loan losses were as follows:

-----------------------------------------------------------------------------
(in millions)                                          Year ended December 31,
                                               ------------------------------
                                                 1996        1995        1994

BALANCE, BEGINNING OF YEAR                     $1,794      $2,082      $2,122
Allowance of First Interstate                     770           -           -
Sale of former First Interstate banks             (11)          -           -
Provision for loan losses                         105           -         200
Loan charge-offs:
  Commercial (1)                                 (140)        (55)        (54)
  Real estate 1-4 family
    first mortgage                                (18)        (13)        (18)
  Other real estate mortgage                      (40)        (52)        (66)
  Real estate construction                        (13)        (10)        (19)
  Consumer:
    Real estate 1-4 family
      junior lien mortgage                        (28)        (16)        (24)
    Credit card                                  (404)       (208)       (138)
    Other revolving credit and
      monthly payment                            (186)        (53)        (36)
                                               ------      ------      ------
      Total consumer                             (618)       (277)       (198)
  Lease financing                                 (31)        (15)        (14)
                                               ------      ------      ------
        Total loan charge-offs                   (860)       (422)       (369)
                                               ------      ------      ------
Loan recoveries:
  Commercial (2)                                   54          38          37
  Real estate 1-4 family
    first mortgage                                  8           3           6
  Other real estate mortgage                       47          53          22
  Real estate construction                         11           1          15
  Consumer:
    Real estate 1-4 family
      junior lien mortgage                          9           3           4
    Credit card                                    36          13          18
    Other revolving credit and
      monthly payment                              47          12          11
                                               ------      ------      ------
      Total consumer                               92          28          33
  Lease financing                                   8          11          16
                                               ------      ------      ------
        Total loan recoveries                     220         134         129
                                               ------      ------      ------
          Total net loan
            charge-offs                          (640)       (288)       (240)
                                               ------      ------      ------
BALANCE, END OF YEAR                           $2,018      $1,794      $2,082
                                               ------      ------      ------
                                               ------      ------      ------
Total net loan charge-offs as
  a percentage of average
  total loans (3)                                1.05%        .83%        .70%
                                               ------      ------      ------
                                               ------      ------      ------
Allowance as a percentage
  of total loans                                 3.00%       5.04%       5.73%
                                               ------      ------      ------
                                               ------      ------      ------
-----------------------------------------------------------------------------

(1) Includes charge-offs of loans (primarily unsecured) to real estate
    developers and REITs of $2 million, none and $14 million in 1996, 1995 and
    1994, respectively.
(2) Includes recoveries from loans to real estate developers and REITs of $10
    million, $3 million and $2 million in 1996, 1995 and 1994, respectively.
(3) Average total loans exclude first mortgage loans held for sale in 1995.


50
<PAGE>

    In accordance with FAS 114, the table below shows the recorded investment
in impaired loans by loan category and the related methodology used to measure
impairment at December 31, 1996 and 1995:

-----------------------------------------------------------------------------
(in millions)                                                     December 31,
                                                            -----------------
                                                            1996         1995

Commercial                                                  $155         $ 77
Real estate 1-4 family first mortgage                          1            2
Other real estate mortgage (1)                               362          330
Real estate construction                                      24           46
Other                                                          1            3
                                                            ----         ----
  Total (2)                                                 $543         $458
                                                            ----         ----
                                                            ----         ----

Impairment measurement based on:
  Collateral value method                                   $416         $374
  Discounted cash flow method                                101           66
  Historical loss factors                                     26           18
                                                            ----         ----
                                                            $543         $458
                                                            ----         ----
                                                            ----         ----
-----------------------------------------------------------------------------

(1) Includes accruing loans of $50 million at both December 31, 1996 and 1995
    that were purchased at a steep discount whose contractual terms were
    modified after acquisition. The modified terms did not affect the book
    balance nor the yields expected at the date of purchase.
(2) Includes $27 million and $22 million of impaired loans with a related FAS
    114 allowance of $2 million and $3 million at December 31, 1996 and 1995,
    respectively.


    The average recorded investment in impaired loans during 1996 and 1995 was
$542 million and $472 million, respectively. Total interest income recognized on
impaired loans during 1996 and 1995 was $17 million and $15 million,
respectively, substantially all of which was recorded using the cash method.

    The Company uses either the cash or cost recovery method to record cash
receipts on impaired loans that are on nonaccrual. Under the cash method,
contractual interest is credited to interest income when received. This method
is used when the ultimate collectibility of the total principal is not in doubt.
Under the cost recovery method, all payments received are applied to principal.
This method is used when the ultimate collectibility of the total principal is
in doubt. Loans on the cost recovery method may be changed to the cash method
when the application of the cash payments has reduced the principal balance to a
level where collection of the remaining recorded investment is no longer in
doubt.


6  PREMISES, EQUIPMENT,
   LEASE COMMITMENTS AND OTHER ASSETS
--------------------------------------------------------------------------------

The following table presents comparative data for premises and equipment:

-----------------------------------------------------------------------------
(in millions)                                                     December 31,
                                                          -------------------
                                                            1996         1995

Land                                                      $  234       $   96
Buildings                                                  1,687          520
Furniture and equipment                                    1,362          730
Leasehold improvements                                       392          270
Premises leased under capital leases                         111           66
                                                          ------       ------
  Total                                                    3,786        1,682
Less accumulated depreciation
  and amortization                                         1,380          820
                                                          ------       ------
    Net book value                                        $2,406       $  862
                                                          ------       ------
                                                          ------       ------
-----------------------------------------------------------------------------

    Depreciation and amortization expense was $238 million, $154 million and
$142 million in 1996, 1995 and 1994, respectively. Losses on disposition of
premises and equipment, recorded in noninterest income, were $46 million, $31
million and $12 million in 1996, 1995 and 1994, respectively. In addition, also
recorded in noninterest income were losses from disposition of operations
primarily related to the disposition of premises associated with scheduled
branch closures of $95 million, $89 million and $5 million in 1996, 1995 and
1994, respectively.

    The Company is obligated under a number of noncancelable operating leases
for premises (including vacant premises) and equipment with terms up to 25
years, many of which provide for periodic adjustment of rentals based


                                                                              51
<PAGE>

on changes in various economic indicators. The following table shows future
minimum payments under noncancelable operating leases and capital leases with
terms in excess of one year as of December 31, 1996:


-----------------------------------------------------------------------------
(in millions)                              Operating leases    Capital leases

Year ended December 31,
1997                                                 $  257              $ 13
1998                                                    229                13
1999                                                    204                12
2000                                                    168                12
2001                                                    119                10
Thereafter                                              578                72
                                                     ------              ----
Total minimum lease payments                         $1,555               132
                                                     ------
                                                     ------
Executory costs                                                            (3)
Amounts representing interest                                             (62)
                                                                         ----
Present value of net minimum lease payments                              $ 67
                                                                         ----
                                                                         ----
-----------------------------------------------------------------------------


    Total future minimum payments to be received under noncancelable operating
subleases at December 31, 1996 were approximately $266 million; these payments
are not reflected in the preceding table.

    Rental expense, net of rental income, for all operating leases was $199
million, $111 million and $97 million in 1996, 1995 and 1994, respectively.

    The components of other assets at December 31, 1996 and 1995 were as
follows:

-----------------------------------------------------------------------------
(in millions)                                                     December 31,
                                                     ------------------------
                                                       1996              1995

Nonmarketable equity investments (1)                 $  937            $  428
Net deferred tax asset (2)                              437               817
Certain identifiable intangible assets                  471               220
Foreclosed assets                                       219               186
Other                                                 3,397               589
                                                     ------            ------
  Total other assets                                 $5,461            $2,240
                                                     ------            ------
                                                     ------            ------
-----------------------------------------------------------------------------

(1) Commitments related to nonmarketable equity investments totaled $376
    million and $159 million at December 31, 1996 and 1995, respectively.
(2) See Note 14 to the Financial Statements.


    Income from nonmarketable equity investments accounted for using the cost
method was $137 million, $58 million and $31 million in 1996, 1995 and 1994,
respectively.

    Total amortization expense for certain identifiable intangible assets
recorded in noninterest expense was $26 million, $12 million and $13 million in
1996, 1995 and 1994, respectively.

    Foreclosed assets consist of assets (substantially real estate) acquired in
satisfaction of troubled debt and are carried at the lower of fair value (less
estimated costs to sell) or cost. Foreclosed assets expense, including
disposition gains and losses, was $7 million, $1 million and none in 1996, 1995
and 1994, respectively.

    The Company adopted on December 31, 1995 Statement of Financial Accounting
Standards No. 121 (FAS 121), Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of. This Statement requires that
long-lived assets and certain identifiable intangibles to be held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Additionally, FAS 121 requires that long-lived assets to be disposed of be
reported at the lower of their carrying amount or fair value, less costs to
sell. The impact of adopting FAS 121 was immaterial. Independent of FAS 121, the
Company periodically reviews its space requirements. During the course of 1995,
such reviews resulted in two properties being designated as held for sale.
Regardless of FAS 121, assets designated as held for sale are carried at the
lower of cost or fair value, less costs to sell. Accordingly, the Company
recorded a $21 million write-down in 1995 in noninterest income related to these
properties. These properties had a carrying value of $15 million at both
December 31, 1996 and 1995.

    In 1995, the Company adopted Statement of Financial Accounting Standards
No. 122 (FAS 122), Accounting for Mortgage Servicing Rights. This Statement
amends FAS 65 to require that, for mortgage loans originated for sale with
servicing rights retained, the right to service those loans be recognized as a
separate asset, similar to purchased mortgage servicing rights. This Statement
also requires that capitalized mortgage servicing rights be assessed for
impairment based on the fair value of those rights. Mortgage servicing rights
purchased during 1996, 1995 and 1994 were $165 million, $95 million and $89
million, respectively. There were no originated mortgage servicing rights
capitalized in 1996 and 1995. Purchased mortgage servicing rights are amortized
in proportion to and over the period of estimated net servicing income.


52
<PAGE>

Amortization expense, recorded in noninterest income, totaled $63 million, $39
million and $8 million for 1996, 1995 and 1994, respectively. Purchased mortgage
servicing rights included in certain identifiable intangible assets were $257
million (including $72 million from First Interstate), $152 million and $96
million at December 31, 1996, 1995 and 1994, respectively.

    For purposes of evaluating and measuring impairment for purchased mortgage
servicing rights, the Company stratified these rights based on the type and
interest rate of the underlying loans. Impairment is measured as the amount by
which the purchased mortgage servicing rights for a stratum exceed their fair
value. Fair value of the purchased mortgage servicing rights is determined based
on valuation techniques utilizing discounted cash flows incorporating
assumptions that market participants would use and totaled $289 million and $153
million at December 31, 1996 and 1995, respectively. Impairment, net of hedge
results, is recognized through a valuation allowance for each individual
stratum. At December 31, 1996 and 1995, the balance of the valuation allowances
totaled $582 thousand and $352 thousand, respectively. Certain mortgage
servicing rights owned by the Company have not been capitalized as they were
acquired by origination prior to the adoption of FAS 122. These rights were not
included in the valuation.


7  DEPOSITS
--------------------------------------------------------------------------------

At December 31, 1996, the maturities of time certificates of deposit and other
time deposits were as follows: $12,961 million in 1997, $1,496 million in 1998,
$643 million in 1999, $376 million in 2000, $236 million in 2001 and $243
million thereafter. Substantially all of these deposits were interest-bearing at
December 31, 1996.

    Time certificates of deposit and other time deposits each with a minimum
denomination of $100,000 totaled $3,495 million and $2,099 million at December
31, 1996 and 1995, respectively. Time certificates of deposit and other time
deposits issued by foreign offices in amounts of $100,000 or more represent
substantially all of the foreign deposit liabilities of $54 million and $876
million at December 31, 1996 and 1995, respectively.

    Demand deposit overdrafts that have been reclassified as loan balances were
$800 million and $210 million at December 31, 1996 and 1995, respectively.


8  SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
--------------------------------------------------------------------------------

The table on the right provides comparative data for securities sold under
repurchase agreements. These borrowings generally mature in less than 30 days.

-----------------------------------------------------------------------------
(in millions)                                                     December 31,
                                           ----------------------------------
                                             1996          1995          1994

Average amount outstanding (1)             $  689        $1,788        $  884
Highest month-end balance (2)               1,100         2,776         1,794
Year-end balance                              533           896         1,794

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

(1) Average balances were computed using daily amounts.
(2) Highest month-end balances were at February 1996, April 1995 and December
    1994, respectively.


                                                                              53
<PAGE>

9  SENIOR AND SUBORDINATED DEBT
--------------------------------------------------------------------------------

The following is a summary of senior and subordinated debt (reflecting
unamortized debt discounts and premiums, where applicable) owed by the Parent
and its subsidiaries:


<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
(in millions)                                                       Maturity         Interest               December 31,
                                                                        date         rate          --------------------
                                                                                                     1996          1995
<S>                                                                <C>              <C>            <C>           <C>

SENIOR
Parent: Floating-Rate Medium-Term Notes                            1996-99          Various        $1,571        $1,478
    Notes (1)                                                      1996-98          11%                55           200
    Medium-Term Notes (1)                                          1996-2002        7.69-10.83%       359            25
Notes payable by subsidiaries                                                                          68            28
Obligations of subsidiaries under capital leases (Note 6)                                              67            52
                                                                                                   ------        ------
  Total senior debt                                                                                 2,120         1,783
                                                                                                   ------        ------

SUBORDINATED
Parent: Floating-Rate Notes (2)(3)                                 1997             Various           100           101
        Floating-Rate Notes (2)(4)(5)                              1997             Various           100           100
        Floating-Rate Notes (2)(4)                                 1997             Various            83             -
        Floating-Rate Capital Notes (2)(4)(6)                      1998             Various           200           200
        Floating-Rate Notes (2)(4)                                 2000             Various           118           118
        Capital Notes (6)                                          1999             8.625%            190             -
        Notes                                                      1997             12.75%             70             -
        Notes (1)(7)(8)                                            2002             8.15%              97             -
        Notes                                                      2002             8.75%             201           199
        Notes                                                      2002             8.375%            149           149
        Notes                                                      2003             6.875%            150           150
        Notes                                                      2003             6.125%            249           249
        Notes (1)                                                  2004             9.125%            137             -
        Notes (1)(7)(8)                                            2004             9.0%              121             -
        Notes (1)                                                  2006             6.875%            499             -
        Notes (1)                                                  2006             7.125%            299             -
        Medium-Term Notes (1)                                      1998-2002        9.38-11.25%       177             -
                                                                                                   ------        ------
  Total subordinated debt                                                                           2,940         1,266
                                                                                                   ------        ------
    Total senior and subordinated debt                                                             $5,060        $3,049
                                                                                                   ------        ------
                                                                                                   ------        ------
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) The Company entered into interest rate swap agreements for substantially
    all of these Notes, whereby the Company receives fixed-rate interest
    payments approximately equal to interest on the Notes and makes interest
    payments based on an average three- or six-month LIBOR rate.
(2) Notes are currently redeemable in whole or in part, at par.
(3) Subject to a maximum interest rate of 13% due to the purchase of an
    interest rate cap.
(4) May be redeemed in whole, at par, at any time in the event withholding
    taxes are imposed by the United States.
(5) Subject to a maximum interest rate of 13%.
(6) Mandatory Equity Notes.
(7) These Notes are redeemable at various future dates, in whole or in part, at
    par, prior to maturity.
(8) The interest rate swap agreement for these Notes is callable by the
    counter-party prior to the maturity of the Notes.


    At December 31, 1996, the principal payments, including sinking fund
payments, on senior and subordinated debt are due as follows in the table on the
right.

    The interest rates on floating-rate notes are determined periodically by 
formulas based on certain money market rates, subject, on certain notes, to 
minimum or maximum interest rates.

    The Company's mandatory convertible debt, which is identified by note (6)
to the table above, qualifies as Tier 2 capital but is subject to discounting
and note fund


-----------------------------------------------------------------------------
(in millions)                                             Parent      Company

1997                                                      $1,168       $1,173
1998                                                         992          999
1999                                                         347          352
2000                                                         118          128
2001                                                         359          366
Thereafter                                                 1,941        2,042
                                                          ------       ------
  Total                                                   $4,925       $5,060
                                                          ------       ------
                                                          ------       ------
-----------------------------------------------------------------------------


54
<PAGE>

restrictions under the risk-based capital rules. The terms of the $200 million
of the Mandatory Equity Notes, due in 1998, and $190 million Mandatory Equity
Notes, due in 1999, require the Company to sell or exchange with the noteholder
the Company's common stock, perpetual preferred stock or other capital
securities at maturity or earlier redemption of the Notes. At December 31, 1996,
$200 million of stockholders' equity had been designated for the retirement or
redemption of those Notes.

    Certain of the agreements under which debt has been issued contain
provisions that may limit the merger or sale of the Bank and the issuance of its
capital stock or convertible securities. The Company was in compliance with the
provisions of the borrowing agreements at December 31, 1996.


10  GUARANTEED PREFERRED BENEFICIAL INTERESTS IN
    COMPANY'S SUBORDINATED DEBENTURES
--------------------------------------------------------------------------------

In 1996, the Company established four separate special purpose trusts, which
collectively issued $1,150 million in trust preferred securities as described
below. The proceeds from such issuances, together with the proceeds of the
related issuances of common securities of the trusts, were invested in junior
subordinated deferrable interest debentures (debentures) of the Company. The
purpose of issuing these trust preferred securities was to provide the Company
with a more cost-effective means of obtaining Tier 1 capital for regulatory
purposes than if the Company itself were to issue additional preferred stock
because the Company is allowed to deduct, for income tax purposes, distributions
to the holders of the trust preferred securities. The sole assets of these
special purpose trusts are the debentures. These debentures rank junior to the
senior and subordinated debt issued by the Company. The Company owns all of the
common securities of the four trusts. The preferred securities issued by the
trusts rank senior to the common securities. Concurrent with the issuance of the
preferred securities by the trusts, the Company issued guarantees for the
benefit of the security holders. The obligations of the Company under the
debentures, the indentures, the relevant trust agreements and the guarantees, in
the aggregate, constitute a full and unconditional guarantee by the Company of
the obligations of the trusts under the trust preferred securities and rank
subordinate and junior in right of payment to all liabilities of the Company.

    Listed below are the series of trust preferred securities of Wells Fargo
Capital A, Wells Fargo Capital B, Wells Fargo Capital C and Wells Fargo Capital
I issued at $1,000 per security. The distributions are cumulative and payable
semi-annually on the first day of June and December for Wells Fargo Capital A,
Wells Fargo Capital B and Wells Fargo Capital C and on the fifteenth day of June
and December for Wells Fargo Capital I. The trust preferred securities are
subject to mandatory redemption at the stated maturity date of the debentures,
upon repayment, or earlier, pursuant to the terms of the Trust Agreement.

WELLS FARGO CAPITAL A This trust issued $300 million in trust preferred
securities in November 1996 and concurrently invested $309.3 million in
debentures of the Company with a stated maturity of December 1, 2026. This class
of trust preferred securities will accrue semi-annual distributions of $40.63
per security (8.13% annualized rate).

WELLS FARGO CAPITAL B This trust issued $200 million in trust preferred
securities in November 1996 and concurrently invested $206.2 million in
debentures of the Company with a stated maturity of December 1, 2026. This class
of trust preferred securities will accrue semi-annual distributions of $39.75
per security (7.95% annualized rate).

WELLS FARGO CAPITAL C This trust issued $250 million in trust preferred
securities in November 1996 and concurrently invested $257.8 million in
debentures of the Company with a stated maturity of December 1, 2026. This class
of trust preferred securities will accrue semi-annual distributions of $38.65
per security (7.73% annualized rate).

WELLS FARGO CAPITAL I This trust issued $400 million in trust preferred
securities in December 1996 and concurrently invested $412.4 million in
debentures of the Company with a stated maturity of December 15, 2026. This
class of trust preferred securities will accrue semi-annual distributions of
$39.80 per security (7.96% annualized rate).

On and after December 2006, each of the series of trust preferred securities may
be redeemed and the corresponding debentures may be prepaid at the option of the
Company, subject to Federal Reserve approval, at declining redemption prices.
Prior to December 2006, the securities may be redeemed at the option of the
Company on the occurrence of certain events that result in a negative tax
impact, negative regulatory impact on the trust preferred securities of the
Company or negative legal or regulatory impact on the appropriate special
purpose trust which would define it as an investment company. In addition, the
Company has the right to defer payment of interest on the debentures and,
therefore, distributions on the trust preferred securities for up to five years.


                                                                              55
<PAGE>

11   PREFERRED STOCK
--------------------------------------------------------------------------------

Of the 25,000,000 shares authorized, there were 6,600,000 shares and 2,327,500
shares of preferred stock issued and outstanding at December 31, 1996 and 1995,
respectively. All preferred shares rank senior to common shares both as to
dividends and liquidation preference but have no general voting rights.

     The following is a summary of preferred stock (adjustable and fixed):

<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------------------------------------
                                                   Shares issued     Carrying amount          Adjustable        Dividends declared
                                                 and outstanding        (in millions)     dividends rate              (in millions)
                                         -----------------------     ---------------   -----------------   -----------------------
                                                     December 31,        December 31,  Minimum   Maximum    Year ended December 31,
                                         -----------------------     ---------------                       -----------------------
                                              1996          1995      1996      1995                          1996    1995    1994
<S>                                     <C>           <C>           <C>       <C>         <C>      <C>        <C>     <C>      <C>

Adjustable-Rate Cumulative, Series A             -             -     $   -     $   -       6.0%     12.0%     $  -    $  -     $ 2
  (Liquidation preference $50)(1)

Adjustable-Rate Cumulative, Series B     1,500,000     1,500,000        75        75       5.5      10.5         4       5       4
  (Liquidation preference $50)

9% Cumulative, Series C                          -       477,500         -       239         -         -        21      21      21
  (Liquidation preference $500)(2)

8 7/8% Cumulative, Series D                350,000       350,000       175       175         -         -        16      16      16
  (Liquidation preference $500)

9 7/8% Cumulative, Series F                      -             -         -         -         -         -        12       -       -
  (Liquidation preference $200)(3)(4)

9% Cumulative, Series G                    750,000             -       150         -         -         -        10       -       -
  (Liquidation preference $200)(3)

6.59%/Adjustable Rate Noncumulative
  Preferred Stock, Series H              4,000,000             -       200         -       7.0      13.0         4       -       -

  (Liquidation preference $50)           ---------     ---------      ----      ----                           ---     ---     ---
    Total                                6,600,000     2,327,500      $600      $489                           $67     $42     $43
                                         ---------     ---------      ----      ----                           ---     ---     ---
                                         ---------     ---------      ----      ----                           ---     ---     ---
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  In March 1994, the Company redeemed all $150 million of its Series A
     preferred stock.
(2)  In December 1996, the Company redeemed all $239 million of its Series C
     preferred stock.
(3)  On April 1, 1996, the Series F and Series G preferred stock were converted
     from First Interstate preferred stock into the right to receive one share
     of the Company's preferred stock.
(4)  In November 1996, the Company redeemed all $200 million of its Series F
     preferred stock.


ADJUSTABLE-RATE CUMULATIVE PREFERRED STOCK, SERIES A In March 1994, the Company
redeemed all $150 million of its Series A preferred stock at a price of $50 per
share plus accrued and unpaid dividends. Dividends were cumulative and payable
on the last day of each calendar quarter. For each quarterly period, the
dividend rate was 2.75% less than the highest of the three-month Treasury bill
discount rate, 10-year constant maturity Treasury security yield or 20-year
constant maturity Treasury bond yield, but limited to a minimum of 6% and a
maximum of 12% per year. The average dividend rate was 6.1% (annualized) in
1994.

ADJUSTABLE-RATE CUMULATIVE PREFERRED STOCK, SERIES B These shares were
redeemable at the option of the Company through May 14, 1996 at a price of
$51.50 per share and, thereafter, at $50 per share plus accrued and unpaid
dividends. Dividends are cumulative and payable quarterly on the 15th of
February, May, August and November. For each quarterly period, the dividend rate
is 76% of the highest of the three-month Treasury bill discount rate, 10-year
constant maturity Treasury security yield or 20-year constant maturity Treasury
bond yield, but limited to a minimum of 5.5% and a maximum of 10.5% per year.
The average dividend rate was 5.5%, 5.8% and 5.7% during 1996, 1995 and 1994,
respectively.

9% CUMULATIVE PREFERRED STOCK, SERIES C In December 1996, the Company redeemed
all $239 million of its Series C preferred stock at a price of $500 per share
plus accrued and unpaid dividends. This class of preferred stock had been issued
as depositary shares, each representing one-twentieth of a share of the Series C
preferred


56
<PAGE>

stock. Dividends of $11.25 per share (9% annualized rate) were cumulative and
payable on the last day of each calendar quarter.

8 7/8% CUMULATIVE PREFERRED STOCK, SERIES D This class of preferred stock has
been issued as depositary shares, each representing one-twentieth of a share of
the Series D preferred stock. These shares are redeemable at the option of the
Company on and after March 5, 1997 at a price of $500 per share plus accrued and
unpaid dividends. Dividends of $11.09 per share (8 7/8% annualized rate) are
cumulative and payable on the last day of each calendar quarter. In December
1996, the Company announced that it will redeem all outstanding depositary
shares representing its Series D preferred stock on March 5, 1997.

9 7/8% CUMULATIVE PREFERRED STOCK, SERIES F In November 1996, the Company
redeemed all $200 million of its Series F preferred stock at a price of $200 per
share plus accrued and unpaid dividends. This class of preferred stock had been
issued as depositary shares, each representing one-eighth of a share of the
Series F preferred stock. Dividends of $4.94 per share (9 7/8% annualized rate)
were cumulative and payable on the last day of each calendar quarter.

9% CUMULATIVE PREFERRED STOCK, SERIES G This class of preferred stock has been
issued as depositary shares, each representing one-eighth of a share of the
Series G preferred stock. These shares are redeemable at the option of the
Company on or after May 29, 1997 at a price of $200 per share plus accrued and
unpaid dividends. Dividends of $4.50 per share (9% annualized rate) are
cumulative and payable on the last day of each calendar quarter.

6.59%/ADJUSTABLE RATE NONCUMULATIVE PREFERRED STOCK, SERIES H These shares are
redeemable at the option of the Company on or after October 1, 2001 at a price
of $50 per share plus accrued and unpaid dividends. Dividends are noncumulative
and payable on the first day of each calendar quarter at an annualized rate of
6.59% through October 1, 2001. The dividend rate after October 1, 2001 will be
equal to 0.44% plus the highest of the Treasury bill discount rate, the 10-year
constant maturity rate and the 30-year constant maturity rate, as determined in
advance of such dividend period, limited to a minimum of 7% and a maximum of
13%.


12   COMMON STOCK, ADDITIONAL PAID-IN CAPITAL AND STOCK PLANS
--------------------------------------------------------------------------------

COMMON STOCK
--------------------------------------------------------------------------------

The following table summarizes common stock reserved, issued, outstanding and
authorized as of December 31, 1996:

--------------------------------------------------------------------------------
                                                                Number of shares

Tax Advantage and Retirement Plan                                      2,718,228
Long-Term and Equity Incentive Plans                                   3,780,721
Dividend Reinvestment and
  Common Stock Purchase Plan                                           4,012,662
Employee Stock Purchase Plan                                             673,197
Director Option Plans                                                    164,599
Stock Bonus Plan                                                          14,405
                                                                     -----------
  Total shares reserved                                               11,363,812
Shares issued and outstanding                                         91,474,425
Shares not reserved                                                   47,161,763
                                                                     -----------
  Total shares authorized (1)                                        150,000,000
                                                                     -----------
                                                                     -----------
--------------------------------------------------------------------------------

(1)  In 1996, shareholders approved an increase in the authorized shares of
     common stock to 500,000,000. This will become effective when an amendment
     to the Restated Certificate of Incorporation is filed with the Secretary of
     State of Delaware.


     Under the terms of mandatory convertible debt, the Company must exchange
with the noteholder, or sell, various capital securities of the Company as
described in Note 9 to the Financial Statements.


ADDITIONAL PAID-IN CAPITAL
--------------------------------------------------------------------------------

Repurchases made in connection with the Company's stock repurchase program
result in a reduction of the additional paid-in capital (APIC) account equal to
the amount paid in repurchasing the stock, less the $5 per share representing
par value that is charged to the common stock account. In order to absorb future
repurchases of common stock, the Company transferred $1 billion from Retained
Earnings to APIC in each of the years 1995 and 1994.


                                                                              57
<PAGE>

DIRECTOR OPTION PLANS
--------------------------------------------------------------------------------

The 1990 Director Option Plan (1990 DOP) provides for annual grants of options
to purchase 500 shares of common stock to each non-employee director elected or
re-elected at the annual meeting of shareholders. Non-employee directors who
join the Board between annual meetings receive options on a prorated basis. The
options may be exercised until the tenth anniversary of the date of grant; they
become exercisable after one year at an exercise price equal to the fair market
value of the stock at the time of grant. The maximum total number of shares of
common stock issuable under the 1990 DOP is 100,000 in the aggregate and 20,000
in any one calendar year. No compensation expense was recorded for the stock
options under the 1990 DOP, as the exercise price was equal to the quoted market
price of the stock at the time of the grant.

     The 1987 Director Option Plan (1987 DOP) allows participating directors to
file an irrevocable election to receive stock options in lieu of their retainer
to be earned in any one calendar year. The options become exercisable after one
year and may be exercised until the tenth anniversary of the date of grant.
Options granted prior to 1995 have an exercise price of $1 per share. Commencing
in 1995, options granted have an exercise price equal to 50 percent of the
quoted market price of the stock at the time of grant. Compensation expense for
the 1987 DOP is measured as the difference between the quoted market price of
the stock at the date of grant less the option exercise price. This expense is
accrued as retainers are earned.


EMPLOYEE STOCK PLANS
--------------------------------------------------------------------------------

LONG-TERM AND EQUITY INCENTIVE PLANS The Wells Fargo & Company Long-Term
Incentive Plan (LTIP) became effective in 1994. The LTIP supersedes the 1990
Equity Incentive Plan (1990 EIP), which is itself the successor to the original
1982 Equity Incentive Plan (1982 EIP). No additional awards or grants will be
issued under the 1990 or 1982 EIPs.

     The LTIP provides for awards of restricted shares in addition to the stock
options, stock appreciation rights and share rights that could have been awarded
under the 1990 EIP. Employee stock options granted under the LTIP can be granted
with exercise prices at or, unlike the 1990 EIP, above the current value of the
common stock and, except for incentive stock options, can have terms longer than
10 years, the maximum provided in the 1990 EIP. Employee stock options generally
become fully exercisable over 3 years from the grant date. Upon termination of
employment, the option period is reduced or the options are canceled. The LTIP
also provides for grants to recipients not limited to present key employees of
the Company. The total number of shares of common stock issuable under the LTIP
is 2,500,000 in the aggregate
(excluding outstanding awards under the 1990 and 1982 EIPs) and 800,000 in any
one calendar year. No compensation expense was recorded for the stock options
under the LTIP (or 1990 and 1982 EIPs), as the exercise price was equal to the
quoted market price of the stock at the time of grant.

     Loans may be made, at the discretion of the Company, to assist the
participants of the LTIP and the EIPs in the acquisition of shares under
options. The total of such interest-bearing loans were $2.9 million and $5.8
million at December 31, 1996 and 1995, respectively.

     The holders of the restricted share rights are entitled at no cost to the
shares of common stock represented by the restricted share rights held by each
person five years after the restricted share rights were granted. Upon receipt
of the restricted share rights, holders are entitled to receive quarterly cash
payments equal to the cash dividends that would be paid on the number of common
shares equal to the number of restricted share rights. Except in limited
circumstances, restricted share rights are canceled upon termination of
employment. In 1996 and 1995, 95,233 and 69,778 restricted share rights were
granted with a weighted-average grant date fair value of $236.87 and $173.90,
respectively. As of December 31, 1996, the LTIP, the 1990 EIP and the 1982 EIP
had 199,014, 218,434 and 12,483 restricted share rights outstanding,
respectively, to 1,442, 648 and 49 employees or their beneficiaries,
respectively. The compensation expense for the restricted share rights equals
the market price at the time of grant and is accrued on a straight-line basis
over the vesting period.


58
<PAGE>

OTHER STOCK PLANS Pursuant to the Merger agreement, the First Interstate stock
option plans were converted into stock option plans to purchase the Company's
common stock based on the original stock option plan and the agreed upon
exchange ratio (see Note 2 for additional information concerning the Merger).

     The stock option plans adopted in 1988 and 1991, by First Interstate,
provided for the granting of options to key employees to purchase common stock
of First Interstate at a price not less than 100% of the fair market value on
the date of grant. The First Interstate Bancorp 1991 Director Option Plan, as
amended and restated, provided for the granting to non-employee directors of
options to purchase common stock of First Interstate at a price not less than
100% of the fair market value on the date of grant. Pursuant to the Merger
agreement, each outstanding and unexercised option granted by First Interstate
was converted into an option to purchase Company common stock based on the
original plan and the agreed upon exchange ratio. As a result of the change in
control, all outstanding First Interstate options became exercisable as of April
1, 1996. The 1988 and 1991 First Interstate stock option plans also provided for
the issuance of restricted common stock. As of April 1, 1996, all outstanding
restricted shares became vested and were issued. As no additional awards were
made under these plans and all outstanding grants became fully vested at the
time of the Merger, no compensation expense was recognized by the Company for
these plans in 1996.

     The following table is a summary of the Company's stock option activity and
related information for the three years ended December 31, 1996:

<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------------------------------------
                                   1990 and 1987 DOP                      LTIP         1990 and 1982 EIP          First Interstate
                                 -------------------       -------------------       -------------------       -------------------
                                 Number    Weighted-       Number    Weighted-       Number    Weighted-       Number    Weighted-
                                             average                   average                   average                   average
                                            exercise                  exercise                  exercise                  exercise
                                               price                     price                     price                     price
<S>                             <C>         <C>        <C>            <C>        <C>            <C>          <C>           <C>

OPTIONS OUTSTANDING AS
  OF DECEMBER 31, 1993           24,158      $ 72.35            -      $     -    2,007,400      $ 64.23
                                 ------                 ---------                 ---------
1994:
Granted                           6,149       132.97      284,000       146.75            -            -
Transferred                           -            -      400,400       110.65     (400,400)      110.65
Canceled                              -            -      (28,500)      110.75      (28,665)       73.71
Exercised                        (2,000)       77.09         (720)      110.75     (303,947)       52.29
                                 ------                 ---------                 ---------
OPTIONS OUTSTANDING AS
  OF DECEMBER 31, 1994           28,307        85.18      655,180       126.27    1,274,388        66.86
                                 ------                 ---------                 ---------
1995:
Granted                           7,264       134.83      284,700       209.27            -            -
Canceled                              -            -       (8,500)      121.34       (2,330)       75.63
Exercised                        (2,000)       72.47      (66,870)      110.75     (471,625)       63.73
                                 ------                 ---------                 ---------
OPTIONS OUTSTANDING AS
  OF DECEMBER 31, 1995           33,571        96.68      864,510       154.87      800,433        68.69
                                 ------                 ---------                 ---------
1996:
GRANTED                          11,391       225.70      232,620       273.86            -            -
ACQUIRED (1)                          -            -            -            -            -            -      926,857       $93.78
CANCELED                              -            -       (9,280)      215.27            -            -      (10,420)       95.49
EXERCISED                          (500)       66.25      (33,922)      130.73     (121,444)       65.48     (499,472)       97.94
                                 ------                 ---------                 ---------                   -------
OPTIONS OUTSTANDING AS
  OF DECEMBER 31, 1996           44,462      $130.08    1,053,928      $181.38      678,989      $ 69.26      416,965       $88.74
                                 ------      -------    ---------      -------    ---------      -------      -------       ------
                                 ------      -------    ---------      -------    ---------      -------      -------       ------
Outstanding options
  exercisable as of:
  DECEMBER 31, 1996              33,071      $ 97.14      544,508      $138.54      678,989      $ 69.26      416,965       $88.74
  December 31, 1995              26,307        86.15      287,875       121.78      800,433        68.69
  December 31, 1994              22,158        71.92      371,180       110.64    1,274,388        66.86
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  Options acquired from First Interstate pursuant to Merger agreement, April
     1, 1996.


                                                                              59
<PAGE>

     The following table is a summary of selected information for the Company's
compensatory stock option plans:

<TABLE>
<CAPTION>

-------------------------------------------------------------------------------------
                                                                    December 31, 1996
                                          -------------------------------------------
                                              Weighted-         Number      Weighted-
                                                average                       average
                                              remaining                      exercise
                                            contractual                         price
                                          life (in yrs.)
<S>                                               <C>         <C>            <C>

RANGE OF EXERCISE PRICES
1990 AND 1987 DOP (1)
$1.00
  Options outstanding/exercisable                   5.2          4,919        $  1.00
$44.63-$93.00
  Options outstanding/exercisable                   4.0         11,438          71.30
$108.00-$160.00
  Options outstanding                               6.6         18,643         139.49
  Options exercisable                                           16,714         143.13
$236.38-$250.38
  Options outstanding                               8.3          9,462         249.69
  Options exercisable                                                -              -
LTIP (2)
$107.25-$159.63
  Options outstanding                               6.5        556,310         128.98
  Options exercisable                                          459,765         125.12
$211.38-$277.00
  Options outstanding                               8.4        497,618         239.95
  Options exercisable                                           84,743         211.38
1990 AND 1982 EIP
$40.50-$78.63
  Options outstanding/exercisable                   4.9        678,989          69.26
FIRST INTERSTATE
$27.75-$83.06
  Options outstanding/exercisable                   4.2        214,078          65.96
$100.31-$125.81
  Options outstanding/exercisable                   8.2        202,887         112.77
-------------------------------------------------------------------------------------
</TABLE>

(1)  The weighted-average fair value of options granted were $90.51 and $70.98
     for 1996 and 1995, respectively.
(2)  The weighted-average fair value of options granted were $90.86 and $73.27
     for 1996 and 1995, respectively.


EMPLOYEE STOCK PURCHASE PLAN Transactions involving the Employee Stock Purchase
Plan (ESPP) are summarized as follows:

<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------------------------------------
                                                                  1996                          1995                          1994
                                                 ---------------------         ---------------------         ---------------------
                                                 NUMBER      WEIGHTED-         Number      Weighted-         Number      Weighted-
                                                               AVERAGE                       average                       average
                                                              EXERCISE                      exercise                      exercise
                                                                 PRICE                         price                         price
<S>                                            <C>            <C>            <C>            <C>            <C>            <C>

Options outstanding, beginning of year          129,980        $182.25        143,404        $153.38        160,476        $114.73
  Granted                                       157,878         227.80        143,072         182.25        159,515         153.38
  Canceled (1)                                  (62,524)        189.06        (73,359)        158.53        (83,734)        122.17
  Exercised                                     (76,803)        182.25        (83,137)        153.38        (92,853)        114.73
                                                -------                       -------                       -------
Options outstanding, end of year                148,531        $227.80        129,980        $182.25        143,404        $153.38
                                                -------        -------        -------        -------        -------        -------
                                                -------        -------        -------        -------        -------        -------
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  At the beginning of the option period, participants are granted an
     additional 50% of options that are exercised only to the extent that the
     closing option price is sufficiently below the market value at grant date
     and based on the participant's level of participation. Since the closing
     option price was higher in 1996, 1995 and 1994, the additional option
     grants were canceled. These options represent a majority of the canceled
     options shown above.


     Options to purchase 750,000 shares of common stock may be granted under the
ESPP. Employees of the Company who have completed their introductory period of
employment, except hourly employees, are eligible to participate. Certain highly
compensated employees may be excluded from participation at the discretion of
the Management Development and Compensation Committee of the Board of Directors.
The plan provides for an option price of the lower of market value at grant date
or 85% to 100% (as determined by the Board of Directors for each option period)
of the market value at the end of the one-year option period. For the current
option period ending July 31, 1997, the Board approved a closing option price of
85% of the market value. The plan is noncompensatory and results in no expense
to the Company.

     None of the options outstanding as of December 31, 1996, 1995 and 1994 was
exercisable. For options outstanding as of December 31, 1996, the exercise price
for each option was $227.80, and the remaining contractual life was seven
months. The fair value of options granted in 1996 and 1995 was $52.46 and
$39.25, respectively.

     The total compensation expense recognized for the employee stock plans
described above was $10 million, $8 million and $8 million in 1996, 1995 and
1994, respectively.

     In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123 (FAS 123), Accounting for Stock-Based Compensation. This
Statement establishes a new fair value based accounting method for stock-based
compensation plans and encourages (but does not require) employers to adopt the
new method in place of the provisions of APB 25. Companies may continue to apply
the accounting provisions of APB 25 in determining net income; however, they
must apply the disclosure requirements of FAS 123 for all grants issued after
1994.


60
<PAGE>

The Company elected to continue to apply the provisions of APB 25 in accounting
for the employee stock plans described on the preceding pages. Accordingly, no
compensation cost has been recognized for fixed stock options granted under the
LTIP, 1990 and 1982 EIP and First Interstate plans or the ESPP stock purchase
plan.

     Had compensation cost for these employee stock plans been determined based
on the new fair value method under FAS 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below.

------------------------------------------------------------------------------
(in millions)                                           Year ended December 31,
                                                      ------------------------
                                                        1996              1995


Net income
  As reported                                         $1,071            $1,032
  Pro forma (1)                                        1,063             1,030
Net income per common share
  As reported                                         $12.21            $20.37
  Pro forma (1)                                        12.12             20.33
------------------------------------------------------------------------------

(1)  The pro forma amounts noted above only reflect the effects of stock-based
     compensation grants made after 1994. Because stock options are granted each
     year and generally vest over three years, these pro forma amounts may not
     reflect the full effect of applying the (optional) fair value method
     established by FAS 123 that would be expected if all outstanding stock
     option grants were accounted for under this method.


     The fair value of each option grant is estimated based on the date of grant
using a modified Black Scholes option-pricing model. For the fixed stock option
plans, the following weighted-average assumptions were used for 1996 and 1995,
respectively: dividend yield of 1.4% and 1.6%; expected volatility of 29.0% and
33.3%; risk-free interest rates of 6.0% and 5.7% and expected life of 5.4 years
for both years. For the stock purchase plan, the following assumptions were used
for 1996 and 1995, respectively: dividend yield of 1.8% for both years; expected
volatility of 23.8% and 18.0%; risk-free interest rates of 5.8% and 5.7% and
expected life of one year for both years.

     For information on employee stock ownership through the Tax Advantage and
Retirement Plan, see Note 13.


DIVIDEND REINVESTMENT PLAN
--------------------------------------------------------------------------------

The Dividend Reinvestment and Common Stock Purchase and Share Custody Plan
allows holders of the Company's common stock to purchase additional shares
either by reinvesting all or part of their dividends, or by making optional cash
payments. Participants making optional cash payments to purchase additional
shares may do so by making payments between $150 and $2,000 per month. All
purchases of additional shares are made at fair market value. Shares may also be
held in custody under the plan even without the reinvestment of dividends.
During 1996 and 1995, 103,580 and 87,868 shares, respectively, were issued under
the plan.


13   EMPLOYEE BENEFITS AND OTHER EXPENSES
--------------------------------------------------------------------------------


RETIREMENT PLAN
--------------------------------------------------------------------------------

The Company's retirement plan is known as the Tax Advantage and Retirement Plan
(TAP), a defined contribution plan. As part of TAP, the Company makes basic
retirement contributions to employee retirement accounts. Effective July 1994,
the Company increased its basic retirement contributions from 4% to 6% of the
total of employee base salary plus payments from certain bonus plans (covered
compensation). The Company also makes special transition contributions related
to the termination of a prior defined benefit plan of the Company ranging from
 .5% to 5% of covered compensation for certain employees. The plan covers
salaried employees with at least one year of service and contains a vesting
schedule graduated from three to seven years of service.


                                                                              61
<PAGE>

     Prior to July 1994, the Company made supplemental retirement contributions
of 2% of employee-covered compensation. All salaried employees with at least one
year of service were eligible to receive these Company contributions, which
vested immediately. Effective July 1994, the supplemental retirement
contributions were discontinued, except for those contributions that are made to
employees hired before January 1, 1992. Those employees will continue to receive
the supplemental 2% contribution and the 4% basic retirement contributions until
fully vested. Upon becoming 100% vested, the basic retirement contribution will
increase to 6% of employee-covered compensation and the supplemental 2%
contributions will end.

     Salaried employees who have at least one year of service are eligible to
contribute to TAP up to 10% of their pretax covered compensation through salary
deductions under Section 401(k) of the Internal Revenue Code, although a lower
contribution limit may be applied to certain employees in order to maintain the
qualified status of the plan. The Company makes matching contributions of up to
4% of an employee's covered compensation for those who have at least three years
of service and elect to contribute under the plan. Effective July 1994, the
Company began to partially match contributions by employees with at least one
but less than three years of service. For such employees who elect to contribute
under the plan, the Company matches 50% of each dollar on the first 4% of the
employee's covered compensation. The Company's matching contributions are
immediately vested and, similar to retirement contributions, are tax deductible
by the Company.

     Employees direct the investment of their TAP funds and may elect to invest
in the Company's common stock.

     As a result of the Merger, certain benefit plans were acquired from First
Interstate. These plans and their current status are described as follows.

     First Interstate had a defined contribution plan available to all eligible
employees who had completed one year of service. Employees could contribute up
to 6% of their base salary, which was matched 150% by First Interstate.
Additional pre-tax or after-tax contributions could be made by employees of up
to 6% or 10%, respectively, of their base salary with no matching contributions.
Pursuant to the Merger agreement, accounts for active employees became fully
vested on March 28, 1996. On July 1, 1996, this plan was merged into TAP, and
all eligible employees began participation in TAP.

     Expenses related to TAP for the years ended December 31, 1996, 1995 and
1994 were $95 million, $57 million and $56 million, respectively.

     First Interstate also had a noncontributory defined benefit plan that
provides retirement benefits that are a function of both years of service and
the highest average compensation for any five (consecutive) year period during
the last 10 years before retirement. Pursuant to the Merger agreement, accrued
benefits, as of June 30, 1996, for all participants employed as of March 28,
1996 became fully vested. Effective June 30, 1996, all accrued benefits under
the plan were frozen. There is no intention at the present time to terminate the
plan.

     The funding policy for the defined benefit retirement plan is to make
contributions sufficient to meet the minimum requirements set forth in the
Employee Retirement Income Security Act of 1974, with additional contributions
being made periodically when deemed appropriate. The following table sets forth
the funded status of the plan as of its Measurement Date (September 30, 1996)
and amounts recognized in the Company's Consolidated Balance Sheet as of
December 31, 1996. (The plan was not included in the Company's Consolidated
Balance Sheet as of December 31, 1995.)


-------------------------------------------------------------------------------
(in millions)                                                 DECEMBER 31, 1996


Actuarial present value of benefit obligations:

Accumulated benefit obligation (fully vested)                            $975.2
                                                                         ------
                                                                         ------
Plan assets at fair value(1)                                              988.5
Projected benefit obligation                                              975.2
                                                                         ------
Plan assets in excess of projected benefit obligation                      13.3
Unrecognized net gain (due to past experience different from
  assumptions made and effects of changes in assumptions)                 (13.3)
                                                                         ------
Prepaid pension asset (accrued pension liability)                        $    -
                                                                         ------
                                                                         ------
-------------------------------------------------------------------------------

(1)  Primarily invested in equity securities.


62
<PAGE>

     The net periodic pension cost for 1996 included the following:


-------------------------------------------------------------------------------
(in millions)                                      YEAR ENDED DECEMBER 31, 1996


Service cost (benefits earned during the period)                         $  7.4
Interest cost on projected benefit obligation                              52.9
Actual return on plan assets                                              (59.1)
Net amortization and deferral                                              (1.2)
                                                                         ------
  Net periodic pension cost                                              $    -
                                                                         ------
                                                                         ------
-------------------------------------------------------------------------------


     The weighted-average discount rate used in determining the pension benefit
obligation was 7.5%. No increase in future salary levels was assumed as all
accrued benefits under the plan were frozen effective June 30, 1996. The
expected long-term rate of return on assets was 8.5%.


HEALTH CARE AND LIFE INSURANCE
-------------------------------------------------------------------------------

The Company provides health care and life insurance benefits for certain active
and retired employees. The Company reserves its right to terminate these
benefits at any time. The health care benefits for active and retired employees
are self-funded by the Company with the Point-of-Service Managed Care Plan or
provided through health maintenance organizations (HMOs). The amount of
subsidized health care coverage for employees who retired prior to January 1,
1993 is based upon their Medicare eligibility. The amount of subsidized health
care coverage for employees who retire after December 31, 1992 is based upon
their eligibility to retire as of January 1, 1993 and their years of service at
the time of retirement. Active employees with an adjusted service date after
September 30, 1992 are not eligible for subsidized health care coverage upon
retirement. Employees with an adjusted service date after January 1, 1994 are
not eligible for Company paid life insurance benefits.

     As a result of the Merger, certain benefit plans were acquired from First
Interstate. These plans and their current status are described as follows.

     First Interstate had a group benefits plan that provided health and welfare
benefits to active employees. Pursuant to the Merger agreement, portions of the
First Interstate plan were discontinued, effective June 30, 1996, and eligible
employees were allowed to participate in similar plans provided by the Company.
The remainder of the programs under the First Interstate group benefits plan
will be discontinued for active employees after December 31, 1996, and eligible
employees will be allowed to participate in similar plans provided by the
Company.

     First Interstate also provided health care benefits to retired employees
through its group benefits plan. Employees hired prior to January 1, 1992 and
who retire at or after age 55 with at least 10 years of service were eligible
for a fixed contribution from First Interstate. Employees hired after December
31, 1991 were not eligible for retiree health care benefits. This plan will be
discontinued after December 31, 1996. All active and retired employees covered
under the plan will become eligible for similar benefits provided by the
Company.

     The Company recognized the cost of health care benefits for active eligible
employees by expensing contributions totaling $78 million, $37 million and $45
million in 1996, 1995 and 1994, respectively. Life insurance benefits for active
eligible employees are provided through an insurance company. The Company
recognizes the cost of these benefits by expensing the annual insurance
premiums, which were $1.2 million in 1996 and $2 million in 1995 and 1994. At
December 31, 1996, the Company had approximately 33,400 active eligible
employees and 10,000 retirees participating in these plans.

     Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106 (FAS 106), Employers' Accounting for Postretirement
Benefits Other Than Pensions. This Statement changed the method of accounting
for postretirement benefits other than pensions from a cash to an accrual basis.

     Under FAS 106, the determination of the accrued liability requires a
calculation of the accumulated postretirement benefit obligation (APBO). The
APBO represents the actuarial present value of postretirement benefits other
than pensions to be paid out in the future (e.g., health benefits to be paid for
retirees) that have been earned as of the end of the year. The unrecognized APBO
at the time of adoption of FAS 106 (transition obligation) of $142 million for
postretirement health care benefits is being amortized over 20 years.


                                                                              63
<PAGE>

     The following table sets forth the net periodic cost for postretirement
health care benefits for 1996 and 1995:


-------------------------------------------------------------------------------
(in millions)                                            Year ended December 31,
                                                     --------------------------
                                                        1996               1995

Interest cost on APBO                                  $14.3              $ 8.5
Amortization of transition obligation                    7.1                7.1
Amortization of net gain                                (4.2)              (3.5)
Service cost (benefits attributed to
  service during the period)                             2.0                1.1
                                                       -----              -----
  Total                                                $19.2              $13.2
                                                       -----              -----
                                                       -----              -----
-------------------------------------------------------------------------------


     The following table sets forth the funded status for postretirement health
care benefits and provides an analysis of the accrued postretirement benefit
cost included in the Company's Consolidated Balance Sheet at December 31, 1996
and 1995.


-------------------------------------------------------------------------------
(in millions)                                            Year ended December 31,
                                                     --------------------------
                                                        1996               1995

APBO (1)(2):
  Retirees                                           $ 174.7            $  64.2
  Eligible active employees                             11.4               11.9
  Other active employees                                35.1               18.7
                                                     -------            -------
                                                       221.2               94.8
Plan assets at fair value                                  -                  -
                                                     -------            -------
APBO in excess of plan assets                          221.2               94.8
Unrecognized net gain from past experience
  different from that assumed and
  from changes in assumptions                           62.0               51.3
Unrecognized transition obligation                    (113.7)            (120.8)
                                                     -------            -------
Accrued postretirement benefit cost
  (included in other liabilities)                    $ 169.5            $  25.3
                                                     -------            -------
                                                     -------            -------
-------------------------------------------------------------------------------

(1)  Based on a discount rate of 7.17% and 6.98% in 1996 and 1995, respectively.
(2)  At the time of the Merger, the Company recognized a liability of $140.7
     million for the estimated outstanding obligation related to these benefits.


     For measurement purposes, a health care cost trend rate was used to
recognize the effect of expected changes in future health care costs due to
medical inflation, utilization changes, technological changes, regulatory
requirements and Medicare cost shifting. Average annual increases of 5.5% for
HMOs and 7.5% for all other types of coverage in the per capita cost of covered
health care benefits were assumed for 1997. The rate for other coverage was
assumed to decrease gradually to 5.5% in 2001 and remain at that level
thereafter. Increasing the assumed health care trend by one percentage point in
each year would increase the APBO as of December 31, 1996 by $7.3 million and
the aggregate of the interest cost and service cost components of the net
periodic cost for 1996 by $0.4 million.

     The $10.7 million increase in the unrecognized net gain in 1996 was due to
a lower average per capita cost of health care coverage and an increase in the
discount rate, which was partially offset by an increase in the number of
participants and amortization of the previously unrecognized net gain.

     The Company also provides postretirement life insurance to certain existing
retirees. The APBO and expenses related to these benefits were not material.


OTHER EXPENSES
-------------------------------------------------------------------------------

The following table shows expenses which exceeded 1% of total interest income
and noninterest income and which are not otherwise shown separately in the
financial statements or notes thereto.


-------------------------------------------------------------------------------
(in millions)                                            Year ended December 31,
                                             ----------------------------------
                                             1996           1995           1994

Contract services                            $295           $149           $101
Operating losses (1)                          145             45             62
Telecommunications                            140             58             49
Advertising and promotion                     116             73             65
Outside professional services                 112             45             33
Postage                                        96             52             44
-------------------------------------------------------------------------------

(1)  Includes losses from litigation, fraud and other matters.


64
<PAGE>

14   INCOME TAXES
-------------------------------------------------------------------------------

Total income taxes for the years ended December 31, 1996, 1995 and 1994 were
recorded as follows:


-------------------------------------------------------------------------------
(in millions)                                            Year ended December 31,
                                             ----------------------------------
                                             1996           1995           1994

Income taxes applicable to income
  before income tax expense                  $908           $745           $613
Goodwill for tax benefits related
  to acquired assets                            -              -            (25)
                                             ----           ----           ----
  Subtotal                                    908            745            588
Stockholders' equity for
  compensation expense for tax
  purposes in excess of amounts
  recognized for financial
  reporting purposes                          (17)           (24)           (13)
Stockholders' equity for tax effect of
  the change in net unrealized gain
  (loss) on investment securities              (3)           100            (95)
                                             ----           ----           ----
    Total income taxes                       $888           $821           $480
                                             ----           ----           ----
                                             ----           ----           ----
-------------------------------------------------------------------------------


     The following is a summary of the components of income tax expense
(benefit) applicable to income before income taxes:


-------------------------------------------------------------------------------
(in millions)                                            Year ended December 31,
                                             ----------------------------------
                                             1996           1995           1994

Current:
  Federal                                    $557           $507           $472
  State and local                             182            183            146
                                             ----           ----           ----
                                              739            690            618
                                             ----           ----           ----
Deferred:
  Federal                                     139             37            (26)
  State and local                              30             18             21
                                             ----           ----           ----
                                              169             55             (5)
                                             ----           ----           ----
    Total                                    $908           $745           $613
                                             ----           ----           ----
                                             ----           ----           ----
-------------------------------------------------------------------------------


     Amounts for the current year are based upon estimates and assumptions as of
the date of this report and could vary significantly from amounts shown on the
tax returns as filed. Accordingly, the variances from the amounts previously
reported for 1995 are primarily a result of adjustments to conform to tax
returns as filed.

     The Company's income tax expense (benefit) related to investment securities
transactions was $4 million, $(7) million and $3 million for 1996, 1995 and
1994, respectively.

     The Company had net deferred tax assets of $437 million and $817 million at
December 31, 1996 and 1995, respectively. The tax effect of temporary
differences that gave rise to significant portions of deferred tax assets and
liabilities at December 31, 1996 and 1995 are presented below:


-------------------------------------------------------------------------------
(in millions)                                            Year ended December 31,
                                                        -----------------------
                                                            1996           1995

DEFERRED TAX ASSETS
Net tax-deferred expenses                                 $  879         $  196
Allowance for loan losses                                    784            717
State tax expense                                             63             56
Certain identifiable intangibles                               -             46
Foreclosed assets                                             45             42
Premises and equipment                                         -             26
Core deposit intangible                                        -              7
                                                          ------         ------
                                                           1,771          1,090
Valuation allowance                                            -              -
                                                          ------         ------
  Total deferred tax assets,
    less valuation allowance                               1,771          1,090
                                                          ------         ------
DEFERRED TAX LIABILITIES
Core deposit intangible                                      759              -
Leasing                                                      393            254
Premises and equipment                                       106              -
Investments                                                   40             10
Certain identifiable intangibles                              16              -
Other                                                         20              9
                                                          ------         ------
  Total deferred tax liabilities                           1,334            273
                                                          ------         ------
NET DEFERRED TAX ASSET                                    $  437         $  817
                                                          ------         ------
                                                          ------         ------
-------------------------------------------------------------------------------


                                                                              65
<PAGE>

     Substantially all of the Company's net deferred tax asset of $437 million
at December 31, 1996 related to net expenses (the largest of which were the net
tax-deferred expenses and the provision for loan losses, offset by the core
deposit intangible) that have been reflected in the financial statements, but
which will reduce future taxable income. At December 31, 1996, the Company did
not have any net operating loss carryforwards. The Company estimates that
approximately $401 million of the $437 million net deferred tax asset at
December 31, 1996 could be realized by the recovery of previously paid federal
taxes; however, the Company expects to actually realize the federal net deferred
tax asset by claiming deductions against future taxable income. The balance of
approximately $36 million primarily relates to approximately $448 million of net
deductions that are expected to reduce future California taxable income
(California tax law does not permit recovery of previously paid taxes). The
Company's California taxable income has averaged approximately $1.5 billion for
each of the last three years. The Company believes that it is more likely than
not that it will have sufficient future California taxable 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.

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

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
(in millions)                                                                                               Year ended December 31,
                                                 ---------------------------------------------------------------------------------
                                                                  1996                          1995                          1994
                                                 ---------------------           -------------------         ---------------------
                                                 AMOUNT              %         Amount              %         Amount              %
<S>                                               <C>           <C>             <C>           <C>            <C>             <C>

Statutory federal income tax expense and rate      $693          35.0%           $622          35.0%           $509          35.0%
Change in tax rate resulting from:
  State and local taxes on income, net of federal
    income tax benefit                              124           6.3             132           7.4             110           7.5
  Amortization of certain intangibles not
    deductible for tax return purposes              102           5.2              14            .8              17           1.2
Other                                               (11)          (.6)            (23)         (1.2)            (23)         (1.5)
                                                   ----          ----            ----          ----            ----          ----
  Effective income tax expense and rate            $908          45.9%           $745          42.0%           $613          42.2%
                                                   ----           ----           ----           ----           ----           ----
                                                   ----           ----           ----           ----           ----           ----
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

     The Company has not recognized a federal deferred tax liability of $36
million on $102 million of undistributed earnings of a foreign subsidiary
because such earnings are indefinitely reinvested in the subsidiary and are not
taxable under current law. A deferred tax liability would be recognized to the
extent the Company changed its intent to not indefinitely reinvest a portion or
all of such undistributed earnings. In addition, a current tax liability would
be recognized if the Company recovered those undistributed earnings in a taxable
manner, such as through the receipt of dividends or sale of the entity, or if
the tax law changed.


66
<PAGE>

15   PARENT COMPANY
--------------------------------------------------------------------------------

Condensed financial information of Wells Fargo & Company (Parent) is presented
below. For information regarding the Parent's long-term debt and derivative
financial instruments, see Notes 9 and 18, respectively.

<TABLE>
<CAPTION>

CONDENSED STATEMENT OF INCOME
-------------------------------------------------------------------------------------
(in millions)                                                  Year ended December 31,
                                                 ------------------------------------
                                                   1996           1995           1994
<S>                                             <C>            <C>            <C>

INCOME
Dividends from subsidiaries:
  Wells Fargo Bank, N.A.                         $1,461         $1,131         $1,001
  Other bank subsidiaries                            33              -              -
  Nonbank subsidiaries                                1              -              -
Interest income from:
  Wells Fargo Bank, N.A.                             99             86             81
  Other bank subsidiaries                             9              3              -
  Nonbank subsidiaries                                8             12             15
  Other                                              71             53             51
Noninterest income                                  163             52             38
                                                 ------         ------         ------
    Total income                                  1,845          1,337          1,186
                                                 ------         ------         ------
EXPENSE
Interest on:
  Commercial paper and
    other short-term borrowings                      10             14              8
  Senior and subordinated debt                      299            194            181
Noninterest expense                                  93             35             56
                                                 ------         ------         ------
    Total expense                                   402            243            245
                                                 ------         ------         ------
Income before income
  tax benefit and
  undistributed income
  of subsidiaries                                 1,443          1,094            941
Income tax benefit                                   17             17             27
Equity in undistributed income
  of subsidiaries:
  Wells Fargo Bank, N.A. (1)                       (455)           (26)          (138)
  Other bank subsidiaries                            48            (65)             -
  Nonbank subsidiaries                               18             12             11
                                                 ------         ------         ------
NET INCOME                                       $1,071         $1,032         $  841
                                                 ------         ------         ------
                                                 ------         ------         ------
-------------------------------------------------------------------------------------
</TABLE>

(1)  Amounts represent dividends distributed by Wells Fargo Bank, N.A. in excess
     of its 1996, 1995 and 1994 net income of $1,006 million, $1,105 million and
     $863 million, respectively.

<TABLE>
<CAPTION>

CONDENSED BALANCE SHEET
-------------------------------------------------------------------------------------
(in millions)                                                             December 31,
                                                               ----------------------
                                                                  1996           1995
<S>                                                           <C>            <C>

ASSETS
Cash and due from Wells Fargo Bank, N.A.
  (includes interest-earning deposits of
  $1,000 million and $1 million)                               $ 1,043        $   31
Investment securities at fair value                                395           424
Loans                                                              220           263
Allowance for loan losses                                           66            58
                                                               -------        ------
    Net loans                                                      154           205
                                                               -------        ------
Loans and advances to subsidiaries:
  Wells Fargo Bank, N.A.                                         2,156         1,417
  Other bank subsidiaries                                          275            90
  Nonbank subsidiaries                                              90           141
Investment in subsidiaries (1):
  Wells Fargo Bank, N.A.                                        13,912         4,322
  Other bank subsidiaries                                        1,439           203
  Nonbank subsidiaries                                             213           113
Other assets                                                     1,457           508
                                                               -------        ------
    Total assets                                               $21,134        $7,454
                                                               -------        ------
                                                               -------        ------
LABILITIES AND STOCKHOLDERS' EQUITY
Commercial paper and other
  short-term borrowings                                        $   170        $  160
Other liabilities                                                  742           270
Senior debt                                                      1,984         1,703
Subordinated debt                                                2,940         1,266
Indebtedness to subsidiaries (2)                                 1,186             -
Stockholders' equity                                            14,112         4,055
                                                               -------        ------
    Total liabilities and stockholders' equity                 $21,134        $7,454
                                                               -------        ------
                                                               -------        ------
------------------------------------------------------------------------------------
</TABLE>

(1)  The double leverage ratio, which represents the ratio of the Parent's total
     equity investment in subsidiaries to its total stockholders' equity, was
     110% and 114% at December 31, 1996 and 1995, respectively.
(2)  The increase in indebtedness to subsidiaries for 1996 represents amounts
     due to Wells Fargo Capital A, Wells Fargo Capital B, Wells Fargo Capital C
     and Wells Fargo Capital I.


                                                                              67
<PAGE>

<TABLE>
<CAPTION>

CONDENSED STATEMENT OF CASH FLOWS
----------------------------------------------------------------------------------------------------
(in millions)                                                                 Year ended December 31,
                                                                ------------------------------------
                                                                  1996           1995           1994
<S>                                                            <C>            <C>           <C>

CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                   $ 1,071         $1,032        $   841
  Adjustments to reconcile net income
    to net cash provided by
    operating activities:
    Deferred income tax benefit                                     (3)           (15)            (4)
    Equity in undistributed loss of subsidiaries                   389             79            127
    Other, net                                                     155            (52)           (24)
                                                                ------         ------         ------
Net cash provided by operating activities                        1,612          1,044            940
                                                                ------         ------         ------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Investment securities:
    At fair value:
      Proceeds from sales                                           11              4              5
      Proceeds from prepayments
        and maturities                                             206              2              -
      Purchases                                                   (183)           (59)          (175)
    At cost:
      Proceeds from prepayments
        and maturities                                               -             56            256
      Purchases                                                      -              -           (122)
  Net decrease in loans                                             51             70             24
  Net (increase) decrease in loans and
    advances to subsidiaries                                       289           (192)           529
  Net (increase) decrease in investment
    in subsidiaries                                               (216)          (266)             5
  Net decrease in securities purchased
    under resale agreements                                          -              -            250
  Other, net                                                       (88)           119             12
                                                                ------         ------         ------
Net cash provided (used) by
  investing activities                                              70           (266)           784
                                                                ------         ------         ------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net increase (decrease) in
    short-term borrowings                                           10             27             (5)
  Proceeds from issuance of senior debt                          1,260          1,230            248
  Repayment of senior debt                                      (1,183)          (811)        (1,101)
  Proceeds from issuance of
    subordinated debt                                              800              -              -
  Repayment of subordinated debt                                     -           (210)          (526)
  Proceeds from issuance of guaranteed
    preferred beneficial interests in
    Company's subordinated debentures                            1,186              -              -
  Proceeds from issuance of preferred stock                        197              -              -
  Proceeds from issuance of common stock                           117             90             57
  Redemption of preferred stock                                   (439)             -           (150)
  Repurchase of common stock                                    (2,158)          (847)          (760)
  Payment of cash dividends on
    preferred stock                                                (73)           (42)           (34)
  Payment of cash dividends on
    common stock                                                  (429)          (225)          (218)
  Other, net                                                        42             16             57
                                                                ------         ------         ------
Net cash used by financing activities                             (670)          (772)        (2,432)
                                                                ------         ------         ------
  NET CHANGE IN CASH AND CASH
    EQUIVALENTS (DUE FROM
    WELLS FARGO BANK, N.A.)                                      1,012              6           (708)
Cash and cash equivalents at
  beginning of year                                                 31             25            733
                                                                ------         ------         ------
CASH AND CASH EQUIVALENTS AT
  END OF YEAR                                                  $ 1,043         $   31        $    25
                                                                ------         ------         ------
                                                                ------         ------         ------
Noncash investing activities:
  Transfers from investment securities at cost
    to investment securities at fair value                     $     -         $  147        $     -
                                                                ------         ------         ------
                                                                ------         ------         ------
----------------------------------------------------------------------------------------------------
</TABLE>


16   LEGAL ACTIONS
--------------------------------------------------------------------------------

In the normal course of business, the Company is at all times subject to
numerous pending and threatened legal actions, some for which the relief or
damages sought are substantial. After reviewing pending and threatened actions
with counsel, management considers that the outcome of such actions will not
have a material adverse effect on stockholders' equity of the Company; the
Company is not able to predict whether the outcome of such actions may or may
not have a material adverse effect on results of operations in a particular
future period as the timing and amount of any resolution of such actions and its
relationship to the future results of operations are not known.


68
<PAGE>

17   RISK-BASED CAPITAL
--------------------------------------------------------------------------------

The Company and the Bank are subject to various regulatory capital adequacy
requirements administered by the Federal Reserve Board (FRB) and the OCC,
respectively. The Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA) required that the federal regulatory agencies adopt regulations
defining five capital tiers for banks: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized. Failure to meet minimum capital requirements can initiate
certain mandatory and possibly additional discretionary actions by regulators
that, if undertaken, could have a direct material effect on the Company's
financial statements.

     Quantitative measures, established by the regulators to ensure capital
adequacy, require that the Company and the Bank maintain minimum ratios (set
forth in the table below) of capital to risk-weighted assets. There are two
categories of capital under the guidelines. Tier 1 capital includes common
stockholders' equity, qualifying preferred stock and trust preferred securities,
less goodwill and certain other deductions (including the unrealized net gains
and losses, after applicable taxes, on available-for-sale investment securities
carried at fair value). Tier 2 capital includes preferred stock not qualifying
as Tier 1 capital, mandatory convertible debt, subordinated debt, certain
unsecured senior debt issued by the Parent and the allowance for loan losses,
subject to limitations by the guidelines. Tier 2 capital is limited to the
amount of Tier 1 capital (i.e., at least half of the total capital must be in
the form of Tier 1 capital).

     Under the guidelines, capital is compared to the relative risk related to
the balance sheet. To derive the risk included in the balance sheet, one of four
risk weights (0%, 20%, 50% and 100%) is applied to the different balance sheet
and off-balance sheet assets, primarily based on the relative credit risk of the
counterparty. For example, claims guaranteed by the U.S. government or one of
its agencies are risk-weighted at 0%. Off-balance sheet items, such as loan
commitments and derivative financial instruments, are also applied a risk weight
after calculating balance sheet equivalent amounts. One of four credit
conversion factors (0%, 20%, 50% and 100%) are assigned to loan commitments
based on the likelihood of the off-balance sheet item becoming an asset. For
example, certain loan commitments are converted at 50% and then risk-weighted at
100%. Derivative financial instruments are converted to balance sheet
equivalents based on notional values, replacement costs and remaining
contractual terms. (See Notes 5 and 18 for further discussion of off-balance
sheet items.) The capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings and
other factors.

     Management believes that, as of December 31, 1996, the Company and Bank met
all capital adequacy requirements to which they are subject.

     Under the FDICIA prompt corrective action provisions applicable to banks,
the most recent notification from the OCC categorized the Bank as well
capitalized. To be categorized as well capitalized, the institution must
maintain a total risk-based capital ratio as set forth in the following table
and not be subject to a capital directive order. There are no conditions or
events since that notification that management believes have changed the Bank's
risk-based capital category.

<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------------------------------------
(in billions)                                                                                                                To be
                                                                                                                  well capitalized
                                                                                                                 under the FDICIA
                                                                                         For capital             prompt corrective
                                                                Actual             adequacy purposes             action provisions
                                                 ---------------------         ---------------------         ---------------------
                                                 Amount          Ratio         Amount          Ratio         Amount          Ratio
<S>                                             <C>           <C>             <C>           <C>             <C>           <C>

As of December 31, 1996:
  Total capital (to risk-weighted assets)
    Wells Fargo & Company                         $10.0          11.70%        >$ 6.8         > 8.00%
                                                                               -              -
    Wells Fargo Bank, N.A.                          8.0          11.00         >  5.8         > 8.00          >$ 7.2         >10.00%
                                                                               -              -              -              -

  Tier 1 capital (to risk-weighted assets)
    Wells Fargo & Company                         $ 6.6           7.68%        >$ 3.4         > 4.00%
                                                                               -              -
    Wells Fargo Bank, N.A.                          6.2           8.53         >  2.9         > 4.00          >$ 4.4         > 6.00%
                                                                               -              -              -              -

  Tier 1 capital (to average assets)
    (Leverage ratio)
    Wells Fargo & Company                         $ 6.6           6.65%        >$ 4.0         > 4.00%(1)
                                                                               -              -
    Wells Fargo Bank, N.A.                          6.2           6.81         >  3.6         > 4.00(1)       >$ 4.5         > 5.00%
                                                                               -              -              -              -
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  The leverage ratio consists of Tier 1 capital divided by quarterly average
     total assets, excluding goodwill and certain other items. The minimum
     leverage ratio guideline is 3% for banking organizations that do not
     anticipate significant growth and that have well-diversified risk,
     excellent asset quality, high liquidity, good earnings and, in general, are
     considered top-rated, strong banking organizations.


                                                                              69
<PAGE>

18   DERIVATIVE FINANCIAL INSTRUMENTS
--------------------------------------------------------------------------------

The Company enters into a variety of financial contracts, which include interest
rate futures and forward contracts, interest rate floors and caps and interest
rate swap agreements. The contract or notional amounts of derivatives do not
represent amounts exchanged by the parties and therefore are not a measure of
exposure through the use of derivatives. The amounts exchanged are determined by
reference to the notional amounts and the other terms of the derivatives. The
contract or notional amounts do not represent exposure to liquidity risk. The
Company is not a dealer but an end-user of these instruments and does not use
them speculatively. The Company also offers contracts to its customers, but
offsets such contracts by purchasing other financial contracts or uses the
contracts for asset/liability management.

     The interest rate derivative financial instruments that are used primarily
to hedge mismatches in interest rate maturities serve to reduce rather than
increase the Company's exposure to movements in interest rates. These
instruments are accounted for by the deferral or accrual method only if they are
designated as a hedge and are expected to be and are effective in substantially
reducing interest rate risk arising from assets and liabilities exposing the
Company to interest rate risk at the consolidated or enterprise level.
Furthermore, futures contracts must meet specific correlation tests. If periodic
assessment indicates derivatives no longer provide an effective hedge, the
derivatives are closed out or settled; previously unrecognized hedge results and
the net settlement upon close-out or termination that offset changes in value of
the asset or liability hedged are deferred and amortized over the life of the
asset or liability with excess amounts recognized in noninterest income.

     The Company also enters into foreign exchange derivative financial
instruments (forward and spot contracts and options) primarily as an
accommodation to customers and offsets the related foreign exchange risk with
other foreign exchange derivative financial instruments.

     The Company is exposed to credit risk in the event of nonperformance by
counterparties to financial instruments. The Company controls the credit risk of
its financial contracts (except futures contracts and floor, cap, and option
contracts written, for which credit risk is DE MINIMUS) through credit
approvals, limits and monitoring procedures. Credit risk related to derivative
financial instruments is considered and, if material, provided for separately
from the allowance for loan losses. As the Company generally enters into
transactions only with high quality counterparties, losses associated with
counterparty nonperformance on derivative financial instruments have been
immaterial.

     The table on the right summarizes the aggregate notional or contractual
amounts, credit risk amount and net fair value for the Company's derivative
financial instruments at December 31, 1996 and 1995.

     Interest rate futures contracts are contracts in which the buyer agrees to
purchase and the seller agrees to make delivery of a specific financial
instrument at a predetermined price or yield. Gains and losses on futures
contracts are settled daily based on a notional (underlying) principal value and
do not involve an actual transfer of the specific instrument. Futures contracts
are standardized and are traded on exchanges. The exchange assumes the risk that
a counterparty will not pay and generally requires margin payments to minimize
such risk. Market risks arise from movements in interest rates and security
values. The Company uses 90- to 120-day futures contracts on Eurodollar deposits
and U.S. Treasury Notes mostly to shorten the rate maturity of market rate
savings to better match the rate maturity of Prime-based loans. Initial margin
requirements on futures contracts are provided by investment securities pledged
as collateral. The net deferred gains related to interest rate futures contracts
were $4 million at December 31, 1996, which will be fully amortized in 1997.

     Interest rate floors and caps are interest rate protection instruments that
involve the payment from the seller to the buyer of an interest differential.
This differential represents the difference between a short-term rate (e.g.,
three-month LIBOR) and an agreed-upon rate, the strike rate, applied to a
notional principal amount. By purchasing a floor, the Company will be paid the
differential by a counterparty, should the current short-term rate fall below
the strike level of the agreement. The Company generally receives cash quarterly
on purchased floors (when the current interest rate falls below the strike rate)
and purchased caps (when the current interest rate exceeds the strike rate). The
premiums paid for interest rate purchased floor and cap agreements are included
with the assets hedged. Of the total purchased floors of $20.6 billion at
December 31, 1996, the Company had $19.0 billion of purchased floors to protect
variable-rate loans from a drop in interest rates. These contracts have a
weighted average maturity of 2 years and 8 months. Included in purchased floors
are forward starting floor contracts of $155 million starting in January 1997,
$300 million starting in March 1997, $225 million starting in April 1997, $475
million starting in May 1997 and $2,000 million


70
<PAGE>

<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------------------------------------
(in millions)                                                                                                          December 31,
                                            --------------------------------------------------------------------------------------
                                                                                 1996                                         1995
                                            -----------------------------------------    -----------------------------------------
                                            NOTIONAL OR    CREDIT RISK      ESTIMATED    Notional or    Credit risk      Estimated
                                            CONTRACTUAL       AMOUNT(4)    FAIR VALUE    contractual       amount(4)    fair value
                                                 AMOUNT                                       amount
<S>                                         <C>            <C>             <C>           <C>             <C>            <C>

ASSET/LIABILITY MANAGEMENT HEDGES
Interest rate contracts:
  Futures contracts                             $ 5,188        $     -        $     -        $ 5,372        $     -        $     -
  Floors purchased(1)                            20,640            101            101         15,522            206            206
  Caps purchased(1)                                 435              3              3            391              1              1
  Swap contracts(1)(2)                           16,661            217            117          6,314            185            175

Foreign exchange contracts:
  Forward contracts(1)                               64              -              -             25              -              -

CUSTOMER ACCOMMODATIONS
Interest rate contracts:
  Futures contracts                                  10              -              -             23              -              -
  Floors written                                    405              -            (10)           105              -             (1)
  Caps written                                    2,174              -             (4)         1,170              -             (4)
  Floors purchased(1)                               404              9             99            105              1              1
  Caps purchased(1)                               2,088              4              4          1,139              4              4
  Swap contracts(1)                               2,325             12              2          1,518              5              1

Foreign exchange contracts(3):
  Forward and spot contracts(1)                   1,313             14              1            909             10              1
  Option contracts purchased(1)                      65              1              1             29              -              -
  Option contracts written                           59              -             (1)            23              -              -
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  The Company anticipates performance by substantially all of the
     counterparties for these financial instruments.
(2)  The Parent's share of the notional principal amount outstanding was $1,231
     million and $224 million at December 31, 1996 and 1995, respectively.
(3)  The Company has immaterial trading positions in certain of these contracts.
(4)  Credit risk amounts reflect the replacement cost for those contracts in a
     gain position in the event of nonperformance by counterparties.


starting October 1998. The remaining purchased floors of $1.6 billion and
purchased caps of $.4 billion at December 31, 1996 were used to hedge interest
rate risk of various other specific assets and liabilities.

     Interest rate swap contracts are entered into primarily as an
asset/liability management strategy to reduce interest rate risk. Interest rate
swap contracts are exchanges of interest payments, such as fixed-rate payments
for floating-rate payments, based on a notional principal amount. Payments
related to the Company's swap contracts are made either monthly, quarterly or
semi-annually by one of the parties depending on the specific terms of the
related contract. The primary risk associated with swaps is the exposure to
movements in interest rates and the ability of the counterparties to meet the
terms of the contract. At December 31, 1996, the Company had $16.7 billion of
interest rate swaps outstanding for interest rate risk management purposes on
which the Company receives payments based on fixed interest rates and makes
payments based on variable rates (i.e., one- or three-month LIBOR rate).
Included in this amount, $11.2 billion was used to convert floating-rate loans
into fixed-rate assets. These contracts have a weighted average maturity of 3
years and 2 months, a weighted average receive rate of 6.53% and a weighted
average pay rate of 5.61%. An additional $3.5 billion was used to convert fixed-
rate deposits into floating-rate deposits. These contracts have a weighted
average maturity of 3 years and 11 months, a weighted average receive rate of
5.49% and a weighted average pay rate of 5.61%. The remaining swap contracts
used for interest rate risk management of $2.0 billion at December 31, 1996 were
used to hedge interest rate risk of various other specific assets and
liabilities.


                                                                              71
<PAGE>

19   FAIR VALUE OF FINANCIAL INSTRUMENTS
--------------------------------------------------------------------------------

Statement of Financial Accounting Standards No. 107 (FAS 107), Disclosures about
Fair Value of Financial Instruments, requires that the Company disclose
estimated fair values for its financial instruments. Fair value estimates,
methods and assumptions set forth below for the Company's financial instruments
are made solely to comply with the requirements of FAS 107 and should be read in
conjunction with the financial statements and notes in this Annual Report. The
carrying amounts in the table are recorded in the Consolidated Balance Sheet
under the indicated captions, except for the derivative financial instruments,
which are recorded in the specific asset or liability balance being hedged or in
other assets if the derivative financial instrument is a customer accommodation.

     Fair values are based on estimates or calculations at the transaction level
using present value techniques in instances where quoted market prices are not
available. Because broadly traded markets do not exist for most of the Company's
financial instruments, the fair value calculations attempt to incorporate the
effect of current market conditions at a specific time. Fair valuations are
management's estimates of the values, and they are often calculated based on
current pricing policy, the economic and competitive environment, the
characteristics of the financial instruments and other such factors. These
calculations are subjective in nature, involve uncertainties and matters of
significant judgment and do not include tax ramifications; therefore, the
results cannot be determined with precision, substantiated by comparison to
independent markets and may not be realized in an actual sale or immediate
settlement of the instruments. There may be inherent weaknesses in any
calculation technique, and changes in the underlying assumptions used, including
discount rates and estimates of future cash flows, could significantly affect
the results. The Company has not included certain material items in its
disclosure, such as the value of the long-term relationships with the Company's
deposit, credit card and trust customers, since these intangibles are not
financial instruments. For all of these reasons, the aggregation of the fair
value calculations presented herein do not represent, and should not be
construed to represent, the underlying value of the Company.


FINANCIAL ASSETS
--------------------------------------------------------------------------------

SHORT-TERM FINANCIAL ASSETS

This category includes cash and due from banks, federal funds sold and
securities purchased under resale agreements and due from customers on
acceptances. The carrying amount is a reasonable estimate of fair value because
of the relatively short period of time between the origination of the instrument
and its expected realization.

INVESTMENT SECURITIES

Investment securities at fair value at December 31, 1996 and 1995 are set forth
in Note 4.

LOANS

The fair valuation calculation process differentiates loans based on their
financial characteristics, such as product classification, loan category,
pricing features and remaining maturity. Prepayment estimates are evaluated by
product and loan rate. Discount rates presented in the paragraphs below have a
wide range due to the Company's mix of fixed- and variable-rate products. The
Company used variable discount rates which incorporate relative credit quality
to reflect the credit risk, where appropriate, on the fair value calculation.

     The fair value of commercial loans, other real estate mortgage loans and
real estate construction loans is calculated by discounting contractual cash
flows using discount rates that reflect the Company's current pricing for loans
with similar characteristics and remaining maturity. Most of the discount rates
for commercial loans, other real estate mortgage loans and real estate
construction loans are between 7.75% and 9.5%, 7.75% and 12.25%, and 7.75% and
11.0%, respectively, at December 31, 1996. Most of the discount rates for the
same portfolios in 1995 were between 6.3% and 9.5%, 7.0% and 11.3%, and 7.3% and
10.0%, respectively.

     For real estate 1-4 family first and junior lien mortgages, fair value is
calculated by discounting contractual cash flows, adjusted for prepayment
estimates, using discount rates based on current industry pricing for loans of
similar size, type, remaining maturity and repricing characteristics. Most of
the discount rates applied to this portfolio are between 5.5% and 8.5% at
December 31, 1996 and 6.0% and 9.0% at December 31, 1995.

     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.


72
<PAGE>

The following table presents a summary of the Company's financial instruments,
as defined by FAS 107:

<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------------------------------------
(in millions)                                                                                                          December 31,
                                                                             -----------------------------------------------------
                                                                                                1996                          1995
                                                                             -----------------------       -----------------------
                                                                             CARRYING      ESTIMATED       Carrying      Estimated
                                                                               AMOUNT     FAIR VALUE         amount     fair value
<S>                                                                          <C>            <C>            <C>            <C>

FINANCIAL ASSETS
Cash and due from banks                                                       $11,736        $11,736        $ 3,375        $ 3,375
Federal funds sold and securities purchased under resale agreements               187            187            177            177
Investment securities at fair value                                            13,505         13,505          8,920          8,920
Loans:
   Commercial                                                                  19,515         19,550          9,750          9,785
   Real estate 1-4 family first mortgage                                       10,425         10,343          4,448          4,370
   Other real estate mortgage                                                  11,860         11,772          8,263          8,249
   Real estate construction                                                     2,303          2,319          1,366          1,367
   Consumer                                                                    20,114         19,149          9,935          9,460
   Lease financing                                                              3,003          3,022          1,789          1,789
   Foreign                                                                        169            162             31             31
                                                                              -------        -------        -------        -------
                                                                               67,389         66,317         35,582         35,051
   Less: Allowance for loan losses                                              2,018              -          1,794              -
         Net deferred fees on loan commitments
           and standby letters of credit                                           76              -             27              -
                                                                              -------        -------        -------        -------
             Net loans                                                         65,295         66,317         33,761         35,051
Due from customers on acceptances                                                 197            197             98             98
Nonmarketable equity investments                                                  937          1,361            428            694
Other financial assets                                                            637            637            151            151

FINANCIAL LIABILITIES
Deposits                                                                      $81,821        $81,943        $38,982        $39,162
Federal funds purchased and securities sold under repurchase agreements         2,029          2,029          2,781          2,781
Commercial paper and other short-term borrowings                                  401            401            195            195
Acceptances outstanding                                                           197            197             98             98
Senior debt(1)                                                                  2,053          2,117          1,731          1,753
Subordinated debt                                                               2,940          2,806          1,266          1,319
Guaranteed preferred beneficial interests in Company's
   subordinated debentures                                                      1,150          1,151              -              -

DERIVATIVE FINANCIAL INSTRUMENTS(2)
Interest rate floor contracts purchased in a receivable position              $    82        $   110        $    27        $   207
Interest rate floor contracts written in a payable position                        (9)           (10)            (1)            (1)
Interest rate cap contracts purchased in a receivable position                     12              7             13              5
Interest rate cap contracts written in a payable position                          (9)            (4)           (11)            (4)
Interest rate swap contracts in a receivable position                               -            229              -            190
Interest rate swap contracts in a payable position                                  -           (110)             -            (14)
Foreign exchange contracts in a gain position                                      15             15             11             10
Foreign exchange contracts in a loss position                                     (14)           (14)            (9)            (9)
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  The carrying amount and fair value exclude obligations under capital leases
     of $67 million and $52 million at December 31, 1996 and 1995, respectively.
(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.


                                                                              73
<PAGE>

     For other consumer loans, the fair value is calculated by discounting the
contractual cash flows, adjusted for prepayment estimates, based on the current
rates offered by the Company for loans with similar characteristics. Most of the
discount rates applied to this portfolio are between 8.0% and 10.5% at December
31, 1996 and 7.3% and 16.5% at December 31, 1995.

     For auto lease financing, the fair value is calculated by discounting the
contractual cash flows at the Company's current pricing for items of similar
remaining term, without including any tax benefits. The discount rate applied to
this portfolio was 8.22% at December 31, 1996 and 8.35% at December 31, 1995.

     Commitments, standby letters of credit and commercial and similar letters
of credit not included in the previous table have contractual values of $55,236
million, $2,981 million and $406 million, respectively, at December 31, 1996,
and $24,245 million, $921 million and $209 million, respectively, at December
31, 1995. These instruments generate ongoing fees at the Company's current
pricing levels. Of the commitments at December 31, 1996, 63% mature within one
year and 92% are commitments to extend credit at a floating rate.


NONMARKETABLE EQUITY INVESTMENTS

The Company's nonmarketable equity investments, including securities, are
carried at cost and have a book value of $937 million and $428 million and an
estimated fair value of $1,361 million and $694 million at December 31, 1996 and
1995, respectively. There are restrictions on the sale and/or liquidation of the
Company's interest, which is generally in the form of limited partnerships; and
the Company has no direct control over the investment decisions of the limited
partnerships. To estimate fair value, a significant portion of the underlying
limited partnerships' investments are valued based on market quotes.


FINANCIAL LIABILITIES
--------------------------------------------------------------------------------

DEPOSIT LIABILITIES

FAS 107 states that the fair value of deposits with no stated maturity, such as
noninterest-bearing demand deposits, interest-bearing checking and market rate
and other savings, is equal to the amount payable on demand at the measurement
date. Although the FASB's requirement for these categories is not consistent
with the market practice of using prevailing interest rates to value these
amounts, the amount included for these deposits in the previous table is their
carrying value at December 31, 1996 and 1995. The fair value of other time
deposits is calculated based on the discounted value of contractual cash flows.
The discount rate is estimated using the rates currently offered for like
deposits with similar remaining maturities.


SHORT-TERM FINANCIAL LIABILITIES

This category includes federal funds purchased and securities sold under
repurchase agreements, commercial paper and other short-term borrowings. The
carrying amount is a reasonable estimate of fair value because of the relatively
short period of time between the origination of the instrument and its expected
realization.


SENIOR AND SUBORDINATED DEBT

The fair value of the Company's underwritten senior and subordinated debt is
estimated based on the quoted market prices of the instruments. The fair value
of the medium-term note programs, which are part of senior debt, is calculated
based on the discounted value of contractual cash flows. The discount rate is
estimated using the rates currently offered for new notes with similar remaining
maturities.


GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANY'S SUBORDINATED DEBENTURES

The fair value of the Company's trust preferred securities is estimated based on
the quoted market prices of the instruments.


DERIVATIVE FINANCIAL INSTRUMENTS
--------------------------------------------------------------------------------

Derivative financial instruments are fair valued based on the estimated amounts
that the Company would receive or pay to terminate the contracts at the
reporting date (i.e., mark-to-market value). Dealer quotes are available for
substantially all of the Company's derivative financial instruments.


LIMITATIONS
--------------------------------------------------------------------------------

These fair value disclosures are made solely to comply with the requirements of
FAS 107. The calculations represent management's best estimates; however, due to
the lack of broad markets and the significant items excluded from this
disclosure, the calculations do not represent the underlying value of the
Company. The information presented is based on fair value calculations and
market quotes as of December 31, 1996 and 1995. These amounts have not been
updated since year end; therefore, the valuations may have changed significantly
since that point in time.


74
<PAGE>

INDEPENDENT AUDITORS' REPORT




The Board of Directors and Stockholders
of Wells Fargo & Company:


We have audited the accompanying consolidated balance sheet of Wells Fargo &
Company and Subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Wells Fargo &
Company and Subsidiaries as of December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally accepted accounting
principles.


/s/ KPMG Peat Marwick LLP

KPMG Peat Marwick LLP
Certified Public Accountants

San Francisco, California
January 21, 1997


                                                                              75
<PAGE>

                     WELLS FARGO & COMPANY AND SUBSIDIARIES


QUARTERLY FINANCIAL DATA

<TABLE>
<CAPTION>

CONDENSED CONSOLIDATED STATEMENT OF INCOME - QUARTERLY
----------------------------------------------------------------------------------------------------------------------------------
(in millions)                                                                    1996                                         1995
                                                                        QUARTER ENDED                                Quarter ended
                                                -------------------------------------        -------------------------------------
                                                DEC. 31  SEPT. 30   JUNE 30   MAR. 31        Dec. 31  Sept. 30   June 30   Mar. 31
<S>                                             <C>       <C>       <C>       <C>            <C>       <C>       <C>       <C>

INTEREST INCOME                                  $1,812    $1,847    $1,858    $1,006         $1,010    $1,019    $1,031    $1,025
INTEREST EXPENSE                                    562       552       558       330            343       356       372       360
                                                 ------    ------    ------    ------         ------    ------    ------    ------
NET INTEREST INCOME                               1,250     1,295     1,300       676            667       663       659       665
Provision for loan losses                            70        35         -         -              -         -         -         -
                                                 ------    ------    ------    ------         ------    ------    ------    ------
Net interest income after
  provision for loan losses                       1,180     1,260     1,300       676            667       663       659       665
                                                 ------    ------    ------    ------         ------    ------    ------    ------
NONINTEREST INCOME

Service charges on deposit accounts                 233       254       258       122            121       121       119       118
Fees and commissions                                207       205       211       118            116       112       103       101
Trust and investment services income                110       104       104        59             65        63        57        55
Investment securities gains (losses)                  8         -         3         -             (3)        -         -       (15)
Sale of joint venture interest                        -         -         -         -            163         -         -         -
Other                                                 6        80        63        55            (28)       43        31       (17)
                                                 ------    ------    ------    ------         ------    ------    ------    ------
  Total noninterest income                          564       643       639       354            434       339       310       242
                                                 ------    ------    ------    ------         ------    ------    ------    ------
NONINTEREST EXPENSE

Salaries                                            397       378       400       181            187       176       177       172
Incentive compensation                               80        53        61        32             33        33        33        27
Employee benefits                                   112       105       102        54             40        46        48        53
Equipment                                           129       103       111        55             54        47        45        47
Net occupancy                                       109        96       108        53             52        54        53        53
Federal deposit insurance                             1        24         3         1              5         -        24        24
Goodwill                                             80        81        81         9              9         9         9         9
Core deposit intangible                              73        78        82        10             10        10        11        11
Other                                               507       387       329       172            173       167       160       141
                                                 ------    ------    ------    ------         ------    ------    ------    ------
  Total noninterest expense                       1,488     1,305     1,277       567            563       542       560       537
                                                 ------    ------    ------    ------         ------    ------    ------    ------
INCOME BEFORE INCOME TAX EXPENSE                    256       598       662       463            538       460       409       370
Income tax expense                                  133       277       299       199            232       199       177       137
                                                 ------    ------    ------    ------         ------    ------    ------    ------
NET INCOME                                       $  123    $  321    $  363    $  264         $  306    $  261    $  232    $  233
                                                 ------    ------    ------    ------         ------    ------    ------    ------
                                                 ------    ------    ------    ------         ------    ------    ------    ------
NET INCOME APPLICABLE TO
COMMON STOCK                                     $  103    $  302    $  344    $  254         $  295    $  251    $  222    $  223
                                                 ------    ------    ------    ------         ------    ------    ------    ------
                                                 ------    ------    ------    ------         ------    ------    ------    ------
PER COMMON SHARE
Net income                                       $ 1.12    $ 3.23    $ 3.61    $ 5.39         $ 6.29    $ 5.23    $ 4.51    $ 4.41
                                                 ------    ------    ------    ------         ------    ------    ------    ------
                                                 ------    ------    ------    ------         ------    ------    ------    ------
Dividends declared                               $ 1.30    $ 1.30    $ 1.30    $ 1.30         $ 1.15    $ 1.15    $ 1.15    $ 1.15
                                                 ------    ------    ------    ------         ------    ------    ------    ------
                                                 ------    ------    ------    ------         ------    ------    ------    ------
Average common shares outstanding                  92.2      93.7      95.6      47.0           47.0      47.9      49.1      50.5
                                                 ------    ------    ------    ------         ------    ------    ------    ------
                                                 ------    ------    ------    ------         ------    ------    ------    ------
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


76
<PAGE>

                                WELLS FARGO & COMPANY
                                     APPENDIX TO
                                      EXHIBIT 13
                                           

Description                                                         Page number

1.  Line graph of Return on Average Total Assets (ROA) and
    "Cash" ROA for 1996, 1995, 1994, 1993 and 1992
    (shown in %).
                        ROA         "Cash" ROA
         1996           1.15           1.66
         1995           2.03           2.12
         1994           1.62           1.71
         1993           1.20           1.28
         1992           0.54           0.62                               6

2.  Line graph of Return on Common Stockholders' Equity (ROE) and
    "Cash" ROE for 1996, 1995, 1994, 1993 and 1992 (shown in %).
                        ROE         "Cash" ROE
         1996            8.83          28.46
         1995           29.70          34.92
         1994           22.41          26.88
         1993           16.74          20.98
         1992            7.93          11.21                              6

3.  Line graph of Net Interest Margin for 1996, 1995 and
    1994 (shown in %).  Also presented is the yield on
    total earning assets and the rate on total funding
    sources for the same periods.  This information is
    also presented in Table 5 - AVERAGE BALANCES, YIELDS
    AND RATES PAID on pages 14 and 15.                                    12

4.  Bar graph of the Loan Mix at Year End shown as a
    percentage of total loans at December 31, 1996, 1995
    and 1994.
                               1996           1995           1994

         Commercial              29  %          27  %          22  %
         Real Estate 1-4
            family first
            mortgage             15             13             25
         Other real estate
            mortgage             19             23             22
         Real estate
            construction          3              4              3
         Consumer                30             28             24
         Lease Financing          4              5              4
                               ----           ----           ----
              Total             100  %         100  %         100  % 
                                                                          19

<PAGE>

5.  Line graph of Nonaccrual Loans at December 31, 1996,
    1995, 1994, 1993 and 1992 (shown in billions).  This 
    information is also presented in Table 13-NONACCRUAL
    AND RESTRUCTURED LOANS AND OTHER ASSETS on page 21.                   21

6.  Line graph of New Loans Placed on Nonaccrual at December 31,
    1996, 1995, 1994, 1993 and 1992 (shown in billions).

                   1996      0.7
                   1995      0.5
                   1994      0.3
                   1993      0.8
                   1992      2.2                                          21

7.  Bar graph of Core Deposits at Year End at December 31,
    1996, 1995 and 1994 (shown in billions).

                                  1996      1995       1994

         Noninterest-bearing      29.1      10.4       10.1
         Interest-bearing
            checking               2.8        .9        4.5
         Market rate and
            other savings         33.9      17.9       16.7
         Savings certificates     15.8       8.6        7.1
                                 -----     -----      -----
            Total Core Deposits  $81.6     $37.9      $38.5               26

8.  Bar graph on the Price Range of Common Stock
    (high, low, closing price) on an annual
    basis for 1996, 1995 and 1994 (shown in dollars).
    This information is also presented in Table 1-
    RATIOS AND PER COMMON SHARE DATA on page 7.                           36

9.  Bar graph on the Price Range of Common Stock
    (high, low, closing price) on a quarterly
    basis for 1996 and 1995 (shown in dollars).

              HIGH      LOW       QTR END
    1996
      1Q      $261.25   $203.13   $261.25
      2Q       264.50    232.13    239.13
      3Q       264.00    220.13    260.00
      4Q       289.88    250.25    269.75

    1995
      1Q      $160.63   $143.38   $156.38
      2Q       185.88    157.00    180.25
      3Q       189.00    177.75    185.63
      4Q       229.00    190.00    216.00                                 36