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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[(check mark)] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 1-10000
FIRST UNION CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
NORTH CAROLINA 56-0898180
(State of incorporation) (I.R.S. Employer Identification No.)
ONE FIRST UNION CENTER
CHARLOTTE, NORTH CAROLINA 28288-0013
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code (704) 374-6565
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
<S> <C>
Common Stock, $3.33 1/3 par value (including rights New York Stock Exchange
attached thereto)
Series 1990 Cumulative Perpetual Adjustable Rate New York Stock Exchange
Preferred Stock, no-par value
<CAPTION>
Securities registered pursuant to Section 12(g) of the Act:
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes(Check mark) No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes (check mark) No
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
As of January 31, 1995, there were 173,902,909 shares of the registrant's
Common Stock outstanding, $3.33 1/3 par value per share, and based on the last
reported sale price of $42.75 per share on the New York Stock Exchange on such
date, the aggregate market value of the registrant's Common Stock held by those
persons deemed by the registrant to be nonaffiliates was approximately $7.3
billion.
DOCUMENTS INCORPORATED BY REFERENCE IN FORM 10-K
<TABLE>
<CAPTION>
INCORPORATED DOCUMENTS WHERE INCORPORATED IN FORM 10-K
<S> <C>
1. Certain portions of the Corporation's Annual Report to Part I -- Items 1 and 2; Part II -- Items 5, 6, 7
Stockholders for year ended December 31, 1994 ("Annual and 8.
Report").
2. Certain portions of the Corporation's Proxy Statement Part III -- Items 10, 11, 12 and 13.
for Annual Meeting of Stockholders to be held on April
18, 1995 ("Proxy Statement").
</TABLE>
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PART I
ITEM 1. BUSINESS.
GENERAL
First Union Corporation (the "Corporation" or "FUNC") was incorporated
under the laws of North Carolina in 1967 and is registered as a bank holding
company under the Bank Holding Company Act of 1956, as amended (the "BHCA").
Pursuant to a corporate reorganization in 1968, First Union National Bank of
North Carolina ("FUNB-NC ") and First Union Mortgage Corporation, a mortgage
banking firm acquired by FUNB-NC in 1964, became subsidiaries of the
Corporation.
In addition to FUNB-NC, the Corporation also operates banking subsidiaries
in Florida (since November 1985), South Carolina (since March 1986), Georgia
(since March 1986), Tennessee (since December 1987), Maryland (since December
1992), Virginia (since December 1992) and Washington, D.C. (since December
1992). In addition to providing a wide range of commercial and retail banking
and trust services through its banking subsidiaries, the Corporation also
provides various other financial services, including mortgage banking, home
equity lending, insurance and securities brokerage services, through other
subsidiaries.
The Corporation's principal executive offices are located at One First
Union Center, Charlotte, North Carolina 28288-0013 (telephone number
(704)374-6565).
Since the 1985 Supreme Court decision upholding regional interstate banking
legislation, the Corporation has concentrated its efforts on building a large
regional banking organization in the southeastern and south atlantic regions of
the United States. Since November 1985, the Corporation has completed 50 banking
related acquisitions and currently has five pending acquisitions, including the
more significant completed and pending acquisitions (I.E., acquisitions
involving the acquisition of $3.0 billion or more of assets or deposits) set
forth in the following table.
<TABLE>
<CAPTION>
CONSIDERATION/
ASSETS/ ACCOUNTING
NAME (1) HEADQUARTERS DEPOSITS (2)(3) TREATMENT COMPLETION DATE
<S> <C> <C> <C> <C>
Atlantic Bancorporation.......................... Florida $3.8 billion common stock/ November 1985
pooling
Northwestern Financial Corporation............... North Carolina 3.0 billion common stock/ December 1985
pooling
First Railroad & Banking Company of Georgia...... Georgia 3.7 billion common stock/ November 1986
pooling
Florida National Banks of Florida, Inc........... Florida 7.9 billion cash and preferred January 1990
stock/purchase
Southeast banks.................................. Florida 9.9 billion cash/notes September 1991
and preferred
stock/purchase
Resolution Trust Corporation ("RTC")
acquisitions................................... Florida, 5.3 billion cash/purchase 1991-1994
Georgia,
Virginia
Dominion Bankshares Corporation.................. Virginia 8.9 billion common and March 1993
preferred
stock/pooling
Georgia Federal Bank, FSB........................ Georgia 4.0 billion cash/purchase June 1993
First American Metro Corp........................ Virginia 4.6 billion cash/purchase June 1993
American Savings of Florida, F.S.B.
("ASF") (4).................................... Florida $3.5 billion common stock/
purchases
</TABLE>
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(1) Additional information relating to certain of the foregoing and other
acquisitions is set forth in the Annual Report in Note 2 on pages 62 and 63.
(2) The dollar amounts indicated represent assets of the related organization as
of the last reporting period prior to acquisition, except for (i) the dollar
amount relating to RTC acquisitions, which represents deposits acquired from
the RTC and (ii) the dollar amount relating to Southeast banks, which
represents assets of the two banking subsidiaries of Southeast Banking
Corporation acquired from the Federal Deposit Insurance Corporation (the
"FDIC").
(3) In addition, the Corporation purchased Lieber & Company ("Lieber"), a mutual
fund advisory company with approximately $3.4 billion in assets under
management, in June 1994. Since such assets are not owned by Lieber, they
are not reflected on the Corporation's balance sheet.
(4) The ASF acquisition was announced on December 5, 1994, and is currently
expected to close during the first half of 1995, subject to certain
conditions of closing. The acquisition provides for issuance of $21.00 in
value of shares of the Corporation's Common Stock, $3.33 1/3 par value per
share (the "Common Stock"), based on the price of Common Stock prior to the
closing, in exchange for each share of ASF common stock, resulting in a
purchase price of approximately $253 million. The Corporation paid $161
million for the purchase in the open market of 3.8 million shares of Common
Stock expected to be issued in the acquisition and will account for the
acquisition as a purchase.
The Corporation is continually evaluating acquisition opportunities and
frequently conducts due diligence activities in connection with possible
acquisitions. As a result, acquisition discussions and, in some cases,
negotiations frequently take place and future acquisitions involving cash, debt
or equity securities can be expected. Acquisitions typically involve the payment
of a premium over book and market values, and therefore some dilution of the
Corporation's book value and net income per common share may occur in connection
with any future transactions.
Additional information relating to the business of the Corporation and its
subsidiaries is set forth on pages 6 through 10 in the Annual Report and
incorporated herein by reference. Information relating to the Corporation only
is set forth in Note 16 on pages 81 through 84 in the Annual Report and
incorporated herein by reference.
COMPETITION
The Corporation's subsidiaries face substantial competition in their
operations from banking and nonbanking institutions, including savings and loan
associations, credit unions, money market funds and other investment vehicles,
brokerage firms, insurance companies, leasing companies, credit card issuers,
mortgage banking companies, finance companies and other types of financial
institutions.
Based on the volume of permanent mortgages serviced on December 31, 1994,
the Corporation's mortgage banking subsidiary, First Union Mortgage Corporation,
was the 17th largest mortgage banking company in the United States.
SUPERVISION AND REGULATION
GENERAL
As a bank holding company, the Corporation is subject to regulation under
the BHCA and its examination and reporting requirements. Under the BHCA, bank
holding companies may not directly or indirectly acquire the ownership or
control of more than five percent of the voting shares or substantially all of
the assets of any company, including a bank, without the prior approval of the
Board of Governors of the Federal Reserve System (the "Federal Reserve Board").
In addition, bank holding companies are generally prohibited under the BHCA from
engaging in nonbanking activities, subject to certain exceptions.
The earnings of the Corporation's subsidiaries, and therefore the earnings
of the Corporation, are affected by general economic conditions, management
policies and the legislative and governmental actions of various regulatory
authorities, including the Federal Reserve Board and the Comptroller of the
Currency (the "Comptroller"). In addition, there are numerous governmental
requirements and regulations which affect the activities of the Corporation and
its subsidiaries.
PAYMENT OF DIVIDENDS
The Corporation is a legal entity separate and distinct from its banking
and other subsidiaries. A major portion of the revenues of the Corporation
result from amounts paid as dividends to the Corporation by its national bank
subsidiaries. The Corporation's banking subsidiaries are subject to legal
limitations on the amount of dividends they can pay. The prior
2
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approval of the Comptroller is required if the total of all dividends declared
by a national bank in any calendar year will exceed the sum of such bank's net
profits for that year and its retained net profits for the preceding two
calendar years, less any required transfers to surplus. Federal law also
prohibits national banks from paying dividends which would be greater than the
bank's undivided profits after deducting statutory bad debt in excess of the
bank's allowance for loan losses.
Under the foregoing dividend restrictions and certain restrictions
applicable to certain of the Corporation's nonbanking subsidiaries, as of
December 31, 1994, the Corporation's subsidiaries, without obtaining affirmative
governmental approvals, could pay aggregate dividends of $397 million to FUNC
during 1995. During 1994, the Corporation's subsidiaries paid $682 million in
cash dividends to FUNC.
In addition, both the Corporation and its national bank subsidiaries are
subject to various general regulatory policies and requirements relating to the
payment of dividends, including requirements to maintain adequate capital above
regulatory minimums. The appropriate federal regulatory authority is authorized
to determine under certain circumstances relating to the financial condition of
a national bank or bank holding company that the payment of dividends would be
an unsafe or unsound practice and to prohibit payment thereof. The Comptroller
has indicated that paying dividends that deplete a national bank's capital base
to an inadequate level would be an unsound and unsafe banking practice. The
Comptroller and the Federal Reserve Board have each indicated that banking
organizations should generally pay dividends only out of current operating
earnings.
BORROWINGS BY THE CORPORATION
There are also various legal restrictions on the extent to which the
Corporation and its nonbank subsidiaries can borrow or otherwise obtain credit
from its bank subsidiaries. In general, these restrictions require that any such
extensions of credit must be secured by designated amounts of specified
collateral and are limited, as to any one of the Corporation or such nonbank
subsidiaries, to ten percent of the lending bank's capital stock and surplus,
and as to the Corporation and all such nonbank subsidiaries in the aggregate, to
20 percent of such lending bank's capital stock and surplus.
CAPITAL
Under the risk-based capital requirements for bank holding companies, the
minimum requirement for the ratio of capital to risk-weighted assets (including
certain off-balance-sheet activities, such as standby letters of credit) is
eight percent. At least half of the total capital is to be composed of common
equity, retained earnings and qualifying perpetual preferred stock, less
goodwill ("tier 1 capital" and together with tier 2 capital "total capital").
The remainder may consist of subordinated debt, non-qualifying preferred stock
and a limited amount of the loan loss allowance ("tier 2 capital"). At December
31, 1994, the Corporation's tier 1 capital and total capital ratios were 7.76
percent and 12.94 percent, respectively.
In addition, the Federal Reserve Board has established minimum leverage
ratio requirements for bank holding companies. These requirements provide for a
minimum leverage ratio of tier 1 capital to adjusted average quarterly assets
("leverage ratio") equal to three percent for bank holding companies that meet
certain specified criteria, including having the highest regulatory rating. All
other bank holding companies will generally be required to maintain a leverage
ratio of from at least four to five percent. The Corporation's leverage ratio at
December 31, 1994, was 6.12 percent. The requirements also provide that bank
holding companies experiencing internal growth or making acquisitions will be
expected to maintain strong capital positions substantially above the minimum
supervisory levels without significant reliance on intangible assets.
Furthermore, the requirements indicate that the Federal Reserve Board will
continue to consider a "tangible tier 1 leverage ratio" (deducting all
intangibles) in evaluating proposals for expansion or new activity. The Federal
Reserve Board has not advised the Corporation of any specific minimum tier 1
leverage ratio applicable to it.
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Each of the Corporation's subsidiary national banks is subject to similar
capital requirements adopted by the Comptroller. The Comptroller has not advised
any of the Corporation's subsidiary national banks of any specific minimum
leverages ratio applicable to it. As of December 31, 1994, the capital ratios of
the bank subsidiaries of the Corporation, FUNB-NC, First Union National Bank of
South Carolina ("FUNB-SC"), First Union National Bank of Georgia ("FUNB-GA"),
First Union National Bank of Florida ("FUNB-FL"), First Union National Bank of
Washington, D.C. ("FUNB-DC"), First Union National Bank of Maryland ("FUNB-MD"),
First Union National Bank of Tennessee ("FUNB-TN"), First Union National Bank of
Virginia ("FUNB-VA") and First Union Home Equity Bank, N.A. ("FUHEB"), were as
follows:
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<CAPTION>
REGULATORY FUNB- FUNB- FUNB- FUNB- FUNB- FUNB- FUNB- FUNB-
MINIMUM NC SC GA FL DC MD TN VA FUHEB
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Tier 1 capital ratio.... 4% 7.32 7.88 8.26 7.95 16.75 20.53 12.76 9.21 7.60
Total capital ratio..... 8 10.69 12.15 11.18 10.76 18.03 21.81 14.02 13.11 12.10
Leverage ratio.......... 3-5% 6.10 5.77 5.69 5.91 8.33 12.82 8.47 7.10 7.22
</TABLE>
Banking regulators continue to indicate their desire to raise capital
requirements applicable to banking organizations, including a proposal to add an
interest rate risk component to risk-based capital requirements.
FIRREA; SUPPORT OF SUBSIDIARY BANKS
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA"), among other things, imposes liability on an institution the deposits
of which are insured by the FDIC, such as the Corporation's subsidiary national
banks, for certain potential obligations to the FDIC incurred in connection with
other FDIC-insured institutions under common control with such institution.
Under the National Bank Act, if the capital stock of a national bank is
impaired by losses or otherwise, the Comptroller is authorized to require
payment of the deficiency by assessment upon the bank's stockholders, pro rata,
and to the extent necessary, if any such assessment is not paid by any
stockholder after three months notice, to sell the stock of such stockholder to
make good the deficiency. Under Federal Reserve Board policy, the Corporation is
expected to act as a source of financial strength to each of its subsidiary
banks and to commit resources to support each of such subsidiaries. This support
may be required at times when, absent such Federal Reserve Board policy, the
Corporation may not find itself able to provide it.
Any capital loans by a bank holding company to any of its subsidiary banks
are subordinate in right of payment to deposits and to certain other
indebtedness of such subsidiary banks. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a subsidiary bank will be assumed
by the bankruptcy trustee and entitled to a priority of payment.
FDICIA
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), among other things, requires the federal banking agencies to take
"prompt corrective action" in respect of depository institutions that do not
meet minimum capital requirements. FDICIA establishes five capital tiers: "well
capitalized", "adequately capitalized", "undercapitalized", "significantly
undercapitalized" and "critically undercapitalized". A depository institution's
capital tier will depend upon where its capital levels compare to various
relevant capital measures and certain other factors, as established by
regulation.
The Comptroller has adopted regulations establishing relevant capital
measures and relevant capital levels. The relevant capital measures are the
total capital ratio, tier 1 capital ratio and the leverage ratio. Under the
regulations, a bank will be: (i) "well capitalized" if it has a total capital
ratio of ten percent or greater, a tier 1 capital ratio of six percent or
greater and a leverage ratio of five percent or greater and is not subject to
any order or written directive by any such regulatory authority to meet and
maintain a specific capital level for any capital measure; (ii) "adequately
capitalized" if it has a total capital ratio of eight percent or greater, a tier
1 capital ratio of four percent or greater and a leverage ratio of four percent
or greater (three percent in certain circumstances) and is not "well
capitalized"; (iii) "undercapitalized" if it has a total capital ratio of less
than eight percent, a tier 1 capital ratio of less than four percent or a
leverage ratio of less than four percent (three percent in certain
circumstances); (iv) "significantly undercapitalized" if it has a total capital
ratio of less than six percent, a tier 1 capital ratio of less than three
percent or a leverage ratio of less than three percent; and (v) "critically
undercapitalized" if its tangible equity is equal to or less than two percent of
average quarterly tangible
4
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assets. As of December 31, 1994, all of the Corporation's subsidiary banks had
capital levels that qualify them as being "well capitalized" under such
regulations.
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a dividend) or paying any management fee to
its holding company if the depository institution would thereafter be
"undercapitalized". "Undercapitalized" depository institutions are subject to
growth limitations and are required to submit a capital restoration plan. The
federal banking agencies may not accept a capital plan without determining,
among other things, that the plan is based on realistic assumptions and is
likely to succeed in restoring the depository institution's capital. In
addition, for a capital restoration plan to be acceptable, the depository
institution's parent holding company must guarantee that the institution will
comply with such capital restoration plan. The aggregate liability of the parent
holding company is limited to the lesser of (i) an amount equal to five percent
of the depository institution's total assets at the time it became
"undercapitalized", and (ii) the amount which is necessary (or would have been
necessary) to bring the institution into compliance with all capital standards
applicable with respect to such institution as of the time it fails to comply
with the plan. If a depository institution fails to submit an acceptable plan,
it is treated as if it is "significantly undercapitalized".
"Significantly undercapitalized" depository institutions may be subject to
a number of requirements and restrictions, including orders to sell sufficient
voting stock to become "adequately capitalized", requirements to reduce total
assets and cessation of receipt of deposits from correspondent banks.
"Critically undercapitalized" institutions are subject to the appointment of a
receiver or conservator.
FDICIA directs that each federal banking agency prescribe standards for
depository institutions and depository institution holding companies relating to
internal controls, information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth,
compensation, a maximum ratio of classified assets to capital, minimum earnings
sufficient to absorb losses, a minimum ratio of market value to book value for
publicly traded shares and such other standards as the agency deems appropriate.
The ultimate effect of these standards cannot be ascertained until final
regulations are adopted.
FDICIA also contains a variety of other provisions that may affect the
operations of the Corporation, including reporting requirements, regulatory
standards for real estate lending, "truth in savings" provisions, the
requirement that a depository institution give 90 days' prior notice to
customers and regulatory authorities before closing any branch, and a
prohibition on the acceptance or renewal of brokered deposits by depository
institutions that are not "well capitalized" or are "adequately capitalized" and
have not received a waiver from the FDIC. Under regulations relating to the
brokered deposit prohibition, all of the Corporation's subsidiary banks are
"well capitalized" and not subject to the prohibition.
DEPOSITOR PREFERENCE STATUTE
Legislation has been enacted providing that deposits and certain claims for
administrative expenses and employee compensation against an insured depository
institution would be afforded a priority over other general unsecured claims
against such an institution, including federal funds and letters of credit, in
the "liquidation or other resolution" of such an institution by any receiver.
INTERSTATE BANKING AND BRANCHING LEGISLATION
The Reigle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "IBBEA"), authorizes interstate acquisitions of banks and bank holding
companies without geographic limitation beginning one year after enactment. In
addition, beginning June 1, 1997, the IBBEA authorizes a bank to merge with a
bank in another state as long as neither of the states has opted out of
interstate branching between the date of enactment of the IBBEA and May 31,
1997. The IBBEA further provides that states may enact laws permitting
interstate bank merger transactions prior to June 1, 1997. A bank may establish
and operate a DE NOVO branch in a state in which the bank does not maintain a
branch if that state expressly permits DE NOVO branching. Once a bank has
established branches in a state through an interstate merger transaction, the
bank may establish and acquire additional branches at any location in the state
where any bank involved in the interstate merger transaction could have
established or acquired branches under applicable federal or state law. A bank
that has established a branch in a state through DE NOVO branching may establish
and acquire additional branches in such state in the same manner and to the same
extent as a bank having a branch in such state as a result of an interstate
merger. If a state opts out of interstate branching within the specified time
period, no bank in any other state may establish a branch in the opting out
state, whether through an acquisition or DE NOVO.
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ADDITIONAL INFORMATION
Additional information related to certain regulatory and accounting matters
is set forth on pages 21 and 22 in the Annual Report and incorporated herein by
reference.
ITEM 2. PROPERTIES.
As of December 31, 1994, the Corporation and its subsidiaries owned or
leased 1,562 locations in 42 states and two foreign countries from which their
business is conducted, including a multi-story office complex in Charlotte,
North Carolina, which serves as the administrative headquarters of the
Corporation, FUNB-NC, FUHEB and most of the Corporation's nonbanking
subsidiaries. Listed below are the number of banking and nonbanking locations of
the Corporation that are leased or owned, as of December 31, 1994:
<TABLE>
<CAPTION>
LEASED OWNED
<S> <C> <C>
First Union National Bank of Florida............................................... 211 342
First Union National Bank of North Carolina........................................ 98 179
First Union National Bank of Georgia............................................... 46 108
First Union National Bank of South Carolina........................................ 12 54
First Union National Bank of Tennessee............................................. 11 43
First Union National Bank of Virginia.............................................. 66 111
First Union National Bank of Maryland.............................................. 22 4
First Union National Bank of Washington, D.C....................................... 31 2
First Union Home Equity Bank, N.A.................................................. 184 --
Nonbanking locations............................................................... 38 --
Total............................................................................ 719 843
</TABLE>
The principal offices of each of the Corporation's subsidiary banks in
Jacksonville, Florida; Atlanta, Georgia; Greenville, South Carolina; Nashville,
Tennessee; Roanoke, Virginia; Rockville, Maryland; and Washington, D.C., are all
leased.
Additional information relating to the Corporation's lease commitments is
set forth in Note 17 on page 87 in the Annual Report and incorporated herein by
reference.
ITEM 3. LEGAL PROCEEDINGS.
The Corporation and certain of its subsidiaries have been named as
defendants in various legal actions arising from their normal business
activities in which varying amounts are claimed. Although the amount of any
ultimate liability with respect to such matters cannot be determined, in the
opinion of management, based upon the opinions of counsel, any such liability
will not have a material effect on the consolidated financial position of the
Corporation and its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
6
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Common Stock is listed on the New York Stock Exchange. Table 6 on page
29 in the Annual Report sets forth information relating to the quarterly prices
of, and quarterly dividends paid on, the Common Stock for the two-year period
ended December 31, 1994, and is incorporated herein by reference. Prices shown
represent the high, low and quarter-end sale prices of the Common Stock as
reported on the New York Stock Exchange, Inc. Composite Transactions Tape for
the periods indicated. As of December 31, 1994, there were 54,236 holders of
record of the Common Stock.
In December 1990, the Board of Directors of the Corporation adopted a
Shareholder Protection Rights Plan (the "Plan") designed to enhance the ability
of the Board to protect stockholders against attempts to acquire control of the
Corporation by means of unfair or abusive tactics. The Plan provides, among
other things, that the rights granted under the Plan to the holders of shares of
Common Stock (one right for each share of Common Stock) will become exercisable
(after a specified period) if any person or group announces a tender or exchange
offer for, or acquires, 15 percent or more of the Common Stock. At that time
each right will enable the holders of the rights (other than such person or
group, whose rights become void) to purchase additional shares of Common Stock
(or at the option of the Board of Directors, shares of junior participating
Class A Preferred Stock) having a market value of twice the $110 exercise price
of the right, subject to adjustment in certain events. If any person or group
acquires beneficial ownership of between 15 percent and 50 percent of the Common
Stock, the Corporation's Board of Directors may, at its option, exchange for
each outstanding and not voided right either two shares of Common Stock or
junior participating Class A Preferred Stock having economic and voting terms
similar to two shares of Common Stock, subject to adjustment in certain events.
The rights are redeemable by the Corporation at $0.01 per right (subject to
adjustment in certain events) prior to becoming exercisable and, in certain
events, may be cancelled and terminated without any payment to holders. The
rights have no voting rights and are not entitled to dividends. The rights will
expire on December 28, 2000, unless sooner redeemed or terminated. Each share of
Common Stock has attached to it one right, and the rights will not trade
separately from the Common Stock unless they become exercisable.
Subject to the prior rights of the holders of the Series 1990 Cumulative
Perpetual Adjustable Rate Preferred Stock ("Series 1990 Preferred Stock"),
holders of the Common Stock are entitled to receive such dividends as may be
legally declared by the Board of Directors and, in the event of dissolution and
liquidation, to receive the net assets of the Corporation remaining after
payment of all liabilities, in proportion to their respective holdings. All of
the 6.3 million outstanding shares of Series 1990 Preferred Stock have been
called for redemption on March 31, 1995, at the redemption price of $51.50 per
share. Additional information concerning certain limitations on the payment of
dividends by the Corporation and its subsidiaries is set forth above under
"Business -- Supervision and Regulation; Payment of Dividends" and in Note 16 on
page 81 in the Annual Report and incorporated herein by reference.
Additional information relating to the Series 1990 Preferred Stock and
Common Stock is set forth in Note 12 on page 75 in the Annual Report and
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
In response to this Item the information set forth in Table 2 on page 26 in
the Annual Report is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
In response to this Item the information set forth on pages 12 through 53
in the Annual Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
In response to this Item the information set forth on page 29 and on pages
54 through 89 in the Annual Report is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
7
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers of the Corporation are elected to their offices for
one year terms at the meeting of the Board of Directors in April of each year.
The terms of any executive officers elected after such date expire at the same
time as the terms of the executive officers elected on such date. The names of
each of the current executive officers of the Corporation, their ages, their
current positions with the Corporation and certain subsidiaries and, if
different, their business experience during the past five years, are as follows:
Edward E. Crutchfield (53). Chairman and Chief Executive Officer, the
Corporation. Also, President, the Corporation, October 1988 to June 1990.
John R. Georgius (50). President, the Corporation, since June 1990. Chairman
and Chief Executive Officer, FUNB-NC, from October 1988 to February 1993.
Vice Chairman, the Corporation, August 1987 to June 1990.
B. J. Walker (64). Vice Chairman, the Corporation. Also, Chairman and Chief
Executive Officer, FUNB-FL, prior to March 1991.
Robert T. Atwood (54). Executive Vice President and Chief Financial Officer,
the Corporation, since March 1991. Prior to that time, Mr. Atwood was a
partner with the accounting firm of Deloitte & Touche.
Marion A. Cowell, Jr. (60). Executive Vice President, Secretary, and General
Counsel, the Corporation. Mr. Cowell served as Senior Vice President,
Secretary and General Counsel of the Corporation prior to December 1991.
In addition to the foregoing, the information set forth in the Proxy
Statement under the heading "General Information and Nominees", and in the last
paragraph under the heading "Other Matters Relating to Executive Officers and
Directors" is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
In response to this Item the information set forth in the Proxy Statement
under the heading "Executive Compensation", excluding the information under the
subheadings "HR Committee Report on Executive Compensation" and "Performance
Graph", is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
In response to this Item the information set forth in the Proxy Statement
relating to the ownership of Common Stock and Series 1990 Preferred Stock by the
directors and executive officers of the Corporation under the heading "General
Information and Nominees" is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In response to this Item the information set forth in the Proxy Statement
in the first paragraph under the heading "Other Matters Relating to Executive
Officers and Directors" is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The consolidated financial statements of the Corporation, including the
notes thereto and independent auditors' report thereon, are set forth on pages
54 through 89 of the Annual Report. All financial statement schedules are
omitted since the required information is either not applicable, is immaterial
or is included in the consolidated financial statements of the Corporation and
notes thereto. A list of the exhibits to this Form 10-K is set forth on the
Exhibit Index immediately preceding such exhibits and is incorporated herein by
reference.
(b) During the quarter ended December 31, 1994, a Current Report on Form
8-K, dated December 20, 1994, was filed by the Corporation with the Securities
and Exchange Commission.
8
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FIRST UNION CORPORATION
Date: March 3, 1995 By: MARION A. COWELL, JR.
MARION A. COWELL, JR.
EXECUTIVE VICE PRESIDENT,
SECRETARY AND GENERAL COUNSEL
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
<C> <S>
EDWARD E. CRUTCHFIELD* Chairman and Chief Executive Officer and Director
EDWARD E. CRUTCHFIELD
ROBERT T. ATWOOD* Executive Vice President and Chief Financial Officer
ROBERT T. ATWOOD
JAMES H. HATCH* Senior Vice President and Corporate Controller (Principal
Accounting Officer)
JAMES H. HATCH
G. ALEX BERNHARDT* Director
G. ALEX BERNHARDT
W. WALDO BRADLEY* Director
W. WALDO BRADLEY
ROBERT J. BROWN* Director
ROBERT J. BROWN
Director
ROBERT D. DAVIS
R. STUART DICKSON* Director
R. STUART DICKSON
B. F. DOLAN* Director
B. F. DOLAN
RODDEY DOWD, SR.* Director
RODDEY DOWD, SR.
JOHN R. GEORGIUS* Director
JOHN R. GEORGIUS
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
<C> <S>
WILLIAM H. GOODWIN, JR.* Director
WILLIAM H. GOODWIN, JR.
BRENTON S. HALSEY* Director
BRENTON S. HALSEY
HOWARD H. HAWORTH* Director
HOWARD H. HAWORTH
TORRENCE E. HEMBY, JR.* Director
TORRENCE E. HEMBY, JR.
LEONARD G. HERRING* Director
LEONARD G. HERRING
JACK A. LAUGHERY* Director
JACK A. LAUGHERY
MAX LENNON* Director
MAX LENNON
RADFORD D. LOVETT* Director
RADFORD D. LOVETT
HENRY D. PERRY, JR.* Director
HENRY D. PERRY, JR.
RANDOLPH N. REYNOLDS* Director
RANDOLPH N. REYNOLDS
RUTH G. SHAW* Director
RUTH G. SHAW
LANTY L. SMITH* Director
LANTY L. SMITH
DEWEY L. TROGDON* Director
DEWEY L. TROGDON
JOHN D. UIBLE* Director
JOHN D. UIBLE
B. J. WALKER* Director
B. J. WALKER
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
<C> <S>
KENNETH G. YOUNGER* Director
KENNETH G. YOUNGER
*By Marion A. Cowell, Jr., Attorney-in-Fact
MARION A. COWELL, JR.
<CAPTION>
MARION A. COWELL, JR.
</TABLE>
Date: March 3, 1995
11
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION LOCATION
<S> <C> <C>
(3)(i) Articles of Incorporation of the Corporation, as amended. Incorporated by reference to Exhibit (4) to
the Corporation's 1990 First Quarter Report
on Form 10-Q and to Exhibit (99)(a) to the
Corporation's 1993 First Quarter Report on
Form 10-Q.
(3)(ii) By-laws of the Corporation, as amended. Incorporated by reference to Exhibit (4)(b)
to the Corporation's Form 8-K dated September
20, 1991.
(4)(a) Statement of Classification of Shares creating the Series 1990 Incorporated by reference to Exhibit (4)(a)
Preferred Stock. to the Corporation's 1989 Annual Report on
Form 10-K.
(4)(b) Instruments defining the rights of the holders of the *
Corporation's long-term debt.
(4)(c) The Corporation's Shareholder Protection Rights Plan, as amended. Incorporated by reference to Exhibit (4)(b)
to the Corporation's Forms 8-K dated December
18, 1990 and October 20, 1992.
(10)(a) The Corporation's Management Incentive Plan. Incorporated by reference to Exhibit (10)(a)
to the Corporation's 1992 Annual Report on
Form 10-K.
(10)(b) The Corporation's Deferred Compensation Plan for Officers. Incorporated by reference to Exhibit (10)(b)
to the Corporation's 1988 Annual Report on
Form 10-K.
(10)(c) The Corporation's Deferred Compensation Plan for Non-Employee Incorporated by reference to Exhibit (10)(c)
Directors. to the Corporation's 1989 Annual Report on
Form 10-K.
(10)(d) The Corporation's Supplemental Executive Long-Term Disability Incorporated by reference to Exhibit (10)(d)
Plan. to the Corporation's 1988 Annual Report on
Form 10-K.
(10)(e) The Corporation's 1969 Stock Option Plan. Incorporated by reference to Exhibit (28) to
Post-Effective Amendment No. 13 to the
Corporation's Registration Statement No.
2-42050.
(10)(f) The Corporation's Supplemental Retirement Plan. Incorporated by reference to Exhibit (10)(f)
to the Corporation's 1988 Annual Report on
Form 10-K.
(10)(g) The Corporation's Retirement Plan for Non-Employee Directors. Incorporated by reference to Exhibit (10)(g)
to the Corporation's 1988 Annual Report on
Form 10-K.
(10)(h) The Corporation's 1984 Master Stock Compensation Plan. Incorporated by reference to Exhibit (28) to
the Corporation's Registration Statement No.
33-47447.
(10)(i) The Corporation's 1988 Master Stock Compensation Plan. Incorporated by reference to Exhibit (28) to
the Corporation's Registration Statement No.
33-47447.
</TABLE>
* The Corporation agrees to furnish to the Securities and Exchange Commission
upon request, copies of the instruments,
including indentures, defining the rights of the holders of the long-term debt
of the Corporation and its subsidiaries.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION LOCATION
<S> <C> <C>
(10)(j) The Corporation's 1992 Master Stock Compensation Plan. Incorporated by reference to Exhibit (28) to
the Corporation's Registration Statement No.
33-47447.
(10)(k) Employment Agreement between the Corporation and Edward E. Filed herewith.
Crutchfield, as amended.
(10)(l) The Corporation's Management Long-Term Cash Incentive Plan. Incorporated by reference to Exhibit (10)(m)
to the Corporation's 1992 Annual Report on
Form 10-K.
(12)(a) Computations of consolidated ratios of earnings to fixed charges. Filed herewith.
(12)(b) Computations of consolidated ratios of earnings to fixed charges Filed herewith.
and preferred stock dividends.
(13) The Corporation's 1994 Annual Report to Stockholders.** Filed herewith.
(21) List of the Corporation's subsidiaries. Filed herewith.
(23) Consent of KPMG Peat Marwick LLP. Filed herewith.
(24) Power of Attorney. Filed herewith.
(27) The Corporation's Financial Data Schedules.***
(99)(a) First Union Corporation of Virginia and Subsidiaries Summarized Filed herewith.
Financial Information.
(99)(b) Pro Forma Financial Information. Filed herewith.
</TABLE>
** Except for those portions of the Annual Report which are expressly
incorporated by reference in this Form 10-K, the
Annual Report is furnished for the information of the Securities and Exchange
Commission only and is not to be
deemed "filed" as part of such Form 10-K.
*** Filing by Electronic Data Gathering, Analysis and Retrieval System only.
Exhibit 10(k)
AMENDED AND RESTATED AGREEMENT
AMENDED and RESTATED AGREEMENT, dated as of August 1, 1985,
by and between FIRST UNION CORPORATION, a North Carolina
corporation (hereinafter referred to as "Employer") and EDWARD E.
CRUTCHFIELD, JR., an individual (hereinafter referred to as
"Employee").
IN CONSIDERATION OF the mutual covenants herein contained,
and other good and valuable consideration, the parties hereto
agree as follows:
1. Employment.
(a) Employer hereby agrees to employ Employee, and Employee
agrees to serve as an employee of Employer and as an employee of
one or more of its subsidiaries, during the Period of Employment,
as defined in Section 2, in such executive capacity as is set
forth herein. During the Period of Employment, Employee also
agrees to serve as a Director on the Board of Directors of
Employer, as well as a member of any committee of the Board of
Directors of the Employer to which Employee may be elected or
appointed. Effective as of the date hereof, Employee shall serve
as Chairman of the Board of Directors and Chief Executive Officer
of Employer.
(b) If at any time during the Period of Employment, the
Board of Directors of Employer fails, without Employee's consent,
to elect or re-elect Employee to the offices specified in
paragraph (a) of this Section, or removes Employee from such
offices, or if at any time during the Period of Employment,
Employee shall fail to be vested by the Board of Directors of
Employer with the power and authority of such offices or Employee
shall lose any significant duties or responsibilities attending
such offices, Employee shall have the right by written notice to
Employer to terminate his services hereunder, effective as of the
last day of the month of receipt of such notice, in which event
the Period of Employment, as hereinafter defined, shall so
terminate on such last day of the month; such termination under
such circumstances shall be deemed pursuant to paragraph (a) of
Section 6 hereof as a termination by Employer other than for
Cause with all of the consequences which flow from such
termination.
2. Period of Employment.
The "Period of Employment" shall be the period commencing
August 1, 1985 and ending on December 31, 1990 and the period of
any extensions thereof in accordance with the further provisions
of this Section. The Period of Employment shall be extended
automatically without further action by either party as of
<PAGE>
January 1, 1987 and each succeeding January 1, for the one-year
period beginning on January 1, 1991 and each succeeding January 1
thereafter, unless either party shall have served written notice
in accordance with the provisions of Section 9 hereof upon the
other party prior to November 1, 1986 or prior to December 31 of
any succeeding year during the Period of Employment, as the case
may be, of its or his intention that the Period of Employment
under this Agreement shall terminate ten days after such notice
is served.
3. Duties During the Period of Employment.
Employee shall devote his full business time, attention and
best efforts to the affairs of Employer and its subsidiaries
during the Period of Employment; provided, however, that Employee
may engage in other activities, such as activities involving
charitable, educational, religious and similar types of
organizations, speaking engagements, membership on the board of
directors of other organizations, and similar type activities to
the extent that such other activities do not prohibit the
performance of his duties under this Agreement, or inhibit or
conflict in any material way with the business of Employer and
its subsidiaries.
4. Current Cash Compensation.
(a) Base Annual Salary.
Employer will pay to Employee during the Period of
Employment a base annual salary payable in substantially equal
semi-monthly installments, at an annual rate at least equal to
the aggregate annual base salary payable to Employee by Employer
and any of its affiliated or subsidiary companies as of August 1,
1985, during each calendar year, or portion thereof, of the
Period of Employment; provided, however, it is agreed between the
parties that the Employer shall review annually, and in light of
such review may, in the discretion of the Board of Directors of
Employer and in accordance with Employer's compensation
procedures and guidelines, increase such base annual salary
taking into account Employee's then responsibilities, increase in
the cost of living, increases in compensation of other executives
of Employer and its subsidiaries, increases in salaries of
executives of other corporations, performance by Employee and
Employer, or other pertinent factors.
(b) Bonus.
During the Period of Employment, Employer, in its sole
discretion, will award Employee an annual bonus based on his
performance and other factors; provided, however, that while not
being legally required to pay any bonus Employer agrees to take
into account, in determining the amount of the annual bonus, the
2
<PAGE>
factors described in paragraph (a) of this Section. The bonus in
respect of any calendar year shall be paid on or before March 31
of the succeeding calendar year. An award made to Employee under
Employer's Management Incentive Plan shall be considered to be a
bonus for purposes of this paragraph.
5. Other Employee Benefits.
(a) Vacation and Sick Leave.
Employee shall be entitled to reasonable paid annual
vacation periods and to reasonable sick leave.
(b) Regular Reimbursed Business Expenses.
Employer shall reimburse Employee for all expenses and
disbursements reasonably incurred by Employee in the performance
of his duties during the Period of Employment and such other
facilities or services as Employer and Employee may, from time to
time, agree are reimbursable.
(c) Employee's Benefit Plans or Arrangements.
In addition to the cash compensation provided for in Section
4 hereof, Employee, subject to meeting eligibility provisions and
to the provisions of this Agreement, shall be entitled to
participate in all employee benefit plans of Employer, as in
effect on August 1, 1985 or as they may be modified or added to
by the Employer from time to time, including, without limitation,
plans providing retirement benefits, medical insurance, life
insurance, disability insurance, and accidental death or
dismemberment insurance.
(d) Employer's Executive Compensation Plans.
In addition to the cash compensation provided for in Section
4 hereof and the employee benefits of Employer provided for in
paragraph (c) of this Section, Employee, subject to meeting
eligibility provisions and to the provisions of this Agreement,
shall be entitled to participate in all executive compensation
plans of Employer, as in effect on August 1, 1985 or as they may
be modified or added to by the Employer from time to time,
including, without limitation, management incentive plans,
deferred compensation plans, supplemental retirement plans and
stock option plans.
(e) Permanent Disability.
If, during the Period of Employment, Employee shall become
permanently disabled, Employer shall pay Employee (i) that amount
payable to Employee under any long-term disability plan and
supplements thereto maintained by Employer providing for
3
<PAGE>
disability benefits, and (ii) an annual amount equal to 15% of
the average of Employee's base annual salary (pursuant to
paragraph (a) of Section 4) and bonus (pursuant to paragraph (b)
of Section 4) during the three calendar years immediately
preceding the date Employee becomes disabled. Amounts payable to
Employee pursuant to this paragraph shall be paid in
substantially equal monthly installments.
For the purposes of this paragraph (e) and this Agreement,
"permanently disabled" shall have the same meaning, be
adjudicated, and impact or affect other Employer benefit plans as
provided in such long-term disability plan maintained by Employer
which provides disability benefits to employees.
6. Termination.
(a) Termination by Employer Other Than for Cause;
Certain Voluntary Termination.
If Employer should terminate the Period of Employment for
other than Cause, as herein defined, or if Employee should
voluntarily terminate the Period of Employment pursuant to
paragraph (b) of Section 1, Employer shall forthwith pay to
Employee an amount equal to the sum of (a) the result of
multiplying (i) the base annual salary payable to Employee
pursuant to paragraph (a) of Section 4 as of the date of
termination of the Period of Employment by (ii) the number of
years (and fractions thereof) then remaining in the Period of
Employment and (b) the result of multiplying (i) the average of
the bonus payable to Employee pursuant to paragraph (b) of
Section 4 or otherwise during the three calendar years
immediately preceding the date of termination of the Period of
Employment by (ii) the numbers of years (and fractions thereof)
then remaining in the Period of Employment.
"Cause" shall mean willful misconduct in following the
legitimate directions of the Board of Directors of Employer;
conviction of a felony or conviction for dishonesty; excessive
absenteeism not related to illness, sick leave or vacations, but
only after notice from the Board of Directors followed by a
repetition of such excessive absenteeism; or continuous conflicts
of interest after notice in writing from the Board of Directors.
(b) Termination by Employer for Cause.
If Employer should terminate the Period of Employment for
Cause, as herein defined, Employee will be entitled to be paid
the base annual salary otherwise payable to Employee under
paragraph (a) of Section 4 through the end of the month in which
the Period of Employment is terminated.
(c) Termination by Employee.
4
<PAGE>
If during the Period of Employment, Employee shall terminate
his employment other than in accordance with Paragraph (b) of
Section 1, he will be entitled to be paid 66-2/3% the base annual
salary otherwise payable to Employee under paragraph (a) of
Section 4 for a period of two years following the termination of
the Period of Employment. Such payments shall cease if Employee
engages in competition with Employer as specified in paragraph
(a) of Section 7, whether or not with the written consent of the
Board of Directors of Employer.
7. Non-Competition and Non-Disclosure.
(a) Without the consent in writing of the Board of
Directors of Employer, upon termination of the Period of
Employment for any reason whatsoever, Employee will not, for a
period of two years thereafter, become an officer, employee,
agent, partner, director or substantial stockholder of any
commercial bank, savings bank or savings and loan association or
holding company thereof operating a bank or savings and loan
association in any of the states of North Carolina, Florida,
Georgia, Alabama, Tennessee, Mississippi, Louisiana, South
Carolina, Maryland or Virginia.
(b) Employee shall not, at any time during or following the
Period of Employment, disclose, use, transfer or sell, except in
the course of employment with Employer, any confidential
information or proprietary data of Employer and its subsidiaries
so long as such information or proprietary data remains
confidential and has not been disclosed or is not otherwise in
the public domain, except as required by law or pursuant to legal
process.
8. Governing Law.
This Agreement is governed by and is to be construed and
enforced in accordance with the laws of the State of North
Carolina. If under such law, any portion of this Agreement is at
any time deemed to be in conflict with any applicable statute,
rule, regulation or ordinance, such portion shall be deemed to be
modified or altered to conform thereto or, if that is not
possible, to be omitted from this Agreement; and the invalidity
of any such portion shall not affect the force, effect and
validity of the remaining portion hereof.
9. Notices.
All notices under this Agreement shall be in writing and
shall be deemed effective when delivered in person (in the
Employer's case, to its Secretary) or twenty-four (24) hours
after deposit thereof in the U.S. mails, postage prepaid, for
delivery as registered or certified mail -- addressed, in the
5
<PAGE>
case of Employee, to him at his residential address, and in the
case of Employer, to its corporate headquarters, attention of the
Secretary, or to such other address as Employee or Employer may
designate in writing at any time or from time to time to the
other party. In lieu of notice by deposit in the U.S. mail, a
party may give notice by telegram or telex.
10. Miscellaneous.
This Agreement constitutes the entire understanding between
Employer and Employee relating to employment of Employee by
Employer and its subsidiaries and supersedes and cancels all
prior written and oral agreements and understandings with respect
to the subject matter of this Agreement. This Agreement may be
amended but only by a subsequent written agreement of the
parties. This Agreement shall be binding upon and shall inure to
the benefit of Employee, his heirs, executors, administrators and
beneficiaries, and shall be binding upon and inure to the benefit
of Employer and its successors.
11. Gross Up Payment.
(a) In the event that any payments under this Agreement, in
combination with payments from any other plans or arrangements
maintained by Employer, constitute "excess parachute payments"
under Section 280G of the Internal Revenue Code (the "Code"), and
as such are subject to excise tax under Section 4999 of the Code,
Employer shall pay to Employee an additional amount (the "Gross
Up Payment"). The Gross Up Payment shall be equal to the amount
needed to ensure that the net payments retained by Employee equal
the payments due under this Agreement before taking into account
any Gross Up Payment. The net payments retained by Employee
shall be equal to the total payments made under this Agreement
reduced by the amount of any excise tax under Section 4999 of the
Code and any federal, state and local income tax on the Gross Up
Payment. An example of the foregoing is set forth on Exhibit A
attached hereto.
(b) For purposes of determining whether any of the payments
under this Agreement will be subject to the excise tax and the
amount of such excise tax, (i) any other payments or benefits
received or to be received by Employee in connection with a
change in control of Employer or the termination of employment of
Employee (whether pursuant to the terms of this Agreement or any
other plan, arrangement or agreement with Employer, any person
whose actions result in a change of control of Employer or any
person affiliated with Employer or such person) (which, together
with the payments under this Agreement, shall constitute the
"Total Payments") shall be treated as "parachute payments" under
Section 280(b)(2) of the Code, and all excess parachute payments
shall be treated as subject to the excise tax, unless in the
opinion of tax counsel selected by Employer's independent
6
<PAGE>
auditors such other payments or benefits (in whole or in part) do
not constitute parachute payments, or such excess parachute
payments (in whole or in part) represent reasonable compensation
for services actually rendered under Section 280G(b)(4) of the
Code in excess of the "base amount" under Section 280G(b)(3) of
the Code or are otherwise not subject to the excise tax, (ii) the
amount of the Total Payments which shall be treated as subject to
the excise tax shall be equal to the lesser of (A) the total
amount of the Total Payments or (B) the amount of excess
parachute payments (after applying clause (i), above), and (iii)
the value of any non-cash benefit or any deferred payment or
benefit shall be determined by Employer's independent auditors in
accordance with the principles of Section 280(G)(d)(3) and (4) of
the Code.
(c) For purposes of determining the amount of the Gross Up
Payment, Employee shall be deemed to pay federal income taxes at
the highest marginal rate of federal income taxation for the
calendar year in which the Gross Up Payment is to be made.
Employee shall also be deemed to pay state and local income taxes
at the highest marginal rate of taxation imposed by Employee's
state of residence (or by any other state which may impose taxes
on such payments) for the calendar year in which the Gross Up
Payment is to be made, net of the maximum reduction in federal
income taxes which could be obtained from deduction of such state
and local income taxes. In computing the highest marginal rate of
federal income taxation, adjustments shall be made to the highest
marginal rate of tax imposed by Section 1 of the Code to account
for the effect of Section 68 of the Code. The marginal rate of
federal income taxation shall also be adjusted to account for
Employee's portion of any FICA taxes imposed on any Gross Up
Payment by Section 3101 of the Code.
(d) In the event that the excise tax to be paid as a result
of payments pursuant to this Agreement is subsequently determined
to be less than the amount taken into account at the time the
Gross Up Payment is made, Employee shall repay Employer at the
time that the amount of such reduction in excise tax is finally
determined, the portion of the Gross Up Payment attributable to
such reduction, plus interest on the amount of such repayment at
the applicable federal rate under Section 1274 of the Code from
the date of payment of the Gross Up Payment to the date of
repayment. The amount of reduction of the Gross Up Payment shall
take into account any subsequent reduction in excise taxes
resulting from this payment.
(e) In the event that the excise tax is determined to exceed
the amount taken into account hereunder at the time the Gross Up
Payment is made, Employer shall make an additional Gross Up
Payment in respect of such excess, plus interest on such
additional Gross Up Payment at the applicable federal rate under
Section 1274 of the Code from the date of the Gross Up Payment to
7
<PAGE>
the date of payment of the additional Gross Up Payment, at the
time such additional excise tax is finally determined. The
amount of the additional Gross Up Payment shall take into account
any increase in excise taxes resulting from this payment.
(f) The Gross Up Payment provided above shall be paid not
later than the thirtieth (30th) day following payment of any
amounts pursuant to this Agreement.
(g) As a condition to making the payment set forth above,
Employer shall have the right to challenge, on Employee's behalf,
any excise tax assessment relating to payments made pursuant to
this Agreement. All expenses incurred as a result of any
challenge initiated by Employer shall be born by Employer.
12. Legal Expenses.
Employer shall pay all legal fees and expenses which
Employee may incur as a result of Employer contesting the
validity or enforceability of this Agreement and Employee shall
be entitled to receive interest thereon for the period of any
delay in payment from the date such payment was due at the rate
determined by adding two hundred basis points to the one-year
constant maturity Treasury index.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment to Agreement, under seal, as of the day and year first
above indicated.
FIRST UNION CORPORATION
Attest:
/s/ Kent S. Hathaway /s/ Robert T. Atwood
____________________________ By: _______________________________
Senior Vice President Executive Vice President
Title: _____________________ Title: ____________________________
(Corporate Seal)
/s/ Edward E. Crutchfield, Jr.
_____________________________(L.S.)
Edward E. Crutchfield, Jr.
9
<PAGE>
<PAGE>
EXHIBIT (12)(A)
FIRST UNION CORPORATION
COMPUTATIONS OF CONSOLIDATED
RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
EXCLUDING INTEREST ON DEPOSITS
Pretax income from continuing operations.................... $1,415,456 1,220,781 581,203 419,801 327,360
Fixed charges, excluding capitalized interest............... 669,978 517,742 456,867 698,898 982,086
(A.) Earnings............................................... $2,085,434 1,738,523 1,038,070 1,118,699 1,309,446
Interest, excluding interest on deposits.................... $ 619,698 467,181 405,297 652,393 949,046
One-third of rents.......................................... 50,280 50,561 51,570 46,505 33,040
Capitalized interest........................................ 1,120 285 381 2,326 3,144
(B.) Fixed charges.......................................... $ 671,098 518,027 457,248 701,224 985,230
Consolidated ratios of earnings to fixed charges, excluding
interest on deposits (A./B.).............................. 3.11X 3.36 2.27 1.60 1.33
INCLUDING INTEREST ON DEPOSITS
Pretax income from continuing operations.................... $1,415,456 1,220,781 581,203 419,801 327,360
Fixed charges, excluding capitalized interest............... 2,111,226 1,841,000 2,072,538 2,789,501 3,127,374
(C.) Earnings............................................... $3,526,682 3,061,781 2,653,741 3,209,302 3,454,734
Interest, including interest on deposits.................... $2,060,946 1,790,439 2,020,968 2,742,996 3,094,334
One-third of rents.......................................... 50,280 50,561 51,570 46,505 33,040
Capitalized interest........................................ 1,120 285 381 2,326 3,144
(D.) Fixed charges.......................................... $2,112,346 1,841,285 2,072,919 2,791,827 3,130,518
Consolidated ratios of earnings to fixed charges, including
interest on deposits (C./D.).............................. 1.67X 1.66 1.28 1.15 1.10
</TABLE>
<PAGE>
EXHIBIT (12)(B)
FIRST UNION CORPORATION
COMPUTATIONS OF CONSOLIDATED
RATIOS OF EARNINGS TO FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
EXCLUDING INTEREST ON DEPOSITS
Pretax income from continuing operations.................... $1,415,456 1,220,781 581,203 419,801 327,360
Fixed charges, excluding preferred stock dividends
and capitalized interest.................................. 705,306 530,024 473,158 705,944 990,476
(A.) Earnings............................................... $2,120,762 1,750,805 1,054,361 1,125,745 1,317,836
Interest, excluding interest on deposits.................... $ 619,698 467,181 405,297 652,393 949,046
One-third of rents.......................................... 50,280 50,561 51,570 46,505 33,040
Preferred stock dividends*.................................. 102,036 37,182 48,270 41,615 42,258
Capitalized interest........................................ 1,120 285 381 2,326 3,144
(B.) Fixed charges.......................................... $ 773,134 555,209 505,518 742,839 1,027,488
Consolidated ratios of earnings to fixed charges, excluding
interest on deposits (A./B.).............................. 2.74X 3.15 2.09 1.52 1.28
INCLUDING INTEREST ON DEPOSITS
Pretax income from continuing operations.................... $1,415,456 1,220,781 581,203 419,801 327,360
Fixed charges, excluding preferred stock dividends
and capitalized interest.................................. 2,146,554 1,853,282 2,088,829 2,796,546 3,135,764
(C.) Earnings............................................... $3,562,010 3,074,063 2,670,032 3,216,347 3,463,124
Interest, including interest on deposits.................... $2,060,946 1,790,439 2,020,968 2,742,996 3,094,334
One-third of rents.......................................... 50,280 50,561 51,570 46,505 33,040
Preferred stock dividends*.................................. 102,036 37,182 48,270 41,615 42,258
Capitalized interest........................................ 1,120 285 381 2,326 3,144
(D.) Fixed charges.......................................... $2,214,382 1,878,467 2,121,189 2,833,442 3,172,776
Consolidated ratios of earnings to fixed charges, including
interest on deposits (C./D.).............................. 1.61X 1.64 1.26 1.14 1.09
</TABLE>
* Includes redemption premium of $41,355,000 in 1994.
FIRST UNION CORPORATION
ANNUAL REPORT
1994
<PAGE>
TABLE OF CONTENTS
Financial Highlights........................................1
Letter from the Chairman....................................3
Strategies and Markets......................................6
Index to Special Topics....................................11
Management's Analysis of Operations........................12
Financial Tables...........................................25
Glossary...................................................90
Corporate Board of Directors...............................91
Corporate Management Committee.............................91
Bank Boards of Directors...................................91
Principal Subsidiaries.....................................93
Stockholder Information....................................94
THIS PUBLICATION IS PRODUCED ON 100 PERCENT RECYCLED PAPER AND IS RECYCLABLE.
THE MAJORITY OF THIS PAPER HAS BEEN MADE FROM 158 TONS OF OFFICE PAPER
RECYCLED FROM OUR OFFICES IN CHARLOTTE, NORTH CAROLINA; JACKSONVILLE, FLORIDA;
ATLANTA, GEORGIA; AND RICHMOND, VIRGINIA.
<PAGE>
<TABLE>
<CAPTION>
PERCENT
YEARS ENDED DECEMBER 31, INCREASE
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) 1994 1993 (DECREASE)
<S> <C> <C> <C>
........................................
NET INCOME $ 925,380 817,521 13.2%
DIVIDENDS ON PREFERRED STOCK 25,353 24,900 1.8
NET INCOME APPLICABLE TO COMMON
STOCKHOLDERS (BEFORE REDEMPTION PREMIUM) 900,027 792,621 13.6
REDEMPTION PREMIUM
ON PREFERRED STOCK 41,355 - -
NET INCOME APPLICABLE TO COMMON
STOCKHOLDERS (AFTER REDEMPTION PREMIUM) $ 858,672 792,621 8.3%
........................................
PER COMMON SHARE DATA
Net income before redemption premium $ 5.22 4.73 10.4%
Net income after redemption premium 4.98 4.73 5.3
Cash dividends 1.72 1.50 14.7
Book value 30.66 28.90 6.1
Year-end price $ 41.375 41.25 .3%
........................................
PER SERIES 1990
PREFERRED SHARE DATA
Year-end price $ 51.75 52.375 (1.2)%
Cash dividends $ 4.0127 3.8876 3.2
Dividend rate 8.03% 7.78 3.2%
........................................
YEAR-END BALANCE SHEET ITEMS
Assets $ 77,313,505 70,786,969 9.2%
Securities available for sale 7,752,479 11,744,942 (34.0)
Investment securities 3,729,869 2,692,476 38.5
Loans, net of unearned income 54,029,752 46,876,177 15.3
Deposits 58,958,273 53,742,411 9.7
Common stockholders' equity 5,397,517 4,923,584 9.6
Total stockholders' equity $ 5,397,517 5,207,625 3.6
Common shares outstanding 176,033,912 170,337,619 3.3%
........................................
FINANCIAL RATIOS
Return on average assets 1.27% 1.20
Return on average common stockholders'
equity before redemption premium 17.04 17.42
Net interest margin 4.77 4.78
Net charge-offs to average loans, net .33 .58
Allowance as % of loans, net 1.81 2.18
Allowance as % of nonaccrual
and restructured loans 245 147
Allowance as % of nonperforming assets 175 111
Nonperforming assets to loans, net
and foreclosed properties 1.03 1.95
Dividend payout ratio on common shares 34.54% 31.71
</TABLE>
CERTAIN RATIOS RELATED TO NONPERFORMING ASSETS, NET CHARGE-OFFS
AND THE LOAN LOSS PROVISION WERE FAVORABLY AFFECTED BECAUSE OF
THE INCLUSION OF THE ACQUIRED SOUTHEAST BANKS' PERFORMING LOAN
PORTFOLIO IN THE CALCULATION OF THE RATIOS.
1
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<PAGE>
STATISTICS
DIVIDENDS PER COMMON SHARE
(Dollars per share)
<TABLE>
<CAPTION>
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
.29 .31 .33 .36 .40 .65 .49 .58 .65 .77 .86 1.00 1.08 1.12 1.28 1.50 1.72
</TABLE>
TOTAL RETURN AFTER 3 YEARS
Compound Annual Growth Rate 15%
Assumes dividends reinvested.
1991 1994
$1,000 $1,536
TOTAL RETURN AFTER 5 YEARS
Compound Annual Growth Rate 20%
Assumes dividends reinvested.
1989 1994
$1,000 $2,505
TOTAL RETURN AFTER 10 YEARS
Compound Annual Growth Rate 13%
Assumes dividends reinvested.
1984 1994
$1,000 $3,501
BOOK VALUE PER SHARE GROWTH
(In dollars)
Originally reported (adjusted for stock splits), not restated for pooling
of interest acquistions.
<TABLE>
<CAPTION>
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
6.63 7.39 8.30 8.19 9.20 10.66 12.51 12.96 14.55 16.25 17.98 19.37 20.72 22.54 26.08 28.90 30.66
</TABLE>
2
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<PAGE>
LETTER FROM THE CHAIRMAN
Your company achieved solid growth and record performance during 1994, with
earnings of $900 million in net income applicable to common stockholders before
a redemption premium on preferred stock. This was a 14 percent increase from
$793 million in 1993. On a per share basis, net income applicable to common
stockholders before the redemption premium increased 10 percent to $5.22 from
$4.73.
First Union's strong generation of internal capital allowed us to call for
redemption approximately 6.3 million outstanding shares of Series 1990
cumulative perpetual adjustable rate preferred stock. Based on the number of
common shares currently outstanding, this will have a positive impact of
approximately 7 to 10 cents per share in 1995 and beyond. In 1994, this action
resulted in a one-time reduction in earnings per share applicable to common
stockholders of 24 cents.
Our earnings performance also allowed us to invest for the future by
expanding our fundamental businesses and by developing new areas for growth,
such as capital markets and card products.
We are committed to helping our stockholders achieve the full potential of
their investment. Stockholders benefited in 1994 from increased dividends, which
currently are $1.84 per share on an annualized basis. This was the 17th
consecutive year of increased dividends. Our dividends have grown at a 14
percent compound annual rate for the past eight years - the third best rate of
increase among the nation's 25 largest banking companies over that period. First
Union has paid a dividend every year since 1914, including its predecessor
banks. In addition, First Union's book value has increased more than $16 per
share, or 10 percent on a compound annual basis, over the past eight years. This
was the third best annual rate of increase among the nation's 25 largest banking
companies over that period.
Another way of looking at how First Union stockholders have shared in our
success over the long term is to consider total return (dividends, including
reinvested dividends, plus stock price appreciation). A $1,000 investment in
First Union common stock yielded a total return of 15 percent over the past
three years, 20 percent over the past five years, and 13 percent over the past
10 years, on a compound annual basis.
.................................
INDUSTRY TRENDS
On the surface, things have never looked better for the nation's banking
industry, with enviable profitability and strong loan demand. But in today's
environment the bank that thinks of itself as just a bank is a dinosaur. As we
all know, even if you are good at being a dinosaur, you are still extinct.
With nationwide banking on the horizon, the banking companies that survive
in the years ahead will be those that realize they are in the financial services
business. They must rapidly evolve into full-service providers of the innovative
products and financial solutions their customers demand.
By redefining themselves as financial service companies, banks today are
providing new products and services - everything from financial planning for
individuals to sophisticated financial problem-solving partnerships with
commercial customers.
First Union's 1994 performance generates a great deal of momentum as the
financial services industry consolidates and diversifies. First Union is meeting
the new competitive challenges with investments designed to complement our
traditional lending and deposit-taking functions and to strengthen prospects for
future profitability.
BUSINESS PROFILE
FIRST UNION CORPORATION, WITH HEADQUARTERS IN CHARLOTTE, NORTH CAROLINA, HAD
ASSETS OF $77.3 BILLION AT DECEMBER 31, 1994. IT IS THE NATION'S NINTH LARGEST
BANK HOLDING COMPANY, BASED ON TOTAL ASSETS.
(BULLET)
OUR 31,858 EMPLOYEES SERVE A CUSTOMER BASE OF MORE THAN 8 MILLION. OUR 1,338
FULL-SERVICE BANK BRANCHES IN THE ECONOMICALLY DIVERSE SOUTH ATLANTIC STATES
CONSTITUTE THE NATION'S FOURTH LARGEST BANK BRANCH NETWORK, PROVIDING RETAIL
BANKING, RETAIL INVESTMENT AND COMMERCIAL BANKING SERVICES. THROUGH 222
DIVERSIFIED OFFICES NATIONWIDE, WE ALSO PROVIDE OTHER FINANCIAL SERVICES
INCLUDING MORTGAGE BANKING, HOME EQUITY LENDING, LEASING, INSURANCE AND
SECURITIES BROKERAGE SERVICES. WE ALSO HAVE THE NATION'S EIGHTH LARGEST ATM
NETWORK.
STRATEGIC PRIORITIES
(BULLET) PROVIDE OUR CUSTOMERS UNPARALLELED SERVICE, CONVENIENCE AND
RESPONSIVENESS;
(BULLET) BALANCE EARNINGS POWER THROUGH GEOGRAPHIC AND PRODUCT DIVERSITY;
(BULLET) PROVIDE THE MOST INNOVATIVE FINANCING SOLUTIONS AND A BROAD ARRAY OF
PRODUCTS;
(BULLET) INCREASE THE PRODUCTION OF OUR SPECIALTY BUSINESSES;
(BULLET) MAXIMIZE OPERATING EFFICIENCY; AND
(BULLET) EMPHASIZE CAPITAL STRENGTH AND LOAN QUALITY, WITH GROWTH IN LOANS,
DEPOSITS AND FEE INCOME.
3
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(FIRST UNION logo)
<PAGE>
LETTER FROM THE CHAIRMAN
(Photograph of Edward E. Crutchfield)
EDWARD E.CRUTCHFIELD, CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Since the advent of regional interstate banking nine years ago, we have
built the nation's fourth largest banking network, with more than 1,300 bank
branches in seven states and Washington, D.C., stretching from Key West,
Florida, to Baltimore, Maryland.
In building this extensive network, it wasn't 1,300 branches we were after -
(Bullet) It was access to 8 million customers;
(Bullet) It was access to a depth of resources that would attract the
talent and the expertise - what I call the "intellectual capital" -
to generate new and profitable ideas;
(Bullet) It was access to the scale economies that allow us to keep our
unitcosts low and stay competitive; and
(Bullet) It was access to the resources to build new businesses to help us
diversify our earnings stream.
In short, size alone was not our objective nine years ago, nor is it today.
Size helps us stay in the game for the long haul. But size can also be our
enemy. The only real fear I have about our continued success is that we will
begin acting like a lumbering giant, with a bloated bureaucracy, out of touch
with our customers and our employees. Companies that stop listening to their
customers and employees will not survive.
We are determined that no matter our size, we will provide personal service
to each customer - after all, they are our reason for being.
.................................
MOMENTUM
As we focus on our goals, we have several core values - or core
competencies, in the current management terminology - that give us a strong
foundation. These values are:
STRONG FUNDAMENTALS: We have not forgotten the strategies behind our
success. We remain committed to loan quality among the best in the nation;
diversification by geography and by product; attention to operating efficiency;
and policies that benefit stockholders for the long term.
A STRONG SALES CULTURE: First Union's sales-oriented corporate culture is
rapidly taking hold in our newer markets. Our bankers, rather than being order-
takers, work to build long-term relationships with customers. They don't sit
behind a desk waiting for customers to walk in the door. Instead, they are out
of their offices getting to know their customers, their customers' businesses
and industry trends, so they can tailor the best financial solutions to meet
their customers' needs.
QUALITY SERVICE: First Union is a leader in quality service. As we have
grown, we have built a company that is focused on meeting customers' needs with
speed, flexibility and versatility. Our goal is to not only anticipate the needs
of our customers, but also to delight them by exceeding their expectations.
TECHNOLOGICAL ADVANCEMENTS: Our approach nine years ago was to build a
unified banking organization - one name, a standard set of products and a common
automation approach. Because of that philosophy, the installation of standard
automated systems is largely behind us, which gives us a competitive advantage
for the future. This past year, we were able to invest in projects to enhance
revenues rather than integrating automated systems. In addition, our standard
automated systems have allowed us to control costs, introduce new products
faster, provide more complete service and better management information.
INNOVATIVE BUSINESSES AND PRODUCTS: As we have expanded into areas that are
not necessarily traditional banking products, our strategy has been to emphasize
diversity in our sources of earnings and to focus on higher-yielding products.
We are already seeing promising results in several of these areas.
4
...
(FIRST UNION logo)
<PAGE>
For example, investment products are an excellent growth opportunity for two
reasons:
(Bullet) Many of the banks and thrifts we have acquired were not previously
active in trust services or mutual funds; and
(Bullet) Demographic trends are creating increased demand for investment
and savings products, as our customers grow older and change from being
primarily borrowers into savers and investors.
We are also seeing promising results from our capital markets initiative for
commercial and corporate customers. We have met the challenge of the major Wall
Street brokerage and investment banking firms to serve corporations and public
entities with these new, more sophisticated products. We have a competitive
advantage because Wall Street is focused on Wall Street, and First Union is
focused on Main Street. We are already well-established in excellent markets
with more than 100,000 corporations and entrepreneurs who need these alternative
financing solutions. This is our natural market, because this is where we have
built business relationships for the long term.
The reception that these products and services received from our customers
in 1994 gives us a great deal of confidence in the future.
.................................
VISION OF THE FUTURE
Through the end of this decade, I expect the consolidation of the banking
industry to continue, spurred by the passage of nationwide banking. Within the
next decade, I believe that ten to 15 major financial institutions will control
50 percent of the nation's banking business.
This consolidation is not occurring as rapidly as I once thought it would.
The last few years have created an aura of cosmetic prosperity. Now, loan demand
again is rising, and that growth is driving earnings in the banking industry.
But competitive forces remain a threat - and traditional lending will not be the
same engine of growth going forward.
In other words, it is going to be a tougher earnings environment for banks.
That is what the stock market believes, and that is the reason bank stocks took
a pummeling throughout much of 1994.
The rise of new balance sheet risk management strategies also has created
concern in the marketplace. But I believe these new strategies will prove to be
a stabilizing influence when used prudently, as they should be, and as they are
at First Union. In a year of rapidly rising interest rates, First Union's tax-
equivalent net interest income rose by 9 percent.
Those companies that have not repositioned themselves for the tougher
competitive and market forces ahead will hit a "revenue wall" by 1997 or 1998.
At that point, we will again see a wave of consolidation in this industry.
We believe we have built First Union into an innovative, flexible company
with the critical mass, talent and resources to remain a strong competitor in
the years ahead.
As First Union continues its transformation from a company that considers
itself a bank into a full-service financial company, our goal is to build a
"name brand," nationally recognized organization. In fact, our vision is for
First Union to be the indispensable cog in our customers' financial well-being -
a company that is known for its ability to provide highly individualized service
for all its customers as their needs for managing their assets or managing their
businesses grow.
I have every confidence in our ability to achieve this goal because of our
most formidable weapon - our people. I continue to be in awe of our employees'
diligence and commitment to building a flexible, successful First Union. Our
people worked tirelessly to reduce the level of nonperforming assets by a net
$358 million in the past year. They rapidly consolidated ten merger partners
representing $4.6 billion in assets into our system in less than a year. They
streamlined processes and operations to speed loan turnaround time, giving us
another competitive advantage. And they have diligently served our customers
every day, striving to achieve the highest levels of service.
Our success is the result of this exceptional teamwork, and for that our
employees have my admiration and gratitude. I also extend my sincere
appreciation for the support of our directors, stockholders and customers.
Sincerely,
Edward E.Crutchfield
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
FEBRUARY 21, 1995
5
...
(FIRST UNION logo)
<PAGE>
(Photograph of John R. Georgius appears here)
JOHN R.GEORGIUS, PRESIDENT, FIRST UNION CORPORATION
STRATEGIES AND MARKETS
First Union's strength begins with its 8 million customers in seven states and
Washington, D.C. Our eight full-service banks are located in the South Atlantic
region, which comprises the world's fifth largest economy, based on state
domestic product.
Our region is expected to continue to outpace the nation in growth in per
capita income, population and employment. The business environment is good and
demand is strong. We see excellent opportunities ahead for growth in loans,
deposits and fee income.
Overall in the South Atlantic region, First Union ranks second largest with
12 percent of the region's $537 billion in deposits. First Union also is a
market leader in commercial relationships.
The economically diverse South Atlantic region continues to provide great
potential for us to participate further in the growth and development of the
communities and markets we serve.
First Union is distinguished by fundamental strengths and earnings
diversity, with a wide array of products and services. Our company has leading-
edge automation that is driven by customers' needs and business goals. We also
have a tradition of quality and geographic diversity in our loan and deposit
mix, and we have kept a firm hand on core expenses.
All of these strengths are focused on one thing: providing our customers
with unparalleled service, convenience and responsiveness.
As we expand the financial services First Union delivers, we remain focused
on our reason for being: to serve our customers and to thereby enhance our value
for stockholders. We intend to be the premier provider of financial services in
our markets.
In the years ahead, First Union expects to benefit significantly from
investments we made in 1994. We have built a company that is flexible, adaptable
and focused on our customers. With more than $84 billion in assets (including
all pending acquisitions), First Union is able to provide a depth of resources
and expertise to help customers manage their assets, grow their companies and
build their communities.
As First Union has grown and diversified, so has our marketplace. To meet
the changing needs of our customers, in 1994 we streamlined our commercial
banking processes and instituted key initiatives for both individual and
commercial customers that should bear fruit in 1995 and beyond.
First Union has long been known as a strong retail bank, but today our
business is largely balanced between consumer and commercial banking.
.................................
CONSUMER BANKING
Consumer loans grew 17 percent in 1994 from year-end 1993, largely in direct
consumer loans and credit cards and from acquisitions. Our fastest growth is
coming in higher-yielding credit card products. Consumer loans account for 54
percent of the total loan portfolio.
PRODUCTIVE BRANCH SYSTEM
Our consumer banking strategies focus on expanding the array of products
available through the branches, from traditional certificates of deposit to
mutual funds. We are emphasizing higher-yielding retail products and small-
business lending.
In addition, we are streamlining and centralizing branch support functions
into centralized service units so our branch personnel can spend more time
focusing on customers rather than on performing administrative tasks.
Our branches have grown increasingly more productive as attention turns from
merger consolidation to serving customers. Deposits per branch have increased
100 percent and deposits per employee more than 100 percent since 1985.
In addition, loans per branch and loans per employee both have increased
more than 100 percent since 1985.
During this time, we have consolidated more than 700 of the branches that we
have bought over the past nine years.
Our largest bank, First Union National Bank of Florida, has $31.3 billion in
assets and ranks second in Florida with a 16 percent deposit share. While it is
second largest in the state, our Florida bank produced more net income than any
of the other large Florida banks over the past five years and ranks among the
most profitable and efficient large banks in the state.
Our oldest bank, the $23.1 billion-asset North Carolina bank, ranks first in
the state, with 19 percent of deposits. First Union ranks third in Virginia,
Washington, D.C., and Georgia.
With our newest branches beginning to perform up to First Union's
standards, we expect more growth in 1995 and beyond. For example, we estimate
that just four additional $15,000 loans per branch per month would generate
$936 million in new receivables and nearly $40 million in net interest income.
.................................
COMMERCIAL BANKING
Commercial loans grew 14 percent in 1994, led by our Florida, North Carolina
and Virginia banks. Consumer and commercial loan increases also include $1.2
billion from acquisitions.
In 1994, we redesigned our commercial lending processes based on customer
demands for speed, efficiency and flexibility, as well as improved service. Our
goal is to increase our market penetration by providing appropriate financial
solutions and improved service to our customers, even as we compete with
6
...
(FIRST UNION logo)
<PAGE>
more nonbank and other competitors from outside our region. We have the
"home court" advantage in already being established in our region, which is home
to 90,000 companies each with annual sales over $3 million and 18,000 companies
each with sales over $20 million.
To meet customer and marketplace demands, we have organized our commercial
lending strategies around the distinct service and product needs of four
different market segments: Corporate (companies with sales of $100 million and
more); Middle-market (sales of $20 million to $100 million); Commercial Banking
(sales of $3 million to $20 million); and Small Business (sales of $1 million to
$3 million). Each market segment has distinct needs, products and business
development strategies.
At First Union, commercial banking is driven by a relationship team
approach, rather than being transaction-oriented. The team is guided by the
relationship manager, who is charged with developing business opportunities,
gaining a thorough knowledge of customers' businesses, and offering ideas and
products to meet customers' financing needs. The relationship manager is
supported by an underwriting team of credit professionals who direct loan due
diligence firsthand, and a portfolio management team that services the loans and
keeps documentation up-to-date.
We reengineered commercial lending in 1994, reducing a process that often
took three to five weeks and 26 steps - many of them bottlenecks in the process
that added little value. The loan application and credit approval processes were
streamlined, with multiple, redundant layers removed. Our goal now is to provide
an answer to a loan request within three days while retaining high credit
quality standards.
Perhaps the most dramatic change in our commercial lending process has been
in the Small Business segment. There are more companies with annual sales below
$3 million in our region than in any other segment. However, our branch sales
focus primarily had been on direct consumer loans and residential mortgages -we
did little small-business lending before redesigning our lending process.
Our research told us that the things small-business customers most valued
were speed, convenience and responsiveness. So we changed our approach to this
business, and now we use the branches as the marketing and referral arm for
centralized underwriting units. These units are staffed by experienced
commercial lenders and underwriters. Customers can make one toll-free phone
call, and receive an answer to a loan request within 24 hours. The potential
impact of this change can be seen in that one additional small-business loan per
branch per month would generate $1.6 million in new loans per branch annually.
That would translate into about $62 million in additional net interest income.
During our start-up year in 1994, we originated 1,646 small-business loans,
which averaged about $92,000 per loan, compared with virtually nothing the year
before. This new lending process began in the Tampa Bay, Florida, area in April
1994, followed by North Carolina in October 1994, and was instituted in all of
our states by the end of November 1994.
CAPITAL MARKETS
OVERVIEW
We also have developed a relationship team approach in our Capital Markets
area. In 1994, we built a strong track record in private placements, loan
syndications, asset securitizations, commercial mortgage securitizations and
lease securitizations. We also created risk management programs for our clients
using foreign exchange and interest rate swaps, caps and options.
This capital markets initiative resulted from changes in First Union and
from changes in the industry that converged at about the same time:
(Bullet) First, we had attained the critical mass that enabled us to
recruit staff and offer the corporate financing alternatives referred to as
capital markets products and services; and
(Bullet) Second, our corporate customers also have grown, and many were
using or needed to use the alternative financing and risk management products
and services that we have grouped together under the Capital Markets umbrella.
In this initiative, the primary customer focus has been on the middle market
and upper middle market range ($20 million to $500 million in annual sales).
First Union already has relationships with 25 percent of the more than 100,000
corporations and entrepreneurs in our region for whom alternative financing and
risk management solutions may be appropriate.
For example, during 1994, we assisted a 25-year customer of our Georgia bank
by placing with private investors a $100 million issue of preferred stock and by
syndicating a $160 million loan with domestic and international banks.
Additionally, a commercial customer of our South Carolina bank received long-
term capital for its acquisition strategy and to fund its working capital
requirements from rapid growth. Our Capital Partners merchant banking unit
structured and purchased $15 million of senior subordinated notes in this
transaction, and we later provided a $25 million senior working capital and
acquisition loan facility. In another transaction, we provided a combined $73
million in investment equity and a bank credit facility to a longtime customer
of our Florida bank for the development of affordable housing projects.
PRIMARY BANKING MARKET IN SOUTH ATLANTIC U.S.
(Map appears here with the following legend:)
KEY
Darker color indicates
the areas of GREATEST
concentration of First
Union Bank branch
locations
Lighter color indicates
the areas of LOWEST
concentration of First
Union Bank branch
locations
7
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(FIRST UNION logo)
<PAGE>
STRATEGIES AND MARKETS
ASSET GROWTH
(DOLLARS IN BILLIONS)
*DOES NOT INCLUDE PENDING ACQUISITIONS
WITH $7 BILLION IN ASSETS.
1990 1991 1992 1993 1994
54.6 59.3 63.8 70.8 77.3*
HOW WE APPROACH THIS BUSINESS
Our seasoned relationship managers are charged with knowing the customer,
the customer's business, and the dynamics of the marketplace. We support
relationship managers with industry specialists and capital markets specialists
who are attuned to markets, rates and financial structures.
In other words, First Union's approach is based on long-term relationship
building, not on individual transactions. We find the right financing solution
for a company's individual needs, whether that need is for a traditional senior
loan or access to the capital markets.
During 1994, First Union:
(Bullet) Executed 38 loan syndication transactions amounting to almost $30
billion in volume;
(Bullet) Completed 15 asset securitizations and was a market leader in
lease-backed securitizations;
(Bullet) Completed more than 650 interest rate swap or cap transactions
primarily to protect corporate customers in a rising interest rate
environment; and
(Bullet) Originated 11 private placement transactions amounting to $677
million, ranging from a $13 million placement of senior debt to a $100 million
convertible preferred stock placement.
In addition to these products and services, we expect by mid-year 1995 to
receive federally approved, expanded "Section 20" powers to underwrite debt
securities. We are recruiting professionals with experience in high-yield
securities to complete our expanded Section 20 subsidiary, First Union Capital
Markets Corp.
Our Capital Markets Group also encompasses First Union's longstanding
specialized industries and corporate banking units. First Union recognizes the
importance of serving clients through industry specialization and offers
experienced teams focused on health care; media/communications; leasing,
finance and transportation; mortgage banking; and insurance and financial
institutions. We added an energy unit in 1993, followed in 1994 by a new sports
finance group that recognizes the nationwide growth of professional sports,
particularly in our banking states. In 1994 we significantly increased the size
and ability of our corporate banking unit to deliver custom-tailored corporate
finance advice to our customers.
Having built strength in the South Atlantic region, we are leveraging the
expertise of our specialized and corporate banking units to benefit customers
from coast to coast and around the world.
First Union continues to expand its expertise in the international banking
arena, primarily to meet the trade finance and foreign exchange needs of our
corporate customers and to provide commercial banking and capital market
products to the U.S. subsidiaries of foreign corporations - commonly known as
reverse investment companies.
The South Atlantic region has been an attractive investment market for
foreign-owned companies. About 45 percent of all new and expanded foreign-based
facilities in the United States over the past three years were in the South
Atlantic region.
Florida and North Carolina in particular have a high concentration of
companies involved in international trade, but our entire South Atlantic region
has seen international trade grow at a significantly greater pace than the
economy as a whole.
First Union has developed a growing number of correspondent banking
partnerships with established banks to facilitate trade in 140 countries
throughout the world. We processed more than $4 billion in trade transactions
over the past year.
In addition, during 1994 First Union pioneered two new global partnerships.
Ours was the first U.S. banking company since sanctions were lifted to sign
an agreement for a credit facility with a South African bank, in conjunction
with the Export-Import Bank of the United States. The credit facility with one
of the country's largest banking groups, and guaranteed by the Ex-Im Bank, will
be used to support U.S. companies in exporting capital goods such as
construction and mining equipment to South Africa. Since year-end 1993, our
International Division has handled more than $200 million in trade transactions
from South African banks, as well as trade transactions for more than 250 U.S.
exporters.
The second partnership was a joint venture with The Hongkong Chinese Bank
Ltd., to support U.S. companies with trade in Asia. The company, First Union
HKCB Asia Ltd., is expected to process $1.0 billion annually in trade
transactions by the end of the decade.
Overall, our international fee income increased 44 percent in 1994 from
1993, to $29 million.
.................................
SPECIALTY BUSINESSES
Our branch network is complemented by several diversified units that we call
"Specialty Businesses," including card products, mortgage lending and servicing,
home equity lending, and investment products, as well as the capital markets
products and services described previously.
CARD PRODUCTS
Volume and outstandings for the bankcard industry have increased
substantially over the past ten years, and we expect this trend to continue. Our
Card Products unit, which includes credit cards, debit cards and automated
teller machine cards, has developed a fast-growing credit card portfolio through
targeted, national market solicitations aimed at achieving geographical
diversity and at attracting high-quality, revolving credit customers. This
campaign increased receivables
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98 percent to $4.0 billion and accounts 45 percent to 3 million at year-end
1994 compared to year-end 1993.
Our goal is to become a leader in the credit card industry in profitability,
credit quality and superior customer service. We plan to achieve this through
controlled growth and by offering products of high value backed by knowledgeable
personal service professionals.
Purchase volume will also grow rapidly as new outlets such as grocery store
and fast food locations are opened to alternative payment products.
MORTGAGE LENDING
First Union's mortgage lending strategy during 1994 focused on increased
productivity, expense control and development of strategic niches. In a tough
year for the mortgage industry, First Union produced $4.5 billion of residential
mortgages and reduced expenses from 1993 levels.
Our mortgage origination strategy is to increase production from our banking
network and, nationally, to further develop affinity and corporate relocation
relationships as well as our telemarketing strategies. In addition, the mortgage
company has eight residential lending branches outside our South Atlantic
banking franchise that focus on business development opportunities in key growth
markets, such as Portland, Oregon; Seattle, Washington; and Phoenix, Arizona.
In 1994, almost 50 percent of total loans originated were securitized and
sold in the secondary market, with First Union Mortgage Corporation retaining
the servicing rights. Our mortgage loan servicing portfolio stood at $34.2
billion at year-end 1994, ranking FUMC among the nation's top 20 mortgage
servicers.
HOME EQUITY LENDING
We provide equity financing to nearly 90,000 homeowners through 184 offices
in 42 states, as well as through our full-service bank branches. We also serve
six additional states through a central processing center. Our home equity
outstandings rose to $4.8 billion in 1994. We rank among the nation's top ten
second mortgage lenders. Industry forecasts are for significant growth in 1995
and beyond as homeowners begin to tap their $3 trillion in estimated equity in
the national housing market to pay for renovations, higher education and other
need-based expenses.
Our origination strategy emphasizes quality customer service, including two-
day loan approval. Loans are originated largely through small, efficient offices
based near major metropolitan areas, as well as through key affinity
relationships with partners such as USAA.
In addition, in 1994 we launched a "key person" initiative in smaller towns
and cities, in which an originator pursues and develops leads. All processing is
handled through the central office, reducing overhead and increasing loan
production. Loan production averaged $5 million per branch in 1994.
Our goal, rather than dominant market share in the home equity industry, is
high quality loan growth. We have demonstrated a long-term record of strong
credit quality. Over the past five years, our home equity-related net charge-
offs have averaged .11 percent.
RETAIL INVESTMENT PRODUCTS
For individual and institutional customers, we provide investment and asset
management services through our Capital Management Group, which encompasses
Trust, Private Banking, Proprietary Mutual Funds and Brokerage Services.
We have responded to strong customer demand by offering a full line of
proprietary mutual funds through registered representatives in our branch
network. We entered the
CONTRIBUTIONS TO OVERALL PROFITABILITY
Based on regulatory reports filed December 31, 1994. Includes contributions
embedded in our state banks from Capital Markets Group, Capital Management
Group,
Card Products and excludes other nonbank subsidiaries.
51% Florida 3% South Carolina
24% North Carolina 2% Tennessee
8% Virginia 2% Washington, D.C.
8% Georgia 2% Maryland
mutual fund market for the long haul, believing mutual
funds, even though they are uninsured, will become a staple financial product,
like certificates of deposit and savings accounts. By the end of the first
quarter of 1995, we expect a full complement of branch employees - two in
nearly every full-service bank branch - to have their Series 6 and Series 63
brokerage licenses. These employees are supported by some 200 licensed Series 7
personal investment counselors and by a team of wholesalers who provide
marketing and sales information.
During 1994, these employees completed more than 16,000 transactions,
generating $97 million in sales and nearly $3 million in commissions. We are
encouraged by this achievement during our start-up year - a tough year for the
brokerage industry in general - and this compares to virtually no sales through
the branches in 1993.
Our mutual fund family grew to $7.0 billion and is in the process of being
renamed "The Evergreen Funds"
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STRATEGIES AND MARKETS
as a result of the acquisition of the well-respected Lieber & Co. in 1994.
Lieber is the investment adviser for the Evergreen Funds, with a total market
value of $2.8 billion in assets. First Union now has more than 30 proprietary
mutual fund offerings.
First Union ranks eighth nationally among banking companies in total assets
managed and third in retail fund management.
Also on the personal financial planning front, we have had excellent
response to our asset management account, which we call the "CAP Account."
During 1994, CAP Account deposit balances more than tripled; investment balances
doubled; and related fee income increased 200 percent. We expect this to be an
excellent relationship product for us going forward.
We also offer tax-deferred retirement plan services to employers of all
sizes. Our Daily Retirement Services fee income doubled for the third
consecutive year in 1994. In this service-driven business, First Union ranked
number one in the Dalbar Financial Services 401(k) Market Analysis Survey for
toll-free participant account services, including our 24-hour information
services. We continue to enhance our service through the use of technology to
provide customers access to information and the ability to implement decisions
24 hours a day.
The Capital Management Group has $47.6 billion of assets under care,
including $23.2 billion of assets under management.
.................................
THE FUTURE
In short, First Union is a company that is concentrating on its customers'
needs as it focuses on the future, with advanced technology, state-of-the-art
products and services, and a commitment to delighting our customers with speed,
convenience and new financial products.
Our goal is to provide our customers with the products they want, when they
want them and in the way they want them. Today, the majority of customers over
age 50 prefer using a branch office. In the future, customers will want to
conduct more of their financial business through enhanced automated teller
machines, interactive video screens, at home or another location through their
own computers, telephones or television screens.
First Union is pioneering alternative delivery methods, ranging from
centralized telecommunications centers for "one-stop shopping" via toll-free
numbers, to the development and introduction of card products using integrated
computer chip circuitry. We believe our management commitment to using proven,
cost-effective technology will keep us in the forefront of the financial
services industry.
In addition, First Union has opened its First Access Network "branch" on the
Internet global computer network, with more than 120 pages of information
including product and service offerings, consumer credit tips, career
opportunity listings and corporate community involvement information. This
information is available at the Internet address of
URL:http://www.firstunion.com/; or via the electronic mail address of
[email protected].
As technology develops to ensure account confidentiality, we will be able to
execute financial transactions such as credit card purchases, bill paying and
credit applications on-line.
We intend to continue to lead the industry with innovative financial
services that provide customers with the most convenient way to manage their
finances - to be their "first access point" into the financial system.
FULL-SERVICE BANKING UNITS
FLORIDA
Assets: $31.3 billion
Branches: 552
Deposits: SHARE: 16%; RANK: 2nd
Loans, Net: $21.3 billion
Deposits: $25.9 billion
GEORGIA
Assets: $9.1 billion
Branches: 154
Deposits: SHARE: 10%; RANK: 3rd
Loans, Net: $6.4 billion
Deposits: $7.2 billion
SOUTH CAROLINA
Assets: $2.4 billion
Branches: 66
Deposits: SHARE: 6%; RANK: 4th
Loans, Net: $1.7 billion
Deposits: $1.9 billion
WASHINGTON, D.C.
Assets: $1.6 billion
Branches: 33
Deposits: SHARE: 13%; RANK: 3rd
Loans, Net: $507 million
Deposits: $1.2 billion
NORTH CAROLINA
Assets: $23.1 billion
Branches: 276
Deposits: SHARE: 19%; RANK: 1st
Loans, Net: $16.2 billion
Deposits: $18.0 billion
VIRGINIA
Assets: $8.3 billion
Branches: 177
Deposits: SHARE: 10%; RANK: 3rd
Loans, Net: $5.6 billion
Deposits: $6.2 billion
TENNESSEE
Assets: $2.1 billion
Branches: 54
Deposits: SHARE: 3%; RANK: 7th
Loans, Net: $1.1 billion
Deposits: $1.7 billion
MARYLAND
Assets: $1.3 billion
Branches: 26
Deposits: SHARE: 2%; RANK: 10th
Loans, Net: $596 million
Deposits: $961 million
SPECIALTY BUSINESSES
CAPITAL MARKETS GROUP*
Assets: $9.6 billion
Loans, Net: $5.1 billion
Offices: 26
CARD PRODUCTS*
Loan Receivables:
$4.0 billion
FIRST UNION MORTGAGE
CORPORATION
Loans Serviced: $34.2 billion
Origination Volume:
$4.9 billion
Locations: 18
States: 9
CAPITAL MANAGEMENT GROUP*
Assets Under Care:
$47.6 billion
Assets Under Management:
$23.2 billion
Personal Trust Locations: 53
Full-Service Brokerage
Locations: 104
Licensed Branch
Employee Locations: 1,188
HOME EQUITY LENDING
Loans, Net: $4.8 billion
Locations: 184, plus 1,338
full-service banking locations.
States: 42
*ASSET AND LOAN INFORMATION FOR THESE SPECIALTY BUSINESSES IS INCLUDED IN
THE FULL-SERVICE BANKING UNITS LIST ABOVE BECAUSE THEIR OPERATIONS ARE
INTEGRATED IN OUR FRANCHISE STATES. ASSETS AND DEPOSITS ARE BASED ON REGULATORY
REPORTS FILED DECEMBER 31, 1994. DEPOSIT SHARE AND RANK ARE BASED ON ALL
INSURED DEPOSITS IN DOMESTIC OFFICES ON SEPTEMBER 30, 1994.
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FINANCIAL REPORTS
FIRST UNION CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
.................................
CONTENTS
<S> <C>
Management's Analysis of Operations.............................................................12
Financial Tables................................................................................25
Six-Year Net Interest Income Summary............................................................52
Management's Statement of Financial Responsibility..............................................54
Independent Auditors' Report....................................................................54
Consolidated Balance Sheets.....................................................................55
Consolidated Statements of Income...............................................................56
Consolidated Statements of Changes
in Stockholders' Equity.....................................................................57
Consolidated Statements of Cash Flows...........................................................58
Notes to Consolidated Financial Statements......................................................59
Glossary........................................................................................90
Boards of Directors.............................................................................91
Corporate Management Committee..................................................................91
Principal Subsidiaries..........................................................................93
Stockholder Information.........................................................................94
.................................
INDEX TO SPECIAL TOPICS
Accounting Policies.........................................................................21, 59
Annual Meeting..................................................................................94
Capital Resources
Risk-based Capital...................................................................19, 25, 42
Stockholders' Equity.......................................................1, 3, 18, 55, 57, 82
Common Stock
Book Value.............................................................................1, 2, 26
Income Per Share...............................................................1, 3, 12, 26, 56
Market Price..........................................................................1, 26, 29
Description of Business...................................................................3, 6, 93
Dividends..................................................1, 2, 3, 19, 24, 25, 26, 29, 55, 57, 58
Earnings Performance...................................................................1, 2, 3, 56
Employees................................................................................3, 43, 76
Income Taxes................................................................13, 26, 56, 61, 79, 80
Interest Rate Risk Management...............................................................19, 85
Derivative Transactions .........................21, 45, 46, 47, 48, 49, 50, 51, 52, 53, 85, 86
Interest Rate Sensitivity Model......................................................19, 20, 44
Liquidity
Debt Ratings.................................................................................94
Loans
Asset Quality........................................................................15, 16, 37
Average Balances.............................................................................52
Charge-offs...................................................................1, 16, 17, 37, 70
Commercial Real Estate.......................................................15, 16, 17, 36, 68
Geographic Concentrations...................................................................17
Industry Classifications................................................................15, 16
Project Type............................................................................15, 16
Consumer Loan Portfolio..........................................................14, 15, 35, 68
Highly Leveraged Transactions...............................................................15
Loan Loss Allowance......................................................16, 37, 38, 55, 60, 70
Loan Loss Provision......................................................16, 26, 29, 37, 56, 70
Mix at Year-End..............................................................................14
Nonperforming Assets......................................................1, 12, 16, 25, 37, 70
Southeast Banks Segregated Assets............................................17, 23, 39, 55, 71
Net Interest Income.....................................................12, 13, 22, 26, 29, 53, 56
Net Interest Margin..............................................................1, 13, 22, 25, 52
Noninterest Expense.............................................................13, 26, 27, 29, 56
Noninterest Income .............................................................13, 26, 27, 29, 56
Preferred Stock......................................................1, 18, 26, 29, 55, 57, 58, 75
Quarterly Data..................................................................................29
Results of Operations.........................................................1, 3, 12, 26, 29, 56
Return on Average Assets ............................................................1, 12, 25, 28
Return on Average Stockholders' Equity...............................................1, 12, 25, 28
Securities
Available For Sale....................................1, 14, 26, 29, 31, 32, 55, 56, 58, 64, 65
Investment............................................1, 14, 26, 29, 33, 34, 55, 56, 58, 66, 67
Shares, Number Outstanding...........................................................1, 55, 56, 57
Stockholders, Number of.........................................................................43
Trading Activities..............................................................................13
</TABLE>
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MANAGEMENT'S ANALYSIS OF OPERATIONS
FIRST UNION CORPORATION AND SUBSIDIARIES
NET INCOME PER
COMMON SHARE
(DOLLARS PER SHARE)
*BEFORE REDEMPTION PREMIUM.
1990 1991 1992 1993 1994*
1.68 2.24 2.23 4.73 5.22
RETURN ON
AVERAGE COMMON EQUITY
(IN PERCENT)
*BEFORE REDEMPTION PREMIUM.
1990 1991 1992 1993 1994*
7.78 10.03 9.08 17.42 17.04
RETURN ON AVERAGE ASSETS
(IN PERCENT)
*BEFORE REDEMPTION PREMIUM.
1990 1991 1992 1993 1994*
.50 .63 .63 1.20 1.27
EARNINGS HIGHLIGHTS
First Union's net income applicable to common stockholders increased in 1994
to a record $900 million before redemption premium on preferred stock, an
increase of 14 percent from $793 million in 1993. On a per common share basis,
earnings before redemption premium were $5.22 in 1994, an increase of 10 percent
from $4.73 in 1993.
Fourth quarter 1994 net income applicable to common stockholders before
redemption premium increased 18 percent to $225 million, from $190 million in
the fourth quarter of 1993. On a per common share basis, fourth quarter 1994
earnings were $1.28 before redemption premium compared with $1.12 in the fourth
quarter of 1993.
After the redemption premium, net income applicable to common stockholders
was a record $859 million, or $4.98 per common share in 1994, and $183 million,
or $1.04, in the fourth quarter of 1994. The redemption premium is related to
the redemption of the corporation's Series 1990 preferred stock on March 31,
1995.
Key factors in our 1994 performance were:
(Bullet) 9 percent growth in tax-equivalent net interest income;
(Bullet) 15 percent loan growth; and
(Bullet) Continued improvement in credit quality.
Tax-equivalent net interest income also was a record - $3.1 billion in
1994, compared with $2.9 billion in 1993.
Net loans increased by $7.2 billion (including $1.2 billion from
acquisitions) since year-end 1993. Commercial loan growth was strong throughout
First Union's banking states, led by Florida, North Carolina and Virginia.
Consumer loan growth was led by direct consumer loans through the retail bank
branches and credit cards.
Credit quality improvements included a $358 million net decrease in
nonperforming assets since year-end 1993, to $558 million, or 1.03 percent of
net loans and foreclosed properties at December 31, 1994. Another key measure of
credit quality is charge-offs, and First Union's net charge-offs remained low in
1994 at .33 percent of average net loans, compared with .58 percent in 1993.
In 1994, we completed ten acquisitions amounting to $4.6 billion in assets;
$1.2 billion in net loans; and $4.0 billion in deposits.
These acquisitions included Lieber & Co., the investment adviser to the
Evergreen family of mutual funds, Home Federal Savings Bank, American
Bancshares, Inc., Jacksonville Federal, Citizens Federal, BancFlorida Financial
Corporation, Cobb Federal, Hollywood Federal, and certain Florida branches of
Chase Manhattan Bank of Florida, N.A. and Great Western Bank, FSB. The purchase
accounting acquisition of BancFlorida, with $1.6 billion in assets, $847 million
in net loans and $1.2 billion in deposits, was the most significant bank-related
acquisition that was consummated in 1994.
The pooling of interests accounting acquisitions of Dominion Bankshares
Corporation, South Carolina Federal Corporation and DFSoutheastern, Inc., were
completed in the first quarter of 1993, and in the second quarter of 1993, we
completed the purchase accounting acquisitions of Georgia Federal Bank, FSB, and
First American Metro Corp.
Domestic banking operations, including trust operations, located in North
and South Carolina, Georgia, Florida, Maryland, Tennessee, Virginia and
Washington, D.C., and mortgage operations are our principal sources of revenues.
Foreign banking operations are immaterial.
The NET INTEREST INCOME section provides information about lost interest
income related to nonaccrual and restructured loans and the ASSET QUALITY
section includes further information about the loan loss provision.
OUTLOOK
We were pleased with our solid growth and record performance in 1994, as
well as our ability to enhance our prospects for the future through investments
designed to expand the capacity of our fundamental businesses and to develop new
areas for growth. The strength in our underlying fundamentals gives us a great
deal of optimism as we choose to make these discretionary investments, which we
expect to result in growth in loans, net interest income and fee income.
Consummation of the pending acquisitions of American Savings Bank of
Florida, FSB, First Florida Savings Bank, FSB, and Coral Gables Fedcorp, Inc.,
in Florida and Ameribanc Investors Group, parent of Ameribanc Savings Bank, FSB,
in Virginia, are expected to be completed by mid-1995. At December 31, 1994, the
combined assets, net loans and deposits of these banks were $7.2 billion, $4.6
billion and $5.1 billion, respectively. We expect these acquisitions will have a
minor impact on 1995 earnings and will be positive to earnings within 12 months
of consummation.
We continue to be alert to opportunities to enhance stockholder value,
especially in view of recently adopted federal legislation that will permit the
corporation to acquire banking organizations throughout the nation. We are
evaluating acquisition opportunities, and teams of experienced bankers from all
areas of the corporation frequently conduct due diligence activities in
connection with possible acquisitions.
As a result, acquisition discussions and in some cases negotiations
frequently take place, and future acquisitions involving cash, debt or equity
securities may be expected. Acquisitions typically involve the payment of a
premium over book and market values. Some dilution of First
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Union's book value and net income per common share may occur in connection
with any future acquisitions.
The ACCOUNTING AND REGULATORY MATTERS section provides information about
various other legislative, accounting and regulatory matters that have recently
been adopted or proposed.
.................................
INCOME STATEMENT ANALYSIS
NET INTEREST INCOME
Loan growth and pricing discipline on loans and deposits contributed to
record net interest income in 1994.
Nonperforming loans reduced interest income because the contribution from
these loans is eliminated or sharply reduced. In 1994, $48 million in gross
interest income would have been recorded if all nonaccrual and restructured
loans had been current in accordance with their original terms and had been
outstanding throughout the period, or since origination if held for part of the
period. The amount of interest income related to these assets and included in
income in 1994 was $6 million. However, a $358 million net decrease in
nonperforming assets since year-end 1993 reduced the negative impact to interest
income in 1994.
NET INTEREST MARGIN
The net interest margin, which is the difference between the tax-equivalent
yield on earning assets and the rate paid on funds to support those assets, was
4.77 percent in 1994, compared with 4.78 percent in 1993. The margin is not our
primary management focus or goal; our goal is to continue increasing net
interest income, which has increased for 21 consecutive quarters.
The average rate earned on earning assets was 7.92 percent in 1994, compared
with 7.77 percent in 1993. The average rate paid on interest-bearing liabilities
was 3.69 percent in 1994 and 3.44 percent in 1993.
We use securities and off-balance sheet transactions to manage interest rate
sensitivity. More information on these transactions is included in the INTEREST
RATE RISK MANAGEMENT section.
NONINTEREST INCOME
We are meeting the challenges of changing demographics and increased
competition in the financial services industry with investments designed to
enhance our prospects for future fee income growth. During 1994, we
significantly broadened our product lines, particularly in the capital markets,
financial planning and card product areas, to provide additional sources of fee
income that complement our long-standing banking products and services.
Noninterest income was $1.16 billion in 1994, compared with $1.20 billion in
1993, when the mortgage industry was more robust. Noninterest income included
$84 million in 1994 and $48 million in 1993 from the disposition of First
American segregated assets.
TRADING ACTIVITIES
Trading activities are undertaken to satisfy customers' risk management and
investment needs and for the corporation's own account. All trading activities
are conducted within risk limits established by the corporation's Funds
Management Committee, and all trading positions are marked to market daily.
Trading activities include fixed-income securities, money market
instruments, foreign exchange, options, futures, forward rate agreements and
swaps.
At December 31, 1994, trading account assets were $1.2 billion, compared
with $652 million at year-end 1993. Investments in commercial paper, federal
agency securities, U.S. Treasury notes and revaluation gains accounted for most
of the increase in trading account assets from year-end 1993. These assets are
carried at market value.
In March of 1993, we established a derivatives products group to provide
customers with the ability to use off-balance sheet derivative financial
products to tailor risk management solutions to their specific management
objectives. Included in trading profits are revenues from off-balance sheet
dealer activities of $31 million in 1994, compared with $15 million in 1993.
NONINTEREST EXPENSE
Noninterest expense was $2.68 billion in 1994, compared with $2.52 billion
in 1993. The increase reflects growth in personnel, advertising and other
expenses related to our card products, financial planning and capital markets
initiatives undertaken to improve prospects for revenue growth, as well as
expenses related to acquisitions. Offsetting these increases was a decline in
mortgage servicing amortization. Costs related to environmental matters were not
material.
INCOME TAXES
Income taxes were $490 million in 1994, compared with $403 million in 1993.
The increase resulted primarily from an increase in income before taxes.
.................................
BALANCE SHEET ANALYSIS
EARNING ASSETS
In banking the primary types of earning assets are securities and loans. The
earnings from these assets are subject to two kinds of risk, interest rate risk
and credit risk. Interest rate risk could result if fixed rate sources of funds
and fixed rate uses of funds were mismatched.
Our Funds Management Committee manages interest rate risk under specific
policy standards, which
NET INTEREST INCOME
(DOLLARS IN BILLIONS)
TAX-EQUIVALENT.
1990 1991 1992 1993 1994
1.873 2.025 2.563 2.867 3.126
NONINTEREST INCOME
(DOLLARS IN BILLIONS)
1990 1991 1992 1993 1994
.699 1.070 1.064 1.198 1.159
NONINTEREST EXPENSE
(DOLLARS IN BILLIONS)
1990 1991 1992 1993 1994
1.681 1.906 2.527 2.522 2.677
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MANAGEMENT'S ANALYSIS OF OPERATIONS
FIRST UNION CORPORATION AND SUBSIDIARIES
YEAR-END EARNING ASSETS
(DOLLARS IN BILLIONS)
Loans, net
Investment Securities
Securities Available For Sale
Other
1990 1991 1992 1993 1994
48.6 51.9 56.2 63.0 69.0
YEAR-END SECURITIES
AVAILABLE FOR SALE
34% U.S. Government Agencies
28% U.S. Treasury Securities
18% Other Bonds
16% Collateralized Mortgage Obligations
4% Other
YEAR-END LOANS
29% Commercial, Financial and Argicultural
27% Retail Real Estate-Mortgage
20% Installment Loans-Other
10% Commercial Real Estate-Mortgage
7% Installment Loans-Bankcard
4% Other
3% Commercial Real Estate-Construction and Other
YEAR-END INVESTMENT
SECURITIES
35% U.S. GOVERNMENT AGENCIES
33% MUNICIPAL SECURITIES
27% COLLATERALIZED MORTGAGE OBLIGATIONS
5% OTHER
are discussed in more detail in the INTEREST RATE RISK MANAGEMENT section. In
addition to certain securities, off-balance sheet transactions such as interest
rate swaps have been used to maintain interest rate risk at acceptable levels
in accordance with our policy standards.
The loan portfolio carries the potential credit risk of past due, non-
performing or, ultimately, charged-off loans. We manage this risk primarily
through credit approval standards, which are discussed in more detail in the
LOANS section.
Year-end 1994 earning assets were $69.0 billion, a 10 percent increase from
$63.0 billion in 1993. Average earning assets in 1994 were $65.5 billion. This
was a 9 percent increase from $59.9 billion in 1993.
SECURITIES AVAILABLE FOR SALE
Securities available for sale are used as a part of the corporation's
interest rate risk management strategy and may be sold in response to changes in
interest rates, changes in prepayment risk, liquidity needs, the need to
increase regulatory capital ratios and other factors. In accordance with the
adoption of Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities", we began accounting for debt
and equity securities on a market value basis as of January 1, 1994.
At December 31, 1994, we had securities available for sale with a market
value of $7.8 billion, compared with a market value of $11.9 billion at year-end
1993. The market value of securities available for sale was $302 million below
amortized cost at year-end 1994. As a result, a $214 million after-tax
unrealized loss was recorded as a reduction of stockholders' equity at December
31,1994. Table 8 provides information related to unrealized gains and losses and
realized gains and losses on these securities.
The average rate earned on securities available for sale in 1994 was 5.51
percent, compared with 5.03 percent in 1993. The average maturity of the
portfolio was 3.82 years at December 31, 1994.
INVESTMENT
SECURITIES
Investment securities amounted to $3.7 billion at December 31, 1994,
compared with $2.7 billion at year-end 1993.
The average rate earned on investment securities in 1994 was 9.03 percent,
compared with 7.07 percent in 1993. The average maturity of the portfolio was
6.34 years at December 31, 1994.
Gains and losses in this portfolio in 1994 were related to premiums received
on the call of certain securities, effectively accelerating the securities'
maturity, and sales of securities downgraded in creditworthiness. Table 9
provides further information related to unrealized gains and losses and realized
gains and losses on these securities.
LOANS
Our lending strategy stresses quality growth, diversified by product,
geography and industry. A common credit underwriting structure is in place
throughout the company, and a special real estate credit group reviews large
commercial real estate loans before approval. Consistent with our long-time
standard, we generally look for two repayment sources for commercial real estate
loans: cash flows from the project and other resources of the borrower.
Our commercial lenders focus principally on middle-market companies. A
majority of our commercial loans are for less than $10 million.
Our consumer lenders emphasize credit judgments that focus on a customer's
debt obligations, ability
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and willingness to repay, and general economic trends.
Net loans at December 31, 1994, were $54.0 billion, compared with $46.9
billion at year-end 1993. The fastest growth in our consumer loan portfolio is
coming in higher-yielding credit card products. This is a result of a targeted,
national solicitation effort that increased credit card outstandings 98 percent
in 1994. Commercial loan growth came primarily from Florida, North Carolina and
Virginia. The increase also includes $1.2 billion from our 1994 acquisitions.
The loan portfolio at December 31, 1994, was composed of 46 percent in
commercial loans and 54 percent in consumer loans. The portfolio mix did not
change significantly from year-end 1993.
At December 31, 1994, unused loan commitments related to commercial and
consumer loans were $14.5 billion and $9.8 billion, respectively. Commercial and
standby letters of credit were $2.1 billion.
At December 31, 1994, loan participations sold to other lenders amounted to
$1.3 billion and were recorded as a reduction of gross loans.
The average rate earned on loans in 1994 was 8.55 percent, compared with
8.50 percent in 1993. The average prime rate in 1994 was 7.15 percent, compared
with 6.00 percent in 1993. Loan yields have lagged the increases in the prime
rate.
The ASSET QUALITY section provides information about geographic exposure in
the loan portfolio and a loss-sharing arrangement with the Federal Deposit
Insurance Corporation (FDIC) covering the Southeast Banks commercial and
consumer loan portfolios acquired from the FDIC in 1991.
COMMERCIAL REAL ESTATE LOANS
Commercial real estate loans amounted to 13 percent of the total portfolio
at December 31, 1994, and 16 percent at December 31, 1993. This portfolio
included commercial real
estate mortgage loans of $5.4 billion at December 31, 1994, and $5.8 billion
at December 31, 1993. This portfolio declined in 1994 primarily as customers
took advantage of the low-rate environment to move out of floating rate debt
into permanent, long-term financing.
HIGHLY LEVERAGED TRANSACTIONS
An HLT loan generally is defined as a loan amounting to more than $20
million involving a buyout, acquisition or recapitalization of an existing
business, in which the loan substantially increases a company's debt-to-equity
ratio. At December 31, 1994, outstanding HLT loans amounted to $971 million,
compared with $786 million at December 31, 1993.
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ASSET QUALITY
The following asset quality discussion is divided into two sections to
reflect the loss-sharing arrangement between First Union and the FDIC in
connection with the September 1991 Southeast Banks transaction.
The first section relates to First Union's nonperforming assets, past due
loans, net charge-offs and loan loss allowance, excluding those related to
acquired Southeast Banks nonperforming assets.
The second section relates solely to the same categories mentioned above
segregated for the acquired Southeast Banks loan portfolio. Certain ratios
related to First Union's non-performing assets and net charge-offs have been
favorably affected because the Southeast Banks segregated assets portfolio has
not been included in the determination of these ratios.
Under the loss-sharing arrangement, the FDIC reimburses First Union for 85
percent of any losses associated with the acquired Southeast Banks commercial
and consumer loan portfolio, except revolving consumer credit, for which
reimbursement
YEAR-END COMMERCIAL LOANS
(INDUSTRY CLASSIFICATION)
(IN MILLIONS)
Manufacturing........... $ 2,599
Retail trade............ 1,376
Wholesale trade......... 1,106
Services................ 3,488
Financial services...... 1,404
Insurance............... 292
Real estate-related..... 1,210
Communications.......... 1,157
Transportation.......... 720
Public utilities........ 182
Agriculture............. 447
Construction............ 336
Mining.................. 298
Individuals............. 736
Public administration... 313
Other 1,858
Total $17,522
COMMERCIAL REAL ESTATE LOANS
(PROJECT TYPE)
(IN MILLIONS) OUTSTANDINGS NUMBER OF LOANS
Apartments............... $ 870 1,348
Condominiums............. 75 189
Land-improved............ 545 998
Land-unimproved.......... 361 712
Lodging.................. 194 176
Office buildings......... 1,626 4,006
Industrial buildings..... 662 1,821
Retail sales buildings... 1,187 1,704
Single family............ 528 3,269
Other 1,124 2,197
Total $ 7,172 16,420
YEAR-END CONSUMER LOANS
36% Mortgage Loans to Individuals
27% Consumer Credit
13% Bankcards
8% Second Mortgages
8% Mortgage Warehouse and Securitized Mortgages
8% Sales Finance
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MANAGEMENT'S ANALYSIS OF OPERATIONS
FIRST UNION CORPORATION AND SUBSIDIARIES
NONPERFORMING ASSETS
(PERCENT OF NET LOANS AND FORECLOSED PROPERTIES)
EXCLUDES SEGREGATED ASSETS
1990 1991 1992 1993 1994
3.42 4.10 3.19 1.95 1.03
YEAR-END NONPERFORMING
COMMERCIAL LOANS
(INDUSTRY CLASSIFICATION)
(IN MILLIONS) OUTSTANDINGS
Manufacturing......... $ 8
Retail trade.......... 18
Wholesale trade....... 4
Services.............. 44
Financial services.... 5
Real estate-related... 18
Transportation........ 2
Agriculture........... 12
Construction.......... 6
Mining................ 1
Individuals........... 20
Other 18
Total $ 156
QUARTERLY NONPERFORMING ASSETS
BY BUSINESS UNIT
EXCLUDES ACQUIRED SOUTHEAST BANKS ASSETS.
(DOLLARS IN MILLIONS) 4Q94 3Q94 2Q94 1Q94 4Q93
Florida........... $ 289 313 283 325 347
North Carolina.... 66 63 57 64 81
Georgia........... 39 81 91 119 134
Virginia.......... 58 73 93 118 161
South Carolina.... 14 31 38 41 43
Tennessee......... 6 10 10 13 29
Maryland.......... 12 17 18 28 29
Washington, D.C... 6 8 12 17 9
Other Units* 68 58 60 71 83
Total $ 558 654 662 796 916
*FIRST UNION MORTGAGE CORPORATION, FIRST UNION HOME EQUITY BANK, CAPITAL
MARKETS GROUP AND OTHER UNITS.
YEAR-END NONACCRUAL
REAL ESTATE
(PROJECT TYPE)
INCLUDES FORECLOSED PROPERTIES.
(IN MILLIONS) OUTSTANDINGS
Apartments......... $ 15
Condominiums....... 3
Industrial......... 16
Land-improved...... 31
Land-unimproved.... 44
Lodging............ 12
Office buildings... 42
Retail............. 49
Single family...... 45
Other 143
Total $ 400
declines five percent per year to 65 percent by 1996.
The FDIC also provides virtually cost-free funding for the acquired
Southeast Banks nonperforming assets. This was initially accomplished through
five-year revolving notes issued by First Union. Since the first quarter of
1992, in accordance with the FDIC assistance agreements, the
FDIC has been paying a market rate of interest on the amount of additions to
Southeast Banks segregated assets.
FIRST UNION
NONPERFORMING ASSETS
At December 31, 1994, non-performing assets were at their lowest level since
1991 at $558 million, or 1.03 percent of net loans and foreclosed properties,
compared with $916 million, or 1.95 percent, at December 31, 1993.
Loans or properties of less than $5 million each made up 83 percent, or $465
million, of nonperforming assets at December 31, 1994. Of the rest:
(Bullet) Seven loans or properties between $5 million and $10 million each
accounted for $47 million; and
(Bullet) Three loans or properties over $10 million each accounted
for $46 million.
Seventy-two percent of non-performing assets were collateralized by real
estate at December 31, 1994, compared with 71 percent at year-end 1993.
FIRST UNION
PAST DUE LOANS
In addition to these non-performing assets, at December 31, 1994, accruing
loans 90 days past due were $140 million, compared with $71 million, at December
31, 1993. Of these, $27 million were related to commercial and commercial real
estate loans, compared with $10 million at December 31, 1993. The increase in
past due loans was attributable in part to our 1994 acquisitions.
FIRST UNION NET CHARGE-OFFS
Net charge-offs as a percentage of average net loans were .33 percent in
1994, compared with .58 percent in 1993. Net charge-offs increased slightly in
the fourth quarter of 1994, reflecting bulk sales of nonperforming assets in
Georgia and South Carolina. We expect moderate charge-off levels to continue
throughout 1995. The dollar level will be higher in 1995 as credit card
portfolios mature. Table 12 provides information on net charge-offs by category.
FIRST UNION PROVISION AND
ALLOWANCE FOR LOAN LOSSES
The loan loss provision was $100 million in 1994, compared with $222 million
in 1993. The decrease in the loan loss provision in 1994 was based primarily on
current economic conditions, lower levels of non-performing assets, the maturity
of the nonperforming assets portfolio, lower current charge-offs, and projected
levels of charge-offs.
We establish reserves based upon various other factors, including the
results of quantitative analyses of the quality of commercial loans and
commercial real estate loans. Reserves for commercial loans and commercial real
estate loans are based principally on loan grades, historical loss rates,
borrowers' creditworthiness, underlying cash flows from the project and from
borrowers, and analysis of other less quantifiable factors that might influence
the portfolio. Reserves for consumer loans are based principally on
delinquencies and historical loss rates. We analyze all loans in excess of
$500,000 that are being monitored as potential credit problems to determine
whether supplemental, specific reserves are necessary.
For several quarters, the loan loss allowance as a percentage of net loans
has declined and the allowance coverage of nonaccrual and restructured loans and
nonperforming assets has increased, as indicated in Table 12.
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In 1994, this was primarily the result of loan growth and a net decline of
$358 million in nonperforming assets from December 31, 1993. These percentages
exclude the acquired Southeast Banks segregated assets. The SOUTHEAST BANKS
SEGREGATED ASSETS section provides information related to a separate $22 million
allowance for losses on segregated assets.
Modeling and determination of reserve adequacy has evolved over the past
several years to include a highly statistical analysis of loss potential in the
portfolio, in addition to a loan-by-loan analysis of material nonperforming
assets. Additionally, we evaluate macroeconomic trends, portfolio concentrations
and other factors that might affect portfolio performance.
As credit grades improved during 1992 and 1993, reserves allocated to
specific credits declined, resulting in increases to the general unallocated
reserve. Beginning in 1993, we refined our historical loss rates by adopting a
statistical loss migration analysis model, which did not entail a change in any
subjective assumptions about our loan portfolio or its performance. This change
resulted in additional increases to the unallocated allowance.
SOUTHEAST BANKS
SEGREGATED ASSETS
At December 31, 1994, acquired Southeast Banks segregated assets amounted to
$187 million, or $165 million net of the $22 million allowance referred to
above, compared with $380 million, or $347 million net of a $33 million
allowance, at December 31, 1993. This segregated asset portfolio consists of
nonaccrual loans and foreclosed properties, net of the allowance for segregated
assets as indicated in Table 15.
SOUTHEAST BANKS
PAST DUE LOANS
Accruing loans 90 days past due included in the acquired Southeast Banks
performing loan portfolio were $22 million at December 31, 1994, and $28
million at December 31,1993. These loans are subject to the terms of the FDIC
loss-sharing agreement.
SOUTHEAST BANKS
NET CHARGE-OFFS
Net charge-offs of $10 million, representing First Union's approximately 15
percent share of the losses on acquired Southeast Banks loans, were deducted
from the allowance for segregated assets in 1994, compared with $14 million in
1993.
GEOGRAPHIC EXPOSURE
The loan portfolio in the South Atlantic region of the United States is
spread primarily across 61 metropolitan statistical areas with diverse
economies. Washington, D.C.; Charlotte, North Carolina; Atlanta, Georgia; and
Miami, Jacksonville, West Palm Beach and Tampa, Florida, are our largest
markets, but no individual metropolitan market contains more than 7 percent of
the commercial loan portfolio.
Substantially all of the $7.2 billion commercial real estate portfolio at
December 31, 1994, was located throughout our retail banking region.
.................................
LIQUIDITY AND
FUNDING SOURCES
Liquidity planning and management are necessary to ensure that we maintain
the ability to fund operations cost effectively and to meet current and future
obligations. In this process, we focus on both assets and liabilities and the
manner in which they combine to provide adequate liquidity to meet the
corporation's needs.
Funding sources primarily include customer-based core deposits but also
include purchased funds and cash flows from operations. First Union is one of
the nation's largest core deposit-funded banking institutions. Our large
consumer deposit base, which is spread across the economically strong South
Atlantic region, creates considerable funding diversity and stability. Further,
recently acquired bank and thrift deposits have enhanced liquidity.
Asset liquidity is maintained through maturity management and our ability to
liquidate assets, primarily assets held for sale. Another significant source of
asset liquidity is the potential to securitize assets such as credit card
receivables and auto, home equity and mortgage loans. Off-balance sheet sources
of liquidity exist as well, such as a mortgage servicing portfolio, for which
the estimated market value exceeded book value by $369 million at December 31,
1994.
CORE DEPOSITS
Core deposits were $53.2 billion at December 31, 1994, compared with $50.9
billion at December 31, 1993. This increase in core deposits primarily reflects
deposits acquired from our 1994 acquisitions. Core deposits include savings,
negotiable order of withdrawal (NOW), money market and noninterest-bearing
accounts, and other consumer time deposits.
In both 1994 and 1993, average noninterest-bearing deposits were 20 percent
of average core deposits. The NET INTEREST INCOME SUMMARIES provide additional
information about average core deposits.
The portion of core deposits in higher-rate, other consumer time deposits
was 35 percent at December 31, 1994, and 33 percent at year-end 1993. Other
consumer time and other noncore deposits usually pay higher rates than savings
and transaction accounts, but they generally are not available for immediate
withdrawal and are less expensive to process.
Average core deposit balances in 1994 increased $2.0 billion from 1993.
Average balances in savings and NOW, money market and noninterest-bearing
deposits were higher when compared with the previous year, while other
NET CHARGE-OFFS
(PERCENT OF AVERAGE NET LOANS)
EXCLUDES SOUTHEAST BANKS-RELATED NET CHARGE-OFFS.
1990 1991 1992 1993 1994
.68 1.48 .86 .58 .33
NET CHARGE-OFFS BY
LOAN TYPE
(INDUSTRY CLASSIFICATION)
AS A PERCENTAGE OF AVERAGE NET LOANS.
(PERCENT) 1994 1993
Commercial,
financial and
agricultural..... .13 .73
Real estate...... .22 .38
Installment
loans-Bankcard... 2.02 2.47
Installment
loans-Other...... .39 .38
Total .33 .58
COMPARISON OF
FUNDING SOURCES
Deposits '92-86% '93-84% '94-84%
Short-Term Borrowings '92-9% '93-11% '94-11%
Long-Term Debt '92-5% '93%-5% '94-5%
1992 1993 1994
100% 100% 100%
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MANAGEMENT'S ANALYSIS OF OPERATIONS
FIRST UNION CORPORATION AND SUBSIDIARIES
STOCKHOLDERS' EQUITY
TO ASSETS
(PERCENT)
* AFTER PREFERRED STOCK REDEMPTION.
1990 1991 1992 1993 1994*
6.05 6.51 6.99 7.36 6.98
consumer time deposits were lower. Core deposits were primarily affected by
our 1994 acquisitions and were also affected by branch closings or
consolidations, and the rates being offered for deposits compared to other
investment opportunities.
PURCHASED FUNDS
Purchased funds at December 31,1994, were $13.3 billion compared with $10.1
billion at year-end 1993. These funds are used to fund securities portfolios,
trading account securities and other short-term assets. Purchased funds are
acquired primarily through (i) our large branch network, consisting principally
of $100,000 and over certificates of deposit, public funds and treasury
deposits, and (ii) national market sources, consisting of relatively short-term
funding sources such as federal funds, securities sold under repurchase
agreements, eurodollar time deposits and commercial paper, and longer-term
funding sources such as bank notes.
Average purchased funds in 1994 were $12.6 billion, an increase of 19
percent from $10.6 billion in 1993.
CASH FLOWS
Net cash provided from operations results primarily from net income adjusted
for the following noncash accounting items: the provisions for loan losses and
foreclosed properties; depreciation and amortization; and deferred income taxes
or benefits. These items amounted to $627 million in 1994, compared with $683
million in 1993. This cash was available in 1994 to increase earning assets and
to reduce borrowings by $304 million and to pay dividends of $323 million. In
1993 we reduced overnight investments at the parent company level to pay $154
million to acquire Georgia Federal and $452 million to acquire First American.
.................................
LONG-TERM DEBT
Long-term debt was 64 percent of total stockholders' equity at December 31,
1994, compared with 59 percent at December 31, 1993.
In 1994, we issued $150 million of 15-year, 6.375 percent subordinated debt,
$150 million of 15-year, 8 percent subordinated debt, and $150 million of 10-
year, 8.77 percent subordinated debt. On February 24, 1995, we issued $300
million of 3-year, floating rate notes. Proceeds from these debt issues were
used for general corporate purposes.
Under a shelf registration statement filed with the Securities and Exchange
Commission, we currently have available for issuance $700 million of senior or
subordinated debt securities. The sale of any additional debt securities will
depend on future market conditions, funding needs and other factors.
DEBT OBLIGATIONS
We have a $350 million, three-year committed back-up line of credit that
expires in June 1997. This credit facility contains financial covenants that
require First Union to maintain a minimum level of tangible net worth, restrict
double leverage ratios and require capital levels at subsidiary banks to meet
regulatory standards. First Union is currently in compliance with these
requirements and has not used this line of credit.
In 1995, $200 million of long-term debt will mature. Maturing in 1996 is
$523 million, which includes notes payable to the FDIC of $120 million. We
expect the notes payable to the FDIC to decrease over the remaining period
ending in September 1996 through cash flows generated by the acquired loans, the
sale of the Southeast Banks segregated assets and FDIC reimbursements.
During 1994, we redeemed $15 million of convertible subordinated debt that
we assumed in the Banc-Florida acquisition, which was converted into
approximately 437,000 shares of First Union common stock prior to redemption.
In 1993, we redeemed $134 million of floating rate debt. This debt was called
at par value plus accrued interest.
The ASSET QUALITY section provides additional information related to the
funding of the segregated assets.
.................................
STOCKHOLDERS' EQUITY
At December 31, 1994, common stockholders' equity was $5.40 billion, a 10
percent increase from $4.92 billion at December 31, 1993. Total stockholders'
equity was $5.40 billion, compared with $5.21 billion at year-end 1993. Since
year-end 1993, we have paid $175 million for the purchase in the open market of
4 million shares of common stock related to the BancFlorida acquisition and have
issued an aggregate of 4 million shares of common stock related to the American
Bancshares, Lieber and Home Federal pooling of interest acquisitions. From the
third quarter of 1994 through February 14, 1995, we have paid $161 million for
the purchase in the open market of 3.8 million shares of common stock related to
the pending acquisition of American Savings Bank. These shares have been
retired. In addition, the board of directors has authorized the repurchase from
time to time of up to 9.2 million additional shares of common stock.
On December 20, 1994, the board of directors elected to redeem all of the
6.3 million outstanding shares of our Series 1990 cumulative perpetual
adjustable rate preferred stock. The redemption will occur on March 31, 1995, at
a redemption price of $51.50 per share.
In 1995 and beyond, the preferred stock redemption is expected to have a
positive impact on earnings of approximately 7 to 10 cents per share, based on
the current number of com-
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INTEREST RATE SENSITIVITY ASSUMPTIONS
mon shares outstanding. We recorded a redemption premium in the fourth
quarter of 1994, representing the difference between the $44.96 book value of
the preferred stock issue and the $51.50 redemption price. The redemption
premium reduced 1994 earnings per share applicable to common stockholders by 24
cents.
We paid $323 million in dividends to preferred and common stockholders in
1994. This included preferred stock cash dividends of 8.03 percent per annum, or
$25 million.
At December 31, 1994, stockholders' equity included a $214 million
unrealized after-tax loss related to debt and equity securities. The SECURITIES
AVAILABLE FOR SALE section provides additional information about the accounting
for debt and equity securities.
During 1993, in connection with three pooling of interests acquisitions, we
issued 29 million shares of common stock and 527,000 shares of a new series of
convertible class A preferred stock, which were convertible into 680,000 shares
of First Union common stock. In the second quarter of 1993, we redeemed the
convertible class A preferred stock, most of which was converted into common
stock before redemption.
SUBSIDIARY DIVIDENDS
Our banking subsidiaries are the largest source of parent company dividends.
Capital requirements established by regulators limit dividends that these and
certain other of our subsidiaries can pay. The Office of the Comptroller of the
Currency (OCC) generally limits a national bank's dividends in two principal
ways: first, dividends cannot exceed the bank's undivided profits, less
statutory bad debt in excess of a bank's allowance for loan losses; and second,
in any year dividends may not exceed a bank's net profits for that year, plus
its retained earnings from the preceding two years, less any required transfers
to surplus.
Under these and other limitations, our subsidiaries had $397 million
available for dividends at December 31, 1994. Our subsidiaries paid $682 million
in dividends to the corporation in 1994.
RISK-BASED CAPITAL
The minimum requirement for the ratio of total capital to risk-weighted
assets (including certain off-balance sheet financial instruments, such as
standby letters of credit and interest rate swaps) is currently 8 percent. At
least half of the total capital is to be composed of common equity, retained
earnings and a limited amount of qualifying preferred stock, less certain
intangible assets (tier 1 capital). The rest may consist of a limited amount of
subordinated debt, nonqualifying preferred stock and a limited amount of the
loan loss allowance (together with tier 1 capital, total capital).
At December 31, 1994, the corporation's tier 1 and total capital ratios were
7.76 percent and 12.94 percent, respectively.
In addition, the Federal Reserve Board has established minimum leverage
ratio requirements for bank holding companies. These requirements provide for a
minimum leverage ratio of tier 1 capital to adjusted average quarterly assets
equal to 3 percent for bank holding companies that meet specified criteria,
including having the highest regulatory rating. All other bank holding companies
will generally be required to maintain a leverage ratio of at least 4 to 5
percent. The corporation's leverage ratio at December 31, 1994, was 6.12
percent.
The requirements also provide that bank holding companies experiencing
internal growth or making acquisitions will be expected to maintain strong
capital positions substantially above the minimum supervisory levels without
significant reliance on intangible assets. The Federal Reserve Board also has
indicated it will continue to consider a tangible tier 1 leverage ratio
(deducting all intangibles) in evaluating proposals for expansion or new
activity. The Federal Reserve Board has not advised us of any specific minimum
leverage ratio applicable to us.
Each subsidiary bank is subject to similar capital requirements adopted by
the OCC. Each subsidiary bank listed in Table 19 had a leverage ratio in excess
of 5.68 percent at December 31,1994. None of our subsidiary banks has been
advised of any specific minimum capital ratios applicable to it.
The regulatory agencies also have adopted regulations establishing capital
tiers for banks. Banks in the highest capital tier, or "well capitalized," must
have a leverage ratio of 5 percent, a tier 1 capital ratio of 6 percent and a
total capital ratio of 10 percent.
At December 31, 1994, the subsidiary banks listed in Table 19 met the
capital and leverage ratio requirements for "well capitalized" banks. We expect
to maintain these banks' ratios at the required levels by the retention of
earnings and, if necessary, the issuance of additional capital.
Failure to meet certain capital ratio or leverage ratio requirements could
subject a bank to a variety of enforcement remedies, including termination of
deposit insurance by the FDIC.
The ACCOUNTING AND REGULATORY MATTERS section provides more information
about proposed changes in risk-based capital standards.
.................................
INTEREST RATE RISK
MANAGEMENT
Managing interest rate risk is fundamental to banking. Banking institutions
manage the inherently different maturity and repricing characteristics of the
lending and deposit-taking lines of business to achieve a
RISK-BASED CAPITAL TO ASSETS
(PERCENT)
1994 Regulatory Minimum-Well Capitalized
First Union
Tier I Total Capital
6.00 7.76 10.00 12.94
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MANAGEMENT'S ANALYSIS OF OPERATIONS
FIRST UNION CORPORATION AND SUBSIDIARIES
desired interest rate sensitivity position and to limit exposure to interest
rate risk. The inherent maturity and repricing characteristics of our lending
and deposit activities create a naturally asset-sensitive structure. By using a
combination of on- and off-balance sheet financial instruments we manage the
sensitivity of earnings to changes in interest rates within our established
policy guidelines.
The Financial Management Committee of the corporation's board of directors
reviews overall interest rate risk management activity. The corporation's Funds
Management Committee, which includes the corporation's chief executive officer
and president, and senior executives from our Capital Markets Group, credit and
finance areas, oversees the interest rate risk management process and approves
policy guidelines. Balance sheet management personnel monitor the day-to-day
exposure to changes in interest rates in response to loan and deposit flows and
make adjustments within established policy guidelines.
We measure interest rate sensitivity by estimating the amount of earnings
per share at risk based on the modeling of future changes in interest rates. Our
model captures all assets and liabilities and off-balance sheet financial
instruments, and combines various assumptions affecting rate sensitivity and
changes in balance sheet mix into an earnings outlook that incorporates our view
of the interest rate environment most likely over the next 24 months. Balance
sheet management and finance personnel review and update continuously the
underlying assumptions included in the earnings simulation model. The results of
the model are reviewed by the Funds Management Committee. The model is updated
at least monthly and more often as appropriate.
Our interest rate sensitivity analysis is based on multiple interest rate
scenarios, projected changes in balance sheet categories and other assumptions.
Changes in management's outlook related to interest rates and their effect on
our balance sheet mix of assets and liabilities and other market factors may
cause actual results to differ from our current simulated outlook.
We believe our earnings simulation model is a more relevant depiction of
interest rate risk than traditional gap tables because it captures multiple
effects excluded in less sophisticated presentations, and it includes
significant variables that we identify as being affected by interest rates. For
example, our model captures rate of change differentials, such as federal funds
rates versus savings account rates; maturity effects, such as calls on
securities; and rate barrier effects, such as caps and floors on loans. It also
captures changing balance sheet levels, such as commercial and consumer loans,
both floating and fixed rate, noninterest-bearing deposits and investment
securities. In addition, it considers leads and lags that occur in long-term
rates as short-term rates move away from current levels; the elasticity in the
repricing characteristics of savings and money market deposits; and the effects
of prepayment volatility on various fixed rate assets such as residential
mortgages, mortgage-backed securities and consumer loans. These and certain
other effects are evaluated in developing the scenarios from which sensitivity
of earnings to changes in interest rates is determined.
We use three standard scenarios in analyzing interest rate sensitivity for
policy measurement. The base-line scenario is our estimated most likely path for
future short-term interest rates over the next 24 months. The base-line scenario
currently assumes that federal funds rates rise through 1995 and fall modestly
in 1996. The "high rate" and "low rate" scenarios assume 100 basis point shifts
from the base-line scenario in the federal funds rate by the fourth succeeding
month and that rates remain 100 basis points higher or lower through the rest of
the 24-month period. Our estimate at December 31, 1994, of the most likely path
for future short-term interest rates was that the federal funds rate would
increase to 7 percent by year-end 1995, followed by a gradual decline to 6.50
percent by December 1996.
We determine interest rate sensitivity by the change in earnings per share
between the three scenarios over a 12-month policy measurement period. The
earnings per share as calculated by the earnings simulation model under the
base-line scenario becomes the standard. The measurement of interest rate
sensitivity is the percentage change in earnings per share calculated by the
model under high rate versus base-line and under low rate versus base-line. The
policy measurement period begins with the fourth month forward and ends with
the 15th month (i.e., the 12-month period.)
Our policy limit for the maximum negative impact on earnings per share
resulting from either the high rate or low rate scenario is 5 percent. Based on
the February 1995 outlook, if interest rates were to rise to follow the high
rate scenario, which means a full 100 basis point increase over the base-line
(already a rising rate scenario), then earnings during the policy measurement
period would be negatively affected by 2.7 percent.
In addition to the three standard scenarios used to analyze rate sensitivity
over the policy measurement period, we also analyze the potential impact of
other interest rate scenarios on corporate earnings. These alternate scenarios
include interest rate paths both higher, lower and more volatile than those used
for policy measurement.
While our interest rate sensitivity modeling assumes that management takes
no action, we regularly assess the viability of strategies to reduce
unacceptable risks to earnings resulting not only from the standard scenarios
over which policy period sensitivity is measured, but also from the alternate
scenarios.
We took several actions in 1993 and 1994 to mitigate the negative effect on
earnings of adverse changes in interest rates beyond the rate changes set forth
by our policy measurement criteria. For example, during the second quarter of
1993, we purchased protection against higher interest rates during the last
three quarters of 1994 in the form of $17.4 billion in eurodollar put option
contracts. Similarly, during the fourth quarter of 1994, we purchased $27.2
billion in eurodollar put option protection to reduce rate sensitivity in the
last half of 1995 that would result if interest rates rose above our high rate
scenario. As new monthly forecast results
INTEREST RATE SENSITIVITY ASSUMPTIONS
Dec 94 Mar 95 Dec 95 Feb 96 Dec 96
Low Rate 5.50% 5.18% 6.00% 5.91% 5.50%
Base Line 5.71% 6.18% 7.00% 6.91% 6.50%
High Rate 5.92% 7.18% 8.00% 7.91% 7.50%
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become available, management will continue to formulate strategies to
protect earnings from the potential negative effects of changing assumptions and
interest rates.
OFF-BALANCE SHEET
DERIVATIVES FOR INTEREST
RATE RISK MANAGEMENT
As part of our overall interest rate risk management strategy, for many
years we have used off-balance sheet derivatives as a cost- and capital-
efficient way to modify the repricing or maturity characteristics of on-balance
sheet assets and liabilities. Our off-balance sheet derivative transactions used
for interest rate sensitivity management include interest rate swaps, futures
and options with indices that relate to the pricing of specific core assets and
liabilities of the corporation. We believe we have appropriately controlled the
risk that the derivatives used for rate sensitivity management will have any
significant unintended effect on corporate earnings.
As a result of interest rate fluctuations, off-balance sheet transactions
(and securities) will from time to time develop unrealized appreciation or
depreciation in market values as compared with their cost. The impact on net
interest income attributable to off-balance sheet transactions, all of which are
linked to specific assets and liabilities as part of our overall interest rate
risk management strategy, will generally be offset by the impact on net interest
income of on-balance sheet assets and liabilities.
Our asset sensitivity arises naturally, primarily because the repricing
characteristics of our large core deposit base have a positive effect on net
interest income in a rising rate environment and a negative effect on net
interest income in a declining or low-rate environment. Conversely, our fixed-
rate securities and off-balance sheet instruments have the opposite effect when
rates go up or down. We mitigate our natural asset sensitivity by holding fixed-
rate debt instruments in the available-for-sale securities portfolio or by
holding off-balance sheet "asset proxies." These asset proxies consist of
interest rate swaps that convert floating rate assets (primarily variable rate
loans) to fixed rate assets. The unrealized appreciation and depreciation of
these asset proxies generally offset the unrealized depreciation and
appreciation of core deposits. The combination of securities and interest rate
swaps enables us to achieve a desired level of interest rate sensitivity.
Another common application of off-balance sheet instruments is the use of
interest rate swaps to convert fixed rate debt into floating rate debt. This is
accomplished by entering into interest rate swap contracts to receive a fixed
rate of interest to the contractual maturity of the debt issued and to pay a
variable rate, usually six-month LIBOR. These "liability swaps," all of which
are linked to specific debt issuances, leave rate sensitivity unchanged, whereas
the fixed rate debt issuance alone would have increased asset sensitivity or
reduced liability sensitivity. The combination of the liability swaps and debt
produces the desired LIBOR-based floating rate funding regardless of changes in
interest rates.
Our overall goal is to manage the corporation's rate sensitivity in ways
that our earnings momentum is not adversely affected materially whether rates go
up or down.
The important consideration is not the shifting of unrealized appreciation
or depreciation between and among on- and off-balance sheet instruments, but the
prudent management of interest rate sensitivity so corporate earnings are not at
significant risk as interest rates move up or down.
The fair value depreciation of off-balance sheet derivative financial
instruments used to manage our interest rate sensitivity was $422 mil-lion at
December 31, 1994, compared with the fair value appreciation of $369 million at
December 31, 1993.
The carrying amount of financial instruments used for interest rate risk
management includes amounts for deferred gains and losses. The amount of
deferred gains and losses was $15 million and $35 million, respectively, at
December 31, 1994. These net losses will reduce net interest income by $18
million in 1995 and $2 million in 1996. The increased contribution to net
interest income in a higher interest rate environment from on-balance sheet
assets and liabilities is expected to substantially offset the potentially
reduced contribution to net interest income reflected by the decline in market
value of off-balance sheet derivative financial instruments.
Although off-balance sheet derivative financial instruments do not expose
the corporation to credit risk equal to the notional amount, we are exposed to
credit risk equal to the extent of the fair value gain in an off-balance sheet
derivative financial instrument if the counterparty fails to perform. We
minimize the credit risk in these instruments by dealing only with high quality
counterparties. Each transaction is specifically approved for applicable credit
exposure.
In addition, our policy requires all swaps and options to be governed by an
International Swaps and Derivatives Association Master Agreement. Bilateral
collateral agreements are in place for substantially all dealer counterparties.
Collateral for dealer transactions and derivatives used in our trading
activities is delivered by either party when the credit risk associated with a
particular transaction, or group of transactions to the extent netting exists,
exceeds acceptable thresholds of credit risk. Thresholds are determined based on
the strength of the individual counterparty and are bilateral. As of December
31, 1994, the total credit risk in excess of thresholds was $19 million. The
fair value of collateral held was 97 percent of the total credit risk in excess
of thresholds. For non-dealer transactions, the need for collateral is evaluated
on an individual transaction basis and is primarily dependent on the financial
strength of the counterparty.
.................................
ACCOUNTING AND
REGULATORY MATTERS
The Financial Accounting Standards Board (FASB) has issued Standard No. 114,
"Accounting by Creditors for Impairment of a Loan", which requires that all
creditors value all specifically reviewed loans for which it is probable that
the creditor will be unable to collect all amounts due according to the terms of
the loan agreement at the present value of expected cash flows, market price of
the loan, if available, or value of the underlying collateral. Expected cash
flows are required to be discounted at the loan's effective interest rate. We
estimate the initial application of this Standard will not require an increase
to the existing allowance for loan losses. This Standard is required for fiscal
years beginning after December 15,1994. The FASB also has issued Standard No.
118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures", that amends Standard No. 114 to allow a creditor to use existing
methods for recognizing interest income on an impaired loan and by requiring
additional disclosures about how a creditor recognizes interest income related
to impaired loans. This Standard is to be implemented concurrently with Standard
No. 114. The corporation will prospectively adopt both these Standards, and it
is expected that the periodic effect on net income upon adoption of these
Standards will not be material.
The FASB has also issued FASB Interpretation No. 39, "Offsetting of Amounts
Related to Certain Contracts",
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MANAGEMENT'S ANALYSIS OF OPERATIONS
FIRST UNION CORPORATION AND SUBSIDIARIES
which defines right of set-off and sets forth the conditions under which
that right may be applied. Specific guidance with respect to certain financial
instruments such as forward, interest rate swap, currency swap, option and other
conditional or exchange contracts and clarification of the circumstances in
which it is appropriate to offset amounts recognized for those contracts in the
statement of financial position is also included in this Interpretation. In
addition, it permits offsetting of fair value amounts recognized for multiple
forward, swap, option and other conditional or exchange contracts executed with
the same counterparty under a master netting arrangement. This Interpretation is
effective for financial statements issued for periods beginning after December
15, 1993. Currently the effects of the corporation's adoption of the provisions
of this Interpretation have been immaterial. The FASB has also issued FASB
Interpretation No. 41, "Offsetting of Amounts Related to Certain Repurchase and
Reverse Repurchase Agreements", which modifies Interpretation No. 39 to permit
offsetting in the statement of financial position of payables and receivables
that represent repurchase agreements and reverse repurchase agreements,
respectively, which have the same settlement date, are executed with the same
counterparty in accordance with a master netting arrangement, involve securities
that exist in "book entry" form, and settle on securities transfer systems that
have the same key operating characteristics as the Fedwire Securities Transfer
System. This Interpretation is effective for financial statements issued for
periods ending after December 15, 1994.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
(FIRREA), among other provisions, imposes liability on a bank insured by the
FDIC for certain obligations to the FDIC incurred in connection with other
insured banks under common control.
The Federal Deposit Insurance Corporation Improvement Act, among other
things, requires a revision of risk-based capital standards. The new standards
are required to incorporate interest rate risk, concentration of credit risk and
the risks of nontraditional activities and to reflect the actual performance and
expected risk of loss of multifamily mortgages. The RISK-BASED CAPITAL section
provides more information on risk assessment classifications.
Legislation has been enacted providing that deposits and certain claims for
administrative expenses and employee compensation against an insured depository
institution would be afforded a priority over other general unsecured claims
against such an institution, including federal funds and letters of credit, in
the "liquidation or other resolution" of such an institution by any receiver.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(IBBEA) authorizes interstate acquisitions of banks and bank holding companies
without geographic limitation beginning September 27, 1995. In addition,
beginning June 1, 1997, a bank may merge with a bank in another state as long as
neither of the states opt out of interstate branching between the date of
enactment of IBBEA and May 31, 1997. IBBEA further provides that a state may
enact laws permitting interstate merger transactions before June 1, 1997.
The Riegle Community Development and Regulatory Improvement Act of 1994
includes a list of regulatory relief items. The regulatory relief sections
eliminate or modify many regulatory requirements under existing law.
Various other legislative proposals concerning the banking industry are
pending in Congress. Given the uncertainty of the legislative process, we cannot
assess the impact of any such legislation on our financial condition or results
of operations.
.................................
EARNINGS AND
BALANCE SHEET ANALYSIS
(1993 COMPARED WITH 1992)
The following 1993 and 1992 earnings and certain balance sheet amounts have
been restated for the pooling of interests accounting acquisitions of South
Carolina Federal Corporation and DFSoutheastern, Inc. on January 15, 1993, and
Dominion Bankshares Corporation on March 1, 1993. The 1993 results also reflect
the purchase accounting acquisitions of Georgia Federal Bank, FSB, from June 12,
1993, and First American Metro Corp. from June 23, 1993.
First Union reported earnings applicable to common stockholders of $793
million in 1993, compared with $353 million in 1992. Net income per common share
increased to $4.73 from $2.23.
Key factors in First Union's 1993 earnings performance, including the
contributions from the two second quarter 1993 purchase accounting acquisitions,
were increases in tax-equivalent net interest income, reflecting loan,
investment and off-balance sheet financial instruments growth; an increase in
noninterest income, including increases in merchant banking, capital management
and trading account income; lower credit-related costs, including a decline in
the loan loss provision; and a slight decline in noninterest expense, which
includes $74 million in additional mortgage servicing amortization related to
increased refinancing activity in 1993 and $162 million in restructuring charges
in 1992.
Tax-equivalent net interest income was $2.9 billion in 1993, compared with
$2.6 billion in 1992, largely reflecting additions to earning assets.
The level of nonperforming loans offset some interest income growth because
interest income from these loans was eliminated or sharply reduced. In 1993, $78
million in gross interest income would have been recorded if all nonaccrual and
restructured loans had been current in accordance with their original terms and
had been outstanding throughout the period or since origination, if held for
part of the period. The amount of interest income related to these assets and
included in income in 1993 was $24 million. However, $435 million of
nonperforming assets returned to accrual status, contributing again to interest
income, in 1993.
The net interest margin was 4.78 percent in 1993, compared with 4.77 percent
in 1992. The margin remained flat since year-end 1992 primarily because of the
addition of acquired banks with lower margins; the addition of short-term
securities, which contribute to net interest income although they reduce the
margin while these assets are on our books; and the impact of refinancing
activity.
The average rate earned on earning assets was 7.77 percent in 1993, compared
with 8.53 percent in 1992. The average rate paid on interest-bearing liabilities
was 3.44 percent in 1993 and 4.25 percent in 1992.
Noninterest income was $1.20 billion in 1993, compared with $1.06 billion in
1992. Noninterest income increased from 1992 primarily as a result of $52
million in gains from the sale of equity positions held by our merchant banking
operations and $48 million from the disposition of First American segregated
assets as well as increases in trading account profits, capital management
income and discount gains. In addition, service charges on deposit accounts
increased during this period primarily because of the addition of deposits from
acquired banks.
The 1993 results included the sale of acquired banks' securities portfolios,
which accounted for most of the $33 million in securities gains, compared with
$32 million in 1992.
Derivative transactions for our customers produced revenues of $15 million
in 1993. Trading account
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profits were $43 million in 1993, compared with $23 million in 1992.
At December 31, 1993, trading account assets were $652 million compared with
$169 million at year-end 1992. The increase from 1992 was primarily attributable
to investments in U.S. government agency securities, Treasury notes and
secondary market certificates of deposit.
Noninterest expense was $2.52 billion in 1993, compared with $2.53 billion
in 1992. Noninterest expense included an additional $74 million of mortgage
servicing amortization in 1993 and $162 million in restructuring charges in
1992. The additional amortization was a result of an accelerated pace of
refinancing activity in 1993 because of the low interest rate environment. In
the fourth quarter of 1992, the corporation, South Carolina Federal, Decatur and
Dominion each accrued restructuring charges of $36 million, $20 million, $40
million and $66 million, respectively, in contemplation of the first quarter
1993 mergers. The charges primarily related to severance contracts, data
processing early termination fees, bad debt reserve recapture, duplicative
facilities, investment banking fees and other costs associated with the mergers.
At December 31, 1993, $17 million of the $162 million remained, of which $16
million was paid in 1994.
Costs related to owned real estate decreased to $41 million in 1993, from
$176 million in 1992, largely because of the sale of owned real estate, a
reduced foreclosed properties provision and lower writedowns of foreclosed
properties.
Income taxes were $403 million in 1993, compared with $196 million in 1992.
The increase came primarily from an increase in income before taxes. In
addition, the Omnibus Budget Reconciliation Act, enacted in August 1993,
increased the corporate tax rate by one percent, retroactive to January 1, 1993.
As a result of the increase, income taxes in 1993 increased $10 million. This
increase was offset by a $16 million one-time tax benefit resulting from the
repricing of deferred tax assets and the elimination of deferred tax liabilities
related to certain intangible assets.
Average earning assets in 1993 were $59.9 billion. This was an 11 percent
increase from $53.8 billion in 1992. Year-end 1993 earning assets were $63.0
billion, a 12 percent increase from $56.2 billion in 1992. The increase was
primarily attributable to acquisitions.
At December 31, 1993, we had $11.7 billion in securities available for sale,
compared with $5.2 billion at year-end 1992. The market value of securities
available for sale was $139 million above their book value at year-end 1993.
Portfolio activity was largely merger-related. In addition, we added short-term
Treasuries and collateralized mortgage obligations to counteract the effects of
refinancing activity. The increase since 1992 also reflects a $4.6 billion
reclassification primarily from the investment securities portfolio. Table 8
provides information related to unrealized and realized gains and losses.
The average yield earned on securities available for sale in 1993 was 5.03
percent, compared with 6.46 percent in 1992. The average maturity of the
portfolio was 2.32 years at December 31, 1993.
First Union's investment securities amounted to $2.7 billion at December 31,
1993, and $6.6 billion at year-end 1992. The primary reason for the decrease
since year-end 1992 was the reclassification of securities to the securities
available for sale portfolio discussed above.
The average yield earned on investment securities in 1993 was 7.07 percent,
compared with 8.15 percent in 1992. The average maturity of the portfolio was
5.19 years at December 31, 1993.
Net loans at December 31, 1993, were $46.9 billion, compared with $41.9
billion at year-end 1992. The increase primarily reflects loans acquired with
the second quarter purchase accounting acquisitions, as well as increased
lending activity.
The loan portfolio at December 31, 1993, was composed of 47 percent
commercial loans and 53 percent consumer loans. The portfolio mix and
concentration have not changed significantly from year-end 1992.
Consumer loans were $25.2 billion in 1993, compared with $22.0 billion at
year-end 1992.
Unused loan commitments related to commercial loans were $10.5 billion.
Unused loan commitments related to consumer loans were $6.7 billion. Commercial
and standby letters of credit were $1.4 billion.
The average yield earned on loans in 1993 was 8.50 percent, compared with
9.02 percent in 1992. The average prime rate in 1993 was 6.00 percent, compared
with 6.26 percent in 1992.
Commercial real estate loans as a percentage of the total portfolio
decreased to 16 percent at December 31, 1993, from 18 percent at year-end 1992.
This portfolio included commercial real estate mortgage loans of $5.8 billion at
December 31, 1993, and at year-end 1992.
At December 31, 1993, outstanding HLT loans amounted to $786 million,
compared with $856 million at year-end 1992.
Nonperforming assets at December 31, 1993, were $916 million, or 1.95
percent of net loans and foreclosed properties, compared with $1.35 billion, or
3.19 percent, at December 31, 1992.
Seventy-one percent of non-performing assets were secured by real estate at
December 31, 1993, compared with 65 percent at year-end 1992.
In addition to these nonperforming assets, at December 31, 1993, accruing
loans 90 days past due were $71 million, compared with $86 million at December
31, 1992.
Net charge-offs as a percentage of average net loans were .58 percent in
1993, compared with .86 percent in 1992. Table 12 provides information on net
charge-offs by category.
The loan loss provision was $222 million in 1993, compared with $415 million
in 1992. The decrease in the loan loss provision was based primarily upon
existing economic conditions, lower levels of nonperforming assets, the maturity
of the nonperforming assets portfolio, and existing and projected lower charge-
off levels.
Discounted nonperforming assets and certain performing loans amounting to
$288 million acquired with First American, which were designated for early
disposition, declined by 51 percent, to $141 million at December 31, 1993. These
acquired First American segregated assets were recorded at fair value at the
date of acquisition in accordance with our plans for disposition.
At December 31, 1993, acquired Southeast Banks segregated assets amounted to
$380 million, or $347 million net of a $33 million allowance, compared with $576
million, or $531 million net of a $45 million allowance, at December 31, 1992.
Accruing loans 90 days past due included in the acquired Southeast Banks
performing loan portfolio decreased 29 percent from $40 million at December 31,
1992, to $28 million at December 31, 1993.
Net charge-offs of $14 million, representing First Union's approximately 15
percent share of the losses on acquired Southeast Banks loans, were deducted
from the allowance for segregated assets in 1993, compared with $29 million in
1992.
Core deposits were $50.9 billion at December 31, 1993, compared with $47.0
billion at year-end 1992. The increase in core deposits primarily reflected
deposits acquired in the acquisitions of Georgia Federal and First American in
the second quarter of 1993.
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MANAGEMENT'S ANALYSIS OF OPERATIONS
FIRST UNION CORPORATION AND SUBSIDIARIES
Average noninterest-bearing deposits were 20 percent of average core
deposits in 1993, compared with 18 percent in 1992.
The portion of core deposits in higher-rate, other consumer time deposits
decreased to 33 percent at December 31, 1993, from 38 percent at year-end 1992.
Purchased funds at December 31,1993, were $10.1 billion, compared with $7.2
billion at year-end 1992.
Average purchased funds in 1993 were $10.6 billion, an increase of 21
percent from 1992.
Long-term debt was 59 percent of total stockholders' equity at December 31,
1993, and 71 percent at December 31, 1992.
During 1993, we issued $250 million of five-year, 6.75 percent senior notes;
$150 million of ten-year, 7.25 percent subordinated notes; $250 million of 12-
year, 6.625 percent subordinated notes; $150 million of ten-year, floating rate
subordinated notes; and $200 million of 15-year, 6.00 percent subordinated
notes. Proceeds from these debt issues were designated for general corporate
purposes.
Also in 1993, we redeemed $134 million of floating rate debt. The debt was
called at par value plus accrued interest.
At December 31, 1993, common stockholders' equity was $4.92 billion, an 18
percent increase from year-end 1992. Total stockholders' equity was $5.21
billion, compared with $4.46 billion at year-end 1992. The increase in equity
since year-end 1992 was pri-marily the result of retained earnings and capital
raised through the dividend reinvestment and employee stock option and purchase
plans.
Series 1990 preferred stock cash dividends of 7.78 percent per annum were
paid for the year ended December 31,1993. We paid $269 million in dividends to
preferred and common stockholders in 1993.
Our subsidiaries had $510 million available for dividends at December 31,
1993. During 1993, our subsidiaries paid $407 million in dividends to the
corporation.
At December 31, 1993, the corporation's tier 1, total capital and leverage
ratios were 9.14, 14.64 and 6.13 percent, respectively.
At December 31, 1993, the subsidiary national banks met FDIC capi-tal ratio
and leverage ratio requirements for "well capitalized" banks.
The notional amount of off-balance sheet derivative financial instruments
used to manage our interest rate risk sensitivity amounted to $48.8 billion and
$43.5 billion at December 31, 1993 and 1992, respectively. The related fair
value of the off-balance sheet derivative financial instruments was $369 million
and $192 million at December 31, 1993 and 1992, respectively.
Net cash provided from operations amounted to $683 million in 1993, compared
with $704 million in 1992. This cash was available during 1993 to increase
earning assets and to reduce borrowings by $414 million, and to pay dividends of
$269 million.
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FINANCIAL TABLES
FIRST UNION CORPORATION AND SUBSIDIARIES
.................................
TABLE 1
SELECTED STATISTICAL DATA
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
YEARS ENDED DECEMBER 31,
1994 1993 1992 1991 1990 1989
PROFITABILITY
Net interest margin 4.77% 4.78 4.77 4.08 3.99 4.15
Net income per common share before
1994 redemption premium $ 5.22 4.73 2.23 2.24 1.68 2.62
Return on common stockholders'
equity before 1994 redemption
premium* 17.04% 17.42 9.08 10.03 7.78 12.78
Return on assets* 1.27 1.20 .63 .63 .50 .82
Overhead efficiency ratio** 62.47 62.03 69.66 61.59 65.38 66.48
Dividend payout ratio on common
shares 34.54 31.71 49.34 46.18 65.92 39.09
CAPITAL ADEQUACY***
Tier 1 capital to risk-weighted
assets 7.76 9.14 9.22 7.56 6.53 --
ASSET QUALITY****
Net charge-offs to loans, net* .33 .58 .86 1.48 .68 .39
Allowance for loan losses to
loans, net 1.81 2.18 2.24 2.06 1.95 1.12
Allowance for loan losses to
nonaccrual and restructured
loans 245 147 96 72 77 131
Allowance for loan losses to
nonperforming assets 175 111 70 50 56 89
Nonperforming assets to loans, net
and foreclosed properties 1.03 1.95 3.19 4.10 3.42 1.25
ONE-YEAR GROWTH*
Loans, net 12.43 5.72 10.60 4.00 21.59 14.91
Core deposits 4.14 9.45 20.89 14.22 23.38 7.80
Stockholders' equity 12.97 14.84 21.53 6.87 17.05 9.95
Internal capital 10.84% 11.34 4.24 4.88 2.40 7.74
</TABLE>
* Based on average balances.
** The overhead efficiency ratio is equal to noninterest expense divided by net
operating revenue. Net operating revenue is equal to the sum of
tax-equivalent net interest income and noninterest income.
*** Capital ratios for 1990-1992 are not restated for 1993 pooling of interest
acquisitions.
**** Excluding Southeast Banks segregated assets.
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FINANCIAL TABLES
FIRST UNION CORPORATION AND SUBSIDIARIES
.................................
TABLE 2
CONSOLIDATED SUMMARIES OF INCOME,
PER SHARE AND BALANCE SHEET DATA
<TABLE>
<S> <C> <C> <C> <C> <C>
YEARS ENDED DECEMBER 31,
(IN THOUSANDS EXCEPT PER SHARE
DATA) 1994 1993 1992 1991 1990
CONSOLIDATED SUMMARIES OF INCOME
Interest income $ 5,094,661 4,556,332 4,479,385 4,647,440 4,829,520
Interest income* $ 5,187,404 4,657,100 4,583,916 4,767,943 4,966,954
Interest expense 2,060,946 1,790,439 2,020,968 2,742,996 3,094,334
Net interest income* 3,126,458 2,866,661 2,562,948 2,024,947 1,872,620
Provision for loan losses 100,000 221,753 414,708 648,284 425,409
Net interest income after
provision for loan losses* 3,026,458 2,644,908 2,148,240 1,376,663 1,447,211
Securities available for sale
transactions (11,507) 25,767 34,402 -- --
Investment security transactions 4,006 7,435 (2,881) 155,048 7,884
Noninterest income 1,166,470 1,165,086 1,032,651 914,511 690,672
Noninterest expense 2,677,228 2,521,647 2,526,678 1,905,918 1,680,973
Income before income taxes* 1,508,199 1,321,549 685,734 540,304 464,794
Income taxes 490,076 403,260 196,152 71,070 64,993
Tax-equivalent adjustment 92,743 100,768 104,531 120,503 137,434
Net income 925,380 817,521 385,051 348,731 262,367
Dividends on preferred stock 25,353 24,900 31,979 34,570 33,868
Net income applicable to common
stockholders before redemption
premium 900,027 792,621 353,072 314,161 228,499
Redemption premium on preferred
stock 41,355 -- -- -- --
Net income applicable to common
stockholders after redemption
premium $ 858,672 792,621 353,072 314,161 228,499
PER COMMON SHARE DATA
Net income before redemption
premium $ 5.22 4.73 2.23 2.24 1.68
Net income after redemption
premium $ 4.98 4.73 2.23 2.24 1.68
Average common shares 172,543,467 167,691,739 158,683,206 140,003,166 135,621,838
Average common stockholders'
equity** $ 5,282,412 4,550,048 3,889,256 3,131,716 2,937,441
Common stock price
High 47 5/8 51 1/2 44 7/8 30 7/8 21 3/4
Low 39 3/8 37 7/8 29 1/2 13 3/4 13 7/8
Year-end $ 41 3/8 41 1/4 43 5/8 30 15 3/8
To earnings ratio*** 7.93X 8.72 19.61 13.39 9.15
To book value 135% 143 173 120 70
Cash dividends $ 1.72 1.50 1.28 1.12 1.08
Book value 30.66 28.90 25.25 23.23 21.81
PER PREFERRED SHARE DATA
Series 1990 preferred stock
price
High 53 7/8 55 1/2 55 1/2 51 1/4 46
Low 51 1/8 52 51 39 1/8 41 1/8
Year-end 51 3/4 52 3/8 53 5/8 51 41 1/8
Cash dividends $ 4.0127 3.8876 4.3626 4.6252 4.6049
Dividend rate 8.03% 7.78 8.73 9.25 9.99
BALANCE SHEET DATA
Assets $ 77,313,505 70,786,969 63,828,031 59,273,177 54,588,410
Long-term debt $ 3,428,514 3,061,944 3,151,260 2,630,930 1,850,860
<CAPTION>
(IN THOUSANDS EXCEPT PER SHARE
DATA) 1989
<S> <C>
CONSOLIDATED SUMMARIES OF INCOME
Interest income 4,179,100
Interest income* 4,327,254
Interest expense 2,703,623
Net interest income* 1,623,631
Provision for loan losses 139,291
Net interest income after
provision for loan losses* 1,484,340
Securities available for sale
transactions --
Investment security transactions 19,018
Noninterest income 532,295
Noninterest expense 1,445,836
Income before income taxes* 589,817
Income taxes 87,840
Tax-equivalent adjustment 148,154
Net income 353,823
Dividends on preferred stock 1,380
Net income applicable to common
stockholders before redemption
premium 352,443
Redemption premium on preferred
stock --
Net income applicable to common
stockholders after redemption
premium 352,443
PER COMMON SHARE DATA
Net income before redemption
premium 2.62
Net income after redemption
premium 2.62
Average common shares 134,446,048
Average common stockholders'
equity** 2,758,156
Common stock price
High 26 3/4
Low 19 7/8
Year-end 20 5/8
To earnings ratio*** 7.87
To book value 101
Cash dividends 1.00
Book value 20.49
PER PREFERRED SHARE DATA
Series 1990 preferred stock
price
High --
Low --
Year-end --
Cash dividends --
Dividend rate --
BALANCE SHEET DATA
Assets 45,506,847
Long-term debt 1,514,834
</TABLE>
* Tax-equivalent.
** Average common stockholders' equity excludes 1994 average net unrealized
losses on debt and equity securities of $87,118,000.
*** Based on net income per common share before redemption premium.
26
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<PAGE>
.................................
TABLE 3
NONINTEREST INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN THOUSANDS) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Trading account profits $ 41,583 43,007 22,908 20,053 13,599
Service charges on deposit accounts 435,212 420,285 386,118 293,075 248,891
Mortgage banking income 73,934 138,608 155,800 135,557 97,809
Gain on sale of mortgage servicing rights -- 973 10,637 39,186 9,823
Capital management income 224,525 201,875 177,375 133,126 104,864
Securities available for sale transactions (11,507) 25,767 34,402 -- --
Investment security transactions 4,006 7,435 (2,881) 155,048 7,884
Fees for other banking services* 69,252 52,836 33,845 -- --
Merchant discounts 62,840 55,732 54,703 48,126 47,987
Insurance commissions 45,071 43,876 44,047 46,081 46,748
Sundry income 214,053 207,894 147,218 199,307 120,951
Total $1,158,969 1,198,288 1,064,172 1,069,559 698,556
<CAPTION>
1989
<S> <C>
Trading account profits 8,411
Service charges on deposit accounts 184,966
Mortgage banking income 68,695
Gain on sale of mortgage servicing rights 23,500
Capital management income 76,365
Securities available for sale transactions --
Investment security transactions 19,018
Fees for other banking services* --
Merchant discounts 40,859
Insurance commissions 36,957
Sundry income 92,542
Total 551,313
</TABLE>
* Information not available prior to 1992.
.................................
TABLE 4
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN THOUSANDS) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Personnel expense
Salaries $1,039,699 938,409 886,702 735,564 695,152
Other benefits 247,667 217,490 178,600 137,617 126,995
Total 1,287,366 1,155,899 1,065,302 873,181 822,147
Occupancy 238,128 229,118 238,728 213,424 178,338
Equipment rentals, depreciation and
maintenance 228,372 189,589 167,063 132,858 123,026
Advertising 38,584 22,541 23,082 19,488 19,055
Telephone 58,331 53,023 51,000 43,470 46,557
Travel 53,521 42,330 33,937 25,084 25,017
Postage 48,874 39,538 40,747 35,616 29,251
Printing and office supplies 54,865 53,304 35,310 27,936 32,497
FDIC insurance 119,708 118,429 107,392 77,808 44,185
Other insurance 14,883 18,233 20,641 18,530 19,474
Professional fees 66,878 52,251 61,810 40,109 28,430
Data processing 24,499 41,440 31,906 20,419 19,149
Owned real estate expense 22,294 40,633 176,109 90,181 35,735
Mortgage servicing amortization 23,525 106,942 37,422 27,149 23,448
Other amortization 121,083 100,145 83,455 66,139 75,184
Sundry 276,317 258,232 352,774 194,526 159,480
Total $2,677,228 2,521,647 2,526,678 1,905,918 1,680,973
Overhead efficiency ratio* 62.47% 62.03 69.66 61.59 65.38
<CAPTION>
1989
<S> <C>
Personnel expense
Salaries 623,337
Other benefits 114,061
Total 737,398
Occupancy 146,791
Equipment rentals, depreciation and
maintenance 99,392
Advertising 23,237
Telephone 38,913
Travel 21,813
Postage 26,063
Printing and office supplies 30,074
FDIC insurance 26,017
Other insurance 16,115
Professional fees 25,301
Data processing 33,361
Owned real estate expense 17,036
Mortgage servicing amortization 16,552
Other amortization 36,561
Sundry 151,212
Total 1,445,836
Overhead efficiency ratio* 66.48
</TABLE>
* The overhead efficiency ratio is equal to noninterest expense divided by net
operating revenue. Net operating revenue is equal to the sum of tax-equivalent
net interest income and noninterest income.
27
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<PAGE>
FINANCIAL TABLES
FIRST UNION CORPORATION AND SUBSIDIARIES
.................................
TABLE 5
INTERNAL CAPITAL GROWTH
AND DIVIDEND PAYOUT RATIOS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C>
INTERNAL CAPITAL GROWTH*
Assets to stockholders' equity (a) 13.08X 14.07 14.51 15.89 16.07 15.59
X
Return on assets 1.27% 1.20 .63 .63 .50 .82
Return on total stockholders' equity (a) 16.66% 16.89 9.14 10.06 8.09 12.76
X
Earnings retained 65.07% 67.13 46.45 48.48 29.68 60.67
Internal capital growth 10.84% 11.34 4.24 4.88 2.40 7.74
DIVIDEND PAYOUT RATIO ON
Common shares 34.54% 31.71 49.34 46.18 65.92 39.09
Preferred and common shares 34.93% 32.87 53.55 51.52 70.32 39.33
Return on common stockholders' equity before
redemption premium** (a) 17.04% 17.42 9.08 10.03 7.78 12.78
Return on common stockholders' equity after
redemption premium** (a) 16.26% 17.42 9.08 10.03 7.78 12.78
</TABLE>
(a) The determination of these ratios exclude 1994 average net unrealized losses
on debt and equity securities of $87,118,000.
* Based on average balances and net income.
** Based on average balances and net income applicable to common stockholders.
28
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<PAGE>
.................................
TABLE 6
SELECTED QUARTERLY DATA
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS EXCEPT 1994
PER SHARE DATA) FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED NET INCOME
Interest income $1,389,470 1,307,377 1,235,206 1,162,608 1,171,521 1,171,626 1,113,283
Interest expense 610,172 530,858 483,913 436,003 463,394 470,491 428,987
Net interest income 779,298 776,519 751,293 726,605 708,127 701,135 684,296
Provision for loan losses 25,000 25,000 25,000 25,000 49,973 50,001 61,450
Net interest income after provision for
loan losses 754,298 751,519 726,293 701,605 658,154 651,134 622,846
Securities available for sale
transactions (9,926) (2,946) (2,935) 4,300 2,804 4,142 1,505
Investment security transactions 411 2,286 694 615 3,049 815 3,571
Noninterest income 311,419 303,259 276,011 275,781 317,727 287,998 305,356
Noninterest expense 703,948 682,219 651,220 639,841 687,922 664,388 591,042
Income before income taxes 352,254 371,899 348,843 342,460 293,812 279,701 342,236
Income taxes 120,705 130,147 119,223 120,001 98,469 84,286 115,465
Net income 231,549 241,752 229,620 222,459 195,343 195,415 226,771
Dividends on preferred stock 6,831 6,595 6,201 5,726 5,489 6,240 6,167
Net income applicable to common
stockholders before redemption premium 224,718 235,157 223,419 216,733 189,854 189,175 220,604
Redemption premium on preferred stock 41,355 -- -- -- -- -- --
Net income applicable to common
stockholders after redemption premium $ 183,363 235,157 223,419 216,733 189,854 189,175 220,604
PER COMMON SHARE DATA
Net income before redemption premium $ 1.28 1.35 1.32 1.27 1.12 1.12 1.32
Net income after redemption premium 1.04 1.35 1.32 1.27 1.12 1.12 1.32
Cash dividends .46 .46 .40 .40 .40 .40 .35
Common stock price
High 45 1/4 47 1/4 47 5/8 43 3/4 48 1/8 49 5/8 51 1/2
Low 39 3/8 43 1/4 41 1/4 39 3/4 37 7/8 43 1/2 40
Quarter-end $ 41 3/8 43 1/4 46 1/8 41 5/8 41 1/4 47 5/8 48 1/2
PER PREFERRED SHARE DATA
Series 1990 preferred stock price
High $ 53 53 1/2 53 1/4 53 7/8 53 7/8 55 1/2 55 1/8
Low 51 1/8 52 52 52 1/8 52 53 1/4 53 1/8
Quarter-end 51 3/4 52 1/8 52 3/4 52 1/8 52 3/8 53 1/2 54 7/8
Cash dividends $ 1.0813 1.0438 .9813 .9063 .8688 .9875 .9750
Dividend rate 8.65% 8.35 7.85 7.25 6.95 7.90 7.80
SELECTED RATIOS*
Return on assets** 1.22% 1.31 1.28 1.28 1.07 1.08 1.39
Return on common stockholders' equity
before redemption premium*** 15.92 17.29 17.53 17.54 15.55 16.11 19.93
Return on common stockholders' equity
after redemption premium*** 12.99 17.29 17.53 17.54 15.55 16.11 19.93
Stockholders' equity to assets 7.49% 7.62 7.39 7.60 7.10 6.92 7.23
<CAPTION>
1993
(IN THOUSANDS EXCEPT FIRST
PER SHARE DATA)
<S> <C>
CONSOLIDATED NET INCOME
Interest income 1,099,902
Interest expense 427,567
Net interest income 672,335
Provision for loan losses 60,329
Net interest income after provision for
loan losses 612,006
Securities available for sale
transactions 17,316
Investment security transactions --
Noninterest income 254,005
Noninterest expense 578,295
Income before income taxes 305,032
Income taxes 105,040
Net income 199,992
Dividends on preferred stock 7,004
Net income applicable to common
stockholders before redemption premium 192,988
Redemption premium on preferred stock --
Net income applicable to common
stockholders after redemption premium 192,988
PER COMMON SHARE DATA
Net income before redemption premium 1.17
Net income after redemption premium 1.17
Cash dividends .35
Common stock price
High 50 7/8
Low 42 1/4
Quarter-end 47 3/4
PER PREFERRED SHARE DATA
Series 1990 preferred stock price
High 55 3/8
Low 53
Quarter-end 53
Cash dividends 1.0563
Dividend rate 8.45
SELECTED RATIOS*
Return on assets** 1.28
Return on common stockholders' equity
before redemption premium*** 18.41
Return on common stockholders' equity
after redemption premium*** 18.41
Stockholders' equity to assets 7.20
</TABLE>
* Based on average balances.
** Based on net income.
*** Based on net income applicable to common stockholders, excluding average net
unrealized gains (losses) on debt and equity securities of $46,966,000,
$(90,899,000), $(116,921,000) and $(184,746,000) in the first, second, third
and fourth quarters of 1994 , respectively.
29
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<PAGE>
FINANCIAL TABLES
FIRST UNION CORPORATION AND SUBSIDIARIES
.................................
TABLE 7
GROWTH THROUGH ACQUISITIONS
<TABLE>
<S> <C> <C> <C>
(IN THOUSANDS) ASSETS LOANS, NET DEPOSITS
December 31, 1988, as reported $41,446,746 28,131,626 29,480,568
Growth in operations 4,060,101 3,469,150 2,051,202
December 31, 1989, as reported 45,506,847 31,600,776 31,531,770
1990 acquisition 7,946,973 4,174,478 5,727,330
Growth in operations 1,134,590 275,465 935,168
December 31, 1990, as reported 54,588,410 36,050,719 38,194,268
1991 acquisitions 12,322,456 7,025,621 9,921,421
Reduction in operations (7,637,689) (1,692,760) (939,466)
December 31, 1991, as reported 59,273,177 41,383,580 47,176,223
1992 acquisitions 3,739,039 1,773,797 3,645,316
Growth (reduction) in operations 815,815 (1,233,610) (1,670,574)
December 31, 1992, as reported 63,828,031 41,923,767 49,150,965
1993 acquisitions 7,785,479 4,380,362 6,302,873
Growth (reduction) in operations (826,541) 572,048 (1,711,427)
December 31, 1993, as reported 70,786,969 46,876,177 53,742,411
1994 acquisitions 4,595,762 1,238,703 4,026,375
Growth in operations 1,930,774 5,914,872 1,189,487
December 31, 1994, as reported $77,313,505 54,029,752 58,958,273
</TABLE>
Acquisitions (those greater than $3.0 billion in acquired assets and/or
deposits) include the purchase acquisitions of Florida National Banks of
Florida, Inc. in 1990, and the Southeast Banks transaction in 1991; the pooling
of interests acquisition of Dominion Bankshares Corporation in 1993; and the
Georgia Federal Savings Bank, FSB and First American Metro Corp. purchase
acquisitions in 1993. Stockholders' equity includes public offerings of common
stock amounting to $234,934,000 in 1991 and $330,045,000 in 1992.
30
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<PAGE>
.................................
TABLE 8
SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
AFTER
DECEMBER 31, 1994 1 YEAR 1-5 5-10 10 GROSS UNREALIZED AMORTIZED
(IN THOUSANDS) OR LESS YEARS YEARS YEARS TOTAL GAINS LOSSES COST
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MARKET VALUE
U.S. Treasury $1,156,159 1,035,790 -- -- 2,191,949 -- 81,975 2,273,924
U.S. Government agencies 153,675 469,468 2,031,111 546 2,654,800 (404) 171,580 2,825,976
Collateralized mortgage
obligations 90,066 1,091,930 58,524 -- 1,240,520 (49) 44,627 1,285,098
Other 84,757 1,282,076 20,299 278,078 1,665,210 (51,633) 56,017 1,669,594
Total $1,484,657 3,879,264 2,109,934 278,624 7,752,479 (52,086) 354,199 8,054,592
MARKET VALUE
Debt securities $1,484,657 3,879,264 2,109,934 24,069 7,497,924 (3,243) 346,011 7,840,692
Sundry securities -- -- -- 254,555 254,555 (48,843) 8,188 213,900
Total $1,484,657 3,879,264 2,109,934 278,624 7,752,479 (52,086) 354,199 8,054,592
AMORTIZED COST
Debt securities $1,486,608 4,061,240 2,264,716 28,128 7,840,692
Sundry securities -- -- -- 213,900 213,900
Total $1,486,608 4,061,240 2,264,716 242,028 8,054,592
WEIGHTED AVERAGE YIELD
U.S. Treasury 7.29% 5.60 -- -- 6.46
U.S. Government agencies 6.90 5.40 5.89 6.02 5.86
Collateralized mortgage
obligations 5.10 5.21 5.36 -- 5.21
Other 7.27 6.99 5.90 4.40 6.62
Consolidated 7.12% 5.92 5.88 4.40 6.08
<CAPTION>
AVERAGE
DECEMBER 31, 1994 MATURITY
(IN THOUSANDS) IN YEARS
<S> <C>
MARKET VALUE
U.S. Treasury 1.89
U.S. Government agencies 6.31
Collateralized mortgage
obligations 2.96
Other 2.75
Total 3.82
MARKET VALUE
Debt securities
Sundry securities
Total
AMORTIZED COST
Debt securities
Sundry securities
Total
WEIGHTED AVERAGE YIELD
U.S. Treasury
U.S. Government agencies
Collateralized mortgage
obligations
Other
Consolidated
</TABLE>
<TABLE>
<CAPTION>
AFTER
DECEMBER 31, 1993 1 YEAR 1-5 5-10 10 GROSS UNREALIZED MARKET
(IN THOUSANDS) OR LESS YEARS YEARS YEARS TOTAL GAINS LOSSES VALUE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CARRYING VALUE
U.S. Treasury $3,177,119 1,249,298 -- -- 4,426,417 3,609 (7,315) 4,422,711
U.S. Government agencies 114,531 1,646,429 1,494,136 555 3,255,651 43,814 (270) 3,299,195
Collateralized mortgage obligations 1,006,973 1,226,569 -- -- 2,233,542 13,389 (8,825) 2,238,106
Other 438,585 1,121,571 35,474 233,702 1,829,332 95,296 (255) 1,924,373
Total $4,737,208 5,243,867 1,529,610 234,257 11,744,942 156,108 (16,665) 11,884,385
CARRYING VALUE
Debt securities $4,737,208 5,243,867 1,529,610 860 11,511,545 119,624 (16,445) 11,614,724
Sundry securities -- -- -- 233,397 233,397 36,484 (220) 269,661
Total $4,737,208 5,243,867 1,529,610 234,257 11,744,942 156,108 (16,665) 11,884,385
MARKET VALUE
Debt securities $4,742,741 5,328,847 1,542,264 872 11,614,724
Sundry securities -- -- -- 269,661 269,661
Total $4,742,741 5,328,847 1,542,264 270,533 11,884,385
WEIGHTED AVERAGE YIELD
U.S. Treasury 3.84% 5.23 -- -- 4.23
U.S. Government agencies 3.36 6.45 6.00 6.68 6.14
Collateralized mortgage obligations 5.03 5.13 -- -- 5.09
Other 5.17 7.71 5.74 7.68 7.06
Consolidated 4.21% 6.12 6.00 7.68 5.36
<CAPTION>
AVERAGE
DECEMBER 31, 1993 MATURITY
(IN THOUSANDS) IN YEARS
<S> <C>
CARRYING VALUE
U.S. Treasury 1.34
U.S. Government agencies 4.29
Collateralized mortgage obligations 1.33
Other 2.40
Total 2.32
CARRYING VALUE
Debt securities
Sundry securities
Total
MARKET VALUE
Debt securities
Sundry securities
Total
WEIGHTED AVERAGE YIELD
U.S. Treasury
U.S. Government agencies
Collateralized mortgage obligations
Other
Consolidated
</TABLE>
31
... (FIRST UNION logo)
<PAGE>
FINANCIAL TABLES
FIRST UNION CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
DECEMBER 31, 1992 1 YEAR 1-5 5-10 AFTER 10 GROSS UNREALIZED
(IN THOUSANDS) OR LESS YEARS YEARS YEARS TOTAL GAINS
<S> <C> <C> <C> <C> <C> <C>
CARRYING VALUE
U.S. Treasury $2,352,822 316,405 130 241 2,669,598 9,767
U.S. Government agencies 32,644 206,864 60,710 212,878 513,096 13,179
Collateralized mortgage obligations 299,755 501,431 40,217 31,562 872,965 1,812
State, county and municipal 50,708 240,672 -- 2,186 293,566 26,456
Other 220,913 416,013 98,380 118,813 854,119 11,408
Total $2,956,842 1,681,385 199,437 365,680 5,203,344 62,622
CARRYING VALUE
Debt securities $2,956,842 1,681,385 199,437 257,139 5,094,803 57,706
Sundry securities -- -- -- 108,541 108,541 4,916
Total $2,956,842 1,681,385 199,437 365,680 5,203,344 62,622
MARKET VALUE
Debt securities $2,964,538 1,714,200 199,863 265,438 5,144,039
Sundry securities -- -- -- 112,928 112,928
Total $2,964,538 1,714,200 199,863 378,366 5,256,967
WEIGHTED AVERAGE YIELD
U.S. Treasury 3.63% 5.82 8.46 7.88 3.89
U.S. Government agencies 5.13 7.21 8.06 8.51 7.72
Collateralized mortgage obligations 6.17 4.73 7.09 7.95 5.45
State, county and municipal 13.08 13.03 -- 12.95 13.03
Other 5.05 7.72 7.57 9.29 7.23
Consolidated 4.18% 7.17 7.62 8.74 5.60
<CAPTION>
AVERAGE
MARKET MATURITY
(IN THOUSANDS) LOSSES VALUE IN YEARS
<S> <C> <C> <C>
CARRYING VALUE
U.S. Treasury (763) 2,678,602 .56
U.S. Government agencies (905) 525,370 11.63
Collateralized mortgage obligations (2,260) 872,517 2.35
State, county and municipal (9) 320,013 2.24
Other (5,062) 860,465 2.80
Total (8,999) 5,256,967 2.41
CARRYING VALUE
Debt securities (8,521) 5,143,988
Sundry securities (478) 112,979
Total (8,999) 5,256,967
MARKET VALUE
Debt securities
Sundry securities
Total
WEIGHTED AVERAGE YIELD
U.S. Treasury
U.S. Government agencies
Collateralized mortgage obligations
State, county and municipal
Other
Consolidated
</TABLE>
Included in "Other" at December 31, 1994 , are $1,290,963,000 of securities that
are denominated in currencies other than the U.S. dollar. The currency exchange
rates were hedged utilizing both on and off-balance sheet instruments to
minimize the exposure to currency revaluation risks. At December 31, 1994 ,
these securities had a weighted average maturity of 2.62 years and a weighted
average yield of 6.81 percent. The weighted average U.S. equivalent yield for
comparative purposes of these securities was 5.87 percent based on a weighted
average funding cost differential of (.94) percent.
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties. The aging of mortgage-backed securities is based on their
weighted average maturities at December 31, 1994 , 1993 and 1992. Average
maturity in years excludes preferred and common stocks and money market funds.
Weighted average yields are based on amortized costs or carrying value. Yields
related to securities exempt from both federal and state income taxes (primarily
state, county and municipal securities), federal income taxes only or state
income taxes only are stated on a fully tax-equivalent basis. They are reduced
by the nondeductible portion of interest expense, assuming a federal tax rate of
35 percent in 1994 and 1993 and 34 percent in 1992; a North Carolina state tax
rate of 7.8275 percent in 1994 , 7.905 percent in 1993, and 7.9825 percent in
1992; a Georgia and Tennessee state tax rate of 6 percent; a South Carolina
state tax rate of 4.5 percent; a Florida state tax rate of 5.5 percent; a
Maryland state tax rate of 7 percent in 1994 and 1993; and a Washington, D.C.
tax rate of 10.25 percent in 1994 and 1993, respectively.
There were commitments to purchase securities at a cost of $5,551,000 that had a
market value of $5,547,000 at December 31, 1994. There were no commitments to
sell securities. Securities available for sale at December 31, 1993 and 1992,
include the carrying value of $513,390,000 and $54,892,000, respectively, of
securities which have been sold for future settlement. Related gains and losses
are accounted for on a trade date basis. Gross gains and losses realized on the
sale of debt securities in 1994 were $27,017,000 and $43,813,000, respectively,
and on sundry securities gross gains and losses realized were $5,998,000 and
$709,000, respectively. Gross gains and losses realized on the sale of debt
securities in 1993 were $28,818,000 and $9,553,000, respectively, and on sundry
securities gross gains and losses realized were $6,570,000 and $68,000,
respectively. Gross gains and losses realized on the sale of debt securities in
1992 were $42,014,000 and $7,419,000, respectively, and on sundry securities
gross gains and losses realized were $230,000 and $423,000, respectively.
32
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<PAGE>
.................................
TABLE 9
INVESTMENT SECURITIES
<TABLE>
<CAPTION>
AFTER
DECEMBER 31, 1994 1 YEAR 1-5 5-10 10 GROSS UNREALIZED MARKET
(IN THOUSANDS) OR LESS YEARS YEARS YEARS TOTAL GAINS LOSSES VALUE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CARRYING VALUE
U.S. Government agencies $ -- 100,853 1,201,803 14,474 1,317,130 5,528 (39,881) 1,282,777
Collateralized mortgage
obligations -- 910,733 92,516 -- 1,003,249 -- (26,786) 976,463
State, county and municipal 369,189 267,835 151,533 437,523 1,226,080 78,676 (4,698) 1,300,058
Other -- 2,036 6,178 175,196 183,410 3,022 (3,196) 183,236
Total $369,189 1,281,457 1,452,030 627,193 3,729,869 87,226 (74,561) 3,742,534
CARRYING VALUE
Debt securities $369,189 1,281,457 1,452,030 517,532 3,620,208 87,226 (74,561) 3,632,873
Sundry securities -- -- -- 109,661 109,661 -- -- 109,661
Total $369,189 1,281,457 1,452,030 627,193 3,729,869 87,226 (74,561) 3,742,534
MARKET VALUE
Debt securities $376,983 1,269,819 1,423,936 562,135 3,632,873
Sundry securities -- -- -- 109,661 109,661
Total $376,983 1,269,819 1,423,936 671,796 3,742,534
WEIGHTED AVERAGE YIELD
U.S. Government agencies --% 7.83 7.32 6.80 7.35
Collateralized mortgage
obligations -- 6.49 6.80 -- 6.52
State, county and municipal 11.74 10.65 11.52 12.38 11.70
Other -- 6.76 7.42 7.81 7.79
Consolidated 11.74% 7.47 7.73 10.97 8.58
<CAPTION>
AVERAGE
DECEMBER 31, 1994 MATURITY
(IN THOUSANDS) IN YEARS
<S> <C>
CARRYING VALUE
U.S. Government agencies 7.28
Collateralized mortgage
obligations 3.70
State, county and municipal 7.06
Other 13.33
Total 6.34
CARRYING VALUE
Debt securities
Sundry securities
Total
MARKET VALUE
Debt securities
Sundry securities
Total
WEIGHTED AVERAGE YIELD
U.S. Government agencies
Collateralized mortgage
obligations
State, county and municipal
Other
Consolidated
</TABLE>
<TABLE>
<CAPTION>
AFTER
DECEMBER 31, 1993 1 YEAR 1-5 5-10 10 GROSS UNREALIZED MARKET
(IN THOUSANDS) OR LESS YEARS YEARS YEARS TOTAL GAINS LOSSES VALUE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CARRYING VALUE
U.S. Treasury $ 550 -- -- -- 550 -- (1) 549
U.S. Government agencies 311,750 814,667 30,232 -- 1,156,649 44,054 (1,222) 1,199,481
State, county and municipal 80,863 508,477 242,072 511,523 1,342,935 183,230 (756) 1,525,409
Other -- -- 6,200 186,142 192,342 13,358 -- 205,700
Total $393,163 1,323,144 278,504 697,665 2,692,476 240,642 (1,979) 2,931,139
CARRYING VALUE
Debt securities $393,163 1,323,144 278,504 511,530 2,506,341 227,730 (1,979) 2,732,092
Sundry securities -- -- -- 186,135 186,135 12,912 -- 199,047
Total $393,163 1,323,144 278,504 697,665 2,692,476 240,642 (1,979) 2,931,139
MARKET VALUE
Debt securities $401,304 1,399,666 311,652 619,470 2,732,092
Sundry securities -- -- -- 199,047 199,047
Total $401,304 1,399,666 311,652 818,517 2,931,139
WEIGHTED AVERAGE YIELD
U.S. Treasury 2.88% -- -- -- 2.88
U.S. Government agencies 4.95 7.14 6.60 -- 6.53
State, county and municipal 10.61 11.49 11.48 12.24 11.72
Other -- -- 7.77 8.09 8.08
Consolidated 6.11% 8.81 10.87 11.14 9.23
<CAPTION>
AVERAGE
DECEMBER 31, 1993 MATURITY
(IN THOUSANDS) IN YEARS
<S> <C>
CARRYING VALUE
U.S. Treasury .04
U.S. Government agencies 1.87
State, county and municipal 8.03
Other 8.00
Total 5.19
CARRYING VALUE
Debt securities
Sundry securities
Total
MARKET VALUE
Debt securities
Sundry securities
Total
WEIGHTED AVERAGE YIELD
U.S. Treasury
U.S. Government agencies
State, county and municipal
Other
Consolidated
</TABLE>
33
... (FIRST UNION logo)
<PAGE>
FINANCIAL TABLES
FIRST UNION CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
DECEMBER 31, 1992 1 YEAR 1-5 5-10 AFTER 10 GROSS UNREALIZED
(IN THOUSANDS) OR LESS YEARS YEARS YEARS TOTAL GAINS LOSSES
<S> <C> <C> <C> <C> <C> <C> <C>
CARRYING VALUE
U.S. Treasury $ 53,985 258,553 -- -- 312,538 1,451 (1,212)
U.S. Government agencies 26,265 1,983,165 1,311,018 5,147 3,325,595 61,527 (4,541)
Collateralized mortgage
obligations 137,364 1,238,654 -- 3,527 1,379,545 6,708 (9,337)
State, county and municipal 4,230 118,399 257,274 641,842 1,021,745 123,997 (1,181)
Other 159,501 161,670 4,454 268,290 593,915 15,874 (1,558)
Total $381,345 3,760,441 1,572,746 918,806 6,633,338 209,557 (17,829)
CARRYING VALUE
Debt securities $381,345 3,760,441 1,572,746 652,688 6,367,220 197,901 (16,447)
Sundry securities -- -- -- 266,118 266,118 11,656 (1,382)
Total $381,345 3,760,441 1,572,746 918,806 6,633,338 209,557 (17,829)
MARKET VALUE
Debt securities $379,517 3,814,483 1,617,925 736,749 6,548,674
Sundry securities -- -- -- 276,392 276,392
Total $379,517 3,814,483 1,617,925 1,013,141 6,825,066
WEIGHTED AVERAGE YIELD
U.S. Treasury 3.99% 4.81 -- -- 4.67
U.S. Government agencies 6.47 8.36 8.06 6.66 8.22
Collateralized mortgage
obligations 5.67 6.06 -- 7.43 6.03
State, county and municipal 9.55 12.09 11.55 12.24 12.04
Other 3.85 6.87 7.39 8.37 6.74
Consolidated 4.77% 7.41 8.63 11.06 8.05
<CAPTION>
AVERAGE
MARKET MATURITY
(IN THOUSANDS) VALUE IN YEARS
<S> <C> <C>
CARRYING VALUE
U.S. Treasury 312,777 2.02
U.S. Government agencies 3,382,581 4.88
Collateralized mortgage
obligations 1,376,916 2.45
State, county and municipal 1,144,561 12.30
Other 608,231 1.76
Total 6,825,066 5.24
CARRYING VALUE
Debt securities 6,548,674
Sundry securities 276,392
Total 6,825,066
MARKET VALUE
Debt securities
Sundry securities
Total
WEIGHTED AVERAGE YIELD
U.S. Treasury
U.S. Government agencies
Collateralized mortgage
obligations
State, county and municipal
Other
Consolidated
</TABLE>
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties. The aging of mortgage-backed securities is based on their
weighted average maturities at December 31, 1994 , 1993 and 1992. Average
maturity in years excludes preferred and common stocks and money market funds.
Yields related to securities exempt from both federal and state income taxes,
federal income taxes only or state income taxes only are stated on a fully
tax-equivalent basis. They are reduced by the nondeductible portion of interest
expense, assuming a federal tax rate of 35 percent in 1994 and 1993 and 34
percent in 1992; a North Carolina state tax rate of 7.8275 percent in 1994 ,
7.905 percent in 1993, and 7.9825 percent in 1992; a Georgia and Tennessee state
tax rate of 6 percent; a South Carolina state tax rate of 4.5 percent; a Florida
state tax rate of 5.5 percent; a Maryland state tax rate of 7 percent in 1994
and 1993; and a Washington, D.C. tax rate of 10.25 percent in 1994 and 1993,
respectively.
There were no commitments to purchase or sell investment securities at December
31, 1994. Gross gains and losses realized on the sale of debt securities in 1994
were $1,440,000 and $44,000, respectively, and on sundry securities gross gains
realized were $2,610,000. Gross gains and losses realized on the sale of debt
securities in 1993 were $2,722,000 and $318,000, respectively, and on sundry
securities $5,115,000 and $84,000, respectively. Gross gains and losses realized
on the sale of debt securities in 1992 were $19,035,000 and $19,100,000,
respectively, and on sundry securities $615,000 and $3,431,000, respectively.
34
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<PAGE>
.................................
TABLE 10
LOANS
<TABLE>
<CAPTION>
(IN THOUSANDS) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
FIRST UNION CORPORATION
COMMERCIAL
Commercial, financial and agricultural
Taxable $15,198,651 12,509,283 10,532,842 10,854,321 9,946,557
Nontaxable 709,092 724,442 738,834 936,416 1,054,246
Total commercial, financial and
agricultural 15,907,743 13,233,725 11,271,676 11,790,737 11,000,803
Real estate-construction and other 1,734,095 1,664,694 1,886,319 3,014,877 3,380,426
Real estate-mortgage 5,437,496 5,834,894 5,782,780 5,421,698 4,067,445
Lease financing 1,613,763 962,599 1,033,809 1,109,525 1,184,196
Foreign 415,857 304,267 274,800 233,601 190,621
Total commercial 25,108,954 22,000,179 20,249,384 21,570,438 19,823,491
RETAIL
Real estate-mortgage 15,014,775 13,318,058 10,775,107 9,406,329 7,173,064
Installment loans-Bankcard* 3,959,657 1,995,568 -- -- --
Installment loans-other 10,618,696 9,896,431 11,260,708 10,850,557 9,485,633
Total retail 29,593,128 25,210,057 22,035,815 20,256,886 16,658,697
Total loans 54,702,082 47,210,236 42,285,199 41,827,324 36,482,188
UNEARNED INCOME
Loans 145,691 129,830 186,173 247,016 245,363
Lease financing 526,639 204,229 175,259 196,728 186,106
Total unearned income 672,330 334,059 361,432 443,744 431,469
Loans, net $54,029,752 46,876,177 41,923,767 41,383,580 36,050,719
ACQUIRED SOUTHEAST BANKS LOANS**
COMMERCIAL
Commercial, financial and agricultural
Taxable $ 263,412 532,388 775,016 1,240,007 --
Nontaxable 32,861 52,977 55,322 81,757 --
Total commercial, financial and
agricultural 296,273 585,365 830,338 1,321,764 --
Real estate-construction and other 49,381 87,954 160,785 322,513 --
Real estate-mortgage 457,293 695,243 862,903 1,228,902 --
Foreign 9,103 1,448 21,578 56,364 --
Total commercial 812,050 1,370,010 1,875,604 2,929,543 --
RETAIL
Real estate-mortgage 645,472 806,576 1,141,022 1,736,044 --
Installment loans 279,300 911,395 1,410,242 1,643,044 --
Total retail 924,772 1,717,971 2,551,264 3,379,088 --
Total loans 1,736,822 3,087,981 4,426,868 6,308,631 --
UNEARNED INCOME 190 1,757 10,104 59,755 --
Loans, net $ 1,736,632 3,086,224 4,416,764 6,248,876 --
<CAPTION>
DECEMBER 31,
1989
<S> <C>
FIRST UNION CORPORATION
COMMERCIAL
Commercial, financial and agricultural
Taxable 8,065,193
Nontaxable 1,072,448
Total commercial, financial and
agricultural 9,137,641
Real estate-construction and other 2,732,422
Real estate-mortgage 4,431,718
Lease financing 1,143,820
Foreign 147,680
Total commercial 17,593,281
RETAIL
Real estate-mortgage 6,245,386
Installment loans-Bankcard* --
Installment loans-other 8,101,924
Total retail 14,347,310
Total loans 31,940,591
UNEARNED INCOME
Loans 173,467
Lease financing 166,348
Total unearned income 339,815
Loans, net 31,600,776
ACQUIRED SOUTHEAST BANKS LOANS**
COMMERCIAL
Commercial, financial and agricultural
Taxable --
Nontaxable --
Total commercial, financial and
agricultural --
Real estate-construction and other --
Real estate-mortgage --
Foreign --
Total commercial --
RETAIL
Real estate-mortgage --
Installment loans --
Total retail --
Total loans --
UNEARNED INCOME --
Loans, net --
</TABLE>
*Information not available prior to 1993.
**For a five-year period which began September 19, 1991, the FDIC will reimburse
First Union for 85 percent of all net charge-offs related to acquired
Southeast Banks loans except installment loan reimbursements, which will
decline 5 percent per year to 65 percent by 1996.
35
... (FIRST UNION logo)
<PAGE>
FINANCIAL TABLES
FIRST UNION CORPORATION AND SUBSIDIARIES
.................................
TABLE 11
CERTAIN LOAN MATURITIES AND SENSITIVITY
TO CHANGES IN INTEREST RATES
<TABLE>
<CAPTION>
DECEMBER 31, 1994
COMMERCIAL, COMMERCIAL COMMERCIAL
FINANCIAL REAL ESTATE: REAL
AND CONSTRUCTION ESTATE:
(IN THOUSANDS) AGRICULTURAL AND OTHER MORTGAGE FOREIGN TOTAL
<S> <C> <C> <C> <C> <C>
FIXED RATE
1 year or less $ 1,576,987 139,568 817,635 212,682 2,746,872
1-5 years 714,038 21,942 535,906 -- 1,271,886
After 5 years 32,131 -- 19,453 -- 51,584
Total 2,323,156 161,510 1,372,994 212,682 4,070,342
ADJUSTABLE RATE
1 year or less 9,388,084 1,167,446 2,389,560 199,970 13,145,060
1-5 years 4,195,410 405,139 1,674,930 3,205 6,278,684
After 5 years 1,093 -- 12 -- 1,105
Total 13,584,587 1,572,585 4,064,502 203,175 19,424,849
Total $15,907,743 1,734,095 5,437,496 415,857 23,495,191
</TABLE>
36
(FIRST UNION logo) ...
<PAGE>
.................................
TABLE 12
ALLOWANCE FOR LOAN LOSSES
AND NONPERFORMING ASSETS*
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN THOUSANDS) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR LOAN LOSSES
Balance, beginning of year $1,020,191 940,804 851,830 702,685 355,442
Provision for loan losses 100,000 221,753 414,708 648,284 425,409
Reversal of tax effect of acquired bank
related net charge-offs included in the
provision for loan losses -- -- -- (16,386) --
Allowance of divested subsidiary and other
sales -- -- -- -- (7,769)
Allowance of acquired loans and credit cards 21,520 109,321 50,141 83,770 173,660
Transfer to allowance for segregated asset
losses -- -- (20,000) (13,000) --
Loan losses, net (162,916) (251,687) (355,875) (553,523) (244,057)
Balance, end of year $ 978,795 1,020,191 940,804 851,830 702,685
(as % of loans, net) 1.81% 2.18 2.24 2.06 1.95
(as % of nonaccrual and restructured
loans) 245 147 96 72 77
(as % of nonperforming assets) 175% 111 70 50 56
LOAN LOSSES
Commercial, financial and agricultural $ 67,804 121,373 142,600 189,648 116,060
Real estate-construction and other 8,897 25,829 52,524 164,044 49,183
Real estate-mortgage 54,108 66,105 80,934 118,555 4,196
Installment loans-Bankcard** 65,760 55,610 -- -- --
Installment loans-other 58,358 60,643 130,493 124,536 108,117
Total 254,927 329,560 406,551 596,783 277,556
LOAN RECOVERIES
Commercial, financial and agricultural 48,314 29,681 21,252 15,924 12,991
Real estate-construction and other 2,834 5,718 1,254 1,882 1,633
Real estate-mortgage 12,554 15,866 4,926 4,097 847
Installment loans-Bankcard** 9,605 7,160 -- -- --
Installment loans-other 18,704 19,448 23,244 21,357 18,028
Total 92,011 77,873 50,676 43,260 33,499
Loan losses, net $ 162,916 251,687 355,875 553,523 244,057
(as % of average loans, net) .33% .58 .86 1.48 .68
NONPERFORMING ASSETS
Nonaccrual loans
Commercial loans $ 155,752 242,241 407,583 494,649 300,334
Real estate loans 241,886 425,101 498,973 574,324 574,732
Total nonaccrual loans 397,638 667,342 906,556 1,068,973 875,066
Restructured loans 1,872 26,544 68,935 116,893 38,867
Foreclosed properties 158,464 222,503 375,559 530,524 330,984
Total nonperforming assets $ 557,974 916,389 1,351,050 1,716,390 1,244,917
(as % of loans, net and foreclosed
properties) 1.03% 1.95 3.19 4.10 3.42
Accruing loans past due 90 days $ 140,081 71,307 85,513 144,075 194,605
<CAPTION>
1989
<S> <C>
ALLOWANCE FOR LOAN LOSSES
Balance, beginning of year 331,058
Provision for loan losses 139,291
Reversal of tax effect of acquired bank
related net charge-offs included in the
provision for loan losses --
Allowance of divested subsidiary and other
sales (2,392)
Allowance of acquired loans and credit cards 3,321
Transfer to allowance for segregated asset
losses --
Loan losses, net (115,836)
Balance, end of year 355,442
(as % of loans, net) 1.12
(as % of nonaccrual and restructured
loans) 131
(as % of nonperforming assets) 89
LOAN LOSSES
Commercial, financial and agricultural 56,153
Real estate-construction and other 17,009
Real estate-mortgage 6,034
Installment loans-Bankcard** --
Installment loans-other 64,472
Total 143,668
LOAN RECOVERIES
Commercial, financial and agricultural 11,440
Real estate-construction and other 1,106
Real estate-mortgage 507
Installment loans-Bankcard** --
Installment loans-other 14,779
Total 27,832
Loan losses, net 115,836
(as % of average loans, net) .39
NONPERFORMING ASSETS
Nonaccrual loans
Commercial loans 122,407
Real estate loans 122,540
Total nonaccrual loans 244,947
Restructured loans 25,849
Foreclosed properties 126,531
Total nonperforming assets 397,327
(as % of loans, net and foreclosed
properties) 1.25
Accruing loans past due 90 days 68,155
</TABLE>
*Any loans classified by regulatory examiners as loss, doubtful, substandard or
special mention that have not been disclosed hereunder, or under the "Loans"
or "Asset Quality" narrative discussions do not (i) represent or result from
trends or uncertainties that management expects will materially impact future
operating results, liquidity or capital resources, or (ii) represent material
credits about which management is aware of any information that causes
management to have serious doubts as to the ability of such borrowers to
comply with the loan repayment terms. Southeast Banks segregated assets are
not included herein.
**Information not available prior to 1993.
37
... (FIRST UNION logo)
<PAGE>
FINANCIAL TABLES
FIRST UNION CORPORATION AND SUBSIDIARIES
.................................
TABLE 13
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1993 1992 1991
LOANS LOANS LOANS LOANS
% % % %
TOTAL TOTAL TOTAL TOTAL
(IN MILLIONS) AMT. LOANS AMT. LOANS AMT. LOANS AMT. LOANS AMT.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $223.4 29.1% $ 187.9 28.0% $316.5 26.7% $337.2 28.2% $254.4
Real estate-construction and other 58.1 3.2 73.5 3.5 139.5 4.5 147.9 7.2 195.1
Real estate-mortgage 175.3 37.3 199.9 40.6 198.9 39.2 164.4 35.4 96.9
Installment loans-Bankcard 133.2 7.2 76.1 4.2 -- -- -- -- --
Installment loans-other 106.7 19.4 149.3 21.0 142.3 26.6 123.8 25.9 111.3
Lease financing 2.4 3.0 1.7 2.1 2.1 2.4 3.1 2.7 2.2
Foreign 3.5 .8 .3 .6 .7 .6 .5 .6 .5
Unallocated 276.2 -- 331.5 -- 140.8 -- 74.9 -- 42.3
Total $978.8 100.0% $1,020.2 100.0% $940.8 100.0% $851.8 100.0% $702.7
<CAPTION>
1990
LOANS
%
TOTAL
(IN MILLIONS) LOANS
<S> <C>
Commercial, financial and agricultural 30.2%
Real estate-construction and other 9.3
Real estate-mortgage 30.8
Installment loans-Bankcard --
Installment loans-other 26.0
Lease financing 3.2
Foreign .5
Unallocated --
Total 100.0%
</TABLE>
Beginning in 1993, the allocation of the allowance for loan losses is based on
the Corporation's loss migration modelling process. The unallocated portion of
the allowance for loan losses at December 31, 1992, would have been $178.4
million had the migration model been available in 1992. The allocation of the
allowance for loan losses to the respective loan classifications is not
necessarily indicative of future losses or future allocations. Information
related to Bankcards is not available prior to 1993.
See the "Loans" and "Allowance for Loan Losses" discussions in Management's
Analysis of Operations and in Note 1 to the consolidated financial statements.
.................................
TABLE 14
INTANGIBLE ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
(IN THOUSANDS) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Mortgage servicing rights $ 84,898 87,350 183,196 196,796 173,915
Credit card premium $ 58,494 75,588 71,140 73,792 24,785
OTHER INTANGIBLE ASSETS
Goodwill $ 754,417 712,485 643,978 676,046 685,602
Deposit base premium 437,025 255,359 175,707 179,152 176,043
Other 7,465 10,468 18,285 15,324 9,508
Total $1,198,907 978,312 837,970 870,522 871,153
<CAPTION>
1989
<S> <C>
Mortgage servicing rights 140,065
Credit card premium 20,148
OTHER INTANGIBLE ASSETS
Goodwill 260,800
Deposit base premium 117,188
Other 11,974
Total 389,962
</TABLE>
38
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<PAGE>
.................................
TABLE 15
SOUTHEAST BANKS SEGREGATED ASSETS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN THOUSANDS) 1994 1993 1992
<S> <C> <C> <C>
SEGREGATED ASSETS $ 186,405 380,515 576,257
ALLOWANCE FOR SEGREGATED ASSET LOSSES
Balance, beginning of year 33,313 45,362 54,000
Initial allowance -- -- --
Transfer from allowance for loan losses -- -- 20,000
Transfer (to) from allowance for foreclosed properties (1,722) 1,998 --
Segregated asset losses, net (9,754) (14,047) (28,638)
Balance, end of year 21,837 33,313 45,362
Segregated assets, net $ 164,568 347,202 530,895
SEGREGATED ASSET LOSSES
Commercial, financial and agricultural $ 853 3,615 6,265
Real estate-construction and other 7 208 1,713
Real estate-mortgage 2,461 4,482 9,311
Installment loans 10,899 11,113 16,347
Total 14,220 19,418 33,636
SEGREGATED ASSET RECOVERIES
Commercial, financial and agricultural 896 1,695 954
Real estate-construction and other -- -- --
Real estate-mortgage 428 634 371
Installment loans 3,142 3,042 3,673
Total 4,466 5,371 4,998
Segregated asset losses, net $ 9,754 14,047 28,638
SEGREGATED ASSETS
Nonaccrual loans
Commercial loans $ 34,220 67,064 145,324
Real estate loans 96,099 187,432 304,866
Total nonaccrual loans 130,319 254,496 450,190
Foreclosed properties 56,086 126,019 126,067
Total segregated assets 186,405 380,515 576,257
Less FDIC loss-sharing* (158,444) (323,438) (489,818)
Total $ 27,961 57,077 86,439
Accruing loans past due 90 days $ 21,733 28,493 40,374
<CAPTION>
1991
(IN THOUSANDS)
<S> <C>
SEGREGATED ASSETS 694,832
ALLOWANCE FOR SEGREGATED ASSET LOSSES
Balance, beginning of year --
Initial allowance 50,000
Transfer from allowance for loan losses 13,000
Transfer (to) from allowance for foreclosed properties --
Segregated asset losses, net (9,000)
Balance, end of year 54,000
Segregated assets, net 640,832
SEGREGATED ASSET LOSSES
Commercial, financial and agricultural 3,595
Real estate-construction and other 859
Real estate-mortgage 1,521
Installment loans 4,261
Total 10,236
SEGREGATED ASSET RECOVERIES
Commercial, financial and agricultural 218
Real estate-construction and other --
Real estate-mortgage 23
Installment loans 995
Total 1,236
Segregated asset losses, net 9,000
SEGREGATED ASSETS
Nonaccrual loans
Commercial loans 352,201
Real estate loans 313,774
Total nonaccrual loans 665,975
Foreclosed properties 28,857
Total segregated assets 694,832
Less FDIC loss-sharing* (590,607)
Total 104,225
Accruing loans past due 90 days 215,248
</TABLE>
* For a five-year period that began September 19, 1991, the FDIC will reimburse
First Union for 85 percent of all net charge-offs related to acquired
Southeast Banks loans except installment loan reimbursements, which will
decline 5 percent per year to 65 percent by 1996.
39
(FIRST UNION logo) ...
<PAGE>
FINANCIAL TABLES
FIRST UNION CORPORATION AND SUBSIDIARIES
.................................
TABLE 16
ALLOWANCE FOR FORECLOSED PROPERTIES*
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN THOUSANDS) 1994 1993 1992
<S> <C> <C> <C>
Foreclosed properties $193,290 278,694 478,887
Allowance for foreclosed properties, beginning of year 56,191 103,328 30,952
Provision for foreclosed properties 4,503 23,730 111,260
Transfer from (to) allowance for segregated assets 1,722 (1,998) --
Dispositions, net (27,590) (68,869) (38,884)
Allowance for foreclosed properties, end of year 34,826 56,191 103,328
Foreclosed properties, net $158,464 222,503 375,559
<CAPTION>
1991
(IN THOUSANDS)
<S> <C>
Foreclosed properties 561,476
Allowance for foreclosed properties, beginning of year 799
Provision for foreclosed properties 36,467
Transfer from (to) allowance for segregated assets --
Dispositions, net (6,314)
Allowance for foreclosed properties, end of year 30,952
Foreclosed properties, net 530,524
</TABLE>
*Excludes Southeast Banks segregated assets.
40
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<PAGE>
.................................
TABLE 17
DEPOSITS
<TABLE>
<CAPTION>
DECEMBER 31,
(IN THOUSANDS) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
CORE DEPOSITS
Noninterest-bearing $10,523,538 10,861,207 9,213,646 7,836,183 6,267,894
Savings and NOW accounts 13,991,987 12,010,636 9,825,918 7,954,985 5,633,720
Money market accounts 10,118,963 11,131,334 9,930,789 8,832,272 6,950,226
Other consumer time 18,544,324 16,897,062 18,014,195 19,181,341 14,856,718
Total core deposits 53,178,812 50,900,239 46,984,548 43,804,781 33,708,558
Foreign 4,069,587 1,240,448 249,429 125,159 642,592
Other time 1,709,874 1,601,724 1,916,988 3,246,283 3,843,118
Total deposits $58,958,273 53,742,411 49,150,965 47,176,223 38,194,268
<CAPTION>
1989
<S> <C>
CORE DEPOSITS
Noninterest-bearing 5,060,239
Savings and NOW accounts 4,739,910
Money market accounts 6,057,247
Other consumer time 11,443,744
Total core deposits 27,301,140
Foreign 593,861
Other time 3,636,769
Total deposits 31,531,770
</TABLE>
.................................
TABLE 18
TIME DEPOSITS IN AMOUNTS OF $100,000 OR MORE
<TABLE>
<CAPTION>
DECEMBER 31, 1994
TIME OTHER
(IN THOUSANDS) CERTIFICATES TIME
<S> <C> <C>
MATURITY OF
3 months or less $1,935,089 76,972
Over 3 months through 6 months 881,354 --
Over 6 months through 12 months 832,106 --
Over 12 months 871,122 --
Total $4,519,671 76,972
</TABLE>
41
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<PAGE>
FINANCIAL TABLES
FIRST UNION CORPORATION AND SUBSIDIARIES
.................................
TABLE 19
CAPITAL RATIOS
<TABLE>
<CAPTION>
DECEMBER 31,
(IN THOUSANDS) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
CONSOLIDATED CAPITAL RATIOS*
QUALIFYING CAPITAL
Tier 1 capital $ 4,466,670 4,342,664 3,189,276 2,441,839 1,901,657
Total capital 7,450,602 6,960,671 4,948,156 3,799,073 3,153,733
Adjusted risk-based assets 57,593,799 47,529,159 34,573,794 32,314,244 29,121,464
Adjusted leverage ratio assets $73,011,243 70,785,664 48,671,501 45,955,064 38,833,477
RATIOS
Tier 1 capital 7.76% 9.14 9.22 7.56 6.53
Total capital 12.94 14.64 14.31 11.76 10.83
Leverage 6.12 6.13 6.55 5.31 4.90
STOCKHOLDERS' EQUITY TO ASSETS
Year-end 6.98 7.36 6.99 6.51 6.05
Average 7.52% 7.11 6.89 6.29 6.22
BANK CAPITAL RATIOS*
TIER 1 CAPITAL
First Union National Bank of
North Carolina 7.32% 8.24 7.22 6.45 6.87
South Carolina 7.88 7.55 7.88 6.85 6.46
Georgia 8.26 9.58 8.14 6.06 6.51
Florida 7.95 9.13 9.38 8.79 6.44
Washington, D.C. 16.75 14.23 -- -- --
Maryland 20.53 15.78 -- -- --
Tennessee 12.76 12.43 24.03 6.57 7.50
Virginia 9.21 10.77 -- -- --
First Union Home Equity Bank 7.60 -- -- -- --
TOTAL CAPITAL
First Union National Bank of
North Carolina 10.69 11.35 10.60 7.99 8.39
South Carolina 12.15 11.82 10.89 8.25 7.84
Georgia 11.18 12.62 11.05 7.62 8.23
Florida 10.76 10.83 11.10 10.61 8.56
Washington, D.C. 18.03 15.52 -- -- --
Maryland 21.81 17.07 -- -- --
Tennessee 14.02 13.69 25.29 7.84 8.55
Virginia 13.11 13.08 -- -- --
First Union Home Equity Bank 12.10 -- -- -- --
LEVERAGE
First Union National Bank of
North Carolina 6.10 5.52 5.46 4.91 4.97
South Carolina 5.77 5.56 5.93 5.39 4.82
Georgia 5.69 5.67 6.58 4.91 4.78
Florida 5.91 5.79 5.62 4.91 4.91
Washington, D.C. 8.33 6.06 -- -- --
Maryland 12.82 9.04 -- -- --
Tennessee 8.47 8.05 25.10 7.34 8.22
Virginia 7.10 6.89 -- -- --
First Union Home Equity Bank 7.22% -- -- -- --
<CAPTION>
1989
<S> <C>
CONSOLIDATED CAPITAL RATIOS*
QUALIFYING CAPITAL
Tier 1 capital --
Total capital --
Adjusted risk-based assets --
Adjusted leverage ratio assets --
RATIOS
Tier 1 capital --
Total capital --
Leverage --
STOCKHOLDERS' EQUITY TO ASSETS
Year-end 6.33
Average 6.41
BANK CAPITAL RATIOS*
TIER 1 CAPITAL
First Union National Bank of
North Carolina --
South Carolina --
Georgia --
Florida --
Washington, D.C. --
Maryland --
Tennessee --
Virginia --
First Union Home Equity Bank --
TOTAL CAPITAL
First Union National Bank of
North Carolina --
South Carolina --
Georgia --
Florida --
Washington, D.C. --
Maryland --
Tennessee --
Virginia --
First Union Home Equity Bank --
LEVERAGE
First Union National Bank of
North Carolina --
South Carolina --
Georgia --
Florida --
Washington, D.C. --
Maryland --
Tennessee --
Virginia --
First Union Home Equity Bank --
</TABLE>
* Risk-based capital ratio guidelines require a minimum ratio of Tier 1 capital
to risk-weighted assets of 4.00 percent and a minimum ratio of total capital
to risk-weighted assets of 8.00 percent. The minimum leverage ratio of Tier 1
capital to adjusted average quarterly assets is from 3.00 to 5.00 percent. The
1990-1992 capital ratios presented herein have not been restated to reflect
pooling of interests acquisitions.
42
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<PAGE>
.................................
TABLE 20
SELECTED SIX-YEAR DATA*
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
MORTGAGE LOAN PORTFOLIO
PERMANENT LOAN ORIGINATIONS
Residential
Direct $ 3,569,451 6,276,720 4,549,392 2,206,796 1,832,758
Wholesale 933,214 2,431,455 2,641,656 2,657,534 2,092,646
Total 4,502,665 8,708,175 7,191,048 4,864,330 3,925,404
Income property 443,356 238,199 263,749 266,518 237,980
Total $ 4,946,021 8,946,374 7,454,797 5,130,848 4,163,384
VOLUME OF LOANS SERVICED
Residential $32,677,000 32,786,000 22,528,000 22,161,000 17,878,000
Income property 1,537,000 1,972,000 1,848,000 1,951,000 1,534,000
Total $34,214,000 34,758,000 24,376,000 24,112,000 19,412,000
NUMBER OF OFFICES
Banking
North Carolina 276 266 269 269 272
South Carolina 66 67 53 53 56
Georgia 154 163 114 115 124
Florida 552 488 460 564 314
Washington, D.C. 33 30 -- -- --
Maryland 26 32 -- -- --
Tennessee 54 63 1 1 1
Virginia 177 193 -- -- --
Foreign 2 1 1 2 1
Total banking offices 1,340 1,303 898 1,004 768
Savings banks -- -- 45 -- --
First Union Home Equity Bank 184 151 130 144 158
Mortgage banking 18 53 43 47 54
Consumer finance -- -- -- 1 56
Other 20 18 17 17 17
Total offices 1,562 1,525 1,133 1,213 1,053
OTHER DATA
ATMs 1,242 1,189 847 943 707
Employees 31,858 32,861 23,459 24,203 20,521
Common stockholders 54,236 58,670 37,955 33,456 34,951
<CAPTION>
1989
<S> <C>
MORTGAGE LOAN PORTFOLIO
PERMANENT LOAN ORIGINATIONS
Residential
Direct 1,372,353
Wholesale 1,655,153
Total 3,027,506
Income property 394,037
Total 3,421,543
VOLUME OF LOANS SERVICED
Residential 13,854,000
Income property 1,444,000
Total 15,298,000
NUMBER OF OFFICES
Banking
North Carolina 269
South Carolina 56
Georgia 128
Florida 209
Washington, D.C. --
Maryland --
Tennessee 1
Virginia --
Foreign 2
Total banking offices 665
Savings banks --
First Union Home Equity Bank 166
Mortgage banking 51
Consumer finance 56
Other 9
Total offices 947
OTHER DATA
ATMs 532
Employees 17,733
Common stockholders 36,166
</TABLE>
* 1989-1992 not restated for pooling of interest acquisitions. Direct
residential loan originations for 1990-1993 have been restated to include bank
branch production.
43
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<PAGE>
FINANCIAL TABLES
FIRST UNION CORPORATION AND SUBSIDIARIES
.................................
TABLE 21
INTEREST RATE GAP
<TABLE>
<CAPTION>
DECEMBER 31, 1994
NON-
SENSITIVE
AND
SENSITIVE
INTEREST SENSITIVITY IN DAYS OVER FIVE
(IN THOUSANDS) 1-90 91-180 181-365 TOTAL 1-2 YEARS 2-5 YEARS YEARS
<S> <C> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Interest-bearing
bank balances $ 945,026 -- 100 945,126 -- -- --
Federal funds sold
and securities
purchased under
resale agreements 1,362,375 4,225 4,425 1,371,025 -- -- --
Trading account
assets 1,206,675 -- -- 1,206,675 -- -- --
Securities available
for sale 237,979 362,387 1,344,317 1,944,683 999,033 3,626,354 1,484,522
Investment
securities 153,815 185,879 407,398 747,092 530,277 1,127,743 1,324,757
Loans* 29,749,876 2,217,492 4,097,983 36,065,351 3,747,475 6,764,437 7,452,489
Total earning
assets 33,655,746 2,769,983 5,854,223 42,279,952 5,276,785 11,518,534 10,261,768
INTEREST-BEARING
LIABILITIES
Interest-bearing
deposits 23,629,131 4,254,048 4,210,919 32,094,098 2,514,075 3,227,284 10,599,278
Short-term
borrowings 7,530,581 1,762 -- 7,532,343 -- -- --
Long-term debt 435,117 4,639 159,006 598,762 367,775 698,557 1,763,420
Total
interest-bearing
liabilities 31,594,829 4,260,449 4,369,925 40,225,203 2,881,850 3,925,841 12,362,698
OFF-BALANCE SHEET
FINANCIAL
INSTRUMENTS 5,912,116 (9,927,663) 12,766,140 8,750,593 (3,342,490) (3,583,103) (1,825,000)
Total
interest-bearing
liabilities and
off-balance sheet
financial
instruments 37,506,945 (5,667,214) 17,136,065 48,975,796 (460,640) 342,738 10,537,698
Interest rate gap $(3,851,199) 8,437,197 (11,281,842) (6,695,844) 5,737,425 11,175,796
Cumulative gap $(3,851,199) 4,585,998 (6,695,844) (6,695,844) (958,419) 10,217,377
Ratio of cumulative
gap to total
earning assets (5.55)% 6.61 (9.66) (9.66) (1.38) 14.74
<CAPTION>
(IN THOUSANDS) TOTAL
<S> <C>
EARNING ASSETS
Interest-bearing
bank balances 945,126
Federal funds sold
and securities
purchased under
resale agreements 1,371,025
Trading account
assets 1,206,675
Securities available
for sale 8,054,592
Investment
securities 3,729,869
Loans* 54,029,752
Total earning
assets 69,337,039
INTEREST-BEARING
LIABILITIES
Interest-bearing
deposits 48,434,735
Short-term
borrowings 7,532,343
Long-term debt 3,428,514
Total
interest-bearing
liabilities 59,395,592
OFF-BALANCE SHEET
FINANCIAL
INSTRUMENTS --
Total
interest-bearing
liabilities and
off-balance sheet
financial
instruments 59,395,592
Interest rate gap
Cumulative gap
Ratio of cumulative
gap to total
earning assets
</TABLE>
The information included herein should be read in conjunction with the
discussion appearing under "Interest Rate Risk Management" and with Tables
22-24.
*Loans are stated net of unearned income. This interest rate gap table has
inherent limitations on its ability to accurately portray interest rate
sensitivity, and therefore, it is only provided in conjunction with common
banking industry practice. Additionally, in 1994 in conjunction with such
practices savings and NOW accounts are included in the non-sensitive and
sensitive over five years classification instead of the 1-90 day classification
as was the case in 1993. Money market accounts were included in the 1-90 day
classification for both 1994 and 1993. The 1993 ratios of cumulative gap to
total earning assets for each of the periods indicated above would have been
(1.05) percent, (.64) percent, (3.98) percent, (3.98) percent, 4.66 percent and
23.34 percent, respectively.
44
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<PAGE>
.................................
TABLE 22
OFF-BALANCE SHEET
DERIVATIVE FINANCIAL INSTRUMENTS*
<TABLE>
<CAPTION>
WEIGHTED ESTIMATED
DECEMBER 31, 1994 NOTIONAL AVERAGE RATE MATURITY FAIR
(IN THOUSANDS) AMOUNT RECEIVE PAY IN YEARS VALUE
<S> <C> <C> <C> <C> <C>
ASSET RATE CONVERSIONS
Interest rate swaps $7,022,116 5.78% 6.32% 2.22
Carrying amount $ 5,784
Unrealized gross gain 2,659
Unrealized gross loss (321,716)
Total (313,273)
Forward interest rate swaps 1,200,000 7.93 -- 1.63
Carrying amount --
Unrealized gross gain --
Unrealized gross loss (7,071)
Total (7,071)
Total asset rate conversions $8,222,116 6.10% 6.32% 2.14 $(320,344)
LIABILITY RATE CONVERSIONS
Interest rate swaps $2,370,500 7.27% 6.77% 7.68
Carrying amount $ 15,487
Unrealized gross gain 1,685
Unrealized gross loss (160,195)
Total (143,023)
Other financial instruments 392,000 -- -- 3.46
Carrying amount 1,902
Unrealized gross gain --
Unrealized gross loss (1,792)
Total 110
Total liability rate
conversions $2,762,500 7.27% 6.77% 7.08 $(142,913)
<CAPTION>
DECEMBER 31, 1994
(IN THOUSANDS) COMMENTS
<S> <C>
ASSET RATE CONVERSIONS
Interest rate swaps
Converts floating rate commercial loans to fixed
rate. Adds to
liability sensitivity. Similar characteristics to
Carrying amount a fixed income
security funded with variable rate liabilities.
Unrealized gross gain Includes $2.1 billion
of indexed amortizing swaps, all of which mature
Unrealized gross loss within four
years.
Total
Forward interest rate swaps
Converts floating rates on commercial loans to
fixed rates at
higher than current yields for future periods.
Carrying amount $200 million
effective March 1995 and $1.0 billion effective
Unrealized gross gain September 1995.
Put options on forward swaps referenced under
Unrealized gross loss "Rate Sensitivity
Hedges" are linked to this item.
Total
Total asset rate conversions
LIABILITY RATE CONVERSIONS
Interest rate swaps
Converts fixed rate long-term debt to floating
rate by matching
maturity of the swap to the debt issue. Rate
Carrying amount sensitivity remains
unchanged due to the linkage of the swap to the
Unrealized gross gain debt issue.
Unrealized gross loss
Total
Other financial instruments
Miscellaneous purchased option-based products for
liability
management purposes include $35 million of options
Carrying amount on swaps,
$207 million eurodollar caps and $150 million of
Unrealized gross gain eurodollar
floors. These instruments were assumed as a result
Unrealized gross loss of certain of
the corporation's acquisitions.
Total
Total liability rate
conversions
</TABLE>
45
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<PAGE>
FINANCIAL TABLES
FIRST UNION CORPORATION AND SUBSIDIARIES
.................................
TABLE 22
OFF-BALANCE SHEET
DERIVATIVE FINANCIAL INSTRUMENTS* (CONTINUED)
<TABLE>
<CAPTION>
WEIGHTED ESTIMATED
DECEMBER 31, 1994 NOTIONAL AVERAGE RATE MATURITY FAIR
(IN THOUSANDS) AMOUNT RECEIVE PAY IN YEARS VALUE
<S> <C> <C> <C> <C> <C>
ASSET HEDGE
Short T-Bill futures $ 1,200,000 --% 7.01% .42 $
Carrying amount --
Unrealized gross gain 555
Unrealized gross loss --
Total 555
Total asset hedge $ 1,200,000 --% 7.01% .42 $ 555
LIABILITY HEDGES
Put options on eurodollar
futures $27,181,000 --% 8.05% .56
Carrying amount $21,524
Unrealized gross gain 12,322
Unrealized gross loss --
Total 33,846
Put options on forward swaps 1,000,000 -- 8.08 .72
Carrying amount 3,721
Unrealized gross gain 3,514
Unrealized gross loss --
Total 7,235
Interest rate cap 50,000 -- -- 1.16
Carrying amount 356
Unrealized gross gain --
Unrealized gross loss (181)
Total 175
Long eurodollar futures 25,000 5.31 -- .20
Carrying amount --
Unrealized gross gain --
Unrealized gross loss (120)
Total (120)
Total liability hedges $28,256,000 5.31% 8.05% .56 $41,136
<CAPTION>
DECEMBER 31, 1994
(IN THOUSANDS) COMMENTS
<S> <C>
ASSET HEDGE
Short T-Bill futures
Converts the maturity of $200 million U.S. Treasury
bills in the available for sale portfolio from June
1995 to March 1995 and
$1.0 billion U.S. Treasury bills from September
Carrying amount 1995 to June 1995.
Unrealized gross gain
Unrealized gross loss
Total
Total asset hedge
LIABILITY HEDGES
Put options on eurodollar
futures
Paid a premium for the right to lock in the 3 month
LIBOR reset rates on pay variable rate swaps and
short-term liabilities. $1.7
billion effective March 1995; $12.5 billion
Carrying amount effective June 1995; and
Unrealized gross gain $13.0 billion effective September 1995.
Unrealized gross loss
Total
Put options on forward swaps
Paid a premium for the right to terminate $1.0
billion of forward interest rate swaps based on
interest rates in effect in September
Carrying amount 1995. Reduces liability sensitivity.
Unrealized gross gain
Unrealized gross loss
Total
Interest rate cap
Purchased cap to convert floating rate liabilities
to fixed rate if short-term rates rise above 8
percent.
Carrying amount
Unrealized gross gain
Unrealized gross loss
Total
Long eurodollar futures
Locks in the rate of the future placement of 3
month eurodollar deposits.
Carrying amount
Unrealized gross gain
Unrealized gross loss
Total
Total liability hedges
</TABLE>
46
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.................................
TABLE 22
OFF-BALANCE SHEET
DERIVATIVE FINANCIAL INSTRUMENTS* (CONTINUED)
<TABLE>
<CAPTION>
WEIGHTED ESTIMATED
DECEMBER 31, 1994 NOTIONAL AVERAGE RATE MATURITY FAIR
(IN THOUSANDS) AMOUNT RECEIVE PAY IN YEARS VALUE
<S> <C> <C> <C> <C> <C>
OFFSETTING POSITIONS
Interest rate floors $ 800,000 6.44% 6.44% 1.45
Carrying amount $(1,675)
Unrealized gross gain 2,336
Unrealized gross loss (661)
Total --
Prime/federal funds cap 4,000,000 4.63 4.63 1.27
Carrying amount 1,611
Unrealized gross gain 23
Unrealized gross loss (2,120)
Total (486)
Total offsetting positions $4,800,000 4.93% 4.93% 1.30 $ (486)
<CAPTION>
DECEMBER 31, 1994
(IN THOUSANDS) COMMENTS
<S> <C>
OFFSETTING POSITIONS
Interest rate floors
Consists of $800 million of interest rate floors, of
which $400
million were purchased and offset by $400 million
Carrying amount sold, locking in
gains to be amortized over the remaining life of the
Unrealized gross gain contracts.
Unrealized gross loss
Total
Prime/federal funds cap
In December 1994, the corporation offset an existing
federal funds
cap (purchased) and a prime rate cap (written)
Carrying amount position by
simultaneously purchasing a prime rate cap and
Unrealized gross gain writing a federal
funds cap at strikes of 6.00 percent and 3.25
Unrealized gross loss percent, respectively.
The notional amount of each cap is $1.0 billion.
Locks in losses to
Total
be amortized over the remaining life of the
contracts.
Total offsetting positions
</TABLE>
*Includes only off-balance sheet derivative financial instruments related to
interest rate risk management activities.
Prime Rate -- The base rate on corporate loans posted by at least 75 percent of
the nation's 30 largest banks as defined in The Wall Street Journal.
London Interbank Offered Rates (LIBOR) -- The average of interbank offered rates
on dollar deposits in the London market, based on quotations at five major
banks.
Weighted average pay rates are generally based upon one to six month LIBOR. Pay
rates related to forward interest rate swaps are set on the future effective
date. Pay rates reset at predetermined reset dates over the life of the
contract. Rates shown are the rates in effect as of December 31, 1994. Weighted
average receive rates are fixed rates set at the time the contract was
transacted.
Carrying amount includes accrued interest receivable/payable and unamortized
premiums paid/received.
47
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<PAGE>
FINANCIAL TABLES
FIRST UNION CORPORATION AND SUBSIDIARIES
.................................
TABLE 22
OFF-BALANCE SHEET
DERIVATIVE FINANCIAL INSTRUMENTS* (CONTINUED)
<TABLE>
<CAPTION>
WEIGHTED ESTIMATED
DECEMBER 31, 1993 NOTIONAL AVERAGE RATE MATURITY FAIR
(IN THOUSANDS) AMOUNT RECEIVE PAY IN YEARS VALUE
<S> <C> <C> <C> <C> <C>
ASSET RATE CONVERSIONS
Interest rate swaps $12,029,540 5.63% 3.52% 1.59
Carrying amount $ 27,205
Unrealized gross gain 178,339
Unrealized gross loss (15,063)
Total 190,481
Forward interest rate swaps 3,200,000 5.13 -- 1.90
Carrying amount --
Unrealized gross gain 12,153
Unrealized gross loss (1,576)
Total 10,577
Total asset rate conversions $15,229,540 5.52% 3.52% 1.66 $201,058
LIABILITY RATE CONVERSIONS
Interest rate swaps $ 2,462,173 7.57% 3.46% 5.94
Carrying amount $ 44,071
Unrealized gross gain 110,626
Unrealized gross loss (12,072)
Total 142,625
Other financial instruments 779,000 4.00 3.38 2.46
Carrying amount (3,250)
Unrealized gross gain 5,651
Unrealized gross loss (116)
Total 2,285
Total liability rate
conversions $ 3,241,173 7.37% 3.46% 5.10 $144,910
BASIS PROTECTION
Prime/federal funds caps $ 5,000,000 --% --% 2.25
Carrying amount $ 6,621
Unrealized gross gain 6,762
Unrealized gross loss --
Total 13,383
Forward prime/federal funds
swap 500,000 -- -- 2.29
Carrying amount --
Unrealized gross gain 136
Unrealized gross loss --
Total 136
Forward prime/libor swaps 500,000 -- -- 2.47
Carrying amount --
Unrealized gross gain 295
Unrealized gross loss --
Total 295
Total basis protection $ 6,000,000 --% --% 2.27 $ 13,814
<CAPTION>
DECEMBER 31, 1993
(IN THOUSANDS) COMMENTS
<S> <C>
ASSET RATE CONVERSIONS
Interest rate swaps
Converts floating rate assets to fixed rate. Adds to
liability sensitivity.
Similar characteristics to a fixed income security.
Carrying amount Includes $4.1 billion of
indexed amortizing swaps of which $2.0 billion to mature
Unrealized gross gain in 1994 if 3
month LIBOR remains below 7 percent and $2.1 billion to
Unrealized gross loss mature within
five years.
Total
Forward interest rate swaps
Enables corporation to, in effect, extend maturities at
higher than
current yields for future periods; $1.0 billion
Carrying amount effective March 1994, $2.0
billion effective December 1994 and $200 million
Unrealized gross gain effective March 1995.
Unrealized gross loss
Total
Total asset rate conversions
LIABILITY RATE CONVERSIONS
Interest rate swaps
Converts fixed rate long-term debt to floating rate by
matching maturity
of the swap to the debt issue. Rate sensitivity remains
Carrying amount unchanged.
Unrealized gross gain
Unrealized gross loss
Total
Other financial instruments
Miscellaneous option-based products for liability
management purposes
include $280 million of written and purchased options on
Carrying amount swaps, $349
million eurodollar caps and $150 million eurodollar
Unrealized gross gain floors.
Unrealized gross loss
Total
Total liability rate
conversions
BASIS PROTECTION
Prime/federal funds caps
Simultaneous purchase and sale of caps ($2.5 billion
each) to protect
against a narrowing in the spread between prime and
Carrying amount federal funds.
Protection occurs with prime rate greater than 6 percent
Unrealized gross gain and federal
Unrealized gross loss funds rate greater than 3.25 percent.
Total
Forward prime/federal funds
swap
Swap to hedge against a narrowing in the spread between
the prime rate
and federal funds; pay rate equals the average prime
Carrying amount rate less 233 basis
Unrealized gross gain points versus receiving the federal funds rate.
Unrealized gross loss
Total
Forward prime/libor swaps
Swap to hedge against a narrowing in the spread between
the prime rate
and 3 month LIBOR; pay rate equals the average prime
Carrying amount rate less 212
Unrealized gross gain basis points versus receiving 3 month LIBOR.
Unrealized gross loss
Total
(CONTINUED)
Total basis protection
</TABLE>
48
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<PAGE>
.................................
TABLE 22
OFF-BALANCE SHEET
DERIVATIVE FINANCIAL INSTRUMENTS* (CONTINUED)
<TABLE>
<CAPTION>
WEIGHTED ESTIMATED
DECEMBER 31, 1993 NOTIONAL AVERAGE RATE MATURITY FAIR
(IN THOUSANDS) AMOUNT RECEIVE PAY IN YEARS VALUE
<S> <C> <C> <C> <C> <C>
LIABILITY HEDGES
Short eurodollar futures $ 4,000,000 --% 3.54% .33
Carrying amount $ --
Unrealized gross gain 1,363
Unrealized gross loss --
Total 1,363
Put options on eurodollar
futures 17,368,000 -- 4.01 .38
Carrying amount 5,791
Unrealized gross gain --
Unrealized gross loss (2,073)
Total 3,718
Put options on forward swaps 2,000,000 -- 5.14 .59
Carrying amount 5,058
Unrealized gross gain 386
Unrealized gross loss (1,138)
Total 4,306
Interest rate cap 50,000 -- -- 2.16
Carrying amount 663
Unrealized gross gain --
Unrealized gross loss (662)
Total 1
Long eurodollar futures 125,000 4.82 -- .70
Carrying amount --
Unrealized gross gain 207
Unrealized gross loss --
Total 207
Total liability hedges $23,543,000 4.82% 4.02% .40 $ 9,595
OFFSETTING POSITIONS
Interest rate floors $ 800,000 4.94% 4.94% 2.45
Carrying amount $ (2,824)
Unrealized gross gain 18,733
Unrealized gross loss (15,909)
Total --
Total offsetting positions $ 800,000 4.94% 4.94% 2.45 $ --
<CAPTION>
DECEMBER 31, 1993
(IN THOUSANDS) COMMENTS
<S> <C>
LIABILITY HEDGES
Short eurodollar futures
Reduces liability sensitivity by locking in floating pay
rate of the interest rate swaps; $2.0 billion mature in
each of the second and third quarters of
Carrying amount 1994.
Unrealized gross gain
Unrealized gross loss
Total
Put options on eurodollar
futures
Paid a premium for the right to lock in the 3 month LIBOR
reset rates on receive fixed interest rate swaps; $7.7
billion effective March 1994; $7.2
billion effective June 1994; $2.5 billion effective
Carrying amount September 1994. Beneficial
Unrealized gross gain in rising short-term rate environment.
Unrealized gross loss
Total
Put options on forward swaps
Paid a premium for the right to terminate $2.0 billion of
forward interest rate swaps based on interest rates at
settlement date. Reduces liability
Carrying amount sensitivity.
Unrealized gross gain
Unrealized gross loss
Total
Interest rate cap
Purchased cap to convert floating rate liabilities to
fixed rate if short-term rates rise above 8 percent.
Carrying amount
Unrealized gross gain
Unrealized gross loss
Total
Long eurodollar futures
Locks in the rate of the future placement of 3 month
eurodollar deposits.
Carrying amount
Unrealized gross gain
Unrealized gross loss
Total
Total liability hedges
OFFSETTING POSITIONS
Consists of $800 million of interest rate floors, of which
$400 million were purchased and offset by $400 million
sold, locking in gains to be amortized
Interest rate floors over the remaining life of the contracts.
Carrying amount
Unrealized gross gain
Unrealized gross loss
Total
Total offsetting positions
</TABLE>
*Includes only off-balance sheet derivative financial instruments related to
interest rate risk management activities.
Prime Rate -- The base rate on corporate loans posted by at least 75 percent of
the nation's 30 largest banks as defined in The Wall Street Journal.
London Interbank Offered Rates (LIBOR) -- The average of interbank offered rates
on dollar deposits in the London market, based on quotations at five major
banks.
Weighted average pay rates are generally based upon one to six month LIBOR. Pay
rates related to forward interest rate swaps are set on the future effective
date. Pay rates reset at predetermined reset dates over the life of the
contract. Rates shown are the rates in effect as of December 31, 1993. Weighted
average receive rates are fixed rates set at the time the contract was
transacted.
Carrying amount includes accrued interest receivable/payable and unamortized
premiums paid/received.
49
... (FIRST UNION logo)
<PAGE>
FINANCIAL TABLES
FIRST UNION CORPORATION AND SUBSIDIARIES
.................................
TABLE 23
OFF-BALANCE SHEET DERIVATIVES --
EXPECTED MATURITIES*
<TABLE>
<CAPTION>
DECEMBER 31, 1994 1 YEAR 1-2 2-5 5-10 AFTER 10
(IN THOUSANDS) OR LESS YEARS YEARS YEARS YEARS TOTAL
<S> <C> <C> <C> <C> <C> <C>
ASSET RATE CONVERSIONS
Notional amount $ 1,606,523 3,287,490 3,328,103 -- -- 8,222,116
Weighted average receive rate 5.62% 7.09 5.34 -- -- 6.10
Estimated fair value $ (7,227) (35,412) (277,705) -- -- (320,344)
LIABILITY RATE CONVERSIONS
Notional amount $ 557,500 130,000 250,000 1,075,000 750,000 2,762,500
Weighted average receive rate 7.80% 8.08 6.72 7.73 6.52 7.27
Estimated fair value $ (4,249) (85) (12,192) (19,095) (107,292) (142,913)
ASSET HEDGE
Notional amount $ 1,200,000 -- -- -- -- 1,200,000
Weighted average receive rate --% -- -- -- -- --
Fair value $ 555 -- -- -- -- 555
LIABILITY HEDGES
Notional amount $28,206,000 50,000 -- -- -- 28,256,000
Weighted average receive rate 5.31% -- -- -- -- 5.31
Estimated fair value $ 40,961 175 -- -- -- 41,136
OFFSETTING POSITIONS
Notional amount $ -- 4,800,000 -- -- -- 4,800,000
Weighted average receive rate --% 4.93 -- -- -- 4.93
Estimated fair value $ -- (486) -- -- -- (486)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1993 1 YEAR 1-2 2-5 5-10 AFTER 10
(IN THOUSANDS) OR LESS YEARS YEARS YEARS YEARS
<S> <C> <C> <C> <C> <C>
ASSET RATE CONVERSIONS
Notional amount $ 7,002,246 2,647,719 5,569,575 10,000 --
Weighted average receive rate 5.65% 5.43 5.42 3.50 --
Estimated fair value $ 123,520 25,578 52,996 (1,036) --
LIABILITY RATE CONVERSIONS
Notional amount $ 940,673 550,500 375,000 925,000 450,000
Weighted average receive rate 9.00% 7.80 7.11 6.96 6.10
Estimated fair value $ 18,060 11,154 32,335 93,109 (9,748)
BASIS PROTECTION
Notional amount $ -- -- 6,000,000 -- --
Weighted average receive rate --% -- -- -- --
Estimated fair value $ -- -- 13,814 -- --
LIABILITY HEDGES
Notional amount $23,493,000 -- 50,000 -- --
Weighted average receive rate 4.82% -- -- -- --
Estimated fair value $ 9,594 -- 1 -- --
OFFSETTING POSITIONS
Notional amount $ -- -- 800,000 -- --
Weighted average receive rate --% -- 4.94 -- --
Fair value $ -- -- -- -- --
<CAPTION>
DECEMBER 31, 1993
(IN THOUSANDS) TOTAL
<S> <C>
ASSET RATE CONVERSIONS
Notional amount 15,229,540
Weighted average receive rate 5.52
Estimated fair value 201,058
LIABILITY RATE CONVERSIONS
Notional amount 3,241,173
Weighted average receive rate 7.37
Estimated fair value 144,910
BASIS PROTECTION
Notional amount 6,000,000
Weighted average receive rate --
Estimated fair value 13,814
LIABILITY HEDGES
Notional amount 23,543,000
Weighted average receive rate 4.82
Estimated fair value 9,595
OFFSETTING POSITIONS
Notional amount 800,000
Weighted average receive rate 4.94
Fair value --
</TABLE>
*Includes only off-balance sheet derivative financial instruments related to
interest rate risk management activities.
Pay rates are generally based upon one to six month LIBOR and reset at
predetermined reset dates. Current pay rates are not necessarily indicative of
future pay rates and therefore have been excluded from the above table. Weighted
average pay rates are indicated in Table 22.
50
(FIRST UNION logo) ...
<PAGE>
.................................
TABLE 24
OFF-BALANCE SHEET DERIVATIVES ACTIVITY*
<TABLE>
<CAPTION>
ASSET RATE LIABILITY RATE BASIS ASSET LIABILITY OFFSETTING
(IN THOUSANDS) CONVERSIONS CONVERSIONS PROTECTION HEDGE HEDGES POSITIONS
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 $13,534,883 2,328,807 -- -- 26,884,000 800,000
Additions 7,317,818 1,692,000 6,000,000 -- 26,520,000 --
Maturities/Amortizations (3,306,161) (579,634) -- -- (29,861,000) --
Terminations (2,317,000) (200,000) -- -- -- --
Balance, December 31, 1993 15,229,540 3,241,173 6,000,000 -- 23,543,000 800,000
Additions 2,200,000 455,000 -- 8,700,000 44,907,643 2,000,000
Maturities/Amortizations (7,007,424) (933,673) -- (3,000,000) (34,694,643) --
Offsets -- -- (2,000,000) -- -- 2,000,000
Terminations (2,200,000) -- (4,000,000) (4,500,000) (5,500,000) --
Balance, December 31, 1994 $ 8,222,116 2,762,500 -- 1,200,000 28,256,000 4,800,000
<CAPTION>
(IN THOUSANDS) TOTAL
<S> <C>
Balance, December 31, 1992 43,547,690
Additions 41,529,818
Maturities/Amortizations (33,746,795)
Terminations (2,517,000)
Balance, December 31, 1993 48,813,713
Additions 58,262,643
Maturities/Amortizations (45,635,740)
Offsets --
Terminations (16,200,000)
Balance, December 31, 1994 45,240,616
</TABLE>
*Includes only off-balance sheet derivative financial instruments related to
interest rate risk management activities.
.................................
TABLE 25
INTEREST DIFFERENTIAL
<TABLE>
<S> <C> <C> <C> <C> <C>
1994 COMPARED TO 1993 1993 COMPARED TO 1992
VARIANCE VARIANCE
ATTRIBUTABLE TO** ATTRIBUTABLE TO**
INTEREST INTEREST
INCOME/ INCOME/
EXPENSE EXPENSE
(IN THOUSANDS) VARIANCE RATE VOLUME VARIANCE RATE
EARNING ASSETS
Interest-bearing bank balances $ 18,229 7,195 11,034 (20,617) (1,358)
Federal funds sold and securities purchased
under resale agreements 38,959 9,101 29,858 (26,705) (4,890)
Trading account assets* 19,771 14,163 5,608 14,720 (6,866)
Securities available for sale* 218,031 41,294 176,737 150,770 (71,520)
Investment securities*:
U.S. Government and other (270,052) 38,266 (308,318) (3,873) (57,476)
State, county and municipal 18,231 (3,010) 21,241 (26,851) (3,620)
Total (251,821) 35,256 (287,077) (30,724) (61,096)
Loans* 487,135 61,739 425,396 (14,260) (244,015)
Total earning assets $ 530,304 168,748 361,556 73,184 (389,745)
INTEREST-BEARING LIABILITIES
Deposits 117,990 55,563 62,427 (292,413) (305,807)
Short-term borrowings 113,566 71,007 42,559 89,726 (21,654)
Long-term debt 38,951 27,044 11,907 (27,842) (40,904)
Total interest-bearing liabilities 270,507 153,614 116,893 (230,529) (368,365)
Net interest income $ 259,797 15,134 244,663 303,713 (21,380)
(IN THOUSANDS) VOLUME
EARNING ASSETS
Interest-bearing bank balances (19,259)
Federal funds sold and securities purchased
under resale agreements (21,815)
Trading account assets* 21,586
Securities available for sale* 222,290
Investment securities*:
U.S. Government and other 53,603
State, county and municipal (23,231)
Total 30,372
Loans* 229,755
Total earning assets 462,929
INTEREST-BEARING LIABILITIES
Deposits 13,394
Short-term borrowings 111,380
Long-term debt 13,062
Total interest-bearing liabilities 137,836
Net interest income 325,093
</TABLE>
*Income related to securities and loans exempt from both federal and state
income taxes, federal income taxes only or state income taxes only is stated
on a fully tax-equivalent basis. It is reduced by the nondeductible portion of
interest expense, assuming a federal income tax rate of 35 percent; a North
Carolina state tax rate of 7.8275 percent in 1994 and 7.905 percent in 1993; a
Georgia and Tennessee state tax rate of 6 percent; a South Carolina state tax
rate of 4.5 percent; a Florida state tax rate of 5.5 percent; a Maryland state
tax rate of 7 percent; and a Washington, D.C. tax rate of 10.25 percent,
respectively.
**Changes attributable to rate/volume are allocated to both rate and volume on
an equal basis.
51
... (FIRST UNION logo)
<PAGE>
SIX-YEAR NET INTEREST INCOME SUMMARY
FIRST UNION CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
1994 1993
AVERAGE
INTEREST RATES INTEREST
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/
(IN MILLIONS) BALANCES EXPENSE PAID BALANCES EXPENSE
<S> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing bank balances $ 757 39.5 5.22% $ 521 21.3
Federal funds sold and securities purchased under resale
agreements 1,366 55.7 4.08 537 16.8
Trading account assets (a) 1,022 60.6 5.93 914 40.8
Securities available for sale (a) 10,268 565.5 5.51 6,912 347.5
Investment securities (a)
U.S. Government and other 1,740 125.6 7.22 6,314 395.6
State, county and municipal 1,268 146.0 11.52 1,085 127.8
Total investment securities 3,008 271.6 9.03 7,399 523.4
Loans (a) (b)
Commercial
Commercial, financial and agricultural 13,804 1,123.3 8.14 11,742 926.0
Real estate-construction and other 1,608 129.2 8.03 2,084 124.7
Real estate-mortgage 5,828 463.0 7.94 5,333 399.6
Lease financing 659 62.6 9.51 532 55.2
Foreign 428 22.5 5.25 264 12.9
Total commercial 22,327 1,800.6 8.06 19,955 1,518.4
Retail
Real estate-mortgage 13,810 1,020.0 7.39 10,893 839.5
Installment loans-Bankcard (c) 2,775 391.6 14.11 1,962 300.3
Installment loans-Other 10,143 982.3 9.69 10,821 1,049.1
Total retail 26,728 2,393.9 8.96 23,676 2,188.9
Total loans 49,055 4,194.5 8.55 43,631 3,707.3
Total earning assets 65,476 5,187.4 7.92 59,914 4,657.1
Cash and due from banks 3,046 3,341
Other assets 4,149 4,846
Total assets $ 72,671 $68,101
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits
Savings and NOW accounts 12,452 285.1 2.29 10,567 232.2
Money market accounts 10,576 254.9 2.41 10,321 232.4
Other consumer time 16,968 742.4 4.38 17,594 761.6
Foreign 1,626 75.9 4.67 577 20.9
Other time 1,607 82.9 5.16 1,650 76.1
Total interest-bearing deposits 43,229 1,441.2 3.33 40,709 1,323.2
Federal funds purchased and securities sold under repurchase
agreements 7,271 317.2 4.36 7,215 267.8
Commercial paper 661 28.2 4.26 321 8.4
Other short-term borrowings 1,419 75.5 5.32 799 31.2
Long-term debt 3,214 198.8 6.19 3,007 159.8
Total interest-bearing liabilities 55,794 2,060.9 3.69 52,051 1,790.4
Noninterest-bearing deposits 10,016 9,540
Other liabilities 1,394 1,671
Stockholders' equity 5,467 4,839
Total liabilities and stockholders' equity $ 72,671 $68,101
Interest income and rate earned $5,187.4 7.92% $4,657.1
Interest expense and rate paid 2,060.9 3.15 1,790.4
Net interest income and margin (d) $3,126.5 4.77% $2,866.7
Tax-equivalent adjustment included in
Trading account assets $ 3.4 $ 2.8
Securities available for sale 15.5 26.6
Investment securities 52.8 48.0
Commercial, financial and agricultural loans 18.6 20.9
Lease financing 2.4 2.5
Total $ 92.7 $ 100.8
<CAPTION>
AVERAGE
RATES
EARNED/
(IN MILLIONS) PAID
<S> <C>
ASSETS
Interest-bearing bank balances 4.10%
Federal funds sold and securities purchased under resale
agreements 3.12
Trading account assets (a) 4.47
Securities available for sale (a) 5.03
Investment securities (a)
U.S. Government and other 6.27
State, county and municipal 11.77
Total investment securities 7.07
Loans (a) (b)
Commercial
Commercial, financial and agricultural 7.89
Real estate-construction and other 5.98
Real estate-mortgage 7.49
Lease financing 10.38
Foreign 4.90
Total commercial 7.61
Retail
Real estate-mortgage 7.71
Installment loans-Bankcard (c) 15.31
Installment loans-Other 9.69
Total retail 9.24
Total loans 8.50
Total earning assets 7.77
Cash and due from banks
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits
Savings and NOW accounts 2.20
Money market accounts 2.25
Other consumer time 4.33
Foreign 3.63
Other time 4.61
Total interest-bearing deposits 3.25
Federal funds purchased and securities sold under repurchase
agreements 3.71
Commercial paper 2.60
Other short-term borrowings 3.91
Long-term debt 5.32
Total interest-bearing liabilities 3.44
Noninterest-bearing deposits
Other liabilities
Stockholders' equity
Total liabilities and stockholders' equity
Interest income and rate earned 7.77%
Interest expense and rate paid 2.99
Net interest income and margin (d) 4.78%
Tax-equivalent adjustment included in
Trading account assets
Securities available for sale
Investment securities
Commercial, financial and agricultural loans
Lease financing
Total
</TABLE>
52
(FIRST UNION logo) ...
<PAGE>
<TABLE>
<CAPTION>
1992 1991 1990 1989
AVERAGE AVERAGE AVERAGE
INTEREST RATES INTEREST RATES INTEREST RATES
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/ AVERAGE
BALANCES EXPENSE PAID BALANCES EXPENSE PAID BALANCES EXPENSE PAID BALANCES
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 981 41.9 4.28% $ 758 48.2 6.36% $ 351 29.5 8.41% $ 233
1,177 43.5 3.69 1,048 59.9 5.72 737 62.7 8.50 479
479 26.1 5.46 533 36.3 6.81 529 44.4 8.40 465
3,043 196.7 6.46 -- -- -- -- -- -- --
5,520 399.5 7.24 8,152 701.3 8.60 7,557 673.9 8.92 6,341
1,280 154.6 12.08 1,745 208.4 11.94 1,946 229.1 11.77 2,100
6,800 554.1 8.15 9,897 909.7 9.19 9,503 903.0 9.50 8,441
11,162 883.4 7.91 11,106 1,035.3 9.32 10,421 1,109.1 10.64 8,914
2,560 158.5 6.19 3,146 238.4 7.58 3,222 314.2 9.75 2,444
5,407 435.1 8.05 4,479 423.4 9.45 4,866 519.4 10.67 4,358
793 61.9 7.80 892 91.9 10.30 928 97.9 10.56 927
205 11.1 5.41 179 10.6 5.94 166 10.0 6.05 144
20,127 1,550.0 7.70 19,802 1,799.6 9.09 19,603 2,050.6 10.46 16,787
9,455 838.8 8.87 7,340 714.1 9.73 6,547 663.9 10.14 5,349
-- -- -- -- -- -- -- -- -- --
11,689 1,332.8 11.40 10,171 1,200.1 11.80 9,728 1,212.9 12.47 7,372
21,144 2,171.6 10.27 17,511 1,914.2 10.93 16,275 1,876.8 11.53 12,721
41,271 3,721.6 9.02 37,313 3,713.8 9.95 35,878 3,927.4 10.95 29,508
53,751 4,583.9 8.53 49,549 4,767.9 9.62 46,998 4,967.0 10.57 39,126
2,607 2,175 2,285 2,022
4,788 3,371 2,842 2,076
$ 61,146 $ 55,095 $ 52,125 $ 43,224
8,700 241.8 2.78 6,185 266.2 4.30 5,409 251.2 4.64 4,568
9,570 272.3 2.84 7,767 390.1 5.02 6,909 412.4 5.97 5,330
17,718 924.5 5.22 16,364 1,138.0 6.95 13,939 1,105.2 7.93 11,170
145 13.2 9.13 380 35.8 9.43 386 40.6 10.51 507
3,155 163.9 5.19 3,811 260.5 6.84 4,051 335.9 8.29 3,546
39,288 1,615.7 4.11 34,507 2,090.6 6.06 30,694 2,145.3 6.99 25,121
4,458 177.4 3.98 6,910 409.3 5.92 8,184 645.9 7.89 6,640
338 10.5 3.12 610 36.4 5.97 1,365 109.5 8.02 988
660 29.7 4.51 522 32.7 6.27 634 52.7 8.31 580
2,790 187.7 6.73 2,188 174.0 7.95 1,587 140.9 8.88 1,555
47,534 2,021.0 4.25 44,737 2,743.0 6.13 42,464 3,094.3 7.29 34,884
7,885 5,975 5,516 4,683
1,513 916 901 885
4,214 3,467 3,244 2,772
$ 61,146 $ 55,095 $ 52,125 $ 43,224
$4,583.9 8.53% $4,767.9 9.62% $4,967.0 10.57%
2,021.0 3.76 2,743.0 5.54 3,094.3 6.58
$2,562.9 4.77% $2,024.9 4.08% $1,872.7 3.99%
<CAPTION>
AVERAGE
INTEREST RATES
INCOME/ EARNED/
EXPENSE PAID
<S> <C>
21.3 9.16%
44.2 9.23
41.6 8.94
-- --
565.8 8.92
248.3 11.83
814.1 9.64
1,017.0 11.41
283.5 11.60
498.3 11.43
100.5 10.84
8.9 6.18
1,908.2 11.37
546.4 10.21
-- --
951.5 12.91
1,497.9 11.77
3,406.1 11.54
4,327.3 11.06
214.5 4.70
331.8 6.22
938.3 8.40
37.5 7.38
316.1 8.91
1,838.2 7.32
572.4 8.62
88.2 8.93
51.8 8.93
153.0 9.85
2,703.6 7.75
$4,327.3 11.06%
2,703.6 6.91
$1,623.7 4.15%
</TABLE>
(a) Yields related to securities and loans exempt from both federal and state
income taxes, federal income taxes only or state income taxes only are
stated on a fully tax-equivalent basis. They are reduced by the
nondeductible portion of interest expense, assuming a federal income tax
rate of 35 percent in 1994 and 1993 and 34 percent in 1989 through 1992; a
North Carolina state tax rate of 7.8275 percent in 1994 , 7.905 percent in
1993, 7.9825 percent in 1992, 8.06 percent in 1991 and 7 percent in 1990 and
1989; a Georgia and Tennessee state tax rate of 6 percent; a South Carolina
state tax rate of 4.5 percent; a Florida state tax rate of 5.5 percent in
1991 through 1994 and 3.3 percent in 1990 and 1989; a Maryland state tax
rate of 7 percent in 1994 and 1993; and a Washington, D.C. tax rate of 10.25
percent in 1994 and 1993, respectively. Yields related to securities
available for sale are based on amortized costs.
(b) The loan averages include loans on which the accrual of interest has been
discontinued and are stated net of unearned income.
(c) Information not available prior to 1993.
(d) The net interest margin includes 28 basis points and 45 basis points for the
years ended 1994 and 1993, respectively, related to net interest income from
off-balance sheet derivative financial instruments related to interest rate
risk management activities.
53
... (FIRST UNION logo)
<PAGE>
MANAGEMENT'S STATEMENT OF FINANCIAL RESPONSIBILITY
FIRST UNION CORPORATION AND SUBSIDIARIES
Management of First Union Corporation and its subsidiaries (the Corporation)
is committed to the highest standards in quality customer service and the
enhancement of stockholder value. Management expects the Corporation's employees
to respect its customers and to assign the highest priority to customer needs.
The accompanying consolidated financial statements were prepared in
conformity with generally accepted accounting principles and include, as
necessary, best estimates and judgments by management. Other financial
information contained in this annual report is presented on a basis consistent
with the consolidated financial statements unless otherwise indicated.
To ensure the integrity, objectivity and fairness of data in these
consolidated financial statements, management of the Corporation has established
and maintains an internal control structure that is supplemented by a program of
internal audits. The internal control structure is designed to provide
reasonable assurance that assets are safeguarded and transactions are executed,
recorded and reported in accordance with management's intentions and
authorizations and to comply with applicable laws and regulations. To enhance
the reliability of the internal control structure, management recruits and
trains highly qualified personnel, and maintains sound risk management practices
and efficient operations.
The consolidated financial statements have been audited by KPMG Peat Marwick
LLP, independent auditors, in accordance with generally accepted auditing
standards. KPMG Peat Marwick LLP reviews the results of its audit with both
management and the Audit Committee of the Board of Directors of the Corporation.
The Audit Committee, composed entirely of outside directors, meets periodically
with management, internal auditors and KPMG Peat Marwick LLP to determine that
each is fulfilling its responsibilities and to support actions to identify,
measure and control risks, augment internal controls and enhance operational
efficiency.
Edward E. Crutchfield
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Robert T. Atwood
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
January 12, 1995
INDEPENDENT AUDITORS' REPORT
FIRST UNION CORPORATION AND SUBSIDIARIES
Board of Directors and Stockholders
First Union Corporation
We have audited the consolidated balance sheets of First Union Corporation
and subsidiaries as of December 31, 1994 and 1993, 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, 1994. These consolidated
financial statements are the responsibility of the Corporation'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 First Union
Corporation and subsidiaries at December 31, 1994 and 1993, and the results of
their operations and cash flows for each of the years in the three-year period
ended December 31, 1994, in conformity with generally accepted accounting
principles.
As discussed in Note 3 to the consolidated financial statements, the
Corporation adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities", on January 1, 1994.
KPMG Peat Marwick LLP
Charlotte, North Carolina
January 12, 1995
54
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<PAGE>
CONSOLIDATED BALANCE SHEETS
FIRST UNION CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
DECEMBER
31,
(IN THOUSANDS EXCEPT SHARE DATA) 1994
<S> <C>
ASSETS
Cash and due from banks $ 3,740,691
Interest-bearing bank balances 945,126
Federal funds sold and securities purchased under resale agreements 1,371,025
Total cash and cash equivalents 6,056,842
Trading account assets 1,206,675
Securities available for sale (amortized cost $8,054,592 in 1994; market value $11,884,385 in
1993) 7,752,479
Investment securities (market value $3,742,534 in 1994; $2,931,139 in 1993) 3,729,869
Loans, net of unearned income ($672,330 in 1994; $334,059 in 1993) 54,029,752
Allowance for loan losses (978,795)
Loans, net 53,050,957
Premises and equipment 1,756,297
Due from customers on acceptances 218,849
Mortgage servicing rights 84,898
Credit card premium 58,494
Other intangible assets 1,198,907
Southeast segregated assets 164,568
Other assets 2,034,670
Total assets $77,313,505
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing deposits 10,523,538
Interest-bearing deposits 48,434,735
Total deposits 58,958,273
Short-term borrowings 7,532,343
Bank acceptances outstanding 218,849
Other liabilities 1,778,009
Long-term debt 3,428,514
Total liabilities 71,915,988
Stockholders' equity
Preferred stock
Class A, authorized 40,000,000 shares
Series A, 11% cumulative perpetual; $25.00 stated and liquidation value; none issued --
Series A, $2.50 cumulative convertible, no-par value; $25.00 stated and liquidation value;
none issued --
Series B, none issued --
Series 1990 cumulative perpetual adjustable rate, no-par value; $5.00 liquidation value;
authorized
10,000,000 shares, outstanding 6,318,350 shares in 1993 --
Common stock, $3.33 1/3 par value; authorized 750,000,000 shares, outstanding 176,033,912
shares in 1994;
170,337,619 shares in 1993 586,779
Paid-in capital 1,433,422
Retained earnings 3,591,581
Unrealized loss on debt and equity securities (214,265)
Total stockholders' equity 5,397,517
Total liabilities and stockholders' equity $77,313,505
<CAPTION>
1993
(IN THOUSANDS EXCEPT SHARE DATA)
<S> <C>
ASSETS
Cash and due from banks 3,351,963
Interest-bearing bank balances 712,153
Federal funds sold and securities purchased under resale agreements 351,754
Total cash and cash equivalents 4,415,870
Trading account assets 652,470
Securities available for sale (amortized cost $8,054,592 in 1994; market value $11,884,385 in
1993) 11,744,942
Investment securities (market value $3,742,534 in 1994; $2,931,139 in 1993) 2,692,476
Loans, net of unearned income ($672,330 in 1994; $334,059 in 1993) 46,876,177
Allowance for loan losses (1,020,191)
Loans, net 45,855,986
Premises and equipment 1,524,855
Due from customers on acceptances 246,095
Mortgage servicing rights 87,350
Credit card premium 75,588
Other intangible assets 978,312
Southeast segregated assets 347,202
Other assets 2,165,823
Total assets 70,786,969
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing deposits 10,861,207
Interest-bearing deposits 42,881,204
Total deposits 53,742,411
Short-term borrowings 7,254,178
Bank acceptances outstanding 246,095
Other liabilities 1,274,716
Long-term debt 3,061,944
Total liabilities 65,579,344
Stockholders' equity
Preferred stock
Class A, authorized 40,000,000 shares
Series A, 11% cumulative perpetual; $25.00 stated and liquidation value; none issued --
Series A, $2.50 cumulative convertible, no-par value; $25.00 stated and liquidation value;
none issued --
Series B, none issued --
Series 1990 cumulative perpetual adjustable rate, no-par value; $5.00 liquidation value;
authorized
10,000,000 shares, outstanding 6,318,350 shares in 1993 31,592
Common stock, $3.33 1/3 par value; authorized 750,000,000 shares, outstanding 176,033,912
shares in 1994;
170,337,619 shares in 1993 567,791
Paid-in capital 1,591,275
Retained earnings 3,016,967
Unrealized loss on debt and equity securities --
Total stockholders' equity 5,207,625
Total liabilities and stockholders' equity 70,786,969
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
55
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<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
FIRST UNION CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN THOUSANDS EXCEPT PER SHARE DATA) 1994 1993
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 4,173,338 3,683,945
Interest and dividends on securities available for sale 549,996 320,860
Interest and dividends on investment securities
Taxable income 122,968 391,364
Nontaxable income 95,835 84,043
Trading account interest 57,245 38,029
Other interest income 95,279 38,091
Total interest income 5,094,661 4,556,332
INTEREST EXPENSE
Interest on deposits 1,441,248 1,323,258
Interest on short-term borrowings 420,917 307,352
Interest on long-term debt 198,781 159,829
Total interest expense 2,060,946 1,790,439
Net interest income 3,033,715 2,765,893
Provision for loan losses 100,000 221,753
Net interest income after provision for loan losses 2,933,715 2,544,140
NONINTEREST INCOME
Trading account profits 41,583 43,007
Service charges on deposit accounts 435,212 420,285
Mortgage banking income 73,934 138,608
Capital management income 224,525 201,875
Securities available for sale transactions (11,507) 25,767
Investment security transactions 4,006 7,435
Fees for other banking services 69,252 52,836
Merchant discounts 62,840 55,732
Insurance commissions 45,071 43,876
Sundry income 214,053 208,867
Total noninterest income 1,158,969 1,198,288
NONINTEREST EXPENSE
Personnel expense 1,287,366 1,155,899
Occupancy 238,128 229,118
Equipment rentals, depreciation and maintenance 228,372 189,589
Postage, printing and supplies 103,739 92,842
FDIC insurance 119,708 118,429
Professional fees 66,878 52,251
Owned real estate expense 22,294 40,633
Amortization 144,608 207,087
Sundry 466,135 435,799
Total noninterest expense 2,677,228 2,521,647
Income before income taxes 1,415,456 1,220,781
Income taxes 490,076 403,260
Net income 925,380 817,521
Dividends on preferred stock 25,353 24,900
Net income applicable to common stockholders before redemption premium 900,027 792,621
Redemption premium on preferred stock 41,355 --
Net income applicable to common stockholders after redemption premium $ 858,672 792,621
PER COMMON SHARE DATA
Net income before redemption premium $ 5.22 4.73
Net income after redemption premium 4.98 4.73
Cash dividends $ 1.72 1.50
Average common shares 172,543,467 167,691,739
<CAPTION>
1992
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C>
INTEREST INCOME
Interest and fees on loans 3,690,543
Interest and dividends on securities available for sale 185,488
Interest and dividends on investment securities
Taxable income 391,556
Nontaxable income 102,232
Trading account interest 24,153
Other interest income 85,413
Total interest income 4,479,385
INTEREST EXPENSE
Interest on deposits 1,615,671
Interest on short-term borrowings 217,626
Interest on long-term debt 187,671
Total interest expense 2,020,968
Net interest income 2,458,417
Provision for loan losses 414,708
Net interest income after provision for loan losses 2,043,709
NONINTEREST INCOME
Trading account profits 22,908
Service charges on deposit accounts 386,118
Mortgage banking income 155,800
Capital management income 177,375
Securities available for sale transactions 34,402
Investment security transactions (2,881)
Fees for other banking services 33,845
Merchant discounts 54,703
Insurance commissions 44,047
Sundry income 157,855
Total noninterest income 1,064,172
NONINTEREST EXPENSE
Personnel expense 1,065,302
Occupancy 238,728
Equipment rentals, depreciation and maintenance 167,063
Postage, printing and supplies 76,057
FDIC insurance 107,392
Professional fees 61,810
Owned real estate expense 176,109
Amortization 120,877
Sundry 513,340
Total noninterest expense 2,526,678
Income before income taxes 581,203
Income taxes 196,152
Net income 385,051
Dividends on preferred stock 31,979
Net income applicable to common stockholders before redemption premium 353,072
Redemption premium on preferred stock --
Net income applicable to common stockholders after redemption premium 353,072
PER COMMON SHARE DATA
Net income before redemption premium 2.23
Net income after redemption premium 2.23
Cash dividends 1.28
Average common shares 158,683,206
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
56
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<PAGE>
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY
FIRST UNION CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
UNREALIZED
LOSS ON DEBT
PREFERRED STOCK COMMON STOCK PAID-IN RETAINED AND EQUITY
(IN THOUSANDS EXCEPT PER SHARE DATA) SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS SECURITIES
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1991 10,851 $ 144,908 149,112 $497,038 929,532 2,289,319 --
Net income -- -- -- -- -- 385,051 --
Purchase of Class A Series A preferred
stock (4,000) (100,000) -- -- -- -- --
Purchase of common stock -- -- (206) (686) (7,133) -- --
Common stock issued in public offering -- -- 9,775 32,583 297,462 -- --
Common stock issued for stock options
exercised -- -- 1,442 4,806 32,938 -- --
Common stock issued through dividend
reinvestment plan -- -- 3,779 12,595 128,227 -- --
Converted debentures -- -- 198 660 714 -- --
Pre-merger transactions of pooled banks (5) (134) 749 2,501 14,961 -- --
Cash dividends paid
By First Union Corporation at
11% per Class A Series A preferred
share -- -- -- -- -- (3,086) --
8.73% per Series 1990 preferred
share -- -- -- -- -- (27,564) --
$1.28 per common share -- -- -- -- -- (167,601) --
By acquired banks on
Preferred shares -- -- -- -- -- (1,329) --
Common shares -- -- -- -- -- (6,599) --
Balance at December 31, 1992 6,846 44,774 164,849 549,497 1,396,701 2,468,191 --
Net income -- -- -- -- -- 817,521 --
Purchase of Class A Series A preferred
stock (6) (134) -- -- -- -- --
Purchase of common stock -- -- (88) (294) (3,557) -- --
Common stock issued for stock options
exercised -- -- 1,557 5,189 51,529 -- --
Common stock issued through dividend
reinvestment plan -- -- 3,271 10,904 133,829 -- --
Converted debentures -- -- 27 90 248 -- --
Converted preferred stock (522) (13,047) 673 2,242 10,801 -- --
Pre-merger transactions of pooled banks -- (1) 49 163 1,724 -- --
Cash dividends paid
By First Union Corporation at
$2.50 per Class A Series A preferred
share -- -- -- -- -- (337) --
7.78% per Series 1990 preferred
share -- -- -- -- -- (24,563) --
$1.50 per common share -- -- -- -- -- (243,845) --
Balance at December 31, 1993 6,318 31,592 170,338 567,791 1,591,275 3,016,967 --
Unrealized gain on debt and equity
securities, January 1, 1994 -- -- -- -- -- -- 93,427
Stockholders' equity of pooled banks not
restated prior to 1994 -- -- 4,169 13,897 36,610 13,844 --
Net income -- -- -- -- -- 925,380 --
Redemption of preferred stock (6,318) (31,592) -- -- (252,449) (41,355) --
Purchase of common stock primarily for
purchase accounting acquisitions -- -- (5,034) (16,780) (200,774) -- --
Common stock issued for stock options
exercised -- -- 1,800 6,000 61,958 -- --
Common stock issued through dividend
reinvestment plan -- -- 763 2,544 29,296 -- --
Common stock issued for purchase
accounting acquisition -- -- 3,561 11,870 149,203 -- --
Converted debentures -- -- 437 1,457 18,303 -- --
Cash dividends paid
By First Union Corporation at
8.03% per Series 1990 preferred
share -- -- -- -- -- (25,353) --
$1.72 per common share -- -- -- -- -- (297,902) --
Unrealized loss on debt and equity
securities -- -- -- -- -- -- (307,692)
Balance at December 31, 1994 -- $ -- 176,034 $586,779 1,433,422 3,591,581 (214,265)
<CAPTION>
(IN THOUSANDS EXCEPT PER SHARE DATA) TOTAL
<S> <C>
Balance at December 31, 1991 3,860,797
Net income 385,051
Purchase of Class A Series A preferred
stock (100,000)
Purchase of common stock (7,819)
Common stock issued in public offering 330,045
Common stock issued for stock options
exercised 37,744
Common stock issued through dividend
reinvestment plan 140,822
Converted debentures 1,374
Pre-merger transactions of pooled banks 17,328
Cash dividends paid
By First Union Corporation at
11% per Class A Series A preferred
share (3,086)
8.73% per Series 1990 preferred
share (27,564)
$1.28 per common share (167,601)
By acquired banks on
Preferred shares (1,329)
Common shares (6,599)
Balance at December 31, 1992 4,459,163
Net income 817,521
Purchase of Class A Series A preferred
stock (134)
Purchase of common stock (3,851)
Common stock issued for stock options
exercised 56,718
Common stock issued through dividend
reinvestment plan 144,733
Converted debentures 338
Converted preferred stock (4)
Pre-merger transactions of pooled banks 1,886
Cash dividends paid
By First Union Corporation at
$2.50 per Class A Series A preferred
share (337)
7.78% per Series 1990 preferred
share (24,563)
$1.50 per common share (243,845)
Balance at December 31, 1993 5,207,625
Unrealized gain on debt and equity
securities, January 1, 1994 93,427
Stockholders' equity of pooled banks not
restated prior to 1994 64,351
Net income 925,380
Redemption of preferred stock (325,396)
Purchase of common stock primarily for
purchase accounting acquisitions (217,554)
Common stock issued for stock options
exercised 67,958
Common stock issued through dividend
reinvestment plan 31,840
Common stock issued for purchase
accounting acquisition 161,073
Converted debentures 19,760
Cash dividends paid
By First Union Corporation at
8.03% per Series 1990 preferred
share (25,353)
$1.72 per common share (297,902)
Unrealized loss on debt and equity
securities (307,692)
Balance at December 31, 1994 5,397,517
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
57
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<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FIRST UNION CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN THOUSANDS) 1994 1993
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 925,380 817,521
Adjustments to reconcile net income to net cash provided (used) by operating
activities
Accretion and amortization of securities discounts and premiums, net (19,583) (4,297)
Provision for loan losses 100,000 221,753
Provision for foreclosed properties 4,503 23,730
Gain on sale of mortgage servicing rights -- (973)
Securities available for sale transactions 11,507 (25,767)
Investment security transactions (4,006) (7,435)
Depreciation and amortization 321,420 359,359
Deferred income taxes (benefits) 200,990 78,159
Trading account assets, net (554,205) (483,202)
Mortgage loans held for resale 879,715 (312,090)
Loss on sales of premises and equipment 9,387 7,764
Gain on sale of First American segregated assets (84,260) (48,147)
Other assets, net 604,786 1,044,223
Other liabilities, net 248,520 (921,719)
Net cash provided by operating activities 2,644,154 748,879
INVESTING ACTIVITIES
Increase (decrease) in cash realized from
Sales of securities available for sale 13,255,786 13,043,607
Maturities of securities available for sale 2,796,323 5,637,948
Purchases of securities available for sale (12,466,200) (18,384,416)
Sales and calls of investment securities 39,437 244,473
Maturities of investment securities 485,993 2,414,793
Purchases of investment securities (886,589) (3,060,327)
Origination of loans, net (7,237,982) (563,530)
Sales of loans 250,804 --
Purchases of loans -- --
Sales of premises and equipment 66,635 65,255
Purchases of premises and equipment (432,022) (247,442)
Sales of mortgage servicing rights -- 1,300
Purchases of mortgage servicing rights (7,561) (11,423)
Other intangible assets, net 379,706 19,709
Purchases of banking organizations, net of acquired cash equivalents 1,974,853 22,493
Net cash used by investing activities (1,780,817) (817,560)
FINANCING ACTIVITIES
Increase (decrease) in cash realized from
Purchases (sales) of deposits, net 1,189,487 (1,711,427)
Securities sold under repurchase agreements and other short-term borrowings,
net (5,606) 1,017,826
Issuances of long-term debt 572,287 1,044,657
Payments of long-term debt (212,126) (1,161,031)
Sales of common stock 99,798 203,337
Purchases of preferred stock -- (138)
Redemption of preferred stock (325,396) --
Purchases of common stock (217,554) (3,851)
Cash dividends paid (323,255) (268,745)
Net cash provided (used) by financing activities 777,635 (879,372)
Increase (decrease) in cash and cash equivalents 1,640,972 (948,053)
Cash and cash equivalents, beginning of year 4,415,870 5,363,923
Cash and cash equivalents, end of year $ 6,056,842 4,415,870
CASH PAID FOR
Interest $ 2,026,740 1,775,759
Income taxes 227,379 398,705
NONCASH ITEMS
Increase (decrease) in securities available for sale (400,314) 4,569,363
Increase (decrease) in investment securities 400,314 (4,536,780)
Decrease in other assets -- 32,583
Increase in foreclosed properties and a decrease in loans 29,675 51,885
Conversion of preferred stock to common stock -- 13,044
Increase in other intangible assets and stockholders' equity for converted
debentures 19,760 --
Effect on stockholders' equity of an unrealized loss on debt and equity
securities included in
Securities available for sale 302,113 --
Other assets (deferred income taxes) $ 87,848 --
<CAPTION>
1992
(IN THOUSANDS)
<S> <C>
OPERATING ACTIVITIES
Net income 385,051
Adjustments to reconcile net income to net cash provided (used) by operating
activities
Accretion and amortization of securities discounts and premiums, net 24,618
Provision for loan losses 414,708
Provision for foreclosed properties 111,260
Gain on sale of mortgage servicing rights (10,637)
Securities available for sale transactions (34,402)
Investment security transactions 2,881
Depreciation and amortization 252,271
Deferred income taxes (benefits) (73,953)
Trading account assets, net (60,091)
Mortgage loans held for resale (384,772)
Loss on sales of premises and equipment 22,656
Gain on sale of First American segregated assets --
Other assets, net 383,446
Other liabilities, net 126,968
Net cash provided by operating activities 1,160,004
INVESTING ACTIVITIES
Increase (decrease) in cash realized from
Sales of securities available for sale 5,031,961
Maturities of securities available for sale 2,020,875
Purchases of securities available for sale (5,832,268)
Sales and calls of investment securities 1,523,408
Maturities of investment securities 1,964,588
Purchases of investment securities (7,513,015)
Origination of loans, net 563,419
Sales of loans 1,610,712
Purchases of loans (747,704)
Sales of premises and equipment 29,344
Purchases of premises and equipment (392,952)
Sales of mortgage servicing rights 1,500
Purchases of mortgage servicing rights (25,910)
Other intangible assets, net (4,057)
Purchases of banking organizations, net of acquired cash equivalents 1,404,564
Net cash used by investing activities (365,535)
FINANCING ACTIVITIES
Increase (decrease) in cash realized from
Purchases (sales) of deposits, net (1,670,574)
Securities sold under repurchase agreements and other short-term borrowings,
net 638,347
Issuances of long-term debt 1,036,690
Payments of long-term debt (514,986)
Sales of common stock 525,939
Purchases of preferred stock (100,000)
Redemption of preferred stock --
Purchases of common stock (7,819)
Cash dividends paid (206,179)
Net cash provided (used) by financing activities (298,582)
Increase (decrease) in cash and cash equivalents 495,887
Cash and cash equivalents, beginning of year 4,868,036
Cash and cash equivalents, end of year 5,363,923
CASH PAID FOR
Interest 2,180,662
Income taxes 260,499
NONCASH ITEMS
Increase (decrease) in securities available for sale 4,947,423
Increase (decrease) in investment securities (4,947,423)
Decrease in other assets --
Increase in foreclosed properties and a decrease in loans 186,226
Conversion of preferred stock to common stock --
Increase in other intangible assets and stockholders' equity for converted
debentures --
Effect on stockholders' equity of an unrealized loss on debt and equity
securities included in
Securities available for sale --
Other assets (deferred income taxes) --
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
58
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<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FIRST UNION CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1994, 1993 AND 1992
.................................
NOTE 1:
SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
First Union Corporation (the Parent Company) is a bank holding company whose
principal wholly-owned subsidiaries are national banking associations using the
name First Union National Bank, and First Union Mortgage Corporation, a mortgage
banking firm.
The accounting and reporting policies of First Union Corporation and
subsidiaries (the Corporation) are in accordance with generally accepted
accounting principles and conform to general practices within the banking and
mortgage banking industries. In consolidation, all significant intercompany
accounts and transactions are eliminated.
The Corporation's principal sources of revenues emanate from its domestic
banking, including trust operations, and mortgage banking operations, located
primarily in North and South Carolina, Georgia, Florida, Tennessee, Virginia,
Maryland and Washington, D.C. Its foreign banking operations are immaterial.
Certain amounts for 1993 and 1992 were reclassified to conform with
statement presentation for 1994. These reclassifications have no effect on
stockholders' equity or net income as previously reported.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and due from banks, interest-bearing
balances in other banks and federal funds sold and securities purchased under
resale agreements. Generally, both cash and cash equivalents are considered to
have maturities of three months or less, and accordingly, the carrying amount of
such instruments is deemed to be a reasonable estimate of fair value.
SECURITIES
The classification of securities is determined at the date of purchase.
Gains or losses on the sale of securities are recognized on a specific
identification, trade date basis.
Trading account assets, primarily debt securities, and interest rate
futures, options, caps and floors and forward contracts, are adjusted to market
value. Included in noninterest income are realized and unrealized gains and
losses resulting from such adjustments and from recording the effects of sales
of trading account securities on a trade date basis.
Securities available for sale, primarily debt securities, are recorded at
market value with a corresponding adjustment net of tax recorded as a component
of stockholders' equity. In 1993, securities available for sale were recorded at
the lower of aggregate cost or market value. Securities available for sale will
be used as a part of the Corporation's interest rate risk management strategy
and may be sold in response to changes in interest rates, changes in prepayment
risk, and other factors.
Investment securities, primarily debt securities, are stated at cost, net of
the amortization of premium and the accretion of discount. The Corporation
intends and has the ability to hold such securities until maturity.
The market value of securities, including securities sold not owned, is
generally based on quoted market prices or dealer quotes. If a quoted market
price is not available, market value is estimated using quoted market prices for
similar securities.
As more fully described in Note 3 to the consolidated financial statements,
the Corporation has adopted the method of accounting for debt and equity
securities set forth in Statement of Financial Accounting Standard No. 115.
INTEREST RATE SWAPS, FLOORS AND CAPS
The Corporation uses interest rate swaps, floors and caps for interest rate
risk management, in connection with providing risk management services to
customers and for trading for its own account.
Interest rate swaps, floors and caps used to achieve interest rate risk
management objectives are designated as hedges of specific assets and
liabilities. The net interest payable or receivable on swaps, caps, and floors
is accrued and recognized as an adjustment to interest income or interest
expense of the related asset or liability. Premiums paid for purchased caps and
floors are amortized over the term of the floors and caps as a yield adjustment
of the related asset or liability. Floors and caps are written only to adjust
the amount or term of purchased floors and caps to more effectively reduce
interest rate risk, and a net written position is not created. Premiums received
on floors and caps offset the premium paid on the caps and floors they adjust.
Upon the early termination of swaps, floors and caps, the net proceeds received
or paid, including premiums, are deferred and included in other assets or
liabilities and amortized over the shorter of the remaining contract life or the
maturity of the related asset or liability. Upon disposition or settlement of
the asset or liability being hedged, deferral accounting is discontinued and any
related premium or market value is recognized in earnings.
Interest rate swaps, floors and caps entered into for trading purposes and
sold to customers are accounted for on a mark-to-market basis with both realized
and unrealized gains and losses recognized as trading profits. The fair value of
these financial instruments represent the amount the Corporation would receive
or pay to terminate the contracts or agreements and is determined using a
valuation model which considers current market yields and other relevant
variables.
INTEREST RATE FUTURES, FORWARD AND OPTION CONTRACTS
The Corporation uses interest rate futures, forward and option contracts,
other than caps and floors, for interest rate risk management and in connection
with hedging interest rate products sold to customers.
Interest rate futures and option contracts are used to hedge interest rate
risk arising from specific assets and liabilities. Gains and losses on interest
rate futures are deferred and included in the carrying value of the related
assets or liabilities and amortized over the estimated lives of those assets and
liabilities as a yield adjustment. Premiums paid for option contracts are
included in other assets and are amortized over the option term as a yield
adjustment of the related asset or liability. Upon the early termination of
futures contracts, the deferred amounts are amortized over the remaining
maturity of the related asset or liability. Upon disposition or settlement of
the asset or liability being hedged, deferral accounting is discontinued and any
related premium or market value is recognized in earnings.
Interest rate futures, forward and option contracts used to hedge risk
management products sold to customers are marked to market and both the realized
and unrealized gains and losses recognized as trading profits. The market value
of these financial instruments is based on dealer or exchange quotes.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FIRST UNION CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1994, 1993 AND 1992
LOANS
Commercial, financial and agricultural loans include industrial revenue
bonds, highly leveraged transaction loans and certain other loans that are made
primarily on the strength of the borrower's general credit standing and ability
to generate repayment cash flows from income sources even though such bonds and
loans may be secured by real estate or other assets.
Commercial real estate construction and mortgage loans represent interim and
permanent financing of commercial properties that are secured by real estate.
Retail real estate mortgage loans represent 1-4 family first mortgage loans.
Retail installment loans represent all other consumer loans, including home
equity and second mortgage loans.
Mortgage notes held for sale are valued at the lower of cost or market as
determined by outstanding commitments from investors or current investor yield
requirements calculated on the aggregate loan basis. Gains or losses resulting
from sales of mortgage notes are recognized when the proceeds are received from
investors.
In many lending transactions, collateral is taken to provide an additional
measure of security. Generally, the cash flow or earning power of the borrower
represents the primary source of repayment and collateral liquidation a
secondary source of repayment. The Corporation determines the need for
collateral on a case-by-case or product-by-product basis. Factors considered
include the current and prospective creditworthiness of the customer, terms of
the instrument and economic conditions.
Unearned income is generally transferred to interest income using the
constant yield or an accelerated method. Interest income on all other loans is
recorded on an accrual basis.
The accrual of interest is generally discontinued on all loans, except
consumer loans, that become 90 days past due as to principal or interest unless
collection of both principal and interest is assured by way of
collateralization, guarantees or other security. Generally, loans past due 180
days or more are placed on nonaccrual status regardless of security. Consumer
loans and card products that become approximately 120 days and 180 days past
due, respectively, are generally charged to the allowance for loan losses. When
borrowers demonstrate over an extended period the ability to repay a loan in
accordance with the contractual terms of a loan the Corporation has classified
as nonaccrual, such loan is returned to accrual status.
Fair values are estimated for loans with similar financial characteristics.
These loans are segregated by type of loan, considering credit risk and
prepayment characteristics. Each loan category is further segmented into fixed
and adjustable rate categories.
The fair values of performing loans for all portfolios, except residential
mortgage, are calculated by discounting estimated cash flows through expected
maturity dates. These cash flows are discounted using estimated market yields
that reflect the credit and interest rate risks inherent in each category of
loans. Such market yields also reflect a component for the estimated cost of
servicing the portfolio. A prepayment assumption is used as an estimate of the
number of loans which will be repaid prior to their scheduled maturity.
For performing residential mortgage loans, fair values are estimated by
segmenting the loan portfolio into homogeneous pools based on loan types, coupon
rates, maturities, prepayment assumptions and credit risk, and comparing the
values of the individual pools to mortgage-backed securities with similar
characteristics.
Fair values of nonperforming loans greater than $1,000,000 are calculated by
estimating the timing and amount of cash flows. These cash flows are discounted
using estimated market yields commensurate with the risk associated with
estimating such cash flows. Estimates of cash flows are made using knowledge of
the borrower and available market data. It is not considered practicable to
calculate a fair value for nonperforming loans less than $1,000,000.
Accordingly, they are included in fair value disclosures at net cost.
The fair value of commitments to extend credit is estimated using the fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. Generally, for fixed rate loan commitments, fair value also
considers the difference between current levels of interest rates and the
committed rates. The fair value of commitments and letters of credit is based on
fees currently charged for similar agreements or on the estimated cost to
terminate them or otherwise settle the obligations with the counterparties.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is the amount that is considered adequate to
provide for potential losses in the portfolio. Management's evaluation of the
adequacy of the allowance is based on a review of individual loans, recent loss
experience, current economic conditions, the risk characteristics of the various
classifications of loans, the fair value of underlying collateral and other
factors.
Management believes that the allowances for losses on loans and real estate
owned are adequate. While management uses available information to recognize
losses on loans and real estate owned, future additions to the allowances may be
necessary based on changes in economic conditions.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Corporation's bank subsidiaries'
allowances for losses on loans and real estate owned. Such agencies may require
such subsidiaries to recognize changes to the allowances based on their
judgments about information available to them at the time of their examination.
PREMISES AND EQUIPMENT
Premises and equipment are carried at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed on a straight-line
basis for financial purposes and on straight-line and accelerated bases for tax
purposes, using estimated lives generally as follows: buildings, 10 to 50 years;
furniture and equipment, 3 to 10 years; and leasehold improvements and
capitalized leases, over the lives of the respective leases.
60
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INTANGIBLE ASSETS
Generally, goodwill is being amortized on a straight-line basis over a
25-year period. The Corporation's unamortized goodwill is periodically reviewed
to ensure that conditions are not present that indicate the recorded amount of
goodwill is not recoverable from future undiscounted cash flows. The review
process includes an evaluation of the earnings history of each subsidiary, its
contribution to the Corporation, capital levels and other factors. If events or
changes in circumstances indicate further evaluation is warranted, the
undiscounted net cash flows of the operations to which goodwill relates are
estimated. If the estimated undiscounted net cash flows are less than the
carrying amount of goodwill, a loss is recognized to reduce goodwill's carrying
value to the amount recoverable, and when appropriate the amortization period
also is reduced. Unamortized goodwill associated with disposed assets is charged
to current earnings. Credit card premiums are being amortized principally over a
6.3-year period using the sum-of-the-years' digits method. Deposit base premiums
are generally amortized principally over a 10-year period using accelerated
methods. Annually, the fair value of the unamortized balance of such premiums is
determined on a discounted cash flow basis, and if such value is less than such
balance, the difference is charged to noninterest expense.
FORECLOSED PROPERTIES
Foreclosed properties are included in other assets and represent other real
estate that has been acquired through loan or in-substance foreclosures or deeds
received in lieu of loan payments. Generally such properties are appraised
annually and are recorded at the lower of cost or fair value less estimated
selling costs. When appropriate, adjustments to cost are charged or credited to
the allowance for foreclosed properties.
MORTGAGE LOAN ADMINISTRATION AND ORIGINATION
Mortgage servicing fees are recorded on an accrual basis. Acquisition costs
of mortgage servicing contracts purchased are amortized over 10 years for loans
with maturities of over 15 years and 7 years for loans with maturities of 15
years or less, or the remaining life of the related mortgages, whichever is
shorter, in proportion to estimated net servicing income. Quarterly, an
appropriate carrying value of the unamortized balance of such acquisition costs
is determined by the Corporation, based principally on an aggregated discounted
method. Additionally, quarterly, based principally on an aggregated discounted
method, an appropriate carrying value of the unamortized deferred excess
servicing fee balance is determined by the Corporation. If such values are less
than such balances, the differences are included as a reduction of mortgage
banking income.
Placement fees for services rendered in arranging permanent financing for
income property loans are earned when the permanent commitment issued by the
lender is approved and accepted by the borrower.
Loan origination, commitment and certain other fees and certain direct loan
origination costs are being deferred and the net amount is being amortized as an
adjustment of the related loan's yield, generally over the contractual life of
the related loans, or if the related loan is held for resale, until the loan is
sold.
Mortgage-backed securities guaranteed by the Government National Mortgage
Association under the provisions of the National Housing Act have been issued.
In keeping with the economic substance of these transactions, the issuance of
the mortgage-backed security and the simultaneous placement of the related
mortgage pool in trust have been accounted for as a sale of the mortgages. The
issued mortgage-backed securities and the related mortgage pools are not
considered to be assets and liabilities of the Corporation.
PENSION AND SAVINGS PLANS
Substantially all employees with one year of service are eligible for
participation in a non-contributory, defined benefit pension plan and a matching
savings plan. Pension cost is determined annually by an actuarial valuation,
which includes service costs for the current year and amortization of amounts
related to prior years. The Corporation's funding policy is to contribute to the
pension plan the amount required to fund the benefits expected to be earned for
the current year and to amortize amounts related to prior years using the
projected unit credit valuation method. The difference between the pension cost
included in current income and the funded amount is included in other assets or
other liabilities, as appropriate. Actuarial assumptions are evaluated annually.
The matching savings plan permits eligible employees to make basic
contributions to the plan of up to 6 percent of base compensation, and
supplemental contributions of up to 9 percent of base compensation. Annually,
upon approval of the Board of Directors, employee basic contributions may be
matched up to 6 percent of the employee's base compensation.
INCOME TAXES
The operating results of the Parent Company and its eligible subsidiaries
are included in a consolidated federal income tax return. Each subsidiary pays
its allocation of federal income taxes to the Parent Company, or receives
payment from the Parent Company to the extent that tax benefits are realized.
Where state income tax laws do not permit consolidated income tax returns,
applicable state income tax returns are filed. As more fully described in Note
15 to the consolidated financial statements, the Corporation has adopted the
method of accounting for income taxes set forth in Statement of Financial
Accounting Standard No. 109.
INCOME PER COMMON SHARE
Income per common share is determined by dividing net income applicable to
common stockholders by the weighted average number of shares of common stock
outstanding.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FIRST UNION CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1994, 1993 AND 1992
.................................
NOTE 2:
ACQUISITIONS
During 1994, various banking subsidiaries of the Parent Company acquired in
the aggregate $4,595,762,000 in assets, $1,238,703,000 in net loans, and
$4,026,375,000 in deposits. These transactions included (i) the pooling of
interests mergers of (a) American Bancshares, Inc. (ABI), (b) Lieber & Company
(Lieber), an investment management firm that is adviser to the Evergreen Funds
with $3,392,000,000 in mutual fund assets, and (c) Home Federal Savings Bank
(Home Federal), which in the aggregate added $477,647,000 in assets,
$381,436,000 in net loans, $372,052,000 in deposits, $64,351,000 in
stockholders' equity and involved the issuance of 4,169,000 shares of the Parent
Company's common stock; (ii) the purchase accounting acquisition of BancFlorida
Financial Corporation (BFL) on August 1, 1994, which added $1,637,046,000 in
assets, $843,592,000 in net loans and $1,180,548,000 in deposits and involved
the issuance of 3,561,000 shares of the Parent Company's common stock at a cost
of $161,071,000; (iii) the purchase of certain loans and deposits from Chase
Manhattan Bank of Florida, N.A. and Great Western Federal Savings Bank in the
aggregate amounts of $13,209,000 and $1,833,831,000, respectively, at a combined
cost of $136,521,000; and (iv) the purchase of deposits of Jacksonville Federal
Savings Association, Citizens Federal Savings Association, Cobb Federal Savings
Association and Hollywood Federal Savings Bank in the aggregate amount of
$639,943,000 from the Resolution Trust Corporation at a combined cost of
$68,186,000.
The Corporation's consolidated financial statements were not restated for
prior periods to reflect the 1994 pooling of interests mergers. The Parent
Company paid $174,684,000 for the purchase in the open market of 4,000,000
shares of its common stock related to the BancFlorida Financial Corporation
acquisition. The 1994 purchase transactions indicated above resulted in an
increase in goodwill of $90,708,000, which will be amortized on a straight-line
basis over 25 years, and deposit base premium of $250,365,000, which will be
amortized on an accelerated basis over 10 years.
On January 15, 1993, the acquisitions of South Carolina Federal Corporation
(SCF) and DFSoutheastern, Inc. (Decatur) were consummated, and on March 1, 1993,
the acquisition of Dominion Bankshares Corporation (Dominion) was consummated.
The following describes each of these acquisitions.
The Parent Company entered into an Agreement and Plan of Merger on June 10,
1992, providing for the pooling of interests acquisition of SCF, a South
Carolina-based savings and loan holding company, and the exchange of .76 shares
of Parent Company common stock for each share of SCF common stock. At December
31, 1992, and for the year then ended, SCF had assets of $823,056,000, net loans
of $675,355,000, deposits of $618,801,000, stockholders' equity of $41,632,000,
a net loss of $10,375,000, and had outstanding 2,808,000 shares of common stock.
The Parent Company entered into an Agreement and Plan of Merger on June 28,
1992, providing for the pooling of interests acquisition of Decatur, a
Georgia-based savings and loan holding company, and the exchange of .82 shares
of Parent Company common stock for each share of Decatur common stock. At
December 31, 1992, and for the year then ended, Decatur had assets of
$2,659,742,000, net loans of $2,017,452,000, deposits of $1,944,542,000,
stockholders' equity of $116,226,000, a net loss of $10,932,000 and had
outstanding 4,769,000 shares of common stock.
The Parent Company entered into an Agreement and Plan of Merger on September
20, 1992, providing for the pooling of interests acquisition of Dominion, a
Virginia-based bank holding company, and the exchange of .58 shares of Parent
Company common stock for each share of Dominion common stock and one share of a
new series of Series A $2.50 Cumulative Convertible Class A Preferred Stock,
stated and liquidation value of $25.00 (the Convertible Preferred) for each
share of Dominion convertible preferred stock. Dividends on the Convertible
Preferred were paid quarterly at the annual rate of $2.50. The Convertible
Preferred was redeemed by the Parent Company on June 18, 1993, at the redemption
price of $25.00. Substantially all of the Convertible Preferred was converted
into 2.2222 times .58 shares of Parent Company common stock. At December 31,
1992, and for the year then ended, Dominion had assets of $8,810,605,000, net
loans of $5,864,223,000, deposits of $7,198,092,000, stockholders' equity of
$472,662,000, a net loss applicable to common stockholders of $104,594,000 and
had outstanding 527,000 shares of preferred stock and 39,228,000 shares of
common stock.
On June 12, 1993, Georgia Federal Bank, FSB, (GFB), a Georgia-based savings
bank was purchased by the Parent Company for $153,870,000 in cash, after the
payment of $115,000,000 in dividends from GFB to its parent company. Immediately
prior to the acquisition, GFB had assets of $3,700,635,000, net loans of
$2,064,157,000, deposits of $2,518,458,000, stockholders' equity of $182,139,000
and a net loss of $6,169,000. As a result of the GFB acquisition deposit base
premium was increased by $51,481,000 and is being amortized over a 10-year
period using the sum-of-the years' digits method.
On June 23, 1993, First American Metro Corp. (FAMC), a Virginia-based bank
holding company, was purchased by the Parent Company for $452,420,000 in cash.
Immediately prior to the acquisition, FAMC had assets of $4,403,955,000, net
loans of $2,604,610,000, deposits of $3,758,581,000, stockholders' equity of
$364,701,000 and a net loss of $4,281,000. As a result of the FAMC acquisition,
goodwill, deposit base premium and credit card premium were increased by
$109,398,000, $79,241,000 and $23,000,000, respectively. These amounts are being
amortized on a straight-line basis over 25 years, and over 10- and 6.3- year
periods, respectively, using the sum-of-the-years' digits method.
Included in noninterest sundry expense in 1992 are restructuring charges of
$162,105,000 related to the SCF, Decatur and Dominion acquisitions.
The information below indicates on a pro forma basis, amounts as if ABI,
Lieber, Home Federal, BFL, GFB and FAMC had been acquired as of January 1, 1994
and 1993, and historical amounts as reported by the Corporation.
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<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN THOUSANDS EXCEPT PER SHARE DATA) 1994 1993
<S> <C> <C>
(UNAUDITED)
Interest income $5,150,707 4,940,131
Interest expense 2,095,618 2,009,071
Net interest income 3,055,089 2,931,060
Provision for loan losses 100,000 246,126
Net interest income after provision for
loan losses 2,955,089 2,684,934
Securities available for sale
transactions (12,460) 37,009
Investment security transactions 4,006 18,732
Noninterest income 1,173,160 1,251,562
Noninterest expense 2,707,713 2,768,876
Income before income taxes 1,412,082 1,223,361
Income taxes 489,397 405,672
Net income 922,685 817,689
Dividends on preferred stock 25,353 26,198
Net income available to common
stockholders before redemption
premium 897,332 791,491
Redemption premium on preferred stock 41,355 --
Net income applicable to common
stockholders after redemption premium $ 855,977 791,491
Net income per common share before
redemption premium $ 5.14 4.61
Net income per common share after
redemption premium $ 4.90 4.61
CORPORATION AS REPORTED
Net interest income $3,033,715 2,765,893
Net income 925,380 817,521
Net income applicable to common
stockholders before redemption
premium 900,027 792,621
Net income applicable to common
stockholders after redemption premium 858,672 792,621
Net income per common share before
redemption premium 5.22 4.73
Net income per common share after
redemption premium $ 4.98 4.73
</TABLE>
The following assumptions were applied in arriving at the above pro forma
results; cost of funds of 3.68 percent and 3.12 percent for 1994 and 1993,
respectively; applying a straight-line depreciation method over useful lives
ranging from 10 to 25 years; goodwill amortized over 25 years using the
straight-line method; credit card relationships amortized over a 6.3-year period
and other intangibles amortized over a 10-year period using the sum-of-the-
years' digits method; and various other assets amortized over seven-to-ten years
using both the straight-line and sum-of-the-years' digits methods.
On October 3, 1994, First Union National Bank of Florida agreed to acquire
First Florida Savings Bank of Miami, Florida, which had assets of $101,766,000
at December 31, 1994, for approximately $9,500,000 in cash.
On October 11, 1994, the Parent Company agreed to acquire Ameribanc
Investors Group of Annandale, Virginia, which had assets of $1,064,793,000 at
December 31, 1994, for approximately $108,350,000 in cash.
On December 5, 1994, the Parent Company agreed to acquire American Savings
Bank of Florida FSB of Miami, Florida, which had assets of $3,570,459,000 at
December 31, 1994. The Parent Company agreed to issue approximately 6,000,000
shares of Parent Company common stock, subject to adjustment under certain
conditions. From the third quarter of 1994 through February 14, 1995, the Parent
Company paid $161,480,000 for the purchase in the open market of 3,800,000 of
the common shares expected to be issued in the acquisition. This acquisition is
expected to be accounted for as a purchase.
On January 3, 1995, First Union National Bank of Florida agreed to acquire
Coral Gables Fedcorp, Inc. of Coral Gables, Florida, which had assets of
$2,487,625,000 at December 31, 1994, for approximately $485,343,000 in cash.
The Parent Company currently expects consummation of the four pending
acquisitions in the first half of 1995, all subject to regulatory approvals and
other conditions of closing.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FIRST UNION CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1994, 1993 AND 1992
.................................
NOTE 3:
SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
DECEMBER 31, 1994 1 YEAR 1-5 5-10 AFTER 10 GROSS UNREALIZED AMORTIZED
(IN THOUSANDS) OR LESS YEARS YEARS YEARS TOTAL GAINS LOSSES COST
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MARKET VALUE
U.S. Treasury $1,156,159 1,035,790 -- -- 2,191,949 -- 81,975 2,273,924
U.S. Government
agencies 153,675 469,468 2,031,111 546 2,654,800 (404) 171,580 2,825,976
Collateralized
mortgage
obligations 90,066 1,091,930 58,524 -- 1,240,520 (49) 44,627 1,285,098
Other 84,757 1,282,076 20,299 278,078 1,665,210 (51,633) 56,017 1,669,594
Total $1,484,657 3,879,264 2,109,934 278,624 7,752,479 (52,086) 354,199 8,054,592
MARKET VALUE
Debt securities $1,484,657 3,879,264 2,109,934 24,069 7,497,924 (3,243) 346,011 7,840,692
Sundry securities -- -- -- 254,555 254,555 (48,843) 8,188 213,900
Total $1,484,657 3,879,264 2,109,934 278,624 7,752,479 (52,086) 354,199 8,054,592
AMORTIZED COST
Debt securities $1,486,608 4,061,240 2,264,716 28,128 7,840,692
Sundry securities -- -- -- 213,900 213,900
Total $1,486,608 4,061,240 2,264,716 242,028 8,054,592
</TABLE>
<TABLE>
<CAPTION>
AFTER
DECEMBER 31, 1993 1 YEAR 1-5 5-10 10 GROSS UNREALIZED
(IN THOUSANDS) OR LESS YEARS YEARS YEARS TOTAL GAINS LOSSES
<S> <C> <C> <C> <C> <C> <C> <C>
CARRYING VALUE
U.S. Treasury $3,177,119 1,249,298 -- -- 4,426,417 3,609 (7,315)
U.S. Government agencies 114,531 1,646,429 1,494,136 555 3,255,651 43,814 (270)
Collateralized mortgage
obligations 1,006,973 1,226,569 -- -- 2,233,542 13,389 (8,825)
Other 438,585 1,121,571 35,474 233,702 1,829,332 95,296 (255)
Total $4,737,208 5,243,867 1,529,610 234,257 11,744,942 156,108 (16,665)
CARRYING VALUE
Debt securities $4,737,208 5,243,867 1,529,610 860 11,511,545 119,624 (16,445)
Sundry securities -- -- -- 233,397 233,397 36,484 (220)
Total $4,737,208 5,243,867 1,529,610 234,257 11,744,942 156,108 (16,665)
MARKET VALUE
Debt securities $4,742,741 5,328,847 1,542,264 872 11,614,724
Sundry securities -- -- -- 269,661 269,661
Total $4,742,741 5,328,847 1,542,264 270,533 11,884,385
<CAPTION>
DECEMBER 31, 1993 MARKET
(IN THOUSANDS) VALUE
<S> <C>
CARRYING VALUE
U.S. Treasury 4,422,711
U.S. Government agencies 3,299,195
Collateralized mortgage
obligations 2,238,106
Other 1,924,373
Total 11,884,385
CARRYING VALUE
Debt securities 11,614,724
Sundry securities 269,661
Total 11,884,385
MARKET VALUE
Debt securities
Sundry securities
Total
</TABLE>
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Securities available for sale with an aggregate amortized cost of
$5,616,733,000 at December 31, 1994, are pledged to secure U.S. Government and
other public deposits and for other purposes as required by various statutes or
agreements.
Expected maturities differ from contractual maturities since borrowers may
have the right to call or prepay obligations with or without call or prepayment
penalties. Generally, the aging of mortgage-backed securities included in U.S.
Government agencies and collateralized mortgage obligations is based on their
weighted average maturities at December 31, 1994 and 1993.
At December 31, 1994 and 1993, collateralized mortgage obligations
had a weighted average yield based on amortized cost of 5.21 percent and 5.09
percent, respectively.
Included in Other at December 31, 1994, are $1,290,963,000 of securities
available for sale that are denominated in currencies other than the U.S.
dollar. The currency exchange rates were hedged utilizing both on and
off-balance sheet instruments to minimize the exposure to currency revaluation
risks. At December 31, 1994, these securities had a weighted average maturity of
2.62 years and a weighted average yield of 6.81 percent. The weighted average
U.S. equivalent yield for comparative purposes of these securities was 5.87
percent based on a weighted average funding cost differential of (.94) percent.
There were commitments to purchase securities at a cost of $5,551,000 that
had a market value of $5,547,000 at December 31, 1994. There were no commitments
to sell securities.
Securities available for sale at December 31, 1993, do not include
commitments to purchase $267,813,000 of additional securities that at December
31, 1993, had a market value of $267,969,000.
Securities available for sale at December 31, 1993, include the carrying
value of $513,390,000 of securities which have been sold for future settlement.
Related gains and losses are accounted for on a trade date basis.
Gross gains and losses realized on the sale of debt securities during 1994
were $27,017,000 and $43,813,000, respectively, and on sundry securities
$5,998,000 and $709,000, respectively.
Gross gains and losses realized on the sale of debt securities during 1993
were $28,818,000 and $9,553,000, respectively, and on sundry securities
$6,570,000 and $68,000, respectively.
Gross gains and losses realized on the sale of debt securities during 1992
were $42,014,000 and $7,419,000, respectively, and on sundry securities $230,000
and $423,000, respectively.
The Financial Accounting Standards Board has issued Standard No. 115,
"Accounting for Certain Investments in Debt and Equity Securities", that
requires that debt and equity securities held: (i) TO MATURITY be classified as
such and reported at amortized cost; (ii) FOR CURRENT RESALE be classified as
trading securities and reported at fair value, with unrealized gains and losses
included in current earnings; and (iii) FOR ANY OTHER PURPOSE be classified as
securities available for sale and reported at fair value, with unrealized gains
and losses excluded from current earnings and reported as a separate component
of stockholders' equity. It is required for fiscal years beginning after
December 15, 1993, and it was adopted by the Corporation on January 1, 1994. The
effect of the foregoing will cause fluctuations in stockholders' equity based on
changes in values of debt and equity securities. At December 31, 1994,
stockholders' equity decreased by an after-tax amount of $214,265,000 based on
depreciation in the securities available for sale portfolio of $302,113,000 and
on a transfer of securities from securities available for sale to investment
securities with an unrealized loss of $28,374,000. If this Standard had been
adopted at December 31, 1993, stockholders' equity would have been increased by
an after-tax amount of $93,427,000 based on appreciation in the securities
available for sale portfolio of $139,443,000. Securities available for sale at
December 31, 1993, include an increase of $4,569,363,000 related to the
reclassification of securities from the investment securities portfolio and
other assets.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FIRST UNION CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1994, 1993 AND 1992
.................................
NOTE 4:
INVESTMENT SECURITIES
<TABLE>
<CAPTION>
AFTER
DECEMBER 31, 1994 1 YEAR 1-5 5-10 10 GROSS UNREALIZED
(IN THOUSANDS) OR LESS YEARS YEARS YEARS TOTAL GAINS LOSSES
<S> <C> <C> <C> <C> <C> <C> <C>
CARRYING VALUE
U.S. Government
agencies $ -- 100,853 1,201,803 14,474 1,317,130 5,528 (39,881)
Collateralized
mortgage
obligations -- 910,733 92,516 -- 1,003,249 -- (26,786)
State, county and
municipal 369,189 267,835 151,533 437,523 1,226,080 78,676 (4,698)
Other -- 2,036 6,178 175,196 183,410 3,022 (3,196)
Total $369,189 1,281,457 1,452,030 627,193 3,729,869 87,226 (74,561)
CARRYING VALUE
Debt securities $369,189 1,281,457 1,452,030 517,532 3,620,208 87,226 (74,561)
Sundry securities -- -- -- 109,661 109,661 -- --
Total $369,189 1,281,457 1,452,030 627,193 3,729,869 87,226 (74,561)
MARKET VALUE
Debt securities $376,983 1,269,819 1,423,936 562,135 3,632,873
Sundry securities -- -- -- 109,661 109,661
Total $376,983 1,269,819 1,423,936 671,796 3,742,534
<CAPTION>
DECEMBER 31, 1994 MARKET
(IN THOUSANDS) VALUE
<S> <C>
CARRYING VALUE
U.S. Government
agencies 1,282,777
Collateralized
mortgage
obligations 976,463
State, county and
municipal 1,300,058
Other 183,236
Total 3,742,534
CARRYING VALUE
Debt securities 3,632,873
Sundry securities 109,661
Total 3,742,534
MARKET VALUE
Debt securities
Sundry securities
Total
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
AFTER
DECEMBER 31, 1993 1 YEAR 1-5 5-10 10 GROSS UNREALIZED
(IN THOUSANDS) OR LESS YEARS YEARS YEARS TOTAL GAINS LOSSES
<S> <C> <C> <C> <C> <C> <C> <C>
CARRYING VALUE
U.S. Treasury $ 550 -- -- -- 550 -- (1)
U.S. Government
agencies 311,750 814,667 30,232 -- 1,156,649 44,054 (1,222)
State, county and
municipal 80,863 508,477 242,072 511,523 1,342,935 183,230 (756)
Other -- -- 6,200 186,142 192,342 13,358 --
Total $393,163 1,323,144 278,504 697,665 2,692,476 240,642 (1,979)
CARRYING VALUE
Debt securities $393,163 1,323,144 278,504 511,530 2,506,341 227,730 (1,979)
Sundry securities -- -- -- 186,135 186,135 12,912 --
Total $393,163 1,323,144 278,504 697,665 2,692,476 240,642 (1,979)
MARKET VALUE
Debt securities $401,304 1,399,666 311,652 619,470 2,732,092
Sundry securities -- -- -- 199,047 199,047
Total $401,304 1,399,666 311,652 818,517 2,931,139
<CAPTION>
DECEMBER 31, 1993 MARKET
(IN THOUSANDS) VALUE
<S> <C>
CARRYING VALUE
U.S. Treasury 549
U.S. Government
agencies 1,199,481
State, county and
municipal 1,525,409
Other 205,700
Total 2,931,139
CARRYING VALUE
Debt securities 2,732,092
Sundry securities 199,047
Total 2,931,139
MARKET VALUE
Debt securities
Sundry securities
Total
</TABLE>
Investment securities with an aggregate carrying value of $2,756,622,000 at
December 31, 1994, are pledged to secure U.S. Government and other public
deposits and for other purposes as required by various statutes or agreements.
Expected maturities differ from contractual maturities since borrowers may
have the right to call or prepay obligations with or without call or prepayment
penalties. Generally, the aging of mortgage-backed securities included in U.S.
Government agencies and collateralized mortgage obligations is based on their
weighted average maturities at December 31, 1994 and 1993.
At December 31, 1994, collateralized mortgage obligations had a weighted
average yield of 6.52 percent.
There were no commitments to purchase or sell securities at December 31,
1994 and 1993.
Gross gains and losses realized on the sale of debt securities during 1994
were $1,440,000 and $44,000, respectively, and on sundry securities gross gains
realized were $2,610,000.
Gross gains and losses realized on the sale or call of debt securities
during 1993 were $2,722,000 and $318,000, respectively, and on sundry securities
$5,115,000 and $84,000, respectively.
Gross gains and losses realized on the sale of debt securities during 1992
were $19,035,000 and $19,100,000, respectively, and on sundry securities
$615,000 and $3,431,000, respectively.
See Note 3 for information related to new accounting rules for debt and
equity securities.
67
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<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FIRST UNION CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1994, 1993 AND 1992
.................................
NOTE 5:
LOANS
<TABLE>
<CAPTION>
(IN THOUSANDS) 1994
<S> <C>
COMMERCIAL
Commercial, financial and agricultural $15,907,743
Real estate-construction and other 1,734,095
Real estate-mortgage 5,437,496
Lease financing 1,613,763
Foreign 415,857
Total commercial 25,108,954
RETAIL
Real estate-mortgage 15,014,775
Installment loans-Bankcard 3,959,657
Installment loans-other 10,618,696
Total retail 29,593,128
Total $54,702,082
<CAPTION>
(IN THOUSANDS) 1993
<S> <C>
COMMERCIAL
Commercial, financial and agricultural 13,233,725
Real estate-construction and other 1,664,694
Real estate-mortgage 5,834,894
Lease financing 962,599
Foreign 304,267
Total commercial 22,000,179
RETAIL
Real estate-mortgage 13,318,058
Installment loans-Bankcard 1,995,568
Installment loans-other 9,896,431
Total retail 25,210,057
Total 47,210,236
</TABLE>
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<PAGE>
The carrying amounts and fair values of loans with similar financial
characteristics at December 31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
DECEMBER
31, 1994
WEIGHTED AVERAGE ESTIMATED
CARRYING AVERAGE MATURITY DISCOUNT
(IN THOUSANDS) AMOUNT COUPON (YRS) (1) RATE (2)
<S> <C> <C> <C> <C>
COMMERCIAL
Adjustable $13,549,920 8.14% 3.37 7.45%
Fixed 2,317,695 8.13 4.15 9.76
Allocated allowance for loan losses (223,352) -- -- --
REAL ESTATE
Residential
Adjustable 7,136,569 7.07 -- --
Fixed 7,844,849 8.13 -- --
Allocated allowance for loan losses (45,337) -- -- --
Commercial-mortgage
Adjustable 4,057,056 8.72 4.56 7.95
Fixed 1,370,808 8.66 4.72 10.06
Allocated allowance for loan losses (129,924) -- -- --
Commercial-construction and other
Adjustable 1,565,669 8.97 3.08 7.70
Fixed 160,800 7.51 4.75 9.24
Allocated allowance for loan losses (58,069) -- -- --
OTHER 1,502,981 -- -- --
Allocated allowance for loan losses (5,962) -- -- --
DIRECT AND INDIRECT INSTALLMENT LOANS
Adjustable 3,698,456 9.84 5.68 10.19
Fixed 6,865,309 9.58 6.81 10.42
Revolving loans to individuals 3,959,640 13.72 -- 12.12
Allocated allowance for loan losses (239,916) -- -- --
Unallocated allowance for loans losses (276,235) --% -- --%
Total $53,050,957
<CAPTION>
CALCULATED
(IN THOUSANDS) FAIR VALUE
<S> <C>
COMMERCIAL
Adjustable $13,669,907
Fixed 2,235,459
Allocated allowance for loan losses --
REAL ESTATE
Residential
Adjustable 6,857,806
Fixed 7,646,469
Allocated allowance for loan losses --
Commercial-mortgage
Adjustable 4,105,826
Fixed 1,333,578
Allocated allowance for loan losses --
Commercial-construction and other
Adjustable 1,597,853
Fixed 157,977
Allocated allowance for loan losses --
OTHER 1,502,726
Allocated allowance for loan losses --
DIRECT AND INDIRECT INSTALLMENT LOANS
Adjustable 3,683,500
Fixed 6,659,394
Revolving loans to individuals 4,064,859
Allocated allowance for loan losses --
Unallocated allowance for loans losses --
Total $53,515,354
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1993
WEIGHTED AVERAGE ESTIMATED
CARRYING AVERAGE MATURITY DISCOUNT
(IN THOUSANDS) AMOUNT COUPON (YRS) (1) RATE (2)
<S> <C> <C> <C> <C>
COMMERCIAL
Adjustable $11,385,498 5.89% 2.35 4.87%
Fixed 1,815,023 7.71 4.20 6.57
Allocated allowance for loan losses (187,896) -- -- --
REAL ESTATE
Residential
Adjustable 6,714,057 6.78 -- --
Fixed 6,566,124 8.38 -- --
Allocated allowance for loan losses (58,445) -- -- --
Commercial-mortgage
Adjustable 4,200,490 6.89 4.11 5.62
Fixed 1,627,390 8.39 4.32 7.18
Allocated allowance for loan losses (141,521) -- -- --
Commercial-construction and other
Adjustable 1,494,439 6.59 2.17 5.54
Fixed 168,196 7.91 3.39 7.12
Allocated allowance for loan losses (73,442) -- -- --
OTHER 1,062,638 -- -- --
Allocated allowance for loan losses (1,981) -- -- --
DIRECT AND INDIRECT INSTALLMENT LOANS
Adjustable 3,319,811 8.08 6.97 7.70
Fixed 6,047,796 9.51 6.56 8.57
Revolving loans to individuals 2,474,715 13.81 -- 10.54
Allocated allowance for loan losses (225,418) -- -- --
Unallocated allowance for loans losses (331,488) --% -- --%
Total $45,855,986
<CAPTION>
CALCULATED
(IN THOUSANDS) FAIR VALUE
<S> <C>
COMMERCIAL
Adjustable $11,476,977
Fixed 1,872,778
Allocated allowance for loan losses --
REAL ESTATE
Residential
Adjustable 6,839,247
Fixed 6,713,341
Allocated allowance for loan losses --
Commercial-mortgage
Adjustable 4,314,654
Fixed 1,659,192
Allocated allowance for loan losses --
Commercial-construction and other
Adjustable 1,488,161
Fixed 176,825
Allocated allowance for loan losses --
OTHER 1,061,084
Allocated allowance for loan losses --
DIRECT AND INDIRECT INSTALLMENT LOANS
Adjustable 3,329,282
Fixed 6,134,807
Revolving loans to individuals 2,578,423
Allocated allowance for loan losses --
Unallocated allowance for loans losses --
Total $47,644,771
</TABLE>
(1) Average maturity represents in terms of years the expected average cash flow
period, which in some instances is different than the stated maturity.
(2) Management has made estimates of fair value discount rates that it believes
to be reasonable. However, because there is no readily available market for
many of these financial instruments, management has no basis to determine
whether the fair value presented above would be indicative of the value
negotiated in an actual sale.
69
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<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FIRST UNION CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1994, 1993 AND 1992
The fair value estimate for credit card loans is based on the value of
existing loans at December 31, 1994 and 1993. This estimate does not include the
value that relates to estimated cash flows from new loans generated from
existing cardholders over the remaining life of the portfolio, but is disclosed
as unaudited supplemental information in Note 18.
Directors and executive officers of the Parent Company and their related
interests were indebted to the Corporation in the aggregate amounts of
$278,351,000 and $301,636,000 at December 31, 1994 and 1993, respectively. From
January 1 through December 31, 1994, directors and executive officers of the
Parent Company and their related interests borrowed $255,914,000 and repaid
$279,199,000. In the opinion of management, these loans do not involve more than
the normal risk of collectibility, nor do they present other unfavorable
features.
At December 31, 1994 and 1993, nonaccrual and restructured loans amounted to
$399,510,000 and $693,886,000, respectively. Interest related to nonaccrual and
restructured loans for the years ended December 31, 1994, 1993 and 1992 amounted
to $47,626,000, $78,463,000 and $71,370,000, respectively. Interest collected on
such loans and included in the results of operations for each of the years in
the three-year period then ended amounted to $6,254,000, $24,281,000 and
$14,481,000, respectively.
Included in loans at December 31, 1994, are $1,736,632,000 of acquired
Southeast Banks loans which, under the terms of the Assistance Agreement, are
subject to FDIC assistance if such loans become nonaccrual before September 20,
1996. Such nonaccrual loans are reclassified to Southeast segregated assets as
more fully described in Note 8.
At December 31, 1994, the Corporation was closely monitoring 12 loans
amounting to $30,051,000 in which borrowers were experiencing increased levels
of financial stress. None of these loans were included in nonperforming assets
at year-end 1994 or in accruing loans past due 90 days.
The Financial Accounting Standards Board (FASB) has issued Standard No. 114,
"Accounting by Creditors for Impairment of a Loan" which requires that all
creditors value all specifically reviewed loans for which it is probable that
the creditor will be unable to collect all amounts due according to the terms of
the loan agreement at either the present value of expected cash flows, market
price or value of collateral. This discounting would be done at the loan's
effective interest rate. The Corporation estimates the initial adoption of this
Standard in 1995 will not require an increase to the existing allowance for loan
losses. This Standard is required for fiscal years beginning after December 15,
1994.
The FASB also has issued Standard No. 118, "Accounting by Creditors for
Impairment of a Loan -- Income Recognition and Disclosures", that amends FASB
Standard No. 114 to allow a creditor to use existing methods for recognizing
interest income on an impaired loan and by requiring additional disclosures
about how a creditor recognizes interest income related to impaired loans. This
Standard is to be implemented concurrently with Standard No. 114.
The Corporation will prospectively adopt both these Standards, and it is
expected that the periodic effect on net income upon adoption of these Standards
will not be material.
.................................
NOTE 6:
ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN THOUSANDS) 1994 1993 1992
<S> <C> <C> <C>
Balance, beginning of
year $1,020,191 940,804 851,830
Provision for loan
losses 100,000 221,753 414,708
Transfer to allowance
for segregated asset
losses -- -- (20,000)
Allowance of acquired
loans and credit
cards 21,520 109,321 50,141
1,141,711 1,271,878 1,296,679
Less
Loan losses 254,927 329,560 406,551
Less loan recoveries 92,011 77,873 50,676
Loan losses, net 162,916 251,687 355,875
Balance, end of year $ 978,795 1,020,191 940,804
</TABLE>
.................................
NOTE 7:
PREMISES AND EQUIPMENT
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN THOUSANDS) 1994 1993 1992
<S> <C> <C> <C>
Land $ 336,566 328,250 286,283
Buildings 1,071,738 985,010 865,177
Equipment 1,258,024 1,083,530 879,609
Capitalized leases 12,577 12,441 12,806
2,678,905 2,409,231 2,043,875
Less accumulated
depreciation and
amortization 922,608 884,376 709,370
Total $1,756,297 1,524,855 1,334,505
Net premises and
equipment pledged as
security for
mortgage notes $ 69,621 83,761 59,546
Depreciation and
amortization $ 176,812 152,273 129,945
</TABLE>
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.................................
NOTE 8:
SOUTHEAST SEGREGATED ASSETS
On September 19, 1991, Southeast Bank, National Association, and Southeast
Bank of West Florida (together, the Southeast Banks), the bank subsidiaries of
Southeast Banking Corporation (Southeast), were closed by their primary banking
regulators and the Federal Deposit Insurance Corporation (the FDIC) was
appointed Receiver of the respective banks (the Bank Closing).
Immediately following the Bank Closing, First Union National Bank of Florida
(First Union Florida), a subsidiary of the Parent Company, purchased from the
FDIC as Receiver $9,874,424,000 in assets and assumed $8,979,909,000 in deposits
and certain other liabilities of the Southeast Banks (the Southeast Acquisition)
pursuant to Assistance Agreements (together, the Assistance Agreement) between
First Union Florida and the FDIC.
First Union Florida paid $81,000,000 to the FDIC as a net premium for the
Southeast Acquisition. As a result of the Southeast Acquisition, deposit base
premium, credit card premium and other intangibles were increased by
$18,739,000, $28,677,000 and $7,668,000, respectively. These amounts are being
amortized over 10-, 6.3- and 15.1-year periods, respectively, using the
sum-of-the-years' digits method.
Segregated assets are those Southeast Banks loans acquired by First Union
Florida as of Bank Closing that were or have become nonaccrual or a foreclosed
property. All such loans are subject to the loss-sharing and funding provisions
of the Assistance Agreement.
Southeast segregated assets at December 31, 1994, were $164,568,000. This
amount included gross segregated assets of $186,405,000 and an allowance for
segregated assets of $21,837,000. From December 31, 1993, the allowance for
segregated assets of $33,313,000 was decreased by a transfer to the allowance
for foreclosed properties of $1,722,000 and by net charge-offs of $9,754,000.
Southeast segregated assets at December 31, 1993, were $347,202,000. This
amount included gross segregated assets of $380,515,000 and an allowance for
segregated assets of $33,313,000. From December 31, 1992, the allowance for
segregated assets of $45,362,000 was increased by a transfer from the allowance
for foreclosed properties of $1,998,000 and decreased by net charge-offs of
$14,047,000.
Under the loss-sharing provisions of the Assistance Agreement, the FDIC will
pay to First Union Florida with respect to assets acquired from the Southeast
Banks, on a quarterly basis, 85 percent of all net charge-offs on acquired
commercial loans and 85 percent of charge-offs on acquired consumer loans other
than consumer revolving credit loans, during the five-year period commencing
with Bank Closing. For consumer revolving credit loans (composed principally of
credit card receivables and revolving home equity loans), the FDIC will
reimburse First Union Florida for 85 percent of all charge-offs in the first
year following Bank Closing, 80 percent in the second year, 75 percent in the
third year, 70 percent in the fourth year and 65 percent in the fifth year. Such
charge-offs include losses on sales of assets and foreclosed properties and
accrued interest for up to 180 days. In addition, the FDIC will reimburse First
Union Florida for 85 percent of the aggregate amount of the actual direct
expenses that were charged against First Union Florida's income with respect to
foreclosed properties derived from loans on the books of the Southeast Banks as
of Bank Closing.
During the sixth and seventh years following Bank Closing, First Union
Florida will pay to the FDIC an amount equal to 85 percent of the gross amount
of recoveries during such period on charge-offs of such commercial loans that
occurred prior to the expiration of the first five years following Bank Closing.
During the seven-year period following Bank Closing, First Union Florida
will pay to the FDIC an amount equal to the sum of (i) 65 percent of any
recoveries on charge-offs of such consumer loans, other than such residential
mortgage loans, and (ii) 85 percent of any recoveries on charge-offs of such
residential mortgage loans, in each case with respect to charge-offs that
occurred prior to the expiration of the first five years after Bank Closing.
First Union Florida will generally be required to administer assets entitled
to loss-sharing protection in the same manner as assets held by First Union
Florida as to which no loss sharing exists.
.................................
NOTE 9:
FORECLOSED PROPERTIES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN THOUSANDS) 1994 1993 1992
<S> <C> <C> <C>
Foreclosed properties $193,290 278,694 478,887
Allowance for foreclosed
properties, beginning of
year 56,191 103,328 30,952
Provision for foreclosed
properties 4,503 23,730 111,260
Transfer from (to)
allowance for segregated
assets 1,722 (1,998) --
Dispositions, net (27,590) (68,869) (38,884)
Allowance for foreclosed
properties, end of year 34,826 56,191 103,328
Foreclosed properties, net $158,464 222,503 375,559
</TABLE>
71
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<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FIRST UNION CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1994, 1993 AND 1992
.................................
NOTE 10:
SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
AND OTHER SHORT-TERM BORROWINGS
The following is a schedule of securities sold under repurchase agreements,
which includes accrued interest, and other short-term borrowings of the
Corporation at December 31, 1994, 1993 and 1992, and the related maximum amount
outstanding at the end of any month during the periods:
<TABLE>
<CAPTION>
MAXIMUM OUTSTANDING
(IN THOUSANDS) 1994 1993 1992 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Securities sold under repurchase
agreements $5,458,661 5,102,045 3,425,325 7,613,617 6,740,066 4,627,891
OTHER SHORT-TERM BORROWINGS
Federal funds purchased $ 293,732 695,627 573,376 2,487,862 2,890,658 1,645,557
Interest-bearing demand
deposits issued to the U.S.
Treasury 377,526 843,069 632,557 723,891 875,642 908,841
Commercial paper 391,216 270,666 297,951 1,102,557 421,079 360,825
Other 1,011,208 342,771 136,128 1,703,899 451,317 319,337
Total $2,073,682 2,152,133 1,640,012
</TABLE>
At December 31, 1994, 1993 and 1992, the weighted average interest rates for
commercial paper were 5.41 percent, 2.70 percent and 2.62 percent, respectively.
Weighted average maturities for commercial paper issued at December 31, 1994,
1993 and 1992, approximated 4, 5 and 4 days, respectively. At December 31, 1994,
1993 and 1992, the combined weighted average interest rates related to federal
funds purchased and securities sold under repurchase agreements were 6.32
percent, 3.17 percent and 3.17 percent, respectively. Maturities related to
federal funds purchased and securities sold under repurchase agreements in each
of the years in the three-year period then ended were not greater than 269 days.
Included in "Other" are Federal Home Loan Bank borrowings of $497,247,000
and securities sold short of $445,361,000 at December 31, 1994.
Substantially all short-term borrowings are due within 90 days, and
accordingly, the carrying amount of such borrowings is deemed to be a reasonable
estimate of fair value.
72
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<PAGE>
.................................
NOTE 11:
LONG-TERM DEBT
<TABLE>
<CAPTION>
1994 1993
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
(IN THOUSANDS) AMOUNT VALUE AMOUNT VALUE
<S> <C> <C> <C> <C>
DEBENTURES AND NOTES ISSUED BY THE PARENT COMPANY
7 1/2 percent debentures, due in annual installments of not less
than $1,000 through December 1, 2002, net of debentures held
of $11,381 in 1994 $ 15,619 14,551 15,619 15,716
Floating rate extendible notes, due June 15, 2005 100,000 100,000 100,000 100,000
11 percent notes, due May 1, 1996 18,360 19,099 18,360 21,355
Floating rate notes, due November 13, 1996 150,000 150,000 150,000 150,000
5.95 percent notes, due July 1, 1995 149,921 149,010 149,762 154,050
6 3/4 percent notes, due January 15, 1998 248,511 239,175 248,021 261,750
Fixed rate medium-term senior notes with varying rates and terms
to 1996 32,700 32,741 72,200 75,120
Fixed rate medium-term subordinated notes with varying rates and
terms to 2001 54,000 56,925 54,000 61,760
Floating rate subordinated notes, due July 22, 2003 149,101 149,101 149,003 149,003
11 percent and variable rate subordinated notes, due in 1996 17,951 18,585 17,954 20,939
8 1/8 percent subordinated notes, due December 15, 1996 100,000 99,700 100,000 107,910
9.45 percent subordinated notes, due June 15, 1999 250,000 259,369 250,000 290,700
9.45 percent subordinated notes, due August 15, 2001 147,535 155,865 147,164 181,500
8 1/8 percent subordinated notes, due June 24, 2002 248,475 242,425 248,271 278,000
8 percent subordinated notes, due November 15, 2002 223,037 216,833 222,788 248,175
7 1/4 percent subordinated notes, due February 15, 2003 148,733 137,595 148,671 157,965
6 5/8 percent subordinated notes, due July 15, 2005 247,999 215,075 247,807 249,725
6 percent subordinated notes, due October 30, 2008 197,028 155,700 197,115 185,400
6 3/8 percent subordinated notes, due January 15, 2009 147,495 120,150 -- --
8 percent subordinated notes, due August 15, 2009 148,559 139,335 -- --
8.77 percent subordinated notes, due November 15, 2004 148,430 148,890 -- --
DEBENTURES AND NOTES OF SUBSIDIARIES
9 7/8 percent subordinated capital notes, due May 15, 1999 74,404 78,608 74,267 87,709
9 5/8 percent subordinated capital notes, due June 15, 1999 74,945 77,970 74,931 88,231
10 1/2 percent collateralized mortgage obligations, due in 2014 60,010 61,510 72,115 75,000
Debentures and notes with varying rates and terms to 2002 7,275 6,726 7,400 7,847
3,160,088 3,044,938 2,765,448 2,967,855
OTHER DEBT
Notes payable to the FDIC, net of discount of $2,935 in 1994 and
$14,659 in 1993, due September 19, 1996 117,271 117,271 260,846 260,846
Advances from the Federal Home Loan Bank 4,696 3,728 4,453 4,578
Mortgage notes and other debt of subsidiaries with varying rates
and terms 141,153 142,909 25,575 28,874
Capitalized lease obligations calculated at rates generally
ranging from 7.5 percent to 15.2 percent 5,306 5,183 5,622 4,594
268,426 269,091 296,496 298,892
Total $3,428,514 3,314,029 3,061,944 3,266,747
</TABLE>
73
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<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FIRST UNION CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1994, 1993 AND 1992
The fair value of long-term debt is estimated based on the quoted market
prices for the same or similar issues or on the current rates offered to the
Corporation for debt of the same remaining maturities.
The 7 1/2 percent debentures are redeemable at the option of the Parent
Company.
The floating rate (6.5625 percent to March 15, 1995) extendible notes are
redeemable in whole or in part at the option of the Parent Company.
The 11 percent notes may not be redeemed by the Parent Company prior to
maturity.
The floating rate (6 1/8 percent to February 27, 1995) notes are redeemable
in whole or in part at the option of the Parent Company.
The 5.95 percent notes (par value $150,000,000) and 6 3/4 percent notes (par
value $250,000,000) may not be redeemed prior to maturity.
The fixed rate medium-term senior and subordinated notes are issued
periodically. Interest rates, maturities, redemption and other terms are
determined at the date of issuance. At December 31, 1994, the Parent Company had
issued medium-term senior and subordinated notes with fixed rates of interest
ranging from 6.15 percent to 9.43 percent and from 9.49 percent to 9.93 percent,
respectively. Medium-term senior notes of $39,500,000 matured in 1994. The notes
are redeemable at the option of the Parent Company. In February 1995,
$700,000,000 of senior or subordinated debt securities remained available for
issuance under a shelf registration statement filed with the Securities and
Exchange Commission.
The floating rate (5.6875 percent to January 23, 1995) subordinated notes
(par value $150,000,000) may not be redeemed prior to maturity.
In 1996, $17,093,000 of the 11 percent subordinated notes and $858,000 of
the variable rate (5.94 percent to March 31, 1995) subordinated notes are due,
respectively.
The 8 1/8 percent subordinated notes due December 15, 1996, may not be
redeemed by the Parent Company prior to maturity.
The 9.45 percent subordinated notes (combined par value $400,000,000), the
8 1/8 percent subordinated notes (par value $250,000,000) due June 24, 2002, the
8 percent subordinated notes (par value $225,000,000), the 7 1/4 percent
subordinated notes (par value $150,000,000), the 6 5/8 percent subordinated
notes (par value $250,000,000), the 6 percent subordinated notes (par value
$200,000,000) and the 6 3/8 percent subordinated notes (par value $150,000,000)
may not be redeemed prior to maturity.
The 8 percent subordinated notes (par value $150,000,000) due August 15,
2009, are redeemable in whole and not in part at the option of the Parent
Company on August 15, 2004.
The 8.77 percent subordinated notes (par value $150,000,000) are redeemable
in whole or in part at the option of Parent Company on November 15, 1999.
The 9 7/8 percent subordinated capital notes that were issued by an acquired
bank holding company may not be redeemed prior to maturity except upon the
occurrence of certain events.
The 9 5/8 percent subordinated capital notes may not be redeemed prior to
maturity, except upon the occurrence of certain events.
The 10 1/2 percent collateralized mortgage obligations were issued by a
wholly-owned subsidiary of an acquired savings bank. The obligations consist of
Class A-4 bonds collateralized by mortgage participation certificates (FHLMC
Certificates) issued by the Federal Home Loan Mortgage Corporation. Maturity of
the bonds depends on the rate of payments made on the FHLMC Certificates. The
bonds are redeemable upon the occurrence of certain events.
Notes payable to the FDIC result from funding assistance for Southeast Banks
segregated assets which is provided by the FDIC's acceptance of five-year
revolving notes issued by First Union Florida. The annual rate of interest on
the notes is 1/8th of 1 percent. In accordance with the funding assistance
provisions of the Assistance Agreement, these notes at December 31, 1994,
amounted to $120,206,000, less a discount of $2,935,000 based on an imputed
interest rate of 8 3/4 percent, or a net amount of $117,271,000. At December 31,
1993, these notes amounted to $275,505,000, less a discount of $14,659,000 based
on an imputed interest rate of 8 3/4 percent, or a net amount of $260,846,000.
The discount amount will be accreted into interest expense under the interest
method to September 19, 1996.
The principal amount of the notes will reflect, and the FDIC will make a
payment to First Union Florida in the amount of, the book value of (i) any loan
on the books of the Southeast Banks as of the Bank Closing that is placed on
nonaccrual status by First Union Florida during the five years following the
Bank Closing; and (ii) foreclosed properties not on the books of the Southeast
Banks as of the Bank Closing but that derives from a loan on the books of the
Southeast Banks as of such date. In lieu of such notes, within 179 days from the
Bank Closing, First Union Florida elected to receive a fee with respect to
nonaccrual loans and foreclosed properties that become such after such 179-day
period, in an amount equal to the three-month U.S. Treasury bill rate times the
average balance of such loans and foreclosed properties, less any payments on
such nonaccrual loans that are recorded as a payment of interest on the books of
First Union Florida.
In the event that any nonaccrual loan is sold, charged off or removed from
nonaccrual status, First Union Florida will make a payment of principal on the
notes in an amount equal to (i) the then current book value of such loan, in the
case of a sale, (ii) the gross amount of any charge-offs, or (iii) the then
current book value of such loan in the event it is removed from nonaccrual
status.
On the fifth anniversary of the Bank Closing, First Union Florida will pay
the FDIC the outstanding principal amount of the notes, if any, together with
any accrued and unpaid interest as of such date.
The Corporation's acquired savings banks had aggregate advances from the
Federal Home Loan Bank of $4,696,000 at December 31, 1994, with interest rates
ranging from 2 percent to 7 percent and maturity dates to July 19, 2016. At
December 31, 1992, the Corporation included in net income a loss of $6,351,000
(net of income tax benefit of $3,272,000) relating to the early extinguishment
of advances from the Federal Home Loan Bank. The loss includes an accrual of
early extinguishment penalties incurred in January 1993 relating to the
prepayment of certain Federal Home Loan Bank advances outstanding at December
31, 1992.
Mortgage notes and other debt of subsidiaries include floating rate global
bank notes of $100,000,000, due in 1996, with an interest rate of 6.0175 percent
to February 18, 1995. The weighted average rate paid for long-term debt in 1994,
1993 and 1992 was 6.19 percent, 5.32 percent and 6.73 percent, respectively.
Interest rate swap agreements entered at the time of issuance of certain
long-term debt reduced related interest expense.
Long-term debt maturing in each of the five years subsequent to December 31,
1994 is as follows: 1995, $199,876,000; 1996, $522,570,000; 1997, $15,128,000;
1998, $281,998,000; and 1999, $412,918,000.
74
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.................................
NOTE 12:
PREFERRED STOCK
The Corporation is authorized to issue up to 40,000,000 shares of Class A
Preferred Stock, no-par value, and 10,000,000 shares of Preferred Stock, no-par
value, each in one or more series.
The Series 1990 Preferred Stock was issued in connection with the
acquisition of Florida National Banks of Florida, Inc. by the Corporation in
January 1990. The Series 1990 Preferred Stock has a liquidation preference of
$5.00 per share, plus accrued and unpaid dividends. The Series 1990 Preferred
Stock is redeemable at the Corporation's option, at $51.50 per share on any
dividend payment date after January 29, 1995, and after January 29, 2000, at
$50.00 per share, in each case plus accrued and unpaid dividends. The Series
1990 Preferred Stock is not convertible.
On December 20, 1994, the Corporation elected to redeem all of the
outstanding shares of its Series 1990 Preferred Stock. The redemption will occur
on March 31, 1995, at the redemption price of $51.50 per share. A redemption
premium of $41,355,000, representing the difference between a $44.96 per share
book value and the $51.50 redemption price was deducted from net income
applicable to common stockholders in 1994. At December 31, 1994, $325,396,000
was placed in trust with an affiliated bank.
The Series 1990 Preferred Stock pays cumulative quarterly dividends,
calculated on the basis of a price of $50.00 per share which are reset quarterly
at a rate of one percent per annum above the highest of (i) a three-month U.S.
Treasury bill rate, (ii) a U.S. Treasury 10-year constant maturity rate, or
(iii) a U.S. Treasury 30-year constant maturity rate. In no event will such rate
be less than 6.75 percent per annum or more than 13.75 percent per annum. The
final dividend payable will be paid on March 31, 1995, to stockholders of record
on March 15, 1995.
On June 18, 1993, the Corporation redeemed all of the outstanding shares of
Series A, $2.50 Cumulative Convertible Preferred Stock at the redemption price
of $25.00 per share (plus accrued and unpaid dividends), substantially all of
which were converted into 522,000 shares of common stock.
The Class A Series A Preferred Stock was issued to the FDIC in connection
with the Southeast Acquisition. The Class A Series A Preferred Stock was
redeemable at the option of the Corporation at any time prior to September 26,
1992, at a redemption price of $25.00 per share, plus accrued and unpaid
dividends. On November 21, 1991, the Corporation redeemed 2,000,000 shares of
the 6,000,000 shares originally issued, at the redemption price of $25.00 per
share, or $50,000,000, plus accrued and unpaid dividends. On April 10, 1992, the
Corporation redeemed the remaining 4,000,000 shares at the redemption price of
$25.00 per share, or $100,000,000, plus accrued and unpaid dividends.
.................................
NOTE 13:
COMMON STOCK
<TABLE>
<CAPTION>
OPTION PRICES BALANCE, FORFEITURES BALANCE,
OR MARKET BEGINNING GRANTS OR NEW EXERCISES AND OTHER END OF
VALUES OF 1994 SHARES OR PURCHASES REDUCTIONS 1994
<S> <C> <C> <C> <C> <C> <C>
1969 PLAN
Options granted $11.59 48 -- -- -- 48
Available 52,976 -- -- -- 52,976
1984 MASTER STOCK PLAN
Options granted $20.25-$28.13 412,379 -- (81,012) -- 331,367
Available 507,669 -- -- -- 507,669
1988 MASTER STOCK PLAN
Options granted $14.75-$35.88 1,278,665 -- (96,222) (360) 1,182,083
Restricted stock granted $14.75-$22.88 428,045 -- (181,244) (6,297) 240,504
Available 1,112,148 -- -- 360 1,112,508
1992 MASTER STOCK PLAN
Options granted $44.88-$46.13 603,985 703,235 -- (10,560) 1,296,660
Restricted stock granted $44.88-$46.13 404,325 453,950 (87,473) (12,700) 758,102
Available 3,973,330 (1,157,185) -- 10,560 2,826,705
1992 EMPLOYEE PLAN $33.04 989,936 -- (803,578) (186,358) --
1994 EMPLOYEE PLAN $38.36 -- 2,936,240 (355,215) (72,230) 2,508,795
DIVIDEND REINVESTMENT PLAN -- 5,591,571 -- (762,258) -- 4,829,313
OPTION PLANS OF ACQUIRED
COMPANIES $5.98-$41.97 256,832 26,040 (50,961) (1) 231,910
<CAPTION>
EXERCISABLE
<S> <C>
1969 PLAN
Options granted 48
Available --
1984 MASTER STOCK PLAN
Options granted 331,367
Available --
1988 MASTER STOCK PLAN
Options granted 1,182,083
Restricted stock granted --
Available --
1992 MASTER STOCK PLAN
Options granted 597,025
Restricted stock granted --
Available --
1992 EMPLOYEE PLAN --
1994 EMPLOYEE PLAN 2,508,795
DIVIDEND REINVESTMENT PLAN --
OPTION PLANS OF ACQUIRED
COMPANIES 231,910
</TABLE>
Under the terms of the 1969 Plan and the 1984, 1988 and 1992 Master Stock
Plans, stock options may be periodically granted to key personnel at a price not
less than the fair market value of the shares at the date of grant. Options
granted under the 1969 Plan must be exercised or forfeited on a
75
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<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FIRST UNION CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1994, 1993 AND 1992
prorated basis over a fifteen-year period, or a ten-year period if the options
are incentive stock options. The exercise periods for options granted under the
1984, 1988 and 1992 Master Stock Plans are determined at the date of grant and
are for periods no longer than ten years.
Restricted stock may also be granted under the 1984, 1988 and 1992 Master
Stock Plans. The stock is subject to certain restrictions over a five-year
period, during which time the holder is entitled to full voting rights and
dividend privileges.
Employees, based on their eligibility and compensation, were granted options
to purchase shares of common stock under the 1994 and 1992 Employee Stock
Purchase Plans at a price equal to 85 percent of the fair market value of the
shares as of the Plan date. From the Plan date and generally for approximately a
two-year period thereafter, employees have the option to purchase all or a
portion of the optioned shares. The 1994 Plan provides that as of June 30, 1996
(the Final Purchase Date), the option price will be the lesser of 85 percent of
the fair market value as of the Plan date or 85 percent of the fair market value
as of the Final Purchase Date.
Under the terms of the Dividend Reinvestment Plan, a participating
stockholder's cash dividends and optional cash payments were used to purchase
original issue common stock from the Parent Company.
Under the terms of the Parent Company's merger agreements with certain
acquired companies, all options with respect to their common stock were
converted into options to purchase Parent Company common stock.
On April 9, 1992, the Parent Company received net proceeds of $330,045,000
from the public sale of 9,775,000 shares of its common stock, which were used to
redeem the Class A Series A Preferred Stock and for general corporate purposes.
In accordance with a Shareholder Protection Rights Agreement dated December
18, 1990, the Parent Company issued a dividend of one right for each share of
Parent Company common stock outstanding or reserved for issuance as of December
18, 1990, or 117,450,463 rights, on December 28, 1990. These rights continue to
attach to all common stock issued after December 18, 1990.
The rights will become exercisable if any person or group commences a tender
or exchange offer that would result in their becoming the beneficial owner of 15
percent or more of the Parent Company's common stock. Each right (other than
rights owned by such person or group) will entitle its holder to purchase one
one-hundredth of a share of junior participating Class A preferred stock having
economic and voting terms similar to those of one share of Parent Company common
stock for an exercise price of $110.
The rights also will become exercisable if a person or group acquires
beneficial ownership of 15 percent or more of the Parent Company's common stock.
Each right (other than rights owned by such person or group) will entitle its
holder to purchase, for an exercise price of $110, a number of shares of the
Parent Company's common stock (or at the option of the Board of Directors,
shares of junior participating Class A preferred stock) having a market value of
twice the exercise price. If any person or group acquires beneficial ownership
of between 15 percent and 50 percent of the Parent Company's common stock, the
Parent Company's Board of Directors may, at its option, exchange for each
outstanding right (other than rights owned by such person or group) either two
shares of common stock or two one-hundredths of a share of junior participating
Class A preferred stock having economic and voting terms similar to two shares
of common stock.
The rights are subject to adjustment if certain events occur, and they will
expire on December 28, 2000, if not redeemed or terminated sooner.
.................................
NOTE 14:
PERSONNEL EXPENSE
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN THOUSANDS) 1994 1993 1992
<S> <C> <C> <C>
Salaries $1,039,699 938,409 886,702
Pension cost 24,107 13,571 11,182
Savings plan 34,768 31,241 24,361
Other benefits 188,792 172,678 143,057
Total $1,287,366 1,155,899 1,065,302
</TABLE>
The Corporation has a defined benefit pension plan covering substantially
all of its employees with one year of service. The benefits are based on years
of service, the employee's average compensation during the last five years of
employment and the employee's primary Social Security benefit. Contributions are
intended to provide not only for benefits attributed to service to date but also
for those expected to be earned in the future. Additionally, certain defined
pension plans of acquired institutions will be merged into the Corporation's
plan during 1995. Accordingly, the following information combines the respective
plans' financial information with the Corporation's plan for the three years
ended December 31, 1994.
At December 31, 1994, plan assets primarily include U.S. Government and
Government agency securities and equity securities. Also included are 59,187
shares and 1,088,266 shares of the Parent Company's preferred and common stock,
respectively. All plan assets are held by First Union National Bank of North
Carolina (the Bank) in a Bank-administered trust fund.
In 1994, 1993 and 1992, pension cost includes settlement gain (losses) of
$(514,000), $(2,378,000) and $1,038,000, respectively, related to the purchase
of annuities for certain retirees.
The following tables set forth the plan's funded status and certain amounts
recognized in the Corporation's consolidated financial statements at December
31, 1994, 1993 and 1992, respectively:
76
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<TABLE>
<CAPTION>
DECEMBER 31,
(IN THOUSANDS) 1994 1993 1992
<S> <C> <C> <C>
ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATIONS
Accumulated benefit obligation including vested benefits of $304,842,000, 1994;
$346,186,000,
1993; and $207,887,000, 1992 $ 324,329 379,868 229,147
Projected benefit obligation for service rendered to date $(454,623) (509,332) (334,126)
Plan assets at fair value 553,255 555,196 374,383
Plan assets in excess of projected benefit obligation 98,632 45,864 40,257
Prior service cost 164 2,201 2,638
Unrecognized net loss from past experience different from that assumed and effects
of
changes in assumptions 49,112 89,055 8,470
Unrecognized net assets (19,908) (22,867) (25,380)
Prepaid pension cost included in other assets $ 128,000 114,253 25,985
ASSUMED RATES USED IN ACTUARIAL COMPUTATIONS
Weighted-average discount rate 8.25% 7 8-8.5
Rate of increase in future compensation levels, depending on age 5 4.5 4.5-9.5
Long-term weighted average rate of return 8.5% 9.5 8-10
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN THOUSANDS) 1994 1993 1992
<S> <C> <C> <C>
PENSION COST
Service cost-benefits earned during the period $ 33,425 25,649 24,554
Interest cost on projected benefit obligation 35,364 29,128 24,193
Actual (return) loss on plan assets 10,986 (44,145) (38,353)
Net amortization and deferral (56,182) 561 1,826
Settlement (gain) loss 514 2,378 (1,038)
Net pension cost $ 24,107 13,571 11,182
</TABLE>
77
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<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FIRST UNION CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1994, 1993 AND 1992
The Corporation and its subsidiaries provide certain health care and life
insurance benefits for retired employees. Substantially all of the Corporation's
employees may become eligible for these benefits if they reach retirement age
while working for the Corporation. Life insurance benefits are provided through
an insurance company. Medical and other benefits are provided through a tax-
exempt trust formed by the Corporation. The Corporation recognizes the cost of
providing these benefits by expensing annual insurance premiums, trust funding
allocations and administrative expenses. The amount expensed in 1994, 1993 and
1992 was $59,210,000, $69,841,000 and $51,876,000, respectively. The cost of
providing these benefits for 3,905 retirees in 1994, 3,411 retirees in 1993 and
2,779 retirees in 1992 is not separable from the cost of
providing benefits for the 31,858 active employees in 1994, 32,861 active
employees in 1993, and 29,750 active employees in 1992, respectively.
In accordance with Financial Accounting Standards Board Standard No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions", in 1993
the Corporation began amortizing a transition obligation of $98,788,000 over a
20-year period on a straight-line basis. The Corporation's retirees are eligible
to participate in postretirement benefits offered by the Corporation.
The following tables set forth the status of postretirement benefits other
than pensions and certain amounts recognized in the Corporation's consolidated
financial statements at December 31, 1994 and 1993:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN THOUSANDS) 1994 1993
<S> <C> <C>
ACTUARIAL PRESENT VALUE OF POSTRETIREMENT BENEFITS OBLIGATION
Retirees $ 63,604 81,993
Fully eligible active participants 2,711 3,097
Other active participants 22,875 26,544
Accumulated postretirement benefit obligation $ 89,190 111,634
Projected benefit obligation in excess of plan assets $ 89,190 111,634
Unrecognized net transition obligation (63,914) (67,221)
Unrecognized net gain (loss) from past experience different from that assumed and effects of changes in
assumptions 24,070 (6,993)
Accrued postretirement benefit cost $ 49,346 37,420
ASSUMED RATES USED IN ACTUARIAL COMPUTATIONS
Weighted average discount rate 8.25% 7
Rate of increase in future compensation levels, depending on age 5 4.5
Health care cost trend rate
Prior to age 65 (for 1995, grading levelly to 7 percent in 2004) 12.25 12.83
After age 65 (for 1995, grading levelly to 6 percent in 2004) 11.25% 11.83
EFFECT OF ONE PERCENT INCREASE IN HEALTH CARE COST TREND RATE
Service costs $ -- --
Interest costs 384 391
Accumulated postretirement benefit obligation $ 5,283 6,232
POSTRETIREMENT COSTS
Service cost-benefits earned during the period $ 2,151 1,605
Interest cost on projected benefit obligation 6,784 6,646
Amortization of transition obligation 3,543 4,309
Net cost $ 12,478 12,560
</TABLE>
The Financial Accounting Standards Board has issued Standard No. 112,
"Employers' Accounting for Postemployment Benefits", which requires accrual of a
liability for all types of benefits paid to former or inactive employees after
employment but before retirement. The Corporation adopted this accounting
Standard beginning January 1, 1994. Benefits subject to this accounting
pronouncement include salary continuation, supplemental unemployment benefits,
severance benefits, disability-related benefits (including workers'
compensation), job training and counseling, and continuation of such benefits as
health care and life insurance coverage. The effect of initially applying this
new accounting Standard in 1994 resulted in additional personnel expense of
$12,948,000. The recurring reduction of income before income taxes is expected
to be insignificant.
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.................................
NOTE 15:
INCOME TAXES
The provision for income taxes charged to operations is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN THOUSANDS) 1994 1993 1992
<S> <C> <C> <C>
CURRENT INCOME TAXES
Federal $238,362 276,379 224,759
State 50,724 48,722 45,346
Total 289,086 325,101 270,105
DEFERRED INCOME TAX EXPENSE (BENEFITS)
Federal 185,590 74,002 (60,606)
State 15,400 4,157 (13,347)
Total 200,990 78,159 (73,953)
Total $490,076 403,260 196,152
</TABLE>
The federal income tax rates and amounts are reconciled with the effective
income tax rates and amounts as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1994 1993 1992
% OF % OF % OF
PRE-TAX PRE-TAX PRE-TAX
(IN THOUSANDS) AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
<S> <C> <C> <C> <C> <C> <C>
Income before income taxes $1,415,456 $1,220,781 $581,203
Tax at federal income tax rate $ 495,410 35.0% $ 427,273 35.0% $197,609 34.0%
Reasons for difference in federal
income tax rate and effective
rate
Tax-exempt interest, net of cost
to carry (41,209) (2.9) (44,986) (3.7) (48,749) (8.4)
State income taxes, net of
federal tax benefit 42,981 3.0 34,371 2.8 21,119 3.6
Goodwill amortization 12,740 .9 11,873 1.0 10,397 1.8
Adjustment to deferred income tax
assets and liabilities for
enacted changes in tax laws and
rates -- -- (15,875) (1.3) -- --
Change in the
beginning-of-the-year deferred
tax assets valuation
allowance 1,889 .1 (3,604) (.3) 10,440 1.8
Other items, net (21,735) (1.5) (5,792) (.5) 5,336 1.0
Total $ 490,076 34.6% $ 403,260 33.0% $196,152 33.8%
</TABLE>
79
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<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FIRST UNION CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1994, 1993 AND 1992
The sources and tax effects of temporary differences that give rise to
significant portions of deferred income tax liabilities (assets) are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN THOUSANDS) 1994 1993 1992
<S> <C> <C> <C>
DEFERRED INCOME TAX LIABILITIES
Depreciation $ 47,296 48,710 55,479
Futures contracts 8,144 16,270 17,290
Intangible assets 54,903 72,943 49,671
Leasing activity 260,763 159,085 115,889
Prepaid insurance premiums 17,554 -- --
Loan products -- -- 4,031
Prepaid pension asset 50,868 44,757 8,593
Thrift loan loss reserve recapture 27,152 24,889 10,824
Purchase accounting adjustments (primarily loans and securities) 21,127 24,236 --
Other 23,280 23,105 21,430
Total deferred income tax liabilities 511,087 413,995 283,207
DEFERRED INCOME TAX ASSETS
Provision for loan losses, net (366,049) (369,384) (336,360)
Accrued expenses, deductible when paid (169,545) (125,506) (115,261)
Unrealized loss on debt and equity securities (115,219) -- --
Foreclosed properties (26,627) (52,637) (54,106)
Sale and leaseback transactions (18,825) (22,276) (23,430)
Deferred income (16,731) (13,987) (11,184)
Purchase accounting adjustments (primarily loans and securities) -- -- (17,932)
Net operating loss carryforwards (50,795) (53,271) --
First American segregated assets (10,004) (76,003) --
Loan products (916) (11,940) --
Other (33,201) (30,476) (32,626)
Total deferred income tax assets (807,912) (755,480) (590,899)
Deferred tax assets valuation allowance 37,421 22,173 20,024
Net deferred income tax assets $(259,404) (319,312) (287,668)
</TABLE>
Changes to the deferred tax assets valuation allowance are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN THOUSANDS) 1994 1993 1992
<S> <C> <C> <C>
Balance, beginning of year $ 22,173 20,024 9,584
Current year deferred provision, change in deferred tax valuation allowance 1,889 (3,604) 10,440
Purchase acquisitions 13,359 5,753 --
Deferred tax assets valuation allowance, end of year $ 37,421 22,173 20,024
</TABLE>
A portion of the current year change in the net deferred tax asset relates
to unrealized losses on debt and equity securities available for sale. Under
Standard No. 115, the related 1994 deferred tax benefit of $115,219,000 has been
recorded directly to stockholders' equity. Purchase acquisitions also increased
the net deferred tax asset in the amount of $25,863,000 in 1994 and $109,803,000
in 1993.
The realization of net deferred tax assets may be based on utilization of
carrybacks to prior taxable periods, anticipation of future taxable income in
certain periods and the utilization of tax planning strategies. Management has
determined that it is more likely than not that the net deferred tax asset can
be supported by carrybacks to federal taxable income in excess of $2,100,000,000
in the three-year federal carryback period and by expected future taxable income
which will far exceed amounts necessary to fully realize remaining deferred tax
assets resulting from net operating loss carryforwards and the scheduling of
temporary differences. The valuation allowance primarily relates to certain
state temporary differences and federal and state net operating loss
carryforwards. To the extent that the valuation allowance attributable to the
purchase acquisitions in the amount of $19,112,000 is subsequently recognized,
such income tax benefit will reduce goodwill.
At December 31, 1994, the Corporation has net operating loss carryforwards
of $122,000,000 that are available to offset future federal taxable income
through 2007 subject to annual limitations. The Corporation also has net
operating loss carryforwards of $200,000,000 that are available to offset future
state taxable income through 2009. These carryforwards were primarily acquired
with the acquisition of FAMC.
Income tax expense (benefit) related to securities available for sale
transactions was $(4,656,000), $9,559,000 and $11,668,000 in 1994, 1993 and
1992, respectively. Income tax expense (benefit) related to investment security
transactions was $1,455,000, $2,658,000 and $(2,794,000) in 1994, 1993 and 1992,
respectively.
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The Corporation adopted Statement of Financial Accounting Standard No. 109,
"Accounting for Income Taxes", at January 1, 1993, and applied the provisions of
Standard No. 109 retroactively to January 1, 1992. In accordance with Standard
No. 109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under Standard No. 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. The
insignificant effect of Standard No. 109 resulted in additional income tax
expense of $8,519,000 and is reflected in the 1992 financial statements as a
component of income taxes.
The Internal Revenue Service is examining the Corporation's federal income
tax returns for the years 1991 through 1993 and is examining federal income tax
returns for certain acquired subsidiaries for periods prior to acquisition. In
1994, the Internal Revenue Service examination of the Corporation's federal
income tax returns for the years 1986 through 1990 was settled with no material
impact to the Corporation's financial position or results of operations. In 1994
and 1993, tax liabilities for certain acquired subsidiaries for periods prior to
their acquisition by the Corporation were settled with the Internal Revenue
Service with no significant impact on the Corporation's financial position or
results of operations.
.................................
NOTE 16:
FIRST UNION CORPORATION
(PARENT COMPANY)
The Parent Company's principal assets are its investments in its
subsidiaries, interest-bearing balances with a bank subsidiary, securities
purchased under resale agreements, securities available for sale and loans to
subsidiaries. The significant sources of income of the Parent Company are
dividends from its subsidiary bank holding companies, interest and fees charged
on loans made to its subsidiaries, interest on eurodollars purchased from bank
subsidiaries, interest on securities available for sale and fees charged to its
subsidiaries for providing various services.
In addition, the Parent Company serves as the primary source of funding for
the mortgage banking and other activities of its nonbank subsidiaries. Lines of
credit in the amount of $350,000,000 are available to the Parent Company at an
annual facility fee of 8.00 to 18.75 basis points and a utilization fee of 6.25
basis points. The facility fee is based on the daily average commitment amount
and the utilization fee is based on the daily average principal amount
outstanding. Generally, interest rates will be determined at the time credit
line usage occurs and will vary based on the type of loan extended to the Parent
Company.
Certain regulatory and other requirements restrict the lending of funds by
the bank subsidiaries to the Parent Company and to the Parent Company's nonbank
subsidiaries and the amount of dividends that can be paid to the Parent Company
by the bank subsidiaries and certain of the Parent Company's other subsidiaries.
On December 31, 1994, the Parent Company was indebted to subsidiary banks in the
amount of $200,000,000 that, under the terms of revolving credit agreements, was
secured by certain interest-bearing balances, securities available for sale,
loans, premises and equipment and payable on demand. On such date, a subsidiary
bank had a loan outstanding to a Parent Company nonbank subsidiary amounting to
$115,929,000 that, under the terms of a revolving credit agreement, was secured
by securities available for sale and certain loans and payable on demand.
Additionally, the Parent Company is the guarantor of certain publicly issued
debt of an acquired subsidiary in the amount of $75,000,000.
Industry regulators limit dividends that can be paid by the Corporation's
subsidiaries. National banks are limited in their ability to pay dividends in
two principal ways: first, dividends cannot exceed the bank's undivided profits,
less statutory bad debt in excess of the bank's allowance for loan losses, and
second, in any year dividends may not exceed a bank's net profits for that year,
plus its retained earnings from the preceding two years, less any required
transfers to surplus. The Parent Company's subsidiaries, including its bank
subsidiaries, had available retained earnings of $397,115,000 at December 31,
1994, for the payment of dividends to the Parent Company without such regulatory
or other restrictions.
Subsidiary net assets of $5,442,257,000 were restricted from being
transferred to the Parent Company at December 31, 1994, under such regulatory or
other restrictions.
At December 31, 1994 and 1993, the estimated fair value of the Parent
Company's loans was $1,755,517,000 and $1,224,833,000, respectively.
81
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<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FIRST UNION CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1994, 1993 AND 1992
The Parent Company's condensed balance sheets as of December 31, 1994 and
1993, and the related condensed statements of income and cash flows for the
three-year period ended December 31, 1994, are as follows:
.................................
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
(IN THOUSANDS) 1994
<S> <C>
ASSETS
Cash and due from banks $ 300
Interest-bearing balances with bank subsidiary 958,126
Securities purchased under resale agreements 100,000
Total cash and cash equivalents 1,058,426
Trading account assets --
Securities available for sale (amortized cost $151,505 in 1994; market value $105,292 in 1993) 193,131
Loans, net of unearned income ($591 in 1994; $1,203 in 1993) 72,791
Allowance for loan losses (1,325)
Loans, net 71,466
Loans due from subsidiaries
Banks 1,030,000
Bank holding companies 272,731
Other subsidiaries 382,191
Investments in wholly-owned subsidiaries
Arising from investments in equity in undistributed net income of subsidiaries
Banks 1,417,590
Bank holding companies 4,226,554
Other subsidiaries 298,748
5,942,892
Arising from purchase accounting acquisitions 107,680
Total investments in wholly-owned subsidiaries 6,050,572
Other assets 235,574
Total assets $9,294,091
LIABILITIES AND STOCKHOLDERS' EQUITY
Commercial paper 395,533
Other short-term borrowings 300,000
Other liabilities 257,589
Long-term debt 2,943,452
Stockholders' equity 5,397,517
Total liabilities and stockholders' equity $9,294,091
<CAPTION>
(IN THOUSANDS) 1993
<S> <C>
ASSETS
Cash and due from banks 225
Interest-bearing balances with bank subsidiary 1,252,740
Securities purchased under resale agreements --
Total cash and cash equivalents 1,252,965
Trading account assets 10,285
Securities available for sale (amortized cost $151,505 in 1994; market value $105,292 in 1993) 66,672
Loans, net of unearned income ($591 in 1994; $1,203 in 1993) 67,872
Allowance for loan losses (1,322)
Loans, net 66,550
Loans due from subsidiaries
Banks 450,500
Bank holding companies 290,784
Other subsidiaries 404,279
Investments in wholly-owned subsidiaries
Arising from investments in equity in undistributed net income of subsidiaries
Banks 1,245,411
Bank holding companies 4,045,885
Other subsidiaries 254,378
5,545,674
Arising from purchase accounting acquisitions 117,781
Total investments in wholly-owned subsidiaries 5,663,455
Other assets 172,128
Total assets 8,377,618
LIABILITIES AND STOCKHOLDERS' EQUITY
Commercial paper 270,666
Other short-term borrowings 200,000
Other liabilities 162,591
Long-term debt 2,536,736
Stockholders' equity 5,207,625
Total liabilities and stockholders' equity 8,377,618
</TABLE>
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<PAGE>
.................................
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN THOUSANDS) 1994 1993 1992
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 72,350 55,379 49,060
Interest income on securities available for sale 4,139 2,377 1,311
Interest income on investment securities -- -- 1,221
Other interest income from subsidiaries 77,583 42,225 37,016
Total interest income 154,072 99,981 88,608
INTEREST EXPENSE
Short-term borrowings 43,540 22,041 29,849
Long-term debt 163,072 110,956 88,317
Total interest expense 206,612 132,997 118,166
Net interest income (52,540) (33,016) (29,558)
Provision for loan losses 1,408 3,665 42
Net interest income after provision for loan losses (53,948) (36,681) (29,600)
Noninterest income
Dividends from subsidiaries
Banks 155,800 -- 57,000
Bank holding companies 526,212 406,682 50,000
Other subsidiaries 6 6 23,858
Securities available for sale transactions 5,525 -- --
Sundry income 194,396 156,612 135,750
Noninterest expense (185,932) (140,883) (141,202)
Income before income tax benefits and equity in undistributed net income of
subsidiaries 642,059 385,736 95,806
Income tax benefits (14,889) (6,700) (8,577)
Income before equity in undistributed net income of subsidiaries 656,948 392,436 104,383
Equity in undistributed net income of subsidiaries 268,432 425,085 280,668
Net income 925,380 817,521 385,051
Dividends on preferred stock 25,353 24,900 31,979
Net income applicable to common stockholders before redemption premium 900,027 792,621 353,072
Redemption premium on preferred stock 41,355 -- --
Net income applicable to common stockholders after redemption premium $858,672 792,621 353,072
</TABLE>
83
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<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FIRST UNION CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1994, 1993 AND 1992
.................................
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN THOUSANDS) 1994 1993 1992
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 925,380 817,521 385,051
Adjustments to reconcile net income to net cash provided (used) by operating
activities
Equity in undistributed net income of subsidiaries (268,432) (425,085) (280,668)
Provision for loan losses 1,408 3,665 42
Accretion and revaluation losses on securities available for sale (4,295) 2,431 2,374
Securities available for sale transactions (5,525) -- --
Depreciation and amortization 2,888 3,602 2,168
Deferred income taxes (benefits) (19,272) 1,382 (8,611)
Trading account assets, net 10,285 8,811 (8,768)
Other assets, net (40,501) (26,363) (22,011)
Other liabilities, net 100,189 (33,570) 60,748
Net cash provided by operating activities 702,125 352,394 130,325
INVESTING ACTIVITIES
Increase (decrease) in cash realized from
Sales of securities available for sale 14,284 4,763 --
Purchases of securities available for sale (89,297) (1,153) --
Advances to subsidiaries, net (539,359) (198,771) (244,641)
Investments in subsidiaries (134,583) (700,353) (132,588)
Longer-term loans originated or acquired (68,999) (49,921) (18,250)
Principal repaid on longer-term loans 62,675 7,746 15,470
Purchases of premises and equipment, net (6,248) (816) (1,960)
Net cash used by investing activities (761,527) (938,505) (381,969)
FINANCING ACTIVITIES
Increase (decrease) in cash realized from
Commercial paper 124,867 (71,126) 3,523
Other short-term borrowings, net 100,000 (6,215) (78,967)
Issuances of long-term debt 444,403 989,975 641,229
Payments of long-term debt (38,000) (394,488) (18,520)
Sales of common stock 99,798 203,337 525,939
Purchases of preferred stock -- (138) (100,000)
Redemption of preferred stock (325,396) -- --
Purchases of common stock (217,554) (3,851) (7,819)
Cash dividends paid (323,255) (268,745) (206,179)
Net cash provided (used) by financing activities (135,137) 448,749 759,206
Increase (decrease) in cash and cash equivalents (194,539) (137,362) 507,562
Cash and cash equivalents, beginning of year 1,252,965 1,390,327 882,765
Cash and cash equivalents, end of year $1,058,426 1,252,965 1,390,327
CASH PAID FOR
Interest $ 190,624 114,904 122,292
Income taxes 243,099 326,000 216,000
NONCASH ITEMS
Effect on stockholders' equity of an unrealized gain (loss) on debt and equity
securities included in
Parent Company
Securities available for sale 41,626 -- --
Other liabilities 14,569 -- --
Parent Company subsidiaries
Securities available for sale (343,739) -- --
Other assets (102,417) -- --
Increase in securities available for sale and a decrease in investment securities -- 32,583 --
Increase in investments in subsidiaries due to acquisitions of institutions for
common stock $ 225,424 -- --
</TABLE>
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<PAGE>
.................................
NOTE 17:
OFF-BALANCE SHEET RISK, COMMITMENTS AND CONTINGENT LIABILITIES
The Corporation is a party to financial instruments with
off-balance sheet risk in the normal course of business to meet the financing
needs of its customers, to reduce its own exposure to fluctuations in interest
rates and to conduct lending activities. These financial instruments include
commitments to extend credit; standby and commercial letters of credit; forward
and futures contracts; interest rate swaps; options, interest rate caps, floors,
collars and swaptions; foreign currency and exchange rate swap commitments;
commodity swaps; and commitments to purchase and sell securities. These
instruments involve, to varying degrees, elements of credit and interest rate
risk in excess of the amounts recognized in the consolidated financial
statements.
The Corporation's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit and
standby and commercial letters of credit is represented by the contract amount
of those instruments. The Corporation uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
instruments. For forward and futures contracts, interest rate swaps, options,
interest rate caps, floors, collars and swaptions, the contract or notional
amounts do not represent the exposure to credit loss. The Corporation controls
the credit risk of its forward and futures contracts, interest rate swap
agreements, foreign currency and exchange rate swaps, and securities
transactions through collateral arrangements, credit approvals, limits and
monitoring procedures.
Our policy requires all swaps and options to be governed by an International
Swaps and Derivatives Association Master Agreement. Bilateral collateral
agreements are in place for substantially all dealer counterparties. Collateral
for dealer transactions is delivered by either party when the credit risk
associated with a particular transaction, or group of transactions to the extent
netting exists, exceeds defined thresholds of credit risk. Thresholds are
determined based on the strength of the individual counterparty and are
bilateral. As of December 31, 1994, the total credit risk in excess of
threseholds was $18,717,000. The fair value of collateral held was 97 percent of
the total credit risk in excess of the thresholds.
For non-dealer transactions, the need for collateral is evaluated on a
individual transaction basis and is primarily dependent on the financial
strength of the counterparty.
The carrying amount of financial instruments used for interest rate risk
management includes amounts for deferred gains and losses. The amount of
deferred gains and losses was $14,719,000 and $34,907,000, respectively, at
December 31, 1994. These net losses will reduce net interest income by
$17,781,000 in 1995 and $2,407,000 in 1996.
The FASB has issued Standard No. 119, "Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments", which requires improved
disclosures about derivative financial instruments -- futures, forward, swap or
option contracts, or other financial instruments with similar characteristics.
It also amends existing requirements of FASB Standard No. 105, "Disclosure of
Information about Financial Instruments with Off-Balance-Sheet Risk and
Financial Instruments with Concentration of Credit Risk", and FASB Standard No.
107, "Disclosures about Fair Value of Financial Instruments". It requires that a
distinction be made between financial instruments held or issued for the
purposes of trading or other than trading. For derivative financial instruments
held or issued for trading, disclosure of average fair values and of net trading
gains or losses is required. For derivative financial instruments held or issued
for purposes other than trading, it requires disclosure about those purposes,
about how the instruments are reported in financial statements, and, if the
purpose is hedging anticipated transactions, about the anticipated transactions,
the classes of derivative financial instruments used to hedge those
transactions, the amounts of hedging gains and losses deferred, and the
transactions or other events that result in recognition of the deferred gains or
losses in income. The Standard encourages, but does not require, quantitative
information about interest rate or other market risks of derivative financial
instruments, and also of other assets and liabilities, that is consistent with
the way the entity manages or adjusts risks and that is useful for comparing the
results of applying the entity's strategies to its objectives for holding or
issuing the derivative financial instruments. The Standard amends Standard No.
105 to require disaggregation of information about financial instruments with
off-balance sheet risk of accounting loss by class, business activity, risk or
other category that is consistent with the entity's management of those
instruments. The Standard also amends Standard No. 107 to require that fair
value information be presented without combining, aggregating or netting the
fair value of derivative financial instruments with the fair value of
nonderivative financial instruments and be presented together, with the related
carrying amounts in the body of the financial statements, a single footnote or a
summary table in a form that makes it clear whether the amounts represent assets
or liabilities. The Standard is required for financial statements issued for
fiscal years ending after December 15, 1994. The Corporation has adopted this
Standard, and information related thereto can be found below and in Tables 22
through 24 on pages 45 through 51, which are incorporated herein by reference.
At December 31, 1994 and 1993, off-balance sheet derivative financial
instruments and their related fair values are as follows:
85
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<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FIRST UNION CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993
ESTIMATED CONTRACT OR ESTIMATED CONTRACT OR
CARRYING FAIR NOTIONAL CARRYING FAIR NOTIONAL
(IN THOUSANDS) AMOUNT VALUE AMOUNT AMOUNT VALUE AMOUNT
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL INSTRUMENTS WHOSE CONTRACT
AMOUNTS REPRESENT CREDIT RISK
Commitments to extend credit $ -- 76,786 24,280,571 -- 49,181 17,245,126
Standby and commercial letters of credit -- 20,423 2,123,312 -- 14,353 1,390,820
FINANCIAL INSTRUMENTS WHOSE CONTRACT OR
NOTIONAL AMOUNTS EXCEED THE AMOUNT OF
CREDIT RISK
FORWARD AND FUTURES CONTRACTS
Trading and dealer activities 800,375 800,375 5,064,618 24,369 24,369 12,384,621
Interest rate risk management
Asset rate conversions -- (7,071) 1,200,000 -- 10,577 3,200,000
Basis protection -- -- -- -- 431 1,000,000
Asset hedge -- 555 1,200,000 -- -- --
Liability hedges -- (120) 25,000 -- 1,570 4,125,000
INTEREST RATE SWAP AGREEMENTS
Trading and dealer activities 7,508 7,508 5,533,468 8,707 8,707 2,336,719
Interest rate risk management
Asset rate conversions 5,784 (313,273) 7,022,116 27,205 190,481 12,029,540
Liability rate conversions 15,487 (143,023) 2,370,500 44,071 142,625 2,462,173
PURCHASED OPTIONS, INTEREST RATE CAPS,
FLOORS, COLLARS AND SWAPTIONS
Trading and dealer activities 18,288 18,288 1,622,279 9,054 10,173 1,715,436
Interest rate risk management
Liability rate conversions 1,902 110 392,000 2,375 2,285 529,000
Basis protection -- -- -- 6,621 13,383 2,500,000
Liability hedges 25,601 41,256 28,231,000 11,512 8,025 19,418,000
Offsetting positions (124) (2,282) 2,400,000 1,199 19,932 400,000
WRITTEN OPTIONS, INTEREST RATE CAPS,
FLOORS, COLLARS AND SWAPTIONS
Trading and dealer activities (24,653) (24,653) 1,455,631 (8,168) (8,168) 3,242,889
Interest rate risk management
Liability rate conversions -- -- -- (5,625) -- 250,000
Basis protection -- -- -- -- -- 2,500,000
Offsetting positions 60 1,796 2,400,000 (4,023) (19,932) 400,000
FOREIGN CURRENCY AND EXCHANGE RATE SWAP
COMMITMENTS
Trading and dealer activities (19,323) (19,323) 3,453,525 (9,893) (9,893) 3,000,502
Foreign currency risk management 18,680 18,680 1,679,905 25,997 25,997 2,052,494
COMMODITY SWAPS
Trading and dealer activities (152) (152) 4,308 -- -- --
COMMITMENTS TO PURCHASE SECURITIES (842) (842) 780,418 -- 769 1,047,813
COMMITMENTS TO SELL SECURITIES $ 693 693 842,744 -- 851 2,246,147
</TABLE>
86
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<PAGE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
Standby and commercial letters of credit are conditional commitments issued
by the Corporation to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and private borrowing
arrangements, including commercial paper, bond financing and similar
transactions. Except for short-term guarantees of $1,430,247,000 guarantees
extend for more than one year and expire in varying amounts primarily through
2019. The credit risk involved in issuing letters of credit is essentially the
same as that involved in extending loan facilities to customers. The Corporation
holds various assets as collateral supporting those commitments for which
collateral is deemed necessary.
Forward and futures contracts are contracts for delayed delivery of
securities or money market instruments in which the seller agrees to make
delivery at a specified future date of a specified instrument, at a specified
price or yield. Risks arise from the possible inability of counterparties to
meet the terms of their contracts and from movements in securities values and
interest rates.
The Corporation enters into a variety of interest rate contracts --
including options, interest rate caps, floors, collars and swaptions written,
and interest rate swap agreements -- in its trading activities and in managing
its interest rate exposure. Interest rate caps, floors, collars and swaptions
written by the Corporation enable customers to transfer, modify or reduce their
interest rate risk. Interest rate options are contracts that allow the holder of
the option to purchase or sell a financial instrument at a specified price and
within a specified period of time from the seller or writer of the option. As a
writer of options, the Corporation receives a premium at the outset and then
bears the risk of an unfavorable change in the price of the financial instrument
underlying the option.
Interest rate swap transactions generally involve the exchange of fixed and
floating rate interest payment obligations without the exchange of the
underlying principal amounts. Entering into interest rate swap agreements
involves not only the risk of dealing with counterparties and their ability to
meet the terms of the contracts but also the interest rate risk associated with
unmatched positions. Notional principal amounts often are used to express the
volume of these transactions, but the amounts potentially subject to credit risk
are much smaller. The Corporation also acts as an intermediary in arranging
interest rate swap transactions for customers.
Generally, futures contracts are exchanged traded and all other off-balance
instruments are transacted in the over-the-counter markets.
The Corporation has entered into certain sales transactions for which the
buyers have recourse options. The return of these assets to the Corporation
would not have a material impact on the Corporation's financial position.
Substantially all time drafts accepted by December 31, 1994, met the
requirements for discount with Federal Reserve Banks. Average daily Federal
Reserve balance requirements for the year ended December 31, 1994, amounted to
$1,047,533,000. Minimum operating lease payments due in each of the five years
subsequent to December 31, 1994, are as follows: 1995, $113,860,000; 1996,
$108,261,000; 1997, $100,279,000; 1998, $93,832,000; and 1999, $87,391,000; and
subsequent years, $758,977,000. Rental expense for all operating leases for the
three years ended December 31, 1994, was $150,894,000, 1994; $151,242,000, 1993;
and $154,711,000, 1992.
The Parent Company and certain of its subsidiaries have been named as
defendants in various legal actions arising from their normal business
activities in which damages in various amounts are claimed. Although the amount
of any ultimate liability with respect to such matters cannot be determined, in
the opinion of management, based upon the opinions of counsel, any such
liability will not have a material effect on the Corporation's consolidated
financial position.
87
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<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FIRST UNION CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1994, 1993 AND 1992
.................................
NOTE 18:
CARRYING AMOUNTS AND FAIR VALUE
OF FINANCIAL INSTRUMENTS
Information about the fair value of on-balance sheet financial instruments
at December 31, 1994 and 1993, which should be read in conjunction with Note 17
and certain other notes to the consolidated
financial statements presented elsewhere herein, is set forth below.
<TABLE>
<CAPTION>
1994 1993
CARRYING ESTIMATED CARRYING ESTIMATED
(IN THOUSANDS) AMOUNT FAIR VALUE AMOUNT FAIR VALUE
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and cash equivalents $ 6,056,842 6,056,842 4,415,870 4,415,870
Trading account assets 1,206,675 1,206,675 652,470 652,470
Securities available for sale 7,752,479 7,752,479 11,744,942 11,884,385
Investment securities 3,729,869 3,742,534 2,692,476 2,931,139
Loans, net of unearned income 54,029,752 53,515,354 46,876,177 47,644,771
Allowance for loan losses (978,795) -- (1,020,191) --
Loans, net 53,050,957 53,515,354 45,855,986 47,644,771
Segregated assets 108,482 108,482 221,183 221,183
Other assets $ 1,167,401 1,183,604 1,396,515 1,424,977
FINANCIAL LIABILITIES
Deposits
Noninterest-bearing deposits 10,523,538 10,523,538 10,861,207 10,861,207
Interest-bearing deposits
Savings and NOW accounts 13,991,987 13,991,987 12,010,636 12,010,636
Money market accounts 10,118,963 10,118,963 11,131,334 11,131,334
Other consumer time 18,544,324 18,594,249 16,897,062 17,152,717
Foreign 4,069,587 4,069,587 1,240,448 1,240,448
Other time 1,709,874 1,715,877 1,601,724 1,606,787
Total deposits 58,958,273 59,014,201 53,742,411 54,003,129
Short-term borrowings 7,532,343 7,532,343 7,254,178 7,254,178
Other liabilities 1,450,496 1,450,496 1,022,467 1,022,467
Long-term debt $ 3,428,514 3,314,029 3,061,944 3,266,747
</TABLE>
Nonperforming loans of less that $1,000,000 each, which amounted to
$120,120,000 and $248,580,000 at December 31, 1994 and 1993, respectively, are
included in estimated fair value at their net costs.
The fair value of noninterest-bearing deposits, savings and NOW accounts,
and money market accounts is the amount payable on demand at December 31, 1994
and 1993. The fair value of fixed-maturity certificates of deposit is estimated
based on the discounted value of contractual cash flows using the rates
currently offered for deposits of similar remaining maturities. The fair value
estimates above do not include the benefit that results from the low-cost
funding provided by deposit liabilities compared to the cost of borrowing funds
in the market. This value, which includes such cost assumptions related to
interest rates, deposit run-off, maintenance costs and float opportunity costs,
is presented below on a discounted cash flow basis. The value related to the
recorded cost of acquired deposits is also included therein.
Fair value estimates are based on existing financial instruments without
attempting to estimate the value of anticipated future business and the value of
assets and liabilities that are not considered financial instruments. For
example, the Corporation has a substantial trust department that contributes net
fee income annually. The trust department is not considered a financial
instrument, and its value has not been incorporated into the fair value
estimates. Other significant assets and liabilities that are not considered
financial assets or liabilities include the mortgage banking operation,
brokerage network, deferred tax assets, premises and equipment, and goodwill. In
addition, the tax ramifications related to the realization of the unrealized
gains and losses can have a significant effect on fair value estimates and have
not been considered in any of the estimates. Fair value of off-balance sheet
derivative financial instruments has not been considered in determining on-
balance sheet fair value estimates.
88
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<PAGE>
In respect of the foregoing, the Corporation has decided to voluntarily
disclose certain nonfinancial instrument relationships, which are not intended
to indicate the fair value of the Corporation, as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
ESTIMATED FAIR VALUE (IN
THOUSANDS) 1994 1993
<S> <C> <C>
Mortgage servicing $ 364,537 240,168
Credit card relationships 363,085 214,851
Core deposits $2,615,803 1,740,000
</TABLE>
The fair value of mortgage servicing related to loans that the Corporation
does not own, including rights for purchased servicing, is estimated on a
discounted cash flow basis. The calculation is based on loan types, coupon
rates, current interest rates, prepayment assumptions, service fees, service
cost and late fees.
The fair value attributable to the ongoing credit cardholder relationships
has been estimated on a discounted cash flow basis after taking into
consideration estimated portfolio income and expense to be realized over the
life of the relationships, charge-off rates and the cost of alternative funds.
The value related to the recorded cost of acquired credit cardholder
relationships is also included therein.
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the Corporation's entire holdings of a particular financial
instrument. Because no market exists for a significant portion of the
Corporation's financial instruments, fair value estimates are based on judgments
regarding future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
89
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<PAGE>
GLOSSARY
.................................
ASSET SENSITIVITY:
When a company's asset, liability and off-balance sheet financial
instruments mix leans toward assets that would diminish net interest income in a
flat or declining interest rate environment.
.................................
COLLATERALIZED
MORTGAGE OBLIGATIONS (CMOS):
A group of mortgage pass-through securities that have been bundled, with the
cash flows paid out in a specific order or preference to different buyers.
.................................
DERIVATIVES:
A term used to cover a broad base of financial instruments that are, for the
most part, "derived" from underlying securities traded in the cash markets.
Common examples include interest rate swaps, options and futures contracts.
.................................
EARNINGS PER
COMMON SHARE:
Net income, adjusted for preferred stock dividends, divided by the average
number of common shares outstanding.
.................................
FUTURES CONTRACT:
A contract to buy or sell a particular type of security or commodity to (or
from) the futures exchange at a specified future period of time. It is used to,
in effect, "lock in" net interest income over quarterly future periods.
.................................
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION
(GNMA):
A U.S. Government-owned corporation that guarantees timely payment of
principal and interest on specified mortgage-backed certificates.
.................................
INDEX AMORTIZING
INTEREST RATE SWAP:
An interest rate swap in which the maturity date may extend and the notional
amount may decrease based upon changes in certain interest rate indices.
.................................
INTEREST RATE SWAP:
A contractual transaction between two parties in the over-the-counter
markets in which each agrees to exchange interest rate payments for a specified
period of time. These payments are calculated on a "notional amount" and no
exchange of principal occurs. Such a transaction is commonly used to manage the
asset or liability sensitivity of a balance sheet by converting fixed rate
assets or liabilities to floating rates, or vice versa.
.................................
LIABILITY SENSITIVITY:
When a company's asset, liability and off-balance sheet financial
instruments mix leans toward liabilities that would diminish net interest income
in a rising interest rate environment.
.................................
MARK-TO-MARKET:
A method of accounting for a corporation's assets or liabilities by
recording them at their current market values, rather than at their historical
costs.
.................................
MORTGAGE BANKING INCOME:
Noninterest income related to mortgage banking activity.
.................................
MORTGAGE SERVICING PORTFOLIO:
Mortgage loans owned by others for which a company provides mortgage
servicing.
.................................
NET CHARGE-OFFS:
The amount of loans written off as uncollectible, net of the recovery of
loans previously written off as uncollectible.
.................................
NET INTEREST MARGIN:
The difference between the tax-equivalent yield on earning assets and the
rate paid on funds to support those assets, divided by average earning assets.
.................................
NET OPERATING
REVENUE:
The sum of tax-equivalent net interest income and noninterest income.
.................................
NONINTEREST EXPENSE:
All expenses other than interest.
.................................
NONINTEREST INCOME:
All income other than interest and dividend income.
.................................
NONPERFORMING
ASSETS:
Assets on which income is not being accrued for financial reporting
purposes; restructured loans on which interest rates or terms of repayment have
been materially revised; and other real estate that has been acquired through
loan foreclosures, in-substance foreclosures or deeds received in lieu of loan
payments.
.................................
NOTIONAL AMOUNT:
The principal amount of the financial instrument on which a derivative
transaction is based. In an interest rate swap, for example, the "notional
amount" is used to calculate the interest rate cash flows to be exchanged. No
exchange of principal occurs.
.................................
OPTIONS:
A contractual agreement that allows but does not require a holder to buy (or
sell) a financial instrument at a predetermined price before a specified time.
Options may be traded through the exchanges or over-the-counter.
.................................
OVERHEAD EFFICIENCY
RATIO:
Noninterest expense divided by net operating revenue.
.................................
POOLING OF INTERESTS:
An accounting method that generally, following a merger, restates historical
financial information of the surviving company as if the two entities were
always one.
.................................
PURCHASE ACCOUNTING:
An accounting method that adds the fair market value of assets and
liabilities acquired to those of the acquiror at the time of acquisition.
Historical financial information of the acquiror is not restated.
.................................
RETURN ON ASSETS (ROA):
Net income as a percentage of average assets.
.................................
RETURN ON COMMON
EQUITY (ROE):
Net income applicable to common stockholders as a percentage of average
common stockholders' equity, excluding unrealized gains or losses on debt
securities.
.................................
SECURITY GAIN OR LOSS:
A gain or loss resulting from the sale of a security at a price above or
below the security's carrying value.
.................................
STOCKHOLDERS' EQUITY:
A balance sheet amount that represents the total investment in the
corporation by holders of preferred and common stock.
.................................
SWAPTIONS:
Options on swaps.
90
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<PAGE>
BOARDS OF DIRECTORS AND CORPORATE MANAGEMENT COMMITTEE
FIRST UNION CORPORATION AND FULL-SERVICE BANKING SUBSIDIARIES
.................................
FIRST UNION CORPORATION
G. Alex Bernhardt
President and Chief Executive Officer,
Bernhardt Furniture Company
Lenoir, North Carolina
W. Waldo Bradley
Chairman, Bradley Plywood Corporation
Savannah, Georgia
Robert J. Brown
Chairman, President and Chief
Executive Officer, B&C Associates, Inc.
High Point, North Carolina
Edward E. Crutchfield
Chairman and Chief Executive Officer,
First Union Corporation
Charlotte, North Carolina
Robert D. Davis
Chairman, D.D.I., Inc.
Jacksonville, Florida
R. Stuart Dickson
Chairman of Executive Committee,
Ruddick Corporation
Charlotte, North Carolina
B.F. Dolan
Investor
Charlotte, North Carolina
Roddey Dowd Sr.
Chairman, Charlotte Pipe & Foundry Co.
Charlotte, North Carolina
John R. Georgius
President, First Union Corporation
Charlotte, North Carolina
William H. Goodwin Jr.
Chairman, AMF Companies
Richmond, Virginia
Brenton S. Halsey
Chairman Emeritus, James River Corporation
Richmond, Virginia
Howard H. Haworth
President, The Haworth Goup
Morganton, North Carolina
Torrence E. Hemby Jr.
President, Beverly Crest Corporation
Charlotte, North Carolina
Leonard G. Herring
President and Chief Executive Officer,
Lowe's Companies, Inc.
North Wilkesboro, North Carolina
Jack A. Laughery
Chairman, The Bagel Group, Inc.
Rocky Mount, North Carolina
Max Lennon
President and Chief Executive Officer,
Eastern Foods, Inc.
Atlanta, Georgia
Radford D. Lovett
Chairman, Commodores
Point Terminal Corporation
Jacksonville, Florida
Henry D. Perry Jr.
Physician
Plantation, Florida
Randolph N. Reynolds
Vice Chairman, Reynolds Metals Company
Richmond, Virginia
Ruth G. Shaw
Senior Vice President, Corporate Resources and
Chief Administrative Officer, Duke Power Company
Charlotte, North Carolina
Lanty L. Smith
Chairman and Chief Executive Officer,
Precision Fabrics Group, Inc.
Greensboro, North Carolina
Dewey L. Trogdon
Chairman, Cone Mills Corporation
Greensboro, North Carolina
John D. Uible
Investor
Jacksonville, Florida
B.J. Walker
Vice Chairman, First Union Corporation
Jacksonville, Florida
Kenneth G. Younger
Transportation Consultant
Gastonia, North Carolina
.................................
COMMITTEES OF THE CORPORATE
BOARD OF DIRECTORS
Executive Committee
B.F. Dolan, Chairman
Edward E. Crutchfield
Robert D. Davis
R. Stuart Dickson
Leonard G. Herring
Radford D. Lovett
Lanty L. Smith
B.J. Walker
Audit Committee
W. Waldo Bradley, Chairman
G. Alex Bernhardt, Vice Chairman
Roddey Dowd Sr.
Howard H. Haworth
Henry D. Perry Jr.
Randolph N. Reynolds
Howard L. Arthur Jr. (staff)
Robert T. Atwood (staff)
Financial Management Committee
Robert D. Davis, Chairman
Lanty L. Smith, Vice Chairman
Robert J. Brown
John R. Georgius
William H. Goodwin Jr.
Jack A. Laughery
Max Lennon
Ruth G. Shaw
John D. Uible
Kenneth G. Younger
Malcolm T. Murray Jr. (staff)
Louis A. Schmitt Jr. (staff)
Human Resources Committee
R. Stuart Dickson, Chairman
Leonard G. Herring, Vice Chairman
B.F. Dolan
Brenton S. Halsey
Torrence E. Hemby Jr.
Radford D. Lovett
Dewey L. Trogdon
Don R. Johnson (staff)
Nominating Committee
B.F. Dolan, Chairman
R. Stuart Dickson, Vice Chairman
Edward E. Crutchfield
Leonard G. Herring
Radford D. Lovett
.................................
FIRST UNION CORPORATION
EXECUTIVE OFFICERS
Edward E. Crutchfield
Chairman and Chief Executive Officer,
First Union Corporation
John R. Georgius
President, First Union Corporation
B.J. Walker
Vice Chairman,
First Union Corporation
Robert T. Atwood
Executive Vice President
and Chief Financial Officer,
First Union Corporation
Marion A. Cowell Jr.
Executive Vice President,
Secretary and General Counsel,
First Union Corporation
.................................
FIRST UNION CORPORATION
CORPORATE MANAGEMENT COMMITTEE
Austin A. Adams
Executive Vice President
for Automation and Operations,
First Union Corporation
Robert T. Atwood
Executive Vice President and Chief Financial
Officer, First Union Corporation
David M. Carroll
President, First Union National Bank of Georgia
Marion A. Cowell Jr.
Executive Vice President, Secretary
and General Counsel, First Union Corporation
Edward E. Crutchfield
Chairman and Chief Executive Officer,
First Union Corporation
Warner N. Dalhouse
Chairman, First Union National Bank of
Virginia, Washington, D.C., and Maryland
Frank H. Dunn Jr.
Chairman and Chief Executive Officer,
First Union National Bank of North Carolina
Malcolm E. Everett III
President,
First Union National Bank of North Carolina
John R. Georgius
President, First Union Corporation
Harald R. Hansen
Chairman and Chief Executive Officer,
First Union National Bank of Georgia
James H. Hatch
Senior Vice President, Controller
and Principal Accounting Officer,
First Union Corporation
Robert W. Helms
Vice Chairman and General Banking Group
Executive, First Union National Bank of Virginia
Washington, D.C., and Maryland
Byron E. Hodnett
Chief Executive Officer,
First Union National Bank of Florida
Benjamin P. Jenkins III
President and Chief Executive Officer,
First Union National Bank of Virginia,
Washington, D.C., and Maryland
Don R. Johnson
Executive Vice President for Human Resources,
First Union Corporation
Donald M. MacLeod
Executive Vice President,
General Banking Group,
First Union National Bank of Tennessee
Benjamin C. Maffitt III
Senior Vice President,
Commercial Banking Group,
First Union Corporation
Mark B. Mahoney
Senior Vice President and Managing
Director, Specialized Industries,
First Union National Bank of North Carolina
Barbara K. Massa
Senior Vice President for Corporate
Communications and Investor Relations,
Director of Community Reinvestment,
First Union Corporation
Daniel W. Mathis
Executive Vice President and Managing Director,
Capital Markets Group, First Union Corporation
James E. Maynor
President,
First Union Mortgage Corporation
Steven R. McClellan
Executive Vice President, General Banking Group
First Union National Bank of South Carolina
Donald A. McMullen
Executive Vice President and Head of the Capital
Management Group, First Union Corporation
H. Burt Melton
Executive Vice President for Consumer Credit and
Bank Related Services, First Union Corporation
John A. Mitchell III
Chairman, First Union National Bank of Florida
Malcolm T. Murray Jr.
Executive Vice President and Chief Credit Officer
First Union Corporation
Robert L. Reid
Chairman, President and Chief Executive Officer
First Union National Bank of Tennessee
Alvin T. Sale
Senior Vice President for Marketing and Strategic
Planning, First Union Corporation
Louis A. Schmitt Jr.
Executive Vice President and Managing Director,
Capital Markets Group, First Union Corporation
Kenneth R. Stancliff
Senior Vice President and Treasurer,
First Union Corporation
Sidney B. Tate
Chairman, President and Chief Executive Officer,
First Union National Bank of South Carolina
G. Kennedy Thompson
President, First Union National Bank of Florida
Richard K. Wagoner
Executive Vice President,
Capital Management Group,
First Union Corporation
B.J. Walker
Vice Chairman, First Union Corporation
Larry J. Wertz
Executive Vice President and Chief Financial
Officer, First Union National Bank of Florida
.................................
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA
Daniel T. Blue Jr.
Attorney, Thigpen, Blue, Stephens and Fellers
Raleigh, North Carolina
B. Mayo Boddie Sr.
Chairman and Chief Executive Officer,
Boddie-Noell Enterprises, Inc.
Rocky Mount, North Carolina
Raymond A. Bryan Jr.
Chairman and Chief Executive Officer,
T.A. Loving Company
Goldsboro, North Carolina
91
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<PAGE>
BOARDS OF DIRECTORS AND PRINCIPAL SUBSIDIARIES
FIRST UNION CORPORATION AND FULL-SERVICE BANKING SUBSIDIARIES
John F.A.V. Cecil
President, Biltmore Farms, Inc.
Biltmore, North Carolina
John W. Copeland
President, Ruddick Corporation
Charlotte, North Carolina
John Crosland Jr.
Chairman and President,
The Crosland Group, Inc.
Charlotte, North Carolina
J. William Disher
Chairman and Chief Executive Officer,
Lance, Inc.
Charlotte, North Carolina
Frank H. Dunn Jr.
Chairman and Chief Executive Officer,
First Union National Bank of North Carolina
Charlotte, North Carolina
Malcolm E. Everett III
President, First Union National
Bank of North Carolina
Charlotte, North Carolina
James F. Goodmon
President and Chief Executive Officer,
Capitol Broadcasting Company, Inc.
Raleigh, North Carolina
Shelton Gorelick
President, SGIC, Inc.
Charlotte, North Carolina
Charles L. Grace
President, Cummins Atlantic, Inc.
Charlotte, North Carolina
James E.S. Hynes
Chairman, Hynes Sales Company
Charlotte, North Carolina
Daniel W. Mathis
Vice Chairman, First Union
National Bank of North Carolina
Charlotte, North Carolina
Mackey J. McDonald
President and Chief Operating Officer,
VF Corporation
Wyomissing, Pennsylvania
Earl N. Phillips Jr.
President and Chief Executive Officer,
First Factors Corporation
High Point, North Carolina
J.G. Poole Jr.
Chairman and President,
Gregory Poole Equipment Company
Raleigh, North Carolina
John P. Rostan III
General Partner,
Heritage Investments
Valdese, North Carolina
Nelson Schwab III
Chairman and Chief Executive Officer,
Paramount Parks
Charlotte, North Carolina
Charles M. Shelton Sr.
General Partner,
The Shelton Companies
Charlotte, North Carolina
George Shinn
Chairman,
Shinn Enterprises Inc.
Charlotte, North Carolina
Harley F. Shuford Jr.
President and Chief Executive Officer,
Century Furniture Industries
Hickory, North Carolina
.................................
FIRST UNION NATIONAL BANK
OF FLORIDA
Bob D. Allen
President and Chief Executive Officer,
Consolidated-Tomoka Land Company
Daytona Beach, Florida
William B. Bond
Investor
Jacksonville, Florida
E. Bruce Bower
President, The Florida Stock and Land Company
Jacksonville, Florida
A. Dano Davis
Chairman and Principal Executive Officer,
Winn-Dixie Stores, Inc.
Jacksonville, Florida
Alexander W. Dreyfoos Jr.
Chairman and Owner,
WPEC TV-12/Photo Electronics Corporation
West Palm Beach, Florida
J. Nelson Fairbanks
President and Chief Executive Officer,
United States Sugar Corporation
Clewiston, Florida
Byron E. Hodnett
Chief Executive Officer,
First Union National Bank of Florida
Jacksonville, Florida
Edward W. Lane III
Attorney, Ulmer, Murchison, Ashby & Taylor, P.A.
Jacksonville, Florida
John F. Lowndes
Attorney, Lowndes, Drosdick,
Doster, Kantor & Reed, P.A.
Orlando, Florida
W.A. McGriff III
Investor
Jacksonville, Florida
Jorge MasCanosa
Chairman, MasTec, Inc.
Miami Springs, Florida
John A. Mitchell III
Chairman, First Union National Bank of Florida
Jacksonville, Florida
Orrin D. Mitchell
Orthodontist
Jacksonville, Florida
Ray C. Osborne
Attorney, Osborne, Osborne & deClaire, P.A.
Boca Raton, Florida
Herbert H. Peyton
President, Gate Petroleum Company
Jacksonville, Florida
William J. Schoen
Chairman, President and Chief Executive Officer,
Health Management Associates, Inc.
Naples, Florida
Mel Sembler
Chairman, The Sembler Company
St. Petersburg, Florida
G. Kennedy Thompson
President, First Union National Bank of Florida
Jacksonville, Florida
B.J. Walker
Vice Chairman, First Union Corporation
Jacksonville, Florida
Carol Graham Wyllie
Executive Vice President, The Graham Companies
Miami Lakes, Florida
.................................
FIRST UNION NATIONAL BANK
OF GEORGIA
Juanita P. Baranco
Executive Vice President, Automotive, Inc.
Decatur, Georgia
W. Frank Blount
Chief Executive Officer, Australian & Overseas
Telecommunications Corporation
Sydney, Australia
Otis A. Brumby Jr.
Publisher and Chief Executive Officer,
The Marietta Daily Journal
and Neighbor Newspapers Inc.
Marietta, Georgia
David M. Carroll
President, First Union National Bank of Georgia
Atlanta, Georgia
John E. Cay III
President, Palmer & Cay/Carswell, Inc.
Savannah, Georgia
Thomas W. Cole
President, Clark Atlanta University
Atlanta, Georgia
Edwin M. Crawford
Chairman, President and Chief Executive Officer,
Charter Medical Corporation
Atlanta, Georgia
Jere A. Drummond
President and Chief Executive Officer,
BellSouth Telecommunications Inc.
Atlanta, Georgia
Harald R. Hansen
Chairman and Chief Executive Officer,
First Union National Bank of Georgia
Atlanta, Georgia
J. Madden Hatcher Jr.
Attorney
Columbus, Georgia
James W. Key
Investor
Columbus, Georgia
Wyck A. Knox Jr.
Attorney, Kilpatrick and Cody
Augusta, Georgia
David L. Kolb
Chairman and Chief Executive Officer,
Mohawk Industries, Inc.
Atlanta, Georgia
Dr. J. Robert Logan
Managing Partner and Vice President,
Logan and Hoffman
Savannah, Georgia
Grover C. Maxwell Jr.
Investor
Greenville, North Carolina
J. Greeley McGowin II
Investor
Savannah, Georgia
Robert C. McMahan
President and Chief Executive Officer,
Golden Point Group, Inc.
Tucker, Georgia
C.V. Nalley III
President and Chief Executive Officer,
The Nalley Companies
Atlanta, Georgia
Walton K. Nussbaum
Investor
Savannah, Georgia
Carl E. Sanders
Attorney, Troutman, Sanders
Atlanta, Georgia
Henry C. Schwob
President, Schwob Realty Company
Columbus, Georgia
Arnold M. Tenenbaum
President, Chatham Steel Corporation
Savannah, Georgia
Dan M. Vaden Jr.
President, Dan Vaden Chevrolet-Geo, Inc.
Savannah, Georgia
.................................
FIRST UNION NATIONAL BANK
OF SOUTH CAROLINA
Louis P. Batson Jr.
Chairman and Chief Executive Officer,
Louis P. Batson Company
Greenville, South Carolina
Peter C. Browning
Executive Vice President,
Sonoco Products Company
Hartsville, South Carolina
Rex L. Carter
Attorney, Carter, Smith, Merriam, Rogers & Traxler
Greenville, South Carolina
George C. Fant Jr.
Investor
Columbia, South Carolina
I.S. Leevy Johnson
Attorney, Johnson, Toal & Battiste, P.A.
Columbia, South Carolina
James F. Kane
Dean Emeritus and Professor of Business,
University of South Carolina
Columbia, South Carolina
Harry M. Lightsey Jr.
Attorney, McNair and Sanford, P.A.
Columbia, South Carolina
Steven R. McClellan,
Executive Vice President,
First Union National Bank of South Carolina
Greenville, South Carolina
Patrick W. McKinney
President, Kiawah Island Real Estate Inc.
Charleston, South Carolina
F. Creighton McMaster
Chief Executive Officer,
Winnsboro Petroleum Company
Winnsboro, South Carolina
Ralph L. Ogden
President, Liberty Insurance Group
Greenville, South Carolina
John D. Orr
President, Orr Company
Florence, South Carolina
William L. Otis Jr.
Chairman and Chief Executive Officer,
Columbia Lumber and Manufacturing Co.
Columbia, South Carolina
Joseph P. Riley Jr.
Mayor, City of Charleston
Charleston, South Carolina
Alfred B. Robinson
President, Robinson Company, Inc.
Easley, South Carolina
Sidney B. Tate
Chairman, President and Chief Executive Officer,
First Union National Bank of South Carolina
Greenville, South Carolina
92
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<PAGE>
.................................
FIRST UNION NATIONAL BANK
OF TENNESSEE
T.B. Boyd III
President and Chief Executive Officer,
National Baptist Publishing Board
Nashville, Tennessee
Davis H. Carr
Attorney, Boult, Cummings, Conners and Berry
Nashville, Tennessee
Haywood D. Cochrane Jr.
President and Chief Executive Officer,
Allied Clinical Laboratories, Inc.
Nashville, Tennessee
Colleen Conway-Welch
Professor and Dean, School of Nursing,
Vanderbilt University
Nashville, Tennessee
John P. Cooper
Investor
Nashville, Tennessee
J. William Denny
President, Nashville Gas Division
of Piedmont Natural Gas Inc.
Nashville, Tennessee
Lloyd C. Elam
Professor of Psychiatry,
Meharry Medical College
Nashville, Tennessee
William M. Johnson
Investor
Sparta, Tennessee
Donald M. MacLeod
Executive Vice President, First Union
National Bank of Tennessee
Nashville, Tennessee
Gail O. Neuman
Vice President and General Counsel, Nissan
Motor Manufacturing Corporation, U.S.A.
Smyrna, Tennessee
Richard W. Oliver
Professor, Owen Graduate School of
Management, Vanderbilt University
Nashville, Tennessee
Robert L. Reid
Chairman, President and Chief Executive Officer,
First Union National Bank of Tennessee
Nashville, Tennessee
James E. Robinson
Chairman, Hodge-Hardy Agency, Inc.
Newport, Tennessee
Thomas J. Sherrard
Founding Partner, Sherrard & Roe
Nashville, Tennessee
Jack B. Turner
President, Jack B. Turner & Associates Inc.
Clarksville, Tennessee
George L. Yowell
President, Tennessee Tomorrow, Inc.
Nashville, Tennessee
.................................
FIRST UNION NATIONAL BANK
OF VIRGINIA
George R. Aldhizer Jr.
Attorney,
Wharton, Aldhizer & Weaver, P.L.C.
Harrisonburg, Virginia
Donald S. Beyer Jr.
Vice President,
Don Beyer Volvo
Falls Church, Virginia
J. Richard Carling
Vice Chairman,
First Union National Bank of Virginia
Roanoke, Virginia
James B. Crawford
Chairman and Chief Executive Officer,
James River Coal Co., Inc.
Richmond, Virginia
Warner N. Dalhouse
Chairman, First Union National Bank of Virginia
Roanoke, Virginia
Robert W. Helms
Vice Chairman, First Union
National Bank of Virginia
Roanoke, Virginia
James T. Holland
President, O'Sullivan Corporation
Winchester, Virginia
Glenn A. Hunsucker
President and Chief Operating Officer,
Bassett Furniture Industries Inc.
Bassett, Virginia
Benjamin P. Jenkins III
Chief Executive Officer and President,
First Union National Bank of Virginia
Roanoke, Virginia
William E. Lavery
President Emeritus, Virginia
Polytechnic Institute and State University
Blacksburg, Virginia
Thomas L. Robertson
President and Chief Executive Officer,
Carilion Health System
Roanoke, Virginia
William G. Shenkir
Professor, University of Virginia
Charlottesville, Virginia
Donald G. Smith
Chairman and Chief Executive Officer,
Roanoke Electric Steel Corporation
Roanoke, Virginia
Glenn O. Thornhill Jr.
President and Chief Executive Officer,
Maid Bess Corporation
Salem, Virginia
Paul E. Torgersen
President, Virginia Polytechnic Institute
and State University
Blacksburg, Virginia
.................................
PRINCIPAL SUBSIDIARIES
First Union National Bank of Florida
A full-service commercial bank with 552 offices.
225 Water Street
Jacksonville, Florida 32202
904-361-2265
First Union National Bank of North Carolina
A full-service commercial bank with 276 offices.
One First Union Center
Charlotte, North Carolina 28288
704-374-6161
First Union National Bank of Georgia
A full-service commercial bank with 154 offices.
999 Peachtree Street, Suite 1200
Atlanta, Georgia 30309
404-827-7100
First Union National Bank of Virginia
A full-service commercial bank with 177 offices.
213 South Jefferson Street
Roanoke, Virginia 24040
703-563-7000
First Union National Bank of South Carolina
A full-service commercial bank with 66 offices.
Insignia Financial Plaza, One Insignia Place
Greenville, South Carolina 29601
803-255-8000
First Union National Bank of Tennessee
A full-service commercial bank with 54 offices.
150 Fourth Avenue North
Nashville, Tennessee 37219
615-251-9200
First Union National Bank of Washington, D.C.
A full-service commercial bank with 33 offices.
740 15th Street NW
Washington, D.C. 20005
703-821-7777
First Union National Bank of Maryland
A full-service commercial bank with 26 offices.
Congressional Plaza Branch
110 Congressional Lane
Rockville, Maryland 20852
703-821-7777
First Union Brokerage Services Inc.
Securities brokerage firm.
One First Union Center
Charlotte, North Carolina 28288
704-374-6927
First Union Capital Markets Corp.
Provides a wide range of securities services in
accordance with Federal Reserve Board powers
granted to subsidiaries of bank holding companies.
One First Union Center
Charlotte, North Carolina 28288
704-383-8757
First Union Home Equity Bank, N.A.
Offers home equity loans through
184 offices in 42 states.
1000 Louis Rose Place
Charlotte, North Carolina 28262
704-593-9300
First Union Mortgage Corporation
Offers a variety of mortgage banking and
insurance services through 18 offices in 9 states.
Two First Union Center
Charlotte, North Carolina 28288
704-374-6161
Foreign Offices
Nassau Branch
First Union National Bank of North Carolina
Nassau, Bahamas
First Union Bank and Trust (Cayman) Ltd.
Cayman Islands
FIRST UNION ACROSS THE NATION
(Map appears here with the following legend:)
KEY
Darker color indicates the areas
of greatest concentration of
First Union Bank branch locations
Lighter color indicates the areas of
lowest concentration of First Union
Bank branch locations
First Union Mortgage Corporation
First Union Home Equity Bank, N.A.
93
...
(FIRST UNION logo)
<PAGE>
STOCKHOLDER INFORMATION
.................................
FINANCIAL INFORMATION
Analysts, stockholders and other investors seeking financial information
about First Union Corporation should contact Barbara Massa, senior vice
president for Corporate Communications and Investor Relations, at 704-374-2555
or Sean Fox, vice president for Investor Relations, at 704-374-7060. Call 1-800-
283-6214 for the latest news announcements through FAX-On-Demand.
INVESTOR RELATIONS
Our Investor Relations staff at 704-374-6782 also can provide information
about our dividend reinvestment program and direct deposit of dividends. Copies
of our Form 10-K may be obtained from Investor Relations, Two First Union
Center, Charlotte, North Carolina 28288-0206.
STOCKHOLDER ACCOUNTS
If you have questions concerning your stockholder account, please call our
transfer agent, First Union National Bank of North Carolina, at 1-800-347-1246.
MEDIA CONTACT
News media seeking general information should contact R. Jeep Bryant, senior
vice president for Media Relations, at 704-374-2957.
FINANCIAL REPORT
MAILING PROCEDURES
Our goal is to reduce the expense associated with mailing financial reports
to stockholders by receiving authorization to mail only one per address. This
authorization is strictly voluntary. Please check the appropriate box on the
postage paid Stockholder Information card that appears at the back of this
annual report.
.................................
ANNUAL MEETING
The annual meeting of stockholders will be held at 9:30 a.m. Tuesday, April
18, 1995, in the auditorium on the 12th floor of Two First Union Center,
Charlotte, North Carolina.
.................................
STOCK LISTING
First Union Corporation common stock is traded on the New York Stock
Exchange under the symbol FTU.
.................................
EQUAL OPPORTUNITY
EMPLOYER
First Union Corporation is an equal opportunity employer. All matters
regarding recruiting, hiring, training, compensation, benefits, promotions,
transfers and all other personnel policies will continue to be free from
discriminatory practices.
.................................
NIAC
First Union Corporation is a corporate sponsor of NAIC (National Association
of Investment Clubs) and participates in the Low-Cost Investment Plan.
.................................
INTERNET ADDRESS
Our Internet global computer address is URL:http://www.firstunion.com/ or
via electronic mail, [email protected].
.................................
SECURITIES AND DEBT RATINGS
STANDARD THOMSON
(AS OF DECEMBER 31, 1994) MOODY'S & POOR'S BANKWATCH
SECURITIES ISSUED BY FUNC
SENIOR DEBT
(Bullet) 7 1/2 percent debentures,
due December 1, 2002 A2 A A+
(Bullet) Floating rate extendible notes,
due June 15, 2005 A2 A A+
(Bullet)11 percent, due May 1, 1996 A2 A A+
(Bullet) Floating rate, due November 13, 1996 A2 A A+
(Bullet) 5.95 percent, due July 1, 1995 A2 A A+
(Bullet) 6 3/4 percent, due January 15, 1998 A2 A A+
(Bullet) Medium-term notes A2 A A+
SUBORDINATED NOTES
(Bullet) Floating rate, due July 22, 2003 A3 A- A
(Bullet) 11 percent, due 1996 A3 A- A
(Bullet) 8 1/8 percent, due December 15, 1996 A3 A- A
(Bullet) 9.45 percent, due June 15, 1999 A3 A- A
(Bullet) 9.45 percent, due August 15, 2001 A3 A- A
(Bullet) 8 1/8 percent, due June 24, 2002 A3 A- A
(Bullet) 8 percent, due November 15, 2002 A3 A- A
(Bullet) 7 1/4 percent, due February 15, 2003 A3 A- A
(Bullet) 6 5/8 percent, due July 15, 2005 A3 A- A
(Bullet) 6 percent, due October 30, 2008 A3 A- A
(Bullet) 6 3/8 percent, due January 15, 2009 A3 A- A
(Bullet) 8 percent, due August 15, 2009 A3 A- A
(Bullet) 8.77 percent, due November 15, 2004 A3 A- A
(Bullet) Medium-term notes A3 A- A
COMMERCIAL PAPER P-1 A-1 TBW-1
DEBT ISSUED BY SUBSIDIARIES OF FUNC
(Bullet) Bank notes issued by FUNB-NC Aa3 A+ -
(Bullet) FUNC-VA senior debt - A -
(Bullet) FUNC-VA subordinated debt A3 A- -
(Bullet) FUNC-FL subordinated debt A3 A- -
SHORT-TERM CERTIFICATES
OF DEPOSIT ISSUED BY
(Bullet) FUNB-NC P-1 A-1 TBW-1
(Bullet) FUNB-FL P-1 A-1 TBW-1
(Bullet) FUNB-GA P-1 - TBW-1
(Bullet) FUNB-VA P-1 A-1 TBW-1
LONG-TERM CERTIFICATES
OF DEPOSIT ISSUED BY
(Bullet) FUNB-NC Aa3 A+ -
(Bullet) FUNB-FL A1 A+ -
(Bullet) FUNB-GA A1 - -
(Bullet) FUNB-VA A1 A+ -
LETTERS OF CREDIT ISSUED
BY FUNB-NC AND FUNB-FL
(Bullet) Short-term P-1 A-1 -
(Bullet) Long-term FUNB-NC Aa3 A+ -
(Bullet) Long-term FUNB-FL A1 A+ -
THOMSON BANKWATCH RATES FIRST UNION CORPORATION B.
FUNC - FIRST UNION CORPORATION
FUNB-NC - FIRST UNION NATIONAL BANK OF NORTH CAROLINA
FUNB-FL - FIRST UNION NATIONAL BANK OF FLORIDA
FUNC-FL - FIRST UNION CORPORATION OF FLORIDA
FUNB-GA - FIRST UNION NATIONAL BANK OF GEORGIA
FUNB-VA - FIRST UNION NATIONAL BANK OF VIRGINIA
FUNC-VA - FIRST UNION CORPORATION OF VIRGINIA
94
...
(FIRST UNION logo)
<PAGE>
(First Union Logo)
FIRST UNION CORPORATION
Two First Union Center
Charlotte, NC 28288-0570
<PAGE>
EXHIBIT (21)
FIRST UNION CORPORATION
LIST OF SUBSIDIARIES*
Capitol Finance Group, Inc.
First Union Capital Markets Corp.
First Union Community Development Corporation
Barrett Place Limited Partnership (99%)
Parkchester Limited Partnership (99%)
First Union Corporation of Florida
ABCA, Inc.
Citrus County Land Corp.
Citrus County Service Corp.
Davis Boulevard Service Corporation
Melbourne Atlantic Venture Partners (20%)
Naples Financial Services, Inc.
Carlton Place, Ltd.
BancFlorida Investment Services, Inc.
First Union National Bank of Florida**
Alden Pond, Inc.
Bart, Inc.
CIMC, Inc.
First Union Bank and Trust Company (Cayman) Ltd.
FNB Properties, Inc.
Ft. Lauderdale Hotel Holding Company
General Homes Corp. (9.205%)***
Horizon Appraisal Services, Inc.
Jacksonville Affordable Housing, Ltd., (98%)
O.R.E.O., Inc.
Ravenwood of Kissimmee, Ltd. (99%)
Taroc, Inc.
Venice Service Corp.
Bartow Operations, Inc.
Mid-Island Service Corp.
Port Charlotte Service Corp.
Wiggins Service Corporations, Inc.
Villa Biscayne of South Dade, Ltd. (99%)
WSI, Inc.
Meritor Service Corporation of Florida, Inc.
NAFCO Equipment Corporation
First Union Corporation of Georgia
DFS Services, Inc.
First Union National Bank of Georgia**
Ashton of Richmond Hill, L.P. (99%)
DF Southeastern Mortgage, Inc.
GABK Holdings, Inc.
GF Mortgage Corporation
HHS Property Corporation
The Atlanta Business Community Development Corporation (21.7%)
Georgia Associated Services, Inc.
Rainforest Associates (50%)
GF Data Corporation
GF Title Corporation
The GF Group, Inc.
<PAGE>
FIRST UNION CORPORATION
LIST OF SUBSIDIARIES* -- CONTINUED
Associated Financial Corporation
Grogan's Bluff Venture (50%)
First Union Corporation of North Carolina
First Union Corporation of South Carolina
First Union National Bank of South Carolina**
Business Development Corporation of South Carolina (8.7%)
First Service Corporation of South Carolina
Arrowwood Associates (50%)
SCBK Holdings, Inc.
First Union Corporation of Virginia****
Atlantic Venture Partners II, L.P. (5.44%)
First Union Corporation of Tennessee
First Union National Bank of Tennessee**
ACB Services, Inc
Professional Asset Management in Tennessee, Inc.
First Union National Bank of Virginia**
Arbor Glenn L.P. (99%)
Dominion Investment Banking, Inc.
Fairfax County Redevelopment and Housing Authority/HCDC One L.P. (99%)
Fairfax County Redevelopment and Housing Authority/HCDC Two L.P. (99%)
First Union Capital Partners, Inc.
Atlantic Spinners, Inc. (12.5%)
Chattem, Inc. (22.9%)
HHI Holdings, Inc. (30.56%)
Micromed Development Corporation (30.77%)
Petstuff, Inc. (5.3%)
Housing Equity Fund of Virginia, II, L.P. (38.5%)
International Progress, Inc. (50%)
Mountain Falls Park, Inc.
Lafayette Family L.P. (99%)
Shenandoah Valley Properties L.P. (99%)
Craigmont II, L.P. (99%)
Elkmont Partners, L.P. (99%)
Grottoes Partners L.P. (99%)
Willow Lake Partners, L.P. (99%)
WNB Corporation
First Union National Bank of Washington, D.C.**
First Properties Associates, Inc.
Maryland Bankshares, Inc.
First Union National Bank of Maryland**
First American Properties of Maryland, Inc.
TRSTE, Inc.
First Union Development Corporation
CK-Southern Associates #2, Limited Partnership (33 1/3%)
First Union Export Trading Company
First Union Futures Corporation
First Union Home Equity Bank, N.A.
First Union Mortgage Corporation
Farmington, Incorporated
Ghent-Farmington Associates (50%)
<PAGE>
FIRST UNION CORPORATION
LIST OF SUBSIDIARIES* -- CONTINUED
First Union Title Corporation
R.B.C. Corporation
Slate Stone Hills, Incorporated
The Fairfax Corporation
Interchange Partners (50%)
North Ridge, Inc. (50%)
Real Estate Consultants of the South, Inc.
First Union National Bank of North Carolina**
100 Block Associates Limited Partnership (93.75%)
Evergreen Asset Management Corp.
First Stratford Partnership (40%)
First Union Brokerage Services, Inc.
First Union Commercial Corporation
First Wells Fargo Leasing Partnership (90%)
Multiplex Leasing Partners (90%)
First Union Commercial Leasing Group, L.L.C. (99% owned by First Union
National Bank of North Carolina; 1% owned by First Union Commercial
Corporation)
First Union International Banking Corporation
First Union HKCB Asia, Ltd. (50%)
First Union Investment Corporation
First Union Mortgage Securities, Inc.
Gainsborough Corporation
GGL, Inc.***
C4 Media Cable South, Limited Partnership (50%)***
Novaten Communications, Inc. (50%)***
Lieber I Corp.
Lieber & Company (99% owned by Lieber I Corp.; 1% owned by Lieber II
Corp.)
Lieber II Corp.
MHD, Inc.***
First Union Transportation Services, Inc.
General Financial Life Insurance Company
Internet, Inc. (9.4%)
Queen City Special Company B
Southeast Switch, Inc. (15%)
Tryon Management, Inc.
Washington Bankshares, Inc.****
* Wholly-owned unless otherwise indicated.
** Wholly-owned except for directors' qualifying shares.
*** Interest acquired or subsidiary formed in connection with debts
previously contracted other than those involving other real estated
owned (OREO).
**** Washington Bankshares, Inc. received 134 shares of Class B stock of
First Union Corporation of Virginia in connection with the merger of
its subsidiary, First American Bank, N.A., into Dominion Bank of
Washington, N.A. (now First Union National Bank of Washington, D.C.).
<PAGE>
EXHIBIT (23)
CONSENT OF KPMG PEAT MARWICK LLP
THE BOARD OF DIRECTORS
First Union Corporation
We consent to the incorporation by reference in the Registration Statements
on Form S-8 (No. 2-42050); Form S-8 (No. 33-1721); Form S-8 (No. 33-11234); Form
S-3 (No. 33-44660); Form S-8 (No. 33-47447); Form S-8 (No. 33-51964); Form S-8
(No. 33-54148); Form S-8 (No. 33-54274); Form S-3 (No. 33-50101); Form S-3 (No.
33-50103); Form S-8 (33-53103); Form S-8 (33-54739); Form S-8 (33-54905); Form
S-3 (33-56927); and Form S-3 (33-57279) of First Union Corporation of our report
dated January 12, 1995, relating to the consolidated balance sheets of First
Union Corporation and subsidiaries as of December 31, 1994 and 1993, 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,
1994, which report appears in the Annual Report to Stockholders which is
incorporated by reference in First Union Corporation's 1994 Form 10-K.
KPMG PEAT MARWICK LLP
Charlotte, North Carolina
March 3, 1995
<PAGE>
EXHIBIT (24)
FIRST UNION CORPORATION
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned directors and officers
of FIRST UNION CORPORATION (the "Corporation") hereby constitute and appoint
Marion A. Cowell, Jr. and Kent S. Hathaway, and each of them severally, the true
and lawful agents and attorneys-in-fact of the undersigned with full power and
authority in said agents and the attorneys-in-fact, and in any one of them, to
sign for the undersigned and in their respective names as directors and officers
of the Corporation, the Form 10-K Annual Report for the year ended December 31,
1994, to be filed by First Union Corporation with the Securities and Exchange
Commission.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
<C> <S>
EDWARD E. CRUTCHFIELD Chairman and Chief Executive Officer and Director
EDWARD E. CRUTCHFIELD
ROBERT T. ATWOOD Executive Vice President and Chief Financial Officer
ROBERT T. ATWOOD
JAMES H. HATCH Senior Vice President and Corporate Controller (Principal
Accounting Officer)
JAMES H. HATCH
G. ALEX BERNHARDT Director
G. ALEX BERNHARDT
W. WALDO BRADLEY Director
W. WALDO BRADLEY
ROBERT J. BROWN Director
ROBERT J. BROWN
Director
ROBERT D. DAVIS
R. STUART DICKSON Director
R. STUART DICKSON
B. F. DOLAN Director
B. F. DOLAN
RODDEY DOWD, SR. Director
RODDEY DOWD, SR.
JOHN R. GEORGIUS Director
JOHN R. GEORGIUS
WILLIAM H. GOODWIN, JR. Director
WILLIAM H. GOODWIN, JR.
BRENTON S. HALSEY Director
BRENTON S. HALSEY
</TABLE>
<PAGE>
SIGNATURE CAPACITY
HOWARD H. HAWORTH Director
HOWARD H. HAWORTH
TORRENCE E. HEMBY, JR. Director
TORRENCE E. HEMBY, JR.
LEONARD G. HERRING Director
LEONARD G. HERRING
JACK A. LAUGHERY Director
JACK A. LAUGHERY
MAX LENNON Director
MAX LENNON
RADFORD D. LOVETT Director
RADFORD D. LOVETT
HENRY D. PERRY, JR. Director
HENRY D. PERRY, JR.
RANDOLPH N. REYNOLDS Director
RANDOLPH N. REYNOLDS
RUTH G. SHAW Director
RUTH G. SHAW
LANTY L. SMITH Director
LANTY L. SMITH
DEWEY L. TROGDON Director
DEWEY L. TROGDON
JOHN D. UIBLE Director
JOHN D. UIBLE
B. J. WALKER Director
B. J. WALKER
KENNETH G. YOUNGER Director
KENNETH G. YOUNGER
Dated: February 21, 1995
Charlotte, North Carolina
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C> <C> <C>
<PERIOD-TYPE> 6-MOS 9-MOS 12-MOS
<FISCAL-YEAR-END> JUN-30-1994 SEP-30-1994 DEC-31-1994
<PERIOD-END> JUN-30-1994 SEP-30-1994 DEC-31-1994
<CASH> 2,809,958 3,212,888 3,740,691
<INT-BEARING-DEPOSITS> 1,387,532 632,206 945,126
<FED-FUNDS-SOLD> 1,909,486 1,771,643 1,371,025
<TRADING-ASSETS> 933,011 1,303,453 1,206,675
<INVESTMENTS-HELD-FOR-SALE> 9,709,341 8,226,530 7,752,479
<INVESTMENTS-CARRYING> 2,995,102 3,179,763 3,729,869
<INVESTMENTS-MARKET> 3,104,804 3,269,641 3,742,534
<LOANS> 49,252,202 52,174,944 54,702,082
<ALLOWANCE> (1,007,839) (1,004,298) (978,795)
<TOTAL-ASSETS> 72,604,401 74,243,118 77,313,505
<DEPOSITS> 53,772,260 53,687,051 58,958,273
<SHORT-TERM> 8,959,378 9,988,596 7,532,343
<LIABILITIES-OTHER> 1,260,203 1,541,549 1,778,009
<LONG-TERM> 3,129,444 3,269,363 3,428,514
<COMMON> 575,989 585,948 586,779
0 0 0
31,592 31,592 0
<OTHER-SE> 4,781,000 5,005,091 4,810,738
<TOTAL-LIABILITIES-AND-EQUITY> 72,604,401 74,243,118 77,313,505
<INTEREST-LOAN> 1,945,762 3,022,845 4,173,338
<INTEREST-INVEST> 389,725 580,314 768,799
<INTEREST-OTHER> 38,558 63,464 95,279
<INTEREST-TOTAL> 2,397,814 3,705,191 5,094,661
<INTEREST-DEPOSIT> 651,866 1,020,284 1,441,248
<INTEREST-EXPENSE> 919,916 1,450,774 2,060,946
<INTEREST-INCOME-NET> 1,477,898 2,254,417 3,033,715
<LOAN-LOSSES> 50,000 75,000 100,000
<SECURITIES-GAINS> 2,674 2,014 (7,501)
<EXPENSE-OTHER> 1,291,061 1,973,280 2,677,228
<INCOME-PRETAX> 691,303 1,063,202 1,415,456
<INCOME-PRE-EXTRAORDINARY> 452,079 693,831 925,380
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 452,079 693,831 925,380
<EPS-PRIMARY> 2.59 3.94 5.22
<EPS-DILUTED> 2.59 3.94 5.22
<YIELD-ACTUAL> 4.78 4.80 4.77
<LOANS-NON> 523,291 494,742 397,638
<LOANS-PAST> 85,948 115,903 140,081
<LOANS-TROUBLED> 2,730 674 1,872
<LOANS-PROBLEM> 0 0 0
<ALLOWANCE-OPEN> 1,020,191 1,020,191 1,020,191
<CHARGE-OFFS> 110,584 182,704 254,927
<RECOVERIES> 47,623 72,587 92,011
<ALLOWANCE-CLOSE> 1,007,839 1,004,298 978,795
<ALLOWANCE-DOMESTIC> 637,300 695,972 699,025
<ALLOWANCE-FOREIGN> 0 3,172 3,535
<ALLOWANCE-UNALLOCATED> 370,539 305,154 276,235
</TABLE>
<PAGE>
EXHIBIT (99)(A)
FIRST UNION CORPORATION OF VIRGINIA AND SUBSIDIARIES
SUMMARIZED FINANCIAL INFORMATION
(UNAUDITED)
In connection with the merger of Dominion Bankshares Corporation into First
Union Corporation of Virginia ("FUNC-VA"), a wholly-owned subsidiary of First
Union Corporation (the "Corporation"), on March 1, 1993, FUNC-VA assumed, and
subsequently the Corporation guaranteed, FUNC-VA's publicly held 9 5/8%
Subordinated Capital Notes Due 1999. Set forth below is summarized consolidated
financial information for FUNC-VA and subsidiaries for the periods indicated.
CONSOLIDATED STATEMENT OF INCOME DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
(IN THOUSANDS) 1994 1993
<S> <C> <C>
Net interest income................................................................................... $506,949 407,915
Income before income taxes............................................................................ 201,961 102,793
Net income............................................................................................ $131,423 76,676
</TABLE>
CONSOLIDATED BALANCE SHEET DATA
<TABLE>
<CAPTION>
DECEMBER 31,
(IN THOUSANDS) 1994 1993
<S> <C> <C>
Assets......................................................................................... $13,327,766 13,944,799
Securities available for sale.................................................................. 2,410,244 2,490,663
Investment securities.......................................................................... 376,072 85,593
Loans, net of unearned income.................................................................. 7,820,643 7,124,476
Stockholder's equity........................................................................... $ 1,074,019 1,229,744
</TABLE>
<PAGE>
EXHIBIT (99)(B)
FIRST UNION CORPORATION
PRO FORMA FINANCIAL INFORMATION
PRO FORMA COMBINED CONDENSED INCOME STATEMENTS
(UNAUDITED)
The following unaudited pro forma combined condensed statements of income
present the combined statements of income assuming the companies had been
combined for each period presented on a purchase accounting basis (effective as
of January 1, 1994).
<TABLE>
<CAPTION>
FIRST UNION PURCHASE PRO FORMA PRO FORMA
(IN THOUSANDS EXCEPT PER SHARE DATA) CORPORATION ACQUISITIONS ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994
Interest income........................................................ $5,094,661 544,564 (54,991) 5,584,234
Interest expense....................................................... 2,060,946 301,751 -- 2,362,697
Net interest income.................................................... 3,033,715 242,813 (54,991) 3,221,537
Provision for loan losses.............................................. 100,000 363 -- 100,363
Net interest income after provision for loan losses.................... 2,933,715 242,450 (54,991) 3,121,174
Securities available for sale transactions............................. (11,507 ) 2,085 -- (9,422 )
Investment security transactions....................................... 4,006 -- -- 4,006
Noninterest income..................................................... 1,166,470 40,575 -- 1,207,045
Noninterest expense.................................................... 2,677,228 197,446 37,015 2,911,689
Income before income taxes............................................. 1,415,456 87,664 (92,006) 1,411,114
Income taxes........................................................... 490,076 27,551 (28,905) 488,722
Net income............................................................. 925,380 60,113 (63,101) 922,392
Dividends on preferred stock........................................... 25,353 -- -- 25,353
Net income applicable to common stockholders before redemption
premium.............................................................. 900,027 60,113 (63,101) 897,039
Redemption premium on preferred stock.................................. 41,355 -- -- 41,355
Net income applicable to common stockholders after redemption
premium.............................................................. $ 858,672 60,113 (63,101) 855,684
Pro forma per common share data
Net income available to common stockholders before redemption
premium............................................................ $ 5.22 5.07
Net income available to common stockholders after redemption
premium............................................................ $ 4.98 4.84
Average common shares (in thousands)................................. 172,543 176,835
</TABLE>
See accompanying notes to pro forma financial information.
<PAGE>
FIRST UNION CORPORATION
PRO FORMA FINANCIAL INFORMATION
PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
FIRST UNION PURCHASE PRO FORMA PRO FORMA
(IN THOUSANDS) CORPORATION ACQUISITIONS ADJUSTMENT COMBINED
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks............................................. $ 3,740,691 94,799 (943,537) 2,891,953
Interest-bearing balances........................................... 945,126 2,812 -- 947,938
Federal funds sold and securities purchased under resale
agreements........................................................ 1,371,025 81,568 -- 1,452,593
Total cash and cash equivalents................................... 6,056,842 179,179 (943,537) 5,292,484
Trading account assets.............................................. 1,206,675 -- -- 1,206,675
Securities available for sale....................................... 7,752,479 314,798 -- 8,067,277
Investment securities............................................... 3,729,869 1,931,631 (94,322) 5,567,178
Loans, net of unearned income....................................... 54,029,752 5,216,145 -- 59,245,897
Allowance for loan losses......................................... (978,795) (43,789) -- (1,022,584)
Loans, net........................................................ 53,050,957 5,172,356 -- 58,223,313
Premises and equipment.............................................. 1,756,297 91,025 (22,725) 1,824,597
Due from customers on acceptances................................... 218,849 -- -- 218,849
Mortgage servicing rights........................................... 84,898 11,304 29,295 125,497
Credit card premium................................................. 58,494 -- -- 58,494
Other intangible assets............................................. 1,198,907 74,473 473,306 1,746,686
Segregated assets................................................... 164,568 -- -- 164,568
Other assets........................................................ 2,034,670 208,660 (13,571) 2,229,759
Total assets...................................................... $77,313,505 7,983,426 (571,554) 84,725,377
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing............................................... 10,523,538 290,444 -- 10,813,982
Interest-bearing.................................................. 48,434,735 5,410,881 -- 53,845,616
Total deposits................................................. 58,958,273 5,701,325 -- 64,659,598
Short-term borrowings............................................... 7,532,343 591,078 -- 8,123,421
Bank acceptances outstanding........................................ 218,849 -- -- 218,849
Other liabilities................................................... 1,778,009 126,897 10,204 1,915,110
Long-term debt...................................................... 3,428,514 852,758 -- 4,281,272
Total liabilities.............................................. 71,915,988 7,272,058 10,204 79,198,250
STOCKHOLDERS' EQUITY
Preferred stock..................................................... -- 5,861 (5,861) --
Common stock........................................................ 586,779 44,296 (34,256) 596,819
Paid-in capital..................................................... 1,433,422 550,182 (430,612) 1,552,992
Retained earnings................................................... 3,591,581 175,679 (175,679) 3,591,581
Less: Treasury stock................................................ -- (51,283) 51,283 --
Unrealized loss on debt and equity securities....................... (214,265) (13,367) 13,367 (214,265)
Total stockholders' equity..................................... 5,397,517 711,368 (581,758) 5,527,127
Total liabilities and stockholders' equity..................... $77,313,505 7,983,426 (571,554) 84,725,377
</TABLE>
See accompanying notes to pro forma financial information.
<PAGE>
NOTES TO PRO FORMA FINANCIAL INFORMATION
(1) The pro forma information presented is not necessarily indicative of
the results of operations or the combined financial position that would
have resulted had the acquisitions indicated in Note (2) been
consummated at the beginning of the periods indicated, nor is it
necessarily indicative of the results of operations in future periods
or the future financial position of the combined entities.
(2) During 1994, First Union Corporation (the "Corporation") entered into
various transactions which included (i) the pooling of interests
acquisitions of American Bancshares, Inc., Lieber & Company and Home
Federal Savings Bank with aggregate assets of $478 million as of the
dates acquired and which involved the issuance of 4,169,000 shares of
the Corporation's common stock, and the August 1994 purchase accounting
acquisition of BancFlorida Financial Corporation with assets of $1.6
billion at a cost of $161 million, (ii) the pending purchase accounting
acquisitions of First Florida Savings Bank, FSB, Ameribanc Investors
Group, and Coral Gables Fedcorp, Inc., at an aggregate estimated cost
of approximately $603 million in cash and the pending purchase
accounting acquisitions of American Savings Bank of Florida, FSB
("American Savings") and United Financial Corporation of South
Carolina, Inc. ("United Financial") for approximately 9.0 million
shares of the Corporation's common stock valued at approximately $385
million, (iii) the December 1994 purchase of a DE MINIMUS amount of
loans, and the purchase of deposits from Chase Manhattan Bank of
Florida, N.A. ("Chase") and Great Western Federal Savings Bank ("Great
Western"), which in the aggregate amounted to $1.8 billion, at an
aggregate cost of approximately $137 million, and (iv) the purchase of
deposits of Jacksonville Federal Savings Association, Citizens Federal
Savings Association, Cobb Federal Savings Association and Hollywood
Federal Savings Association from the Resolution Trust Corporation
("RTC") in the aggregate amount of $640 million, at an aggregate cost
of $68 million. Purchases of deposits from Chase, Great Western and the
RTC do not constitute a sufficient continuity of operations, and
moreover, additional financial data is not available to develop
meaningful and reliable pro forma income statement information with
respect to such purchases.
Beginning in the third quarter of 1994 and continuing through February
14, 1995, the Corporation paid $161 million to purchase 3.8 million
shares of its common stock to be issued in connection with the American
Savings acquisition. The Corporation expects to purchase 3.0 million
shares of its common stock for approximately $132 million to be issued
for the United Financial acquisition. Goodwill and deposit base premium
of approximately $552 million and $326 million, respectively, are
currently expected to result from all completed and pending purchase
transactions.
On a pooling of interests accounting basis, income and other financial
statements of the Corporation issued after consummation of such pooling
of interests transactions would normally be restated retroactively to
reflect the consolidated combined financial position and results of
operations of the Corporation as if such transactions had taken place
prior to the periods covered by such financial statements; however,
because of the relative immateriality of such transactions to the
Corporation on a consolidated basis, such statements, will not be
retroactively restated solely as a result of consummation of those
acquisitions.
(3) In determining the pro forma adjustment amounts related to the pro
forma combined condensed statements of income, a 3.68 percent to 4.08
percent and 3.12 percent cost of funds for the years ended December 31,
1994 and 1993, respectively, a six-to-ten year straight-line life
related to investment securities, a nine-year straight-line life
related to loans, a 10-year straight-line life related to premises and
equipment and mortgage servicing rights, a 10-year sum-of-the-years
digits method related to deposit base premium, and a 25-year
straight-line life related to goodwill, were used.
(4) Certain insignificant reclassifications have been included herein to
conform statement presentations. Transactions conducted in the ordinary
course of business between the companies are immaterial and,
accordingly, have not been eliminated.
(5) The unaudited pro forma financial information does not include any
material expenses or restructuring charges related to the acquisitions.
(6) As indicated by the foregoing unaudited pro forma financial information
and based solely on combined financial information as of December 31,
1994, upon consummation of the acquisitions, the Corporation's
historical net income per common share for the year ended December 31,
1994, would have been dilutive by 2.9 percent. It should not
necessarily be assumed, however, that the foregoing data will represent
actual dilution with respect to the acquisitions.
