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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission file number 1-10000
FIRST UNION CORPORATION
(Exact name of registrant as specified in its charter)
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NORTH CAROLINA 56-0898180
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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FIRST UNION CORPORATION
ONE FIRST UNION CENTER
CHARLOTTE, NORTH CAROLINA 28288-0013
(Address of principal executive offices)
(Zip Code)
(704) 374-6565
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
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 X No
APPLICABLE ONLY TO ISSUERS 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 Sections 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 No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
170,410,356 shares of Common Stock, par value $3.33 1/3 per share, were
outstanding as of October 31, 1995.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The following unaudited consolidated financial statements of First Union
Corporation (the "Corporation" or "FUNC") within Item 1 include, in the opinion
of management, all adjustments (consisting only of normal recurring adjustments)
necessary for fair presentation of such consolidated financial statements for
the periods indicated.
1
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FUNC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF INCOME
CONSOLIDATED STATEMENTS OF CASH FLOWS
The Consolidated Balance Sheets of FUNC and Subsidiaries at September 30,
1995, September 30, 1994, and December 31, 1994, respectively, set forth on page
T-23 of the Corporation's Third Quarter Financial Supplement for the nine months
ended September 30, 1995, (the "Financial Supplement"), are incorporated herein
by reference.
The Consolidated Statements of Income of FUNC and Subsidiaries for the
three and nine months ended September 30, 1995 and 1994, set forth on pages T-24
and T-25 of the Financial Supplement, are incorporated herein by reference.
The Consolidated Statements of Cash Flows of FUNC and Subsidiaries for the
nine months ended September 30, 1995 and 1994, set forth on page T-26 of the
Financial Supplement, are incorporated herein by reference.
A copy of the Financial Supplement is being filed as Exhibit (19) to this
Report.
2
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FUNC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: LOANS
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. 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.
On January 1, 1995, the provisions of Standards No. 114 and 118 were
adopted. The adoption of the Standards required no increase to the allowance for
loan losses and had no impact on net income in the first nine months of 1995.
The impact to historical and current amounts related to in-substance
foreclosures was not material, and accordingly, historical amounts have not been
restated.
When the ultimate collectibility of an impaired loan's principal is in
doubt, wholly or partially, all cash receipts are applied to principal. When
this doubt does not exist, cash receipts are applied under the contractual terms
of the loan agreement first to principal and then to interest income. Once the
recorded principal balance has been reduced to zero, future cash receipts are
applied to interest income, to the extent that any interest has been foregone.
Further cash receipts are recorded as recoveries of any amounts previously
charged off.
A loan is also considered impaired if its terms are modified in a troubled
debt restructuring after January 1, 1995. For these accruing impaired loans,
cash receipts are typically applied to principal and interest receivable in
accordance with the terms of the restructured loan agreement. Interest income is
recognized on these loans using the accrual method of accounting. As of
September 30, 1995, there were no accruing impaired loans.
At September 30, 1995, impaired loans amounted to $302 million. Included in
the allowance for loan losses is $33 million related to $234 million of impaired
loans. The remainder of the impaired loans are recorded at or below fair value.
In the first nine months of 1995, the average recorded investment in
impaired loans was $316 million and $11 million of interest income was
recognized on loans while they were impaired. All of this income was recognized
using a cash-basis method of accounting.
NOTE 2: OFF-BALANCE SHEET RISK AND CARRYING AMOUNTS AND FAIR VALUE OF FINANCIAL
INSTRUMENTS
Information related to off-balance sheet risk as of September 30, 1995, is
included in Tables 19 through 21 of the Financial Supplement on pages T-16
through T-18.
At September 30, 1995, the net fair value of the Corporation's recorded net
financial assets subject to valuation in accordance with Financial Accounting
Standard No. 107, "Disclosures about Fair Value of Financial Instruments,"
increased 22 percent from year-end 1994 as a result of an increase in the net
financial assets subject to such valuation and increased less than one percent
as a result of changes in interest rates from year-end 1994.
Information related to off-balance sheet risk and the impact of changes in
interest rates should be read in conjunction with the "Interest Rate Risk
Management" section of the Financial Supplement.
3
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PART II. OTHER INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Management's Analysis of Operations appears on pages 2 through 19 and T-1
through T-26 of the Financial Supplement and is incorporated herein by
reference.
A copy of the Financial Supplement is being filed as Exhibit (19) to this
Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the special meeting of the stockholders of the Corporation held on
October 3, 1995, the proposal to approve the issuance of shares of FUNC Common
Stock and FUNC Series B Convertible Class A Preferred Stock as consideration in
the proposed merger of First Fidelity Bancorporation ("First Fidelity") with and
into First Union Corporation of New Jersey ("FUNC-NJ") pursuant to an Agreement
and Plan of Merger, dated as of June 18, 1995, by and among First Fidelity, FUNC
and FUNC-NJ was approved at the meeting by the following vote: 116,289,179
"FOR", 14,705,008 "AGAINST" and 1,041,165 "ABSTAIN".
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
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EXHIBIT NO. DESCRIPTION
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(2) Agreement and Plan of Merger, dated June 18, 1995, by and among FUNC, FUNC-NJ and First Fidelity (including as
exhibits thereto, a First Fidelity Option Agreement (Exhibit A thereto), a FUNC Option Agreement (Exhibit C
thereto), an Agreement among Banco Santander, S.A., FUNC and First Fidelity (Exhibit B thereto), and a Third
Amendment to FUNC's Shareholder Protection Rights Agreement (Exhibit E thereto)). (Incorporated by reference to
Exhibit (99) to the Corporation's Current Report on Form 8-K dated June 21, 1995.)
(3) Bylaws of the Corporation, as amended. (Incorporated by reference to Exhibit (3)(b) to Post-Effective Amendment
No. 1 to Registration Statement No. 33-62399.)
(4) Instruments defining the rights of security holders, including indentures.*
(12) Computations of Consolidated Ratios of Earnings to Fixed Charges.
(19) The Corporation's Third Quarter Financial Supplement.
(20) The Corporation's Third Quarter Report to Stockholders.**
(27) The Corporation's Financial Data Schedule.***
(99)(a) First Union Corporation of Virginia and Subsidiaries Summarized Financial Information.
(99)(b) Pro Forma Financial Information.
(99)(c) Certain Financial Information of First Fidelity.
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* The Corporation agrees to furnish to the 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 consolidated subsidiaries.
** The Third Quarter Report to Stockholders is furnished for the information of
the Commission only and is not to be deemed "filed" as part of this Form
10-Q.
*** Filing by Electronic Data Gathering, Analysis and Retrieval System only.
(b) Reports on Form 8-K.
During the quarter ended September 30, 1995, a Current Report on Form 8-K,
dated August 30, 1995, was filed with the Commission by the Corporation.
4
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SIGNATURES
Pursuant to the Requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FIRST UNION CORPORATION
Date: November 14, 1995
By: /s/ JAMES H. HATCH
JAMES H. HATCH
SENIOR VICE PRESIDENT AND
CORPORATE CONTROLLER
(PRINCIPAL ACCOUNTING OFFICER)
5
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EXHIBIT INDEX
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EXHIBIT NO. DESCRIPTION
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(2) Agreement and Plan of Merger, dated June 18, 1995, by and among FUNC, FUNC-NJ and First Fidelity (including as
exhibits thereto, a First Fidelity Option Agreement (Exhibit A thereto), a FUNC Option Agreement (Exhibit C
thereto), an Agreement among Banco Santander, S.A., FUNC and First Fidelity (Exhibit B thereto), and a Third
Amendment to FUNC's Shareholder Protection Rights Agreement (Exhibit E thereto)). (Incorporated by reference to
Exhibit (99) to the Corporation's Current Report on Form 8-K dated June 21, 1995.)
(3) Bylaws of the Corporation, as amended. (Incorporated by reference to Exhibit (3)(b) to Post-Effective Amendment
No. 1 to Registration Statement No. 33-62399.)
(4) Instruments defining the rights of security holders, including indentures.*
(12) Computations of Consolidated Ratios of Earnings to Fixed Charges.
(19) The Corporation's Third Quarter Financial Supplement.
(20) The Corporation's Third Quarter Report to Stockholders.**
(27) The Corporation's Financial Data Schedule.***
(99)(a) First Union Corporation of Virginia and Subsidiaries Summarized Financial Information.
(99)(b) Pro Forma Financial Information.
(99)(c) Certain Financial Information of First Fidelity.
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* The Corporation agrees to furnish to the 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 consolidated subsidiaries.
** The Third Quarter Report to Stockholders is furnished for the information of
the Commission only and is not to be deemed "filed" as part of this Form
10-Q.
*** Filing by Electronic Data Gathering, Analysis and Retrieval System only.
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EXHIBIT (12)
FIRST UNION CORPORATION
COMPUTATIONS OF CONSOLIDATED
RATIOS OF EARNINGS TO FIXED CHARGES
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NINE
MONTHS
ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS) 1995 1994 1993 1992 1991 1990
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EXCLUDING INTEREST ON DEPOSITS:
Pretax income from continuing
operations........................... $ 1,143,613 1,415,456 1,220,781 581,203 419,801 327,360
Fixed charges, excluding capitalized
interest............................. 761,243 669,978 517,742 456,867 698,898 982,086
(A.) Earnings.......................... $ 1,904,856 2,085,434 1,738,523 1,038,070 1,118,699 1,309,446
Interest, excluding interest on
deposits............................. $ 725,046 619,698 467,181 405,297 652,393 949,046
One-third of rents..................... 36,197 50,280 50,561 51,570 46,505 33,040
Capitalized interest................... 1,621 1,120 285 381 2,326 3,144
(B.) Fixed charges..................... $ 762,864 671,098 518,027 457,248 701,224 985,230
Consolidated ratios of earnings to
fixed charges, excluding interest on
deposits (A./B.)..................... 2.50x 3.11 3.36 2.27 1.60 1.33
INCLUDING INTEREST ON DEPOSITS:
Pretax income from continuing
operations........................... $ 1,143,613 1,415,456 1,220,781 581,203 419,801 327,360
Fixed charges, excluding capitalized
interest............................. 2,275,584 2,111,226 1,841,000 2,072,538 2,789,501 3,127,374
(C.) Earnings.......................... $ 3,419,197 3,526,682 3,061,781 2,653,741 3,209,302 3,454,734
Interest, including interest on
deposits............................. $ 2,239,387 2,060,946 1,790,439 2,020,968 2,742,996 3,094,334
One-third of rents..................... 36,197 50,280 50,561 51,570 46,505 33,040
Capitalized interest................... 1,621 1,120 285 381 2,326 3,144
(D.) Fixed charges..................... $ 2,277,205 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.).................. 1.50x 1.67 1.66 1.28 1.15 1.10
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FIRST UNION CORPORATION
AND SUBSIDIARIES
---------------------
Third Quarter
Financial
Supplement
------------------
Nine Months Ended
September 30, 1995
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FIRST UNION CORPORATION
AND SUBSIDIARIES
THIRD QUARTER FINANCIAL SUPPLEMENT
NINE MONTHS ENDED SEPTEMBER 30, 1995
(Unaudited)
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TABLE OF CONTENTS
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Page
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Selected Financial Data............................................................................. 1
Management's Analysis of Operations................................................................. 2
Consolidated Summaries of Income and Per Share Data................................................. T-1
Noninterest Income.................................................................................. T-2
Noninterest Expense................................................................................. T-2
Internal Capital Growth and Dividend Payout Ratios.................................................. T-3
Selected Quarterly Data............................................................................. T-4
Growth through Acquisitions......................................................................... T-5
Securities Available for Sale....................................................................... T-6
Investment Securities............................................................................... T-7
Loans............................................................................................... T-8
Allowance for Loan Losses and Nonperforming Assets.................................................. T-9
Intangible Assets................................................................................... T-10
Allowance for Foreclosed Properties................................................................. T-10
Deposits............................................................................................ T-11
Time Deposits in Amounts of $100,000 or More........................................................ T-11
Long-Term Debt...................................................................................... T-12
Changes in Stockholders' Equity..................................................................... T-13
Capital Ratios...................................................................................... T-14
Interest Rate Gap................................................................................... T-15
Off-Balance Sheet Derivative Financial Instruments.................................................. T-16
Off-Balance Sheet Derivatives-Expected Maturities................................................... T-18
Off-Balance Sheet Derivatives Activity.............................................................. T-18
Net Interest Income Summaries
Five Quarters Ended September 30, 1995......................................................... T-19
Year-to-date September 30 and June 30, 1995.................................................... T-21
December 31 and September 30, 1994............................................................. T-22
Consolidated Balance Sheets......................................................................... T-23
Consolidated Statements of Income
Five Quarters Ended September 30, 1995......................................................... T-24
Year-to-date September 30, 1995 and 1994; and June 30, 1995 and 1994 T-25
Consolidated Statements of Cash Flows............................................................... T-26
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SELECTED FINANCIAL DATA
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Three Months Ended Nine Months Ended
September 30, September 30,
Per Common Share Data 1995 1994 1995 1994
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Net income applicable to common stockholders $1.50 1.35 4.27 3.94
Cash dividends.................................................. .52 .46 1.44 1.26
Book value...................................................... 33.88 30.37 33.88 30.37
Quarter-end price............................................... $51.00 43.25 51.00 43.25
Financial Ratios
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Return on average assets (a)(b)................................. 1.16% 1.31 1.21 1.29
Return on average common stockholders' equity (a)(c) 17.71 17.29 17.39 17.45
Net interest margin(a).......................................... 4.37 4.84 4.52 4.80
Net charge-offs to average loans, net (a)....................... .32 .38 .36 .31
Allowance for loan losses to:
Loans, net................................................... 1.46 1.95 1.46 1.95
Nonaccrual and restructured loans............................ 204 203 204 203
Nonperforming assets......................................... 160 154 160 154
Nonperforming assets to loans, net and
foreclosed properties........................................ .91 1.26 .91 1.26
Stockholders' equity to assets.................................. 6.55 7.57 6.55 7.57
Tier 1 capital to risk-weighted assets.......................... 6.35 8.84 6.35 8.84
Dividend payout ratio on common shares.......................... 34.00% 34.16 33.39 31.96
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(a) Annualized.
(b) Based on net income.
(c) Based on net income applicable to common stockholders and average
common stockholders' equity excluding average net unrealized gains
and losses on debt and equity securities.
1
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MANAGEMENT'S ANALYSIS OF OPERATIONS
EARNINGS HIGHLIGHTS
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First Union's earnings applicable to common stockholders increased to $734
million, or $4.27 per common share, in the first nine months of 1995, compared
with $675 million, or $3.94, in the first nine months of 1994.
Third quarter 1995 net income applicable to common stockholders increased to
$255 million, or $1.50 per common share, compared with $235 million, or $1.35,
in the third quarter a year ago.
Key factors during the first nine months of 1995 included:
(Bullet) 7 percent growth in tax-equivalent net interest income, to $2.5
billion in the first nine months ended September 30, 1995, compared
with $2.3 billion in the nine months ended September 30, 1994;
(Bullet) 14 percent loan growth since year-end 1994;
(Bullet) A decline in nonperforming assets as a percentage of net loans and
foreclosed properties to .91 percent; and
(Bullet) 17 percent growth in noninterest income to $1.0 billion in the first
nine months ended September 30, 1995, compared with $857 million in
the nine months ended September 30, 1994.
Net loans at September 30, 1995, were $61.8 billion, an increase of $7.8 billion
since year-end 1994, including $4.8 billion from purchase acquisitions that
closed during the first nine months of 1995. The net loan balance at September
30, 1995, was reduced by the September 29, 1995, securitization and sale of
$2.0 billion in credit card receivables. Loan growth was strong in the consumer
portfolio, which was led by direct consumer lending through First Union's retail
branch system and home equity lending. Residential mortgages also increased
through our purchase accounting acquisitions.
Nonperforming assets were $562 million at September 30, 1995, compared with $569
million at June 30, 1995, and $654 million at September 30, 1994. They were .91
percent of net loans and foreclosed properties at September 30, 1995, the lowest
percentage in nine years. Annualized net charge-offs in the nine months of 1995
were .36 percent of average net loans, compared with .31 percent in the first
nine months of 1994. Annualized net charge-offs have increased as our credit
card portfolios have matured.
Growth in noninterest income in the first nine months of 1995 compared with the
same period in 1994 was realized primarily in fee income from capital markets
activity, including loan syndications and asset securitizations; capital
management income, including mutual funds, trust and brokerage services;
mortgage banking; and service charges on deposits, including increased service
charges resulting from purchase acquisitions.
Domestic banking operations, including trust operations, located in North and
South Carolina, Georgia, Florida, Maryland, Tennessee, Virginia and Washington,
D.C., and mortgage banking operations are our principal sources of revenues.
Foreign banking operations are immaterial.
2
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The Net Interest Income section provides information about lost interest income
related to nonaccrual and restructured loans and the Asset Quality section
includes information about the loan loss provision.
Outlook
The strong fee income results in the first nine months of 1995 help validate our
expectations for renewed earnings momentum at First Fidelity Bancorporation
after we combine our two companies. We are seeing the results of our investments
in capital markets, capital management and other businesses that expand our
traditional banking base, and we are optimistic about our future results for
these businesses.
First Union announced on June 19, 1995, the signing of an agreement to acquire
First Fidelity Bancorporation, a $35 billion asset banking company based in
Newark, N.J., and Philadelphia, Pa. This transaction is estimated to be
initially dilutive, but to be accretive to earnings in 1997 and beyond.
First Union and First Fidelity are well along in the planning processes for the
merger of the two companies. Stockholders of both First Union and First Fidelity
overwhelmingly approved the merger on October 3, 1995, and the Federal Reserve
Board approval was received on October 26, 1995.
The First Fidelity merger agreement provides, among other things, for (i) the
merger of First Fidelity with and into a wholly owned subsidiary of First Union,
(ii) the exchange of each outstanding share of First Fidelity common stock for
1.35 shares of First Union common stock, and (iii) the exchange of each share of
the three outstanding series of First Fidelity preferred stock for one share of
one of three corresponding new series of First Union's class A preferred stock
having substantially identical terms as the relevant series of First Fidelity
preferred stock, all subject to the terms and conditions contained in the First
Fidelity merger agreement.
In connection with the execution of the First Fidelity merger agreement, First
Fidelity granted an option to First Union to purchase, under certain
circumstances, up to 19.9 percent of the outstanding shares of First Fidelity
common stock at a per share exercise price equal to $59.00, and First Union
granted an option to First Fidelity to purchase, under certain circumstances, up
to 19.9 percent of the outstanding shares of First Union common stock at a per
share exercise price equal to $45.875.
Also in connection with the execution of the First Fidelity merger agreement,
Banco Santander, S.A., the owner of approximately 30 percent of the outstanding
shares of First Fidelity common stock, agreed, among other things, to vote the
First Fidelity shares held by it in favor of the First Fidelity merger
agreement. Following consummation of the First Fidelity merger, Banco Santander
is expected to own approximately 11 percent of the outstanding shares of First
Union common stock.
The First Fidelity merger will be accounted for as a pooling of interests.
Consummation is expected by January 1, 1996, subject to certain conditions of
closing.
Based on the $47.625 closing price of First Union common stock on the New York
Stock Exchange on June 16, 1995 (the last business before public announcement of
the merger), the transaction value would be approximately $5.4 billion and would
represent a purchase price of $64.29 for each share of First Fidelity common
stock.
Before consummation of the First Fidelity merger, First Fidelity and First Union
may purchase up to 5.5 million shares of First Fidelity common stock or 7.4
million shares of
3
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First Union common stock, or some combination of the two. Approximately 105
million shares of First Union common stock are expected to be issued in the
First Fidelity merger (including outstanding First Fidelity employee stock
options and convertible preferred stock, and net of the expected purchase of
First Fidelity and First Union common stock referred to above). The
Stockholders' Equity section includes further information about the purchase of
First Union common stock. In addition, it is currently expected that after-tax
restructuring charges of $270 million will be taken in the appropriate period
based on the consummation date of the First Fidelity merger.
Following consummation of the First Fidelity merger, the current chairman and
chief executive officer of First Fidelity, Anthony P. Terracciano, will join
Edward E. Crutchfield and John R. Georgius in an "Office of the Chairman" of
First Union. Mr. Crutchfield will continue to serve as chairman and chief
executive officer, Mr. Georgius will serve as vice chairman and Mr. Terracciano
will serve as president of First Union. Additionally, six First Fidelity
directors, including Mr. Terracciano and a representative of Banco Santander,
will join the First Union Corporation Board of Directors.
Additional historical, pro forma and other information relating to the First
Fidelity merger is available in First Union's Form 8-K documents dated June 19,
1995, June 20, 1995, June 21, 1995, June 30, 1995, and August 30, 1995, which
have been filed with the Securities and Exchange Commission.
During the first nine months of 1995, we completed the purchase accounting
acquisitions of First Florida Savings Bank, FSB; Florida-based Coral Gables
Fedcorp, Inc., parent of Coral Gables Federal Savings & Loan Association;
Ameribanc Investors Group, parent of Ameribanc Savings Bank, FSB, in Virginia;
American Savings of Florida, FSB, and Home Federal Savings Bank of Rome, Ga.,
which had combined assets of $6.7 billion, net loans of $4.8 billion and
deposits of $5.3 billion.
We have since completed the purchase accounting acquisitions of United Financial
Corporation of South Carolina, Inc. on October 5, 1995, and of Virginia-based
Columbia First Bank, FSB, on November 3, 1995. We expect to complete the
purchase accounting acquisitions of RS Financial Corp., parent company of
Raleigh Federal Savings Bank, and Brentwood National Bank, based in the
Nashville suburb of Brentwood, Tenn., during the first quarter of 1996. At
September 30, 1995, these four completed or pending acquisitions had combined
assets, net loans and deposits of $4.3 billion, $3.4 billion and $2.7 billion,
respectively.
We continue to be alert to opportunities to enhance stockholder value through
acquisitions. We are continually 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 Union's book value and temporary
dilution of net income per common share may occur in connection with some 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.
4
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Net Interest Income
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Tax-equivalent net interest income increased 7 percent compared with the first
nine months of 1994, to $2.5 billion in the first nine months of 1995.
Tax-equivalent net interest income increased 8 percent from the third quarter of
1994 and 3 percent from the second quarter of 1995, to $860 million in the third
quarter of 1995. The increase in the first nine months of 1995 reflected strong
loan growth, the repricing of variable rate assets and reduced premium
amortization for the purchase of options contracts to hedge against rising
interest rates, in addition to the purchase acquisitions.
Nonperforming loans reduce interest income because the contribution from these
loans is eliminated or sharply reduced. In the first nine months of 1995, $43
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 the first nine months of 1995 was $11 million.
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
4.52 percent in the first nine months of 1995, compared with 4.80 percent in the
same period a year ago. The margin was 4.37 percent in the third quarter of
1995, compared with 4.62 percent in the second quarter of 1995 and 4.84 percent
in the third quarter of 1994.
The margin decline during the first nine months of 1995 was primarily related to
the addition of acquired banks and thrifts with lower margins; the addition of
short-term securities; and the competitiveness of loan pricing. We also
anticipate a further contraction in the margin in future quarters as a result of
the credit card securitization, the impact of acquisitions and the generation of
lower-spread assets related to capital markets activities. We expect the margin
to benefit from the repricing of adjustable rate mortgages and run-off in
off-balance sheet positions that have had a negative impact on the margin. It
should be noted that the margin is not our primary management focus or goal. Our
goal is to continue increasing net interest income, which has increased for 24
consecutive quarters.
The average rate earned on earning assets was 8.58 percent in the first nine
months of 1995, compared with 7.80 percent in the first nine months of 1994. The
average rate paid on interest-bearing liabilities was 4.67 percent in the first
nine months of 1995 and 3.53 percent in the first nine months of 1994.
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
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Noninterest income grew 17 percent during the first nine months of 1995 compared
with the same period of 1994, in virtually all categories. Fee income from
capital markets activities, including loan syndications and asset
securitizations, increased. Additionally, capital management income, including
mutual funds, personal and corporate trust and brokerage services, increased 27
percent. The First Union-advised Evergreen Funds have grown to more than $10
billion in assets under management. Service charges on deposits grew 7 percent.
Mortgage banking income increased largely as a result of the purchase
acquisitions, increased originations and servicing.
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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. With the
Federal Reserve's approval of expanded powers for First Union Capital Markets
Corp., our activities also include the trading and underwriting of corporate
debt securities.
At September 30, 1995, trading account assets were $1.3 billion, compared with
$1.2 billion at year-end 1994.
Noninterest Expense
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Noninterest expense increased in the first nine months of 1995 compared with the
first nine months of 1994, largely reflecting growth in personnel, advertising
and other expenses related to card products, capital management, capital markets
and other initiatives undertaken to improve prospects for revenue growth, as
well as expenses related to acquisitions. Increases in other intangible assets
from $1.1 billion at September 30, 1994, to $1.5 billion at September 30, 1995,
and the related increase in amortization expense, also contributed to the
increase in noninterest expense. A reduction in the FDIC insurance premium was
largely offset by discretionary investments in areas such as the company's
retail delivery system. Costs related to environmental matters were not
material.
More information on the reduced FDIC insurance premium is included in the
Accounting and Regulatory Matters section.
Securities Available For Sale
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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. During the first half of 1995, we
allowed some securities to mature without reinvestment in order to fund loan
growth and to avoid additional exposure to interest rate movements. In the
succeeding three months, we took advantage of market conditions to add $4.5
billion of securities to the available for sale portfolio, which will enhance
earnings and reduce the exposure to falling interest rates indicated by our
forecast for 1996. We purchased $1.2 billion of these securities for settlement
during the fourth quarter of 1995.
At September 30, 1995, we had securities available for sale with a market value
of $9.3 billion, compared with a market value of $7.8 billion at year-end 1994.
The market value of securities available for sale was $7 million above amortized
cost at the end of the third quarter of 1995. Despite the unrealized gain, an
$11 million after-tax unrealized loss was recorded as a reduction of
stockholders' equity at September 30, 1995, as a result of a transfer loss
recorded when securities were moved to investment securities in 1994. Table 7
provides information related to unrealized gains and losses and to realized
gains and losses on these securities.
The average rate earned on securities available for sale in the first nine
months of 1995 was 6.40 percent, compared with 5.40 percent in the first nine
months of 1994. The average maturity of the portfolio was 3.28 years at
September 30, 1995.
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Investment Securities
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First Union's investment securities amounted to $3.6 billion at September 30,
1995, compared with $3.7 billion at year-end 1994. As part of our strategy to
reduce exposure to falling interest rates, we also added $1.2 billion to the
investment securities portfolio during the third quarter of 1995, $947 million
of which was purchased for settlement in December 1995.
The average rate earned on investment securities in the first nine months of
1995 was 8.75 percent, compared with 9.07 percent in the first nine months of
1994. The average maturity of the portfolio was 4.84 years at September 30,
1995.
Table 8 provides information related to unrealized gains and losses and to
realized gains and losses on these securities.
Loans
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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 and willingness to repay, and general economic trends.
Net loans at September 30, 1995, were $61.8 billion, compared with $54.0 billion
at year-end 1994. Of this increase, $4.8 billion was related to the purchase
acquisitions that closed in the first nine months of 1995, with the rest coming
from strong loan growth in all of our banking states and in virtually all loan
categories. Consumer loan growth led the increase, primarily in direct lending
and in second mortgages. Net loans were decreased at period-end by a $2.0
billion securitization of credit card receivables on September 29, 1995.
The loan portfolio at September 30, 1995, was composed of 46 percent in
commercial loans and 54 percent in consumer loans. The portfolio mix did not
change significantly from year-end 1994.
At September 30, 1995, unused loan commitments related to commercial and
consumer loans were $17.3 billion and $12.3 billion, respectively. Commercial
and standby letters of credit were $2.4 billion.
At September 30, 1995, loan participations sold to other lenders amounted to
$1.0 billion and were recorded as a reduction of gross loans.
The average rate earned on loans in the first nine months of 1995 was 9.05
percent, compared with 8.48 percent in the first nine months of 1994. The
average prime rate in the first nine months of 1995 was 8.86 percent, compared
with 6.81 percent in the first nine months of 1994. Factors affecting rates
between the first nine months of 1994 and the first nine months of 1995 included
rapid increases in the prime rate throughout 1994; an increased portion of the
loan portfolio tied to rate indices other than the prime rate; a larger
portfolio of fixed and adjustable rate mortgages; and a
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rapidly growing credit card portfolio, which reflected recent solicitations with
introductory rates that will reprice throughout 1995.
The Asset Quality section provides information about geographic exposure in the
loan portfolio.
Commercial Real Estate Loans
Commercial real estate loans amounted to 13 percent of the total portfolio at
September 30, 1995, and at December 31, 1994. This portfolio included commercial
real estate mortgage loans of $5.8 billion at September 30, 1995, and $5.4
billion at December 31, 1994.
ASSET QUALITY
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Nonperforming Assets
At September 30, 1995, nonperforming assets were $562 million, or .91 percent of
net loans and foreclosed properties, compared with $569 million, or .95 percent,
at June 30, 1995, and $558 million, or 1.03 percent, at December 31, 1994.
Segregated assets, which are not included in nonperforming assets and which
relate to the acquisition of Southeast Banks in 1991, were $176 million at
September 30, 1995, or $157 million net of a $19 million allowance for losses on
segregated assets. This compared with $187 million, or $165 million net of a $22
million allowance, at December 31, 1994. Under a 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 declines five percent per
year to 65 percent by 1996. Segregated assets are included in other assets.
Loans or properties of less than $5 million each made up 81 percent, or $456
million, of nonperforming assets at September 30, 1995. Of the rest:
(Bullet) Five loans or properties between $5 million and $10 million each
accounted for $35 million; and
(Bullet) Three loans or properties over $10 million each accounted for $71
million.
Sixty-three percent of nonperforming assets were collateralized by real estate
at September 30, 1995, compared with 72 percent at year-end 1994.
Past Due Loans
In addition to these nonperforming assets, at September 30, 1995, accruing loans
90 days past due were $118 million, compared with $118 million at June 30, 1995,
and $140 million at December 31, 1994. Of these, $13 million were related to
commercial and commercial real estate loans, compared with $27 million at
December 31, 1994.
Net Charge-offs
Annualized net charge-offs as a percentage of average net loans were .36 percent
in the first nine months of 1995, compared with .31 percent in the first nine
months of 1994. Annualized net charge-offs were .32 percent in the third quarter
of 1995, .44 percent in the second quarter of 1995 and .38 percent in the third
quarter of 1994. As our credit card portfolios have matured, annualized net
charge-offs have increased. In the fourth quarter of 1995, we expect an
increase in the dollar level of charge-offs.
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Table 10 provides information on net charge-offs by category.
Provision And Allowance For Loan Losses
The loan loss provision was $126 million in the first nine months of 1995,
compared with $75 million in the first nine months of 1994. The provision was
$49 million in the third quarter of 1995, compared with $25 million in the third
quarter of 1994. The increase in the loan loss provision was based primarily on
current economic conditions, on the maturity and level of nonperforming assets,
and on projected levels of charge-offs, particularly in relation to the credit
card portfolio.
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 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 $1 million that are being monitored as
potential credit problems to determine whether supplemental, specific reserves
are necessary.
Since December 31, 1994, the loan loss allowance in dollar amount and as a
percentage of net loans, nonaccrual and restructured loans, and nonperforming
assets has declined, as indicated in Table 10.
At September 30, 1995, impaired loans, which are included in nonaccrual loans,
amounted to $302 million, compared with $342 million at June 30, 1995. Included
in the allowance for loan losses is $33 million related to $234 million of
impaired loans at September 30, 1995. The rest of the impaired loans are
recorded at or below fair value. The Accounting and Regulatory Matters section
provides further information about impaired loans.
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 8 percent of the commercial
loan portfolio.
Substantially all of the $8.0 billion commercial real estate portfolio at
September 30, 1995, was located in our banking region.
LIQUIDITY AND FUNDING SOURCES
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Liquidity planning and management are necessary to ensure 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
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considerable funding diversity and stability. Further, our acquisitions of 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. The securitization and
sale of $2.0 billion in credit card receivables at the end of the third quarter
of 1995 had a significant positive effect on our liquidity position. Other
off-balance sheet sources of liquidity exist as well, such as a mortgage
servicing portfolio for which the estimated fair value exceeded book value by
$203 million at September 30, 1995.
Cash Flows
Net cash provided from operations primarily results from net income adjusted for
the following noncash accounting items: the provisions for loan losses and
foreclosed properties; and depreciation and amortization. These items amounted
to $425 million in the first nine months of 1995, compared with $312 million in
the first nine months of 1994. This cash was available during the first nine
months of 1995 to increase earning assets and to reduce borrowings by $173
million, and to pay dividends of $252 million.
Core Deposits
Core deposits were $56.5 billion at September 30, 1995, compared with $53.2
billion at December 31, 1994. Core deposits include savings, negotiable order of
withdrawal (NOW), money market and noninterest-bearing accounts, and other
consumer time deposits.
In the first nine months of 1995 and 1994, average noninterest-bearing deposits
were 19 percent and 20 percent, respectively, 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 39
percent at September 30, 1995, and 35 percent at year-end 1994. 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 the first nine months of 1995 increased $4.1
billion from the first nine months of 1994. Average balances in savings and NOW,
other consumer time deposits and noninterest-bearing deposits were higher when
compared with the previous year, while money market deposits were lower.
Deposits were primarily affected by the purchase acquisitions and can also be
affected by branch closings or consolidations, seasonal factors and the rates
being offered for deposits compared to other investment opportunities.
Purchased Funds
Purchased funds at September 30, 1995, were $14.9 billion, compared with $13.3
billion at year-end 1994. 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,
short-term bank notes and commercial paper, and longer-term funding sources such
as term bank notes, Federal Home Loan Bank borrowings and corporate notes.
During the third quarter of 1995, we
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began utilizing a $10 billion shelf as part of our ongoing bank note program,
which we may continue to use for future funding needs.
Average purchased funds in the first nine months of 1995 were $16.0 billion, an
increase of 32 percent from $12.2 billion in the first nine months of 1994. The
increase was used primarily to fund loan growth.
Long-Term Debt
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Long-term debt was 106 percent of total stockholders' equity at September 30,
1995, compared with 64 percent at December 31, 1994.
The increase in long-term debt since year-end 1994 was primarily related to the
issuance of $1.3 billion of bank notes with varying rates and terms that mature
by 1997. Additionally, in the first nine months of 1995, we issued $250 million
of 10-year, 67/8 percent subordinated notes; $250 million of 10-year, 7.05
percent subordinated notes and $300 million of three-year floating rate notes,
both of which are not redeemable prior to maturity, and $250 million of 40-year,
7 1/2 percent subordinated debentures, which can be redeemed in whole or in part
at the option of the holders in 2005. On October 18, 1995, we issued $250
million of 40-year, 6.55 percent subordinated debentures, which can be redeemed
in whole or in part at the option of the holders in 2005. Proceeds from these
debt issues have been used for general corporate purposes.
Under a shelf registration statement filed with the Securities and Exchange
Commission, we currently have available for issuance $1.5 billion 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, committed back-up line of credit that expires in
December 1998. 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.
During the fourth quarter of 1995, $8 million of long-term debt will mature.
Maturing in 1996 is $1.7 billion, which includes bank notes of $1.1 billion.
Stockholders' Equity
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At September 30, 1995, common stockholders' equity was $5.69 billion, compared
with $5.40 billion at December 31, 1994. Since year-end 1994, we have paid $743
million for the repurchase of 15.9 million shares of First Union common stock
related to the acquisitions of American Savings, United Financial and Columbia
First, and the pending acquisitions of RS Financial, Brentwood and First
Fidelity. These shares have been retired. We also have purchased 2.9 million
shares of First Fidelity common stock for $181 million and 250,000 shares of
First Fidelity convertible preferred stock for $12 million in connection with
the pending First Fidelity acquisition. In April 1995, the board of directors
renewed its authorization for the purchase from time to time of up to 15 million
shares of First Union common stock. As of September 30, 1995, 5.1 million shares
remained available for purchase pursuant to such authorization, in addition to
the remainder of up to 7.4 million shares in connection with the First Fidelity
acquisition, or up to 5.5 million shares of First Fidelity common stock, or some
combination thereof.
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We paid $252 million in dividends to preferred and common stockholders in the
first nine months of 1995. At September 30, 1995, stockholders' equity reflected
an $11 million unrealized after-tax loss related to debt and equity securities.
The Securities Available for Sale section provides additional information about
debt and equity securities.
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 $483 million available
for dividends at September 30, 1995. Our subsidiaries paid $439 million in
dividends to the corporation in the first nine months of 1995.
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 September 30, 1995, the corporation's tier 1 and total capital ratios were
6.35 percent and 10.74 percent, respectively, compared with 8.84 percent and
14.20 percent at September 30, 1994. These ratios have declined primarily as a
result of the common stock repurchase program, the preferred stock redemption,
and the increase in total assets and intangible assets.
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 September 30, 1995, was 5.10
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 17 had a leverage ratio in excess of
5.55 percent
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at September 30, 1995. 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 September 30, 1995, the deposit-taking subsidiary banks listed in Table 17
met the capital and leverage ratio requirements for "well capitalized" banks. We
expect to maintain these ratios at the required levels by the retention of
earnings and, if necessary, the issuance of additional capital. First Union Home
Equity Bank, N.A., is not a deposit-taking bank.
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
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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 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 growth in balance sheet categories and other
assumptions.
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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 "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 in October 1995 of the most likely path for future short-term interest
rates was that the federal funds rate would decline to 5.25 percent by June 1996
and will remain at that level through September 1997.
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
October 1995 outlook, if interest rates were to decline to follow the low rate
scenario, which means a full 100 basis point decrease under the base-line, then
earnings during the policy measurement period would be negatively affected by
2.1 percent. Our model indicates that earnings would also be immaterially
affected in our high rate scenario. During the third quarter of 1995, we
implemented a strategy to add approximately $7 billion of fixed-rate
portfolio securities and off-balance sheet positions, which significantly
reduced our forecasted asset sensitivity in 1996.
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 in managing and monitoring
our interest rate sensitivity. These alternate scenarios may include interest
rate paths both higher, lower and more volatile than those used for policy
measurement.
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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 alternate scenarios.
We regularly analyze strategies to mitigate the negative effect on earnings of
adverse changes in interest rates beyond the rate changes set forth by our
policy measurement criteria. As new monthly forecast results 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 so that
the derivatives used for rate sensitivity management will not 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 when 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 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 appreciation and depreciation 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
overall rates.
Our overall goal is to manage the corporation's rate sensitivity in ways that
the earnings momentum is not adversely affected materially whether rates go up
or down.
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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 that corporate earnings are
not at risk as interest rates move up or down.
The fair value appreciation of off-balance sheet derivative financial
instruments used to manage our interest rate sensitivity was $118 million at
September 30, 1995, compared with fair value depreciation of $422 million at
December 31, 1994.
The carrying amount of financial instruments used for interest rate risk
management includes amounts for deferred gains and losses related to terminated
positions. The amount of deferred gains and losses from off-balance sheet
instruments used to manage interest rate risk was $11 million and $18 million,
respectively, as of September 30, 1995. These net losses will reduce net
interest income by $6 million in the fourth quarter of 1995 and $1 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 potential 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 is to require all swaps and options be governed by an
International Swaps and Derivatives Association Master Agreement. Bilateral
collateral arrangements 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 September
30, 1995, the total credit risk in excess of thresholds was $146 million. The
fair value of collateral held was 100 percent of the total credit risk in excess
of thresholds. For nondealer 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. 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
16
<PAGE>
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. On
January 1, 1995, we adopted the provisions of Standards No. 114 and 118. The
adoption of the Standards required no increase to the allowance for loan losses
and had no impact on net income in the first nine months of 1995. The impact to
historical and current amounts related to in-substance foreclosures was not
material, and accordingly, historical amounts will not be restated. The Asset
Quality section includes information about impaired loans.
The FASB has also issued FASB Interpretation No. 39, "Offsetting of Amounts
Related to Certain Contracts," 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. The FASB has also issued FASB
Interpretation No. 41, "Offsetting of Amounts Related to Certain Repurchase and
Reverse Repurchase Agreements," which modifies FASB 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 Federal
Securities Transfer System. This Interpretation is effective for financial
statements issued for periods ending after December 31, 1994. The effect of the
corporation's adoption of the provisions of these Interpretations has been
immaterial.
The FASB also has issued Standard No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which requires
that long-lived assets and certain identifiable intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. An estimate of the future cash flows expected to result from the
use of the asset and its eventual disposition should be performed during a
review for recoverability. An impairment loss (based on the fair value of the
asset) is recognized if the sum of the expected future cash flows (undiscounted
and without interest charges) is less than the carrying amount of the asset.
Additionally, Standard No. 121 requires that long-lived assets and certain
identifiable intangibles to be disposed of be reported at the lower of carrying
amount or fair value less cost to sell, except for certain assets. These assets
will continue to be reported at the lower of carrying amount or net realizable
value. The periodic effect on net income, if any, has not been determined. This
Standard is required for fiscal years beginning after December 15, 1995.
The FASB also has issued Standard No. 122, "Accounting for Certain Mortgage
Banking Activities," which requires that a mortgage banking enterprise recognize
as separate assets the rights to service mortgage loans for others, however
those servicing rights are acquired. A mortgage banking enterprise that acquires
mortgage servicing rights through either the purchase or origination of mortgage
loans and sells
17
<PAGE>
or securitizes those loans with servicing rights retained should allocate the
total cost of the mortgage loans to the mortgage servicing rights and the loans
(without the mortgage servicing rights) based on their relative fair values if
it is practicable to estimate those fair values. If it is not practicable to
estimate the fair values of the mortgage servicing rights and the mortgage loans
(without the mortgage servicing rights), the entire cost of purchasing or
originating the loans should be allocated only to the mortgage loans without the
mortgage servicing rights. Additionally, this Standard requires that a mortgage
banking enterprise periodically assess its capitalized mortgage servicing rights
for impairment based on the fair value of those rights. The corporation adopted
this Standard on a prospective basis only, beginning on July 1, 1995, and the
effect on net income has not been material to the results of operations.
The FASB has also issued Standard No. 123, "Accounting for Stock-Based
Compensation," which requires that the fair value of employee stock-based
compensation plans be recorded as a component of compensation expense in the
statement of income as of the date of grant of awards related to such plans
or that the impact of such fair value on net income and earnings per share be
disclosed on a pro forma basis in a footnote to financial statements for
awards granted after December 15, 1994 if the accounting for such awards
continues to be in accordance with Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25). The corporation
will continue such accounting under the provisions of APB 25. This Standard
is required for fiscal years beginning after December 15, 1995.
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 information on risk assessment classifications.
On August 8, 1995, the FDIC amended its regulations on insurance assessments to
establish a new assessment rate schedule of 4 to 31 cents per $100.00 of
deposits in replacement of the existing schedule of 23 to 31 cents per $100.00
of deposits for institutions whose deposits are subject to assessment by the
Bank Insurance Fund (BIF). The FDIC has maintained the current assessment rate
schedule of 23 to 31 cents per $100.00 of deposits for institutions whose
deposits are subject to assessment by the Savings Association Insurance Fund
(SAIF). The new BIF schedule became effective on June 1, 1995. Assessments
collected at the previous assessment schedule that exceeded the amount due under
the new schedule were refunded, with interest, from the effective date of the
new schedule. As a result, First Union received a $26 million refund, including
interest, in the third quarter of 1995. As of June 30, 1995, First Union had a
BIF deposit assessment base of $40.9 billion and a SAIF deposit assessment base
of $16.4 billion. Various legislative proposals regarding the future of the BIF
and the SAIF have been reported recently. Several of these proposals include a
one-time special assessment for SAIF deposits and a subsequent comparable and
reduced level of annual premiums for SAIF and BIF deposits. First Union does not
know when and if any such proposal or any other related proposal may be adopted.
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,
18
<PAGE>
1997. IBBEA further provides that a state may enact laws permitting interstate
merger transactions before June 1, 1997.
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.
19
<PAGE>
Table 1
CONSOLIDATED SUMMARIES OF INCOME AND PER SHARE DATA
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
Twelve 1995 1994
Months ------------- ------------
Ended
September 30, Third Second First Fourth Third
(In thousands except per share data) 1995 Quarter Quarter Quarter Quarter Quarter
- --------------------------------------------- ------------- ------------ ------------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED SUMMARIES
OF INCOME
Interest income* $ 6,149,885 1,693,300 1,574,711 1,469,997 1,411,877 1,330,197
Interest expense 2,849,559 832,840 738,338 668,209 610,172 530,858
- ----------------------------------------------- ------------ ------------ ------------ ------------ ----------- ----------
Net interest income* 3,300,326 860,460 836,373 801,788 801,705 799,339
Provision for loan losses 150,500 49,000 44,000 32,500 25,000 25,000
- ----------------------------------------------- ------------ ------------ ------------ ------------ ----------- ---------
Net interest income after
provision for loan losses* 3,149,826 811,460 792,373 769,288 776,705 774,339
Securities available for sale
transactions (335) 4,713 1,243 3,635 (9,926) (2,946)
Investment security transactions 4,452 2,591 1,233 217 411 2,286
Noninterest income 1,302,303 362,842 326,503 301,539 311,419 303,259
Noninterest expense 2,874,338 770,949 714,739 684,702 703,948 682,219
- ----------------------------------------------- ------------ ------------ ------------ ------------ ----------- ----------
Income before income taxes* 1,581,908 410,657 406,613 389,977 374,661 394,719
Income taxes 523,257 136,298 135,291 130,963 120,705 130,147
Tax-equivalent adjustment 86,041 19,343 22,186 22,105 22,407 22,820
- ----------------------------------------------- ------------ ------------ ------------ ------------ ----------- ----------
Net income 972,610 255,016 249,136 236,909 231,549 241,752
Dividends on preferred stock 13,860 -- -- 7,029 6,831 6,595
- ----------------------------------------------- ------------ ------------ ------------ ------------ ----------- ----------
Net income applicable to common
stockholders before redemption premium 958,750 255,016 249,136 229,880 224,718 235,157
Redemption premium on preferred stock 41,355 -- -- -- 41,355 --
- ----------------------------------------------- ------------ ------------ ------------ ------------ ----------- ----------
Net income applicable to
common stockholders $ 917,395 255,016 249,136 229,880 183,363 235,157
=============================================== ============ ============ ============ ============ =========== ==========
PER COMMON SHARE DATA
Net income before redemption premium $ 5.55 1.50 1.45 1.32 1.28 1.35
Net income after redemption premium $ 5.31 1.50 1.45 1.32 1.04 1.35
Average common shares -- 170,272,349 171,561,676 173,928,984 176,378,717 174,417,288
Average common
stockholders' equity**
Quarter-to-date $ -- 5,711,761 5,642,420 5,579,362 5,601,222 5,396,497
Year-to-date -- 5,644,999 5,611,065 5,579,362 5,282,412 5,174,974
Common stock price
High 51 3/8 51 3/8 49 3/4 45 1/8 45 1/4 47 1/4
Low 39 3/8 45 1/4 42 7/8 41 3/8 39 3/8 43 1/4
Period-end $ 51 51 45 1/4 43 3/8 41 3/8 43 1/4
To earnings ratio*** 9.19 X 9.19 8.38 8.23 7.93 8.55
To book value 151 % 151 136 136 135 142
Cash dividends $ 1.90 .52 .46 .46 .46 .46
Book value** $ 33.88 33.88 33.39 31.91 30.66 30.37
=============================================== ============ ============ ============ ============ =========== ==========
</TABLE>
*Tax-equivalent.
**Quarter-to-date and year-to-date average common stockholders' equity
excludes average net unrealized gains or losses on debt and equity securities.
***Based on net income applicable to common stockholders before redemption
premium.
T-1
<PAGE>
Table 2
NONINTEREST INCOME
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
Twelve 1995 1994
Months ------------ ---------
Ended
September 30, Third Second First Fourth Third
(In thousands) 1995 Quarter Quarter Quarter Quarter Quarter
- --------------------------------------------- -------------- ------------ ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Trading account profits $ 41,307 16,399 10,265 1,536 13,107 10,906
Service charges on deposit accounts 459,026 120,492 117,625 110,127 110,782 109,325
Mortgage banking income 101,656 31,782 25,415 23,586 20,873 21,401
Capital management income 269,353 74,459 67,754 67,413 59,727 63,469
Securities available for sale transactions (335) 4,713 1,243 3,635 (9,926) (2,946)
Investment security transactions 4,452 2,591 1,233 217 411 2,286
Fees for other banking services 91,863 25,139 24,093 21,928 20,703 16,833
Merchant discounts 69,358 18,011 17,775 16,633 16,939 16,257
Insurance commissions 44,893 11,022 10,511 11,490 11,870 12,506
Sundry income 224,847 65,538 53,065 48,826 57,418 52,562
- --------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Total $ 1,306,420 370,146 328,979 305,391 301,904 302,599
=========== =========== =========== =========== =========== ===========
</TABLE>
Table 3
NONINTEREST EXPENSE
- --------------------------------------------------
<TABLE>
<CAPTION>
Twelve 1995 1994
Months ----------- --------------
Ended
September 30, Third Second First Fourth Third
(In thousands) 1995 Quarter Quarter Quarter Quarter Quarter
- -------------------------------------------------- ---------------- ---------- ------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Personnel expense
Salaries $1,160,431 314,926 288,542 273,862 283,101 262,187
Other benefits 249,179 62,568 62,969 67,797 55,845 63,875
- ------------------------------------------------------ ---------- ---------- ---------- ---------- ---------- ----------
Total 1,409,610 377,494 351,511 341,659 338,946 326,062
Occupancy 241,369 62,529 57,433 59,401 62,006 58,854
Equipment rentals, depreciation
and maintenance 261,040 68,586 63,292 65,917 63,245 55,987
Advertising 48,297 14,534 12,690 10,852 10,221 9,082
Telephone 64,245 18,240 15,509 14,727 15,769 13,879
Travel 65,509 17,907 17,978 13,467 16,157 12,797
Postage 56,515 13,988 11,252 18,128 13,147 12,609
Printing and office supplies 62,559 17,236 15,115 13,309 16,899 11,892
FDIC insurance 99,100 7,710 30,935 30,162 30,293 29,321
Other insurance 16,479 3,792 4,777 4,954 2,956 3,438
Professional fees 77,913 16,510 16,503 17,263 27,637 16,302
Data processing 30,021 7,775 7,018 5,735 9,493 5,188
Owned real estate expense 11,710 3,259 1,926 3,220 3,305 8,785
Mortgage servicing amortization 23,061 7,673 5,298 4,824 5,266 4,980
Other amortization 159,151 44,947 40,889 38,827 34,488 31,141
Sundry 247,759 88,769 62,613 42,257 54,120 81,902
- ------------------------------------------------------ ---------- ---------- ---------- ---------- ---------- ----------
Total $2,874,338 770,949 714,739 684,702 703,948 682,219
====================================================== ========== ========== ========== ========== ========== ==========
</TABLE>
Table 4
INTERNAL CAPITAL GROWTH AND DIVIDEND PAYOUT RATIOS
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months
Ended
September 30, 1995 1994
------------ ------ ------
Third Second First Fourth Third
1995 1994 Quarter Quarter Quarter Quarter Quarter
------- ------- -------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
INTERNAL CAPITAL GROWTH*
Assets to stockholders' equity (a) 14.46 X 13.14 15.23 14.22 13.89 12.92 12.85
X
Return on assets 1.21 % 1.29 1.16 1.25 1.24 1.22 1.31
------- ----- ----- ----- ----- ----- -----
Return on total stockholders' equity (a) 17.55 % 16.99 17.71 17.71 17.22 15.74 16.88
X
Earnings retained 65.97 % 66.22 66.00 68.28 63.41 61.61 64.04
------- ----- ----- ----- ----- ----- -----
Internal capital growth (a) 11.58 % 11.25 11.69 12.09 10.92 9.70 10.81
======= ===== ===== ===== ===== ===== =====
DIVIDEND PAYOUT RATIO ON
Common shares 33.39 % 31.96 34.00 31.72 34.85 44.23 34.16
Preferred and common shares 34.03 % 33.78 34.00 31.72 36.59 38.39 35.96
======= ===== ===== ===== ===== ===== =====
Return on common stockholders' equity
before redemption premium** (a) 17.39 % 17.45 17.71 17.71 16.71 15.92 17.29
Return on common stockholders' equity
after redemption premium** (a) 17.39 % 17.45 17.71 17.71 16.71 12.99 17.29
======= ===== ===== ===== ===== ===== =====
</TABLE>
(a) The determination of these ratios exclude average net unrealized gains or
losses on debt and equity securities.
* Based on average balances and net income.
** Based on average balances and net income applicable to common
stockholders.
T-3
<PAGE>
Table 5
SELECTED QUARTERLY DATA
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
------------- ---------
Third Second First Fourth Third
(Dollars in thousands) Quarter Quarter Quarter Quarter Quarter
- --------------------------------------------------- ------------- ------------ ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
MORTGAGE LOAN PORTFOLIO
PERMANENT LOAN ORIGINATIONS
Residential
Direct $ 928,508 550,022 400,998 605,034 656,986
Wholesale 33,848 46,193 64,097 98,624 132,828
- --------------------------------------------------- ----------- ----------- ----------- ----------- -----------
Total 962,356 596,215 465,095 703,658 789,814
Income property 91,722 91,800 44,050 190,266 123,291
- --------------------------------------------------- ----------- ----------- ----------- ----------- -----------
Total $ 1,054,078 688,015 509,145 893,924 913,105
=================================================== =========== =========== =========== =========== ===========
VOLUME OF LOANS SERVICED
Residential $38,256,000 35,664,000 32,668,000 32,677,000 31,661,000
Income property 1,602,000 1,610,000 1,532,000 1,537,000 1,603,000
- --------------------------------------------------- ----------- ----------- ----------- ----------- -----------
Total $39,858,000 37,274,000 34,200,000 34,214,000 33,264,000
=================================================== =========== =========== =========== =========== ===========
NUMBER OF OFFICES
Banking
North Carolina 252 254 273 276 280
South Carolina 63 63 62 66 66
Georgia 145 145 149 154 157
Florida 556 559 521 552 545
Washington, D.C 23 24 25 33 28
Maryland 20 23 26 26 31
Tennessee 54 55 55 54 55
Virginia 173 178 174 177 186
Foreign 3 3 2 2 2
- --------------------------------------------------- ----------- ----------- ----------- ----------- -----------
Total banking offices 1,289 1,304 1,287 1,340 1,350
First Union Home Equity Bank 150 154 154 184 183
Mortgage banking 21 18 17 18 23
Other 21 21 21 20 18
- --------------------------------------------------- ----------- ----------- ----------- ----------- -----------
Total offices 1,481 1,497 1,479 1,562 1,574
=================================================== =========== =========== =========== =========== ===========
OTHER DATA
ATMs 1,350 1,227 1,247 1,242 1,185
Employees 32,598 32,004 31,844 31,858 32,019
=================================================== =========== =========== =========== =========== ===========
</TABLE>
T-4
<PAGE>
Table 6
GROWTH THROUGH ACQUISITIONS
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
Loans,
(In thousands) Assets net Deposits
- --------------------------------------------- -------------------- ------------------- -------------------
<S> <C> <C> <C>
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
1995 acquisitions 6,689,538 4,833,770 5,281,892
Growth (reduction) in operations 2,831,070 2,938,497 (4,424,282)
- --------------------------------------------- -------------------- ------------------- -------------------
September 30, 1995, as reported $ 86,834,113 61,802,019 59,815,883
==================================================================== =================== ===================
</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; the
purchase acquisitions of Georgia Federal Savings Bank, FSB and First American
Metro Corp. in 1993; and the purchase acquisition of American Savings of
Florida, FSB in 1995.
T-5
<PAGE>
Table 7
SECURITIES AVAILABLE FOR SALE
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, 1995
------------------
1 Year 1-5 5-10 After 10 Gross Unrealized Average
--------------- Amortized Maturity
(In thousands) or Less Years Years Years Total Gains Losses Cost in Years
- ------------------------------ ------------ ------- ------ --------- ------ -------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MARKET VALUE
U.S. Treasury $1,273,086 949,697 -- -- 2,222,783 (3,204) 22,785 2,242,364 1.53
U.S. Government agencies 100,650 2,171,484 1,541,322 609 3,814,065 (17,234) 21,711 3,818,542 4.56
CMOs 59,403 1,625,450 93,150 -- 1,778,003 (6,363) 5,164 1,776,804 2.99
Other 128,449 929,683 127,678 346,602 1,532,412 (39,036) 8,875 1,502,251 2.87
- ------------------------------ ---------- --------- --------- ------- --------- -------- ------ --------- ----
Total $1,561,588 5,676,314 1,762,150 347,211 9,347,263 (65,837) 58,535 9,339,961 3.28
============================== ========== ========= ========= ======= ========= ======== ====== ========= ====
MARKET VALUE
Debt securities $1,561,588 5,676,314 1,762,150 3,609 9,003,661 (38,099) 55,279 9,020,841
Sundry securities -- -- -- 343,602 343,602 (27,738) 3,256 319,120
- ------------------------------ ---------- ---------- --------- ------- ---------- -------- ------ ---------
Total $1,561,588 5,676,314 1,762,150 347,211 9,347,263 (65,837) 58,535 9,339,961
============================== ========== ========= ========= ======= ========= ======== ====== =========
AMORTIZED COST
Debt securities $1,557,786 5,683,098 1,776,333 3,624 9,020,841
Sundry securities -- -- -- 319,120 319,120
---------- ---------- ---------- ------- -------
Total $1,557,786 5,683,098 1,776,333 322,744 9,339,961
========== ========= ========= ======= =========
WEIGHTED AVERAGE YIELD
U.S. Treasury 6.73 % 5.40 -- -- 6.15
U.S. Government agencies 7.14 6.67 6.45 7.26 6.59
CMOs 8.00 6.90 7.49 -- 6.96
Other 7.21 6.31 6.05 2.63 5.58
Consolidated 6.85 % 6.46 6.47 2.64 6.39
========== ========== ========== ========== ==========
</TABLE>
Included in "U.S. Government agencies" and "Other" at September 30, 1995, are
$1,113,309,000 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 September 30, 1995, these securities had a weighted average maturity
of 2.96 years and a weighted average yield of 6.28 percent. The weighted average
U.S. equivalent yield for comparative purposes of these securities was 4.96
percent based on a weighted average funding cost differential of (1.32) 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 September 30, 1995. Average maturity in years
excludes preferred and common stocks and money market funds.
Weighted average yields are based on amortized cost. 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; a North Carolina state tax rate of 7.75 percent; 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 9.975 percent,
respectively.
There were commitments to purchase securities at a cost of $1,233,586,000 that
had a market value of $1,244,506,000 at September 30, 1995. There were no
commitments to sell securities at September 30, 1995. Gross gains and losses
from sales are accounted for on a trade date basis. Gross gains and losses
realized on the sale of securities in the first nine months of 1995 were
$23,911,000 and $28,084,000, respectively. Gross gains and losses realized on
sundry securities were $13,836,000 and $72,000, respectively.
T-6
<PAGE>
Table 8
INVESTMENT SECURITIES
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, 1995
-------------------
Gross Average
1 Year 1-5 5-10 After 10 Unrealized Market Maturity
(In thousands) or Less Years Years Years Total Gains Losses Value in Years
- --------------------- ----------- --------- --------- ----------- ---------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CARRYING VALUE
U.S. Government
agencies $ 15,085 1,027,117 388,222 -- 1,430,424 23,501 (2,258) 1,451,667 4.21
CMOs 50,734 941,083 -- -- 991,817 18,260 (401) 1,009,676 2.88
State, county and
municipal 273,536 179,480 135,540 369,593 958,149 102,907 (1,455) 1,059,601 7.30
Other -- 3,516 4,162 173,879 181,557 7,036 (139) 188,454 13.05
---------- ---------- ---------- ---------- ---------- ---------- ---------- --------- ------
Total $ 339,355 2,151,196 527,924 543,472 3,561,947 151,704 (4,253) 3,709,398 4.84
========== ========== ========== ========== ========== ========== ========== ========== ======
CARRYING VALUE
Debt securities $ 339,355 2,151,196 527,924 421,794 3,440,269 151,704 (4,253) 3,587,720
Sundry securities -- -- -- 121,678 121,678 -- -- 121,678
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
Total $ 339,355 2,151,196 527,924 543,472 3,561,947 151,704 (4,253) 3,709,398
========== ========== ========== ========== ========== ========== ========== ==========
MARKET VALUE
Debt securities $ 343,420 2,197,120 551,692 495,488 3,587,720
Sundry securities -- -- -- 121,678 121,678
---------- ---------- ---------- ---------- ----------
Total $ 343,420 2,197,120 551,692 617,166 3,709,398
========== ========== ========== ========== =========
WEIGHTED AVERAGE YIELD
U.S. Government
agencies 6.66% 8.14 8.06 -- 8.10
CMOs 7.28 7.40 -- -- 7.39
State, county and
municipal 10.66 10.95 11.70 12.15 11.44
Other -- 6.44 7.62 7.11 7.11
Consolidated 9.98% 8.04 8.99 10.54 8.75
========== ========== ========== ========== ==========
</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 September 30, 1995.
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; a North Carolina state tax
rate of 7.75 percent; 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 9.975 percent, respectively.
There were commitments to purchase investment securities at a cost of
$946,516,000 that had a market value of $956,469,000 at September 30, 1995.
There were no commitments to sell securities at September 30, 1995. Gross gains
and losses realized on repurchase agreement underdeliveries and calls of
investment securities in the first nine months of 1995 were $4,726,000 and
$685,000, respectively.
T-7
<PAGE>
Table 9
LOANS
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
------------- ---------
Third Second First Fourth Third
(In thousands) Quarter Quarter Quarter Quarter Quarter
- -------------- -------------- -------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
FIRST UNION CORPORATION
COMMERCIAL
Commercial, financial and
agricultural
Taxable $17,037,980 16,228,226 15,849,852 15,198,651 13,765,745
Nontaxable 712,017 766,843 658,502 709,092 688,238
- ------------------------------ -------------- ---------- ----------- ---------- ---------
Total commercial, financial
and agricultural 17,749,997 16,995,069 16,508,354 15,907,743 14,453,983
Real estate - construction and other 2,171,807 1,925,310 1,842,099 1,734,095 1,674,297
Real estate - mortgage 5,791,075 5,985,057 5,664,837 5,437,496 5,932,374
Lease financing 2,513,741 2,247,931 1,940,681 1,613,763 1,334,570
Foreign 478,828 441,927 426,907 415,857 509,030
- ------------------------------ -------------- ---------- ----------- ---------- ---------
Total commercial 28,705,448 27,595,294 26,382,878 25,108,954 23,904,254
- ------------------------------ -------------- ---------- ----------- ---------- ---------
RETAIL
Real estate - mortgage 18,446,741 16,572,033 14,292,795 15,014,775 14,682,624
Installment loans - Bankcard 2,845,879 4,506,927 4,098,790 3,959,657 3,299,675
Installment loans - other 12,868,670 12,315,693 11,795,465 10,618,696 10,288,391
- ------------------------------ -------------- ---------- ----------- ---------- ---------
Total retail 34,161,290 33,394,653 30,187,050 29,593,128 28,270,690
- ------------------------------ -------------- ---------- ----------- ---------- ---------
Total loans 62,866,738 60,989,947 56,569,928 54,702,082 52,174,944
- ------------------------------ -------------- ---------- ----------- ---------- ---------
UNEARNED INCOME
Loans 150,319 152,463 148,584 145,691 142,587
Lease financing 914,400 816,977 653,626 526,639 399,323
- ------------------------------ -------------- ---------- ----------- ---------- ---------
Total unearned income 1,064,719 969,440 802,210 672,330 541,910
- ------------------------------ -------------- ---------- ----------- ---------- ---------
Loans, net $61,802,019 60,020,507 55,767,718 54,029,752 51,633,034
============== ========== =========== ==== ===== ===========
</TABLE>
T-8
<PAGE>
Table 10
ALLOWANCE FOR LOAN LOSSES AND NONPERFORMING ASSETS*
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
-------- -------
Third Second First Fourth Third
(In thousands) Quarter Quarter Quarter Quarter Quarter
- ----------------------------------- --------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR LOAN LOSSES
Balance, beginning of quarter $ 969,122 968,828 978,795 1,004,298 1,007,839
Provision for loan losses 49,000 44,000 32,500 25,000 25,000
Other, net (66,412) 20,486 - 2,296 18,615
Loan losses, net (50,094) (64,192) (42,467) (52,799) (47,156)
- ----------------------------------- ---------- -------- -------- --------- ------------
Balance, end of quarter $ 901,616 969,122 968,828 978,795 1,004,298
=================================== ========== ======== ======== ========= ===========
(as % of loans, net) 1.46 % 1.61 1.74 1.81 1.95
=================================== ========== ======== ======== ========= ===========
(as % of nonaccrual and restructured
loans) 204 % 222 224 245 203
=================================== ========== ======== ======== ========= ===========
(as % of nonperforming assets) 160 % 170 168 175 154
=================================== ========== ======== ======== ========= ===========
LOAN LOSSES
Commercial, financial and agricultural $ 8,541 9,596 6,321 16,357 20,898
Real estate - construction and other - 725 41 1,270 2,974
Real estate - mortgage 3,665 16,106 3,457 20,228 17,773
Installment loans - Bankcard 45,292 47,515 38,096 19,970 15,492
Installment loans - other 16,814 14,915 14,047 14,398 14,983
- ----------------------------------- ---------- -------- -------- --------- ------------
Total 74,312 88,857 61,962 72,223 72,120
- ----------------------------------- ---------- -------- -------- --------- ------------
LOAN RECOVERIES
Commercial, financial and agricultural 12,350 13,723 9,097 11,125 12,965
Real estate - construction and other 2,514 1,579 907 884 424
Real estate - mortgage 1,692 1,987 2,466 1,530 4,657
Installment loans - Bankcard 3,224 2,822 2,572 2,455 2,234
Installment loans - other 4,438 4,554 4,453 3,430 4,684
Total 24,218 24,665 19,495 19,424 24,964
- ----------------------------------- ---------- -------- -------- --------- ------------
Loan losses, net $ 50,094 64,192 42,467 52,799 47,156
=================================== ========== ======== ======== ========= ============
(as % of average loans, net)** .32 % .44 .31 .40 .38
=================================== ========== ======== ======== ========= ============
NONPERFORMING ASSETS
Nonaccrual loans
Commercial loans $ 207,703 210,464 200,915 155,752 154,861
Real estate loans 232,990 225,802 231,183 241,886 339,881
- ----------------------------------- ---------- -------- -------- --------- ------------
Total nonaccrual loans 440,693 436,266 432,098 397,638 494,742
Restructured loans 606 630 670 1,872 674
Foreclosed properties 120,585 132,204 144,188 158,464 158,234
- ----------------------------------- ---------- -------- -------- --------- -------------
Total nonperforming assets $ 561,884 569,100 576,956 557,974 653,650
=================================== ========== ======== ======== ========= =============
(as % of loans, net and
foreclosed properties) .91 % .95 1.03 1.03 1.26
=================================== ========== ======== ======== ========= =============
Accruing loans past due 90 days $ 118,018 117,874 205,654 140,081 115,903
=================================== ========== ======== ======== ========= =============
</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.
**Annualized.
T-9
<PAGE>
Table 11
INTANGIBLE ASSETS
- --------------------------------------
<TABLE>
<CAPTION>
1995 1994
----------- ---------------
Third Second First Fourth Third
(In thousands) Quarter Quarter Quarter Quarter Quarter
- -------------------------------------- ----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
MORTGAGE SERVICING RIGHTS $ 101,928 101,024 80,266 84,898 89,666
=================================================== ========== =========== =========== ===========
CREDIT CARD PREMIUM $ 47,403 51,005 54,703 58,494 62,463
=================================================== ========== =========== =========== ===========
OTHER INTANGIBLE ASSETS
Goodwill $ 1,028,619 945,295 742,435 754,417 763,832
Deposit base premium 453,934 443,830 422,827 437,025 319,522
Other 5,650 6,243 6,844 7,465 8,134
- -------------------------------------- ----------- ---------- ----------- ----------- -----------
Total $ 1,488,203 1,395,368 1,172,106 1,198,907 1,091,488
=================================================== ========== =========== =========== ===========
</TABLE>
Table 12
ALLOWANCE FOR FORECLOSED PROPERTIES*
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
------------------------------------------ --------------------------
Third Second First Fourth Third
(In thousands) Quarter Quarter Quarter Quarter Quarter
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Foreclosed properties $ 146,202 162,860 178,416 193,290 197,261
- ----------------------------------------------------------------------------------------------------------------------------------
Allowance for foreclosed properties, beginning of quarter 30,656 34,228 34,826 39,027 40,866
Provision for foreclosed properties (2,250) (2,696) 715 1,913 (2,114)
Transfer from (to) allowance for segregated assets 192 40 (48) 1,177 302
Dispositions, net (2,981) (916) (1,265) (7,291) (27)
- -----------------------------------------------------------------------------------------------------------------------------------
Allowance for foreclosed properties, end of quarter 25,617 30,656 34,228 34,826 39,027
- -----------------------------------------------------------------------------------------------------------------------------------
Foreclosed properties, net $ 120,585 132,204 144,188 158,464 158,234
===================================================================================================================================
</TABLE>
* Excluding Southeast Banks segregated assets.
T-10
<PAGE>
Table 13
DEPOSITS
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
----------- ---------------
Third Second First Fourth Third
(In thousands) Quarter Quarter Quarter Quarter Quarter
- ------------------------------------------- ----------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
CORE DEPOSITS
Noninterest-bearing $ 10,729,434 10,854,459 10,412,883 10,523,538 10,295,616
Savings and NOW accounts 14,323,166 14,114,289 14,065,617 13,991,987 12,677,630
Money market accounts 9,443,524 9,127,362 9,122,752 10,118,963 10,316,481
Other consumer time 21,979,225 20,392,737 18,667,810 18,544,324 17,361,310
- ------------------------------------------- ----------- ------------ ------------- ------------ -------------
Total core deposits 56,475,349 54,488,847 52,269,062 53,178,812 50,651,037
Foreign 1,064,185 2,296,483 2,582,452 4,069,587 1,328,032
Other time 2,276,349 2,056,694 1,951,391 1,709,874 1,707,982
- ------------------------------------------- ----------- ------------ ------------- ------------ -------------
Total deposits $ 59,815,883 58,842,024 56,802,905 58,958,273 53,687,051
========================================================= ============ ============= ============ =============
</TABLE>
Table 14
TIME DEPOSITS IN AMOUNTS OF $100,000 OR MORE
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, 1995
-------------------
Time Other
(In thousands) Certificates Time
- ------------------------------------------------------------------------ ------------------- -------------------
<S> <C> <C>
MATURITY OF
3 months or less $ 5,029,492 76,972
Over 3 months through 6 months 3,215,421 -
Over 6 months through 12 months 3,183,195 -
Over 12 months 4,006,257 -
- ------------------------------------------------------------------------ ------------------- -------------------
Total $ 15,434,365 76,972
======================================================================== ======================= ===================
</TABLE>
T-11
<PAGE>
Table 15
LONG-TERM DEBT
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
---------- ----------
Third Second First Fourth Third
(In thousands) Quarter Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------- ---------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
DEBENTURES AND NOTES
7-1/2% debentures due 2002 $ 15,619 15,619 15,619 15,619 15,619
Floating rate extendible notes due 2005 10,100 10,100 100,000 100,000 100,000
11% notes due 1996 18,360 18,360 18,360 18,360 18,360
Floating rate notes due 1996 150,000 150,000 150,000 150,000 150,000
5.95% notes due 1995 - 150,000 149,960 149,921 149,881
6-3/4% notes due 1998 248,878 248,756 248,634 248,511 248,389
Floating rate notes due 1998 299,788 299,766 299,744 - -
Fixed rate medium-term senior notes, varying
rates and terms to 1996 200 200 200 32,700 61,700
Fixed rate medium-term subordinated notes, varying
rates and terms to 2001 54,000 54,000 54,000 54,000 54,000
Floating rate subordinated notes due 2003 149,180 149,153 149,127 149,101 149,074
11% subordinated and variable rate notes due 1996 17,951 17,951 17,951 17,951 17,954
8-1/8% subordinated notes due 1996 100,000 100,000 100,000 100,000 100,000
9.45% subordinated notes due 1999 250,000 250,000 250,000 250,000 250,000
9.45% subordinated notes due 2001 147,813 147,721 147,628 147,535 147,442
8-1/8% subordinated notes due 2002 248,629 248,577 248,526 248,475 248,424
8% subordinated notes due 2002 223,224 223,161 223,099 223,037 222,972
7-1/4% subordinated notes due 2003 148,850 148,811 148,772 148,733 148,694
6-5/8% subordinated notes due 2005 248,142 248,094 248,046 247,999 247,935
6% subordinated notes due 2008 197,189 197,135 197,081 197,028 196,974
6-3/8% subordinated notes due 2009 147,625 147,581 147,538 147,495 147,449
8% subordinated notes due 2009 148,631 148,607 148,583 148,559 148,535
8.77% subordinated notes due 2004 148,550 148,510 148,470 148,430 -
9-7/8%subordinated notes due 1999 74,507 74,473 74,439 74,404 74,370
7-1/2%subordinated notes due 1999 246,144 246,095 - - -
7.05% subordinated notes due 2005 248,014 - - - -
6-7/8% subordinated notes due 2005 248,307 - - - -
Debentures and notes of subsidiaries
9-5/8% subordinated capital notes due 1999 74,955 74,951 74,948 74,945 74,942
10-1/2% collateralized mortgage obligations due 2014 51,273 54,070 56,919 60,010 65,927
Bank notes with varying rates and terms to 1997 1,365,000 1,175,000 225,000 100,000 -
Debentures and notes with varying rates and terms to 2002 17,608 7,275 7,275 7,275 7,275
9-1/2% mortgage backed bonds 3,500 3,500 - - -
- ------------------------------------------------------------------- ---------- ----------- ----------- ---------- ----------
Total 5,302,037 4,757,466 3,649,919 3,260,088 3,045,916
MORTGAGES AND OTHER DEBT
Notes payable to FDIC due 1996 83,969 92,355 99,887 117,271 171,614
Advances from the Federal Home Loan Bank 607,846 482,846 4,846 4,696 4,603
Mortgage notes and other debt 38,547 38,590 41,578 41,153 41,814
Capitalized leases 8,240 5,026 5,196 5,306 5,416
- ------------------------------------------------------------------- ---------- ----------- ----------- ---------- ----------
Total long-term debt $ 6,040,639 5,376,283 3,801,426 3,428,514 3,269,363
=============================================================================== =========== =========== ========== ==========
</TABLE>
T-12
<PAGE>
Table 16
CHANGES IN STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
Twelve
Months 1995 1994
------------- ------------
Ended
September 30, Third Second First Fourth Third
(In thousands) 1995 Quarter Quarter Quarter Quarter Quarter
- ------------------------------------------- --------------- ------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning of period $ 5,622,631 5,736,847 5,490,734 5,397,517 5,622,631 5,388,581
Stockholders' equity of pooled banks
not restated prior to 1994 12,535 - - - 12,535 (16)
Net income 972,610 255,016 249,136 236,909 231,549 241,752
Redemption of preferred stock (325,396) - - - (325,396) -
Purchase of common stock (786,677) (495,019) (56,707) (197,371) (37,580) (82,392)
Common stock issued for stock
options exercised 77,393 18,502 37,337 6,168 15,386 21,430
Common stock issued through
dividend reinvestment plan 40,927 6,876 6,471 16,952 10,628 6,615
Common stock for purchase
accounting acquisition 252,847 252,853 - - (6) 161,079
Converted debentures - - - - - 19,760
Cash dividends paid
Series 1990 preferred stock (13,860) - - (7,029) (6,831) (6,595)
Common stock (327,170) (86,700) (78,758) (79,660) (82,052) (80,330)
Unrealized gain (loss) on debt and
equity securities 159,610 (2,925) 88,634 117,248 (43,347) (47,253)
- ------------------------------------------- --------------- ------------- ----------- ----------- ----------- -----------
Balance, end of period $ 5,685,450 5,685,450 5,736,847 5,490,734 5,397,517 5,622,631
============================================================= ============= =========== =========== =========== ===========
</TABLE>
T-13
<PAGE>
Table 17
CAPITAL RATIOS
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
------------- ----------
Third Second First Fourth Third
(In thousands) Quarter Quarter Quarter Quarter Quarter
- ----------------------------------------- ------------ ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED CAPITAL RATIOS*
Qualifying capital
Tier 1 capital $ 4,235,072 4,429,775 4,489,955 4,466,670 4,763,409
Total capital 7,161,552 7,484,114 7,512,040 7,450,602 7,654,430
Adjusted risk-based assets 66,680,575 64,609,109 59,651,481 57,593,799 53,904,132
Adjusted leverage ratio assets $ 83,054,384 77,237,551 74,633,796 73,011,243 70,315,199
Ratios
Tier 1 capital 6.35 % 6.86 7.53 7.76 8.84
Total capital 10.74 11.58 12.59 12.94 14.20
Leverage 5.10 5.74 6.02 6.12 6.77
Stockholders' equity to assets
Quarter-end 6.55 6.90 7.05 6.98 7.57
Average 6.55 % 6.96 7.01 7.49 7.62
========================================= ============================= ============ ============= ============
BANK CAPITAL RATIOS
Tier 1 capital
First Union National Bank of
North Carolina 6.56 % 6.65 7.13 7.32 7.14
South Carolina 7.33 7.86 8.24 7.88 8.21
Georgia 6.46 8.72 8.61 8.26 8.28
Florida 8.18 6.55 7.94 7.95 8.79
Washington, D.C. 18.67 17.46 16.55 16.75 17.31
Maryland 15.88 20.14 20.78 20.53 19.01
Tennessee 11.85 11.62 12.34 12.76 13.08
Virginia 7.61 6.81 8.97 9.21 10.88
First Union Home Equity Bank 6.89 5.28 6.49 7.60 7.16
Total capital
First Union National Bank of
North Carolina 10.29 10.32 10.32 10.69 9.62
South Carolina 11.09 11.79 12.40 12.15 12.53
Georgia 10.56 11.52 11.46 11.18 11.22
Florida 11.54 10.01 10.70 10.76 10.35
Washington, D.C. 19.94 18.74 17.83 18.03 18.60
Maryland 17.15 21.42 22.07 21.81 20.30
Tennessee 13.11 12.88 13.60 14.02 14.34
Virginia 11.25 10.39 12.80 13.11 13.17
First Union Home Equity Bank 9.47 8.28 10.34 12.10 11.54
Leverage
First Union National Bank of
North Carolina 5.87 5.81 6.25 6.10 5.74
South Carolina 5.85 5.94 5.75 5.77 6.06
Georgia 6.02 6.40 6.06 5.69 5.96
Florida 5.56 5.15 5.75 5.91 6.30
Washington, D.C. 8.19 7.70 7.11 8.33 7.88
Maryland 13.11 13.08 13.44 12.82 11.53
Tennessee 8.50 7.71 7.88 8.47 8.54
Virginia 5.69 5.28 6.95 7.10 8.26
First Union Home Equity Bank 6.22 % 5.53 6.22 7.22 6.24
========================================= ============================= ============ ============= ============
</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.
T-14
<PAGE>
Table 18
INTEREST RATE GAP
- ----------------------------------------------
<TABLE>
<CAPTION>
September 30, 1995
-------------------
Interest
Sensitivity in Days
------------------ Non-Sensitive
One to Two to and Sensitive
(In thousands) 1-90 91-180 181-365 Total two years five years Over five years Total
- ---------------------------------- ----------------- ---------- -------- ----------- --------- ------------ -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Interest-bearing bank balances $ 99,394 - 99,394 - - - 99,394
Federal funds sold and securities
purchased under resale
agreements 2,109,149 100,995 - 2,210,144 - - - 2,210,144
Trading account assets 1,253,214 - - 1,253,214 - - - 1,253,214
Securities available for sale 353,799 711,307 1,708,675 2,773,781 1,575,864 4,117,905 872,411 9,339,961
Investment securities 262,907 211,378 393,727 868,012 510,421 1,311,134 872,380 3,561,947
Loans* 32,709,802 3,116,383 5,275,687 41,101,872 4,646,130 6,729,080 9,324,937 61,802,019
- -------------------------------- ----------------- ---------- --------- ----------- ---------- ------------ ------------ -----------
Total earnings assets 36,788,265 4,140,063 7,378,089 48,306,417 6,732,415 12,158,119 11,069,728 78,266,679
- -------------------------------- ----------------- ---------- --------- ----------- ---------- ------------ ------------ -----------
INTEREST-BEARING LIABILITIES
Interest-bearing deposits 18,547,168 5,051,795 5,205,597 28,804,560 2,950,421 3,799,904 13,531,564 49,086,449
Short-term borrowings 12,880,900 59,758 - 12,940,658 - - - 12,940,658
Long-term debt 617,343 20,694 1,347,850 1,985,887 990,227 674,591 2,389,934 6,040,639
- -------------------------------- ----------------- ---------- --------- ----------- ---------- ------------ ----------- -----------
Total interest-bearing
liabilities 32,045,411 5,132,247 6,553,447 43,731,105 3,940,648 4,474,495 15,921,498 68,067,746
OFF-BALANCE SHEET FINANCIAL
INSTRUMENTS 3,356,200 1,201,000 3,198,000 7,755,200 (3,613,200) (1,567,000) (2,575,000) -
- -------------------------------- ----------------- ---------- --------- ----------- ----------- ----------- ----------- -----------
Total interest-bearing
liabilities and off-balance
sheet financial instruments 35,401,611 6,333,247 9,751,447 51,486,305 327,448 2,907,495 13,346,498 68,067,746
- --------------------------------- ---------------- ---------- --------- ------------ ---------- ------------ ============ ==========
Interest rate gap $ 1,386,654 (2,193,184)(2,373,358) (3,179,888) 6,404,967 9,250,624
============================================================================================================
Cumulative gap $ 1,386,654 (806,530)(3,179,888) (3,179,888) 3,225,079 12,475,703
============================================================================================================
Ratio of cumulative gap to total
earnings assets 1.77% (1.03) (4.06) (4.06) 4.12 15.94
============================================================================================================
The information included herein should be read in conjunction with
the discussion appearing under "Interest Rate Risk Management" and with
Tables 19-21. 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.
The amounts presented herein are based on contractual maturities or repricing
terms, as appropriate, and internally-prepared prepayment assumptions related
to certain mortgage products, and do not reflect deposit run-off or other
assumptions. Additionally, in conjunction with such practices, savings and
NOW accounts are included in non-sensitive and sensitive over five years
classification. Money market accounts are included in the 1-90 day
classification.
*Loans are stated net of unearned income.
T-15
<PAGE>
Table 19
OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS*
- ----------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Weighted
Average Rate Estimated
----------- -------------
September 30, 1995 Notional Maturity Fair
(In thousands) Amount Receive Pay In Years Value Comments
- ---------------------------- ----------------- ----------- --------- ------------- ---------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Asset Rate Conversions
Interest rate swaps $ 6,089,423 6.34 % 5.84 % 1.14 Converts floating rate commercial
Carrying amount $ 10,626 loans to fixed rate. Adds to
Unrealized gross gain 30,588 liability sensitivity. Similar
Unrealized gross los (35,531) characterisics to a fixed income
Total 5,683 security funded with variable rate
liabilities. Includes $1.9 billion
of indexed amortizing swaps, with
$1.4 billionmaturing within 3.25
years and $500million within 5
years.
Forward bullet
interest rate swaps 120,000 7.80 - 1.94 Converts floating rates on commer-
Carrying amount - cial loans to fixed rates at higher
Unrealized gross gain 1,851 than current yields in future per-
Unrealized gross loss - iods. $63 million effective March
Total 1,851 1996; $57 million effective March
1997.
Forward index amortizing
interest rate swaps 3,000,000 6.95 - 1.97 Converts floating rates on commer-
Carrying amount - cial loans to fixed rates at higher
Unrealized gross gain 17,894 than current yields in future per-
Unrealized gross loss - iods. Effective December 1996, and
Total 17,894 contractually mature September
2000.
Total asset rate conversions $ 9,209,423 6.56 % 5.84 % 1.42 $ 25,428
===============================================================================================
Liability Rate Conversions
Interest rate swaps $ 3,457,000 7.10 % 5.92 % 7.20 Converts fixed rate long-term debt
Carrying amount $ 29,635 to floating rate by matching
Unrealized gross gain 95,415 maturity of the swap to the debt
Unrealized gross loss (27,314) issue. Rate sensitivity remains
Total 97,736 unchanged due to the direct link-
age of the swap to the debt issue.
Other financial instruments 180,000 - - 6.58 Miscellaneous purchased option-
Carrying amount (2,451) based products for liability
Unrealized gross gain - management purposes include
Unrealized gross loss (1,100) $5 million of options on
swaps, $25 million of eurodollar
caps and $150 million of eurodollar
floors.
Total (3,551)
- --------------------
Total liability rate conversions $ 3,637,000 7.10 % 5.92 % 7.17 $ 94,185
===============================================================================================
</TABLE>
(Continued)
T-16
<PAGE>
Table 19
OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS*
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
Weighted
Average Rate Estimated
----------- -------------
September 30, 1995 Notional Maturity Fair
(In thousands) Amount Receive Pay In Years Value Comments
- ---------------------------- ----------------- ----------- --------- ------------- ---------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Rate Sensitivity Hedges
Put options on eurodollar futures $ 6,378,000 - % 7.90% .46
Carrying amount $ 1,178 Paid a premium for the right
Unrealized gross gain - to lock in the 3 month LIBOR
Unrealized gross loss (1,027) reset rates on pay vari-
Total 151 able rate swaps and short-term
liabilities. $2.1 billion
effective December 1995; $2.4
billion effective March 1996;
$1.9 billion effective June 1996.
Interest rate caps 67,200 - - .68 Purchased LIBOR caps; $50
Carrying amount 160 million converts floating rate
Unrealized gross gain 3 liabilities to fixed if short-
Unrealized gross loss (127) term rates rise above 8 per-
Total 36 cent; $17 million uncaps a
LIBOR-based, asset-backed
security at 11.72 percent.
Short eurodollar futures 7,111,000 - 5.84 .34 Locks in the funding on U.S.
Carrying amount - Treasury securities and the
Unrealized gross gain 857 three month LIBOR reset rates
Unrealized gross loss (2,794) on pay variable rate
Total (1,937) swaps. $4.1 billion effective
December 1995; $2.8 billion
effective March 1996; $164
million effective June 1996;
$64 million effective Sept-
ember 1996.
- -------------------------------------
Total rate sensitivity hedges $13,556,200 - % 6.81% .40 $(1,750)
============================================================= ====================================================================
Offsetting Positions
Interest rate caps and floors $ 800,000 6.20% 6.20% .71 Consists of $800 million of
Carrying amount $ (812) interest rate floors, of which
Unrealized gross gain 3,089 $400 million were purchased
Unrealized gross loss (2,277) and offset by $400 million
Total - sold, locking in gains to be
amortized over the remaining
life of the contracts.
Prime/federal funds cap 4,000,000 5.94 5.94 .52 In December 1994, the corpor-
Carrying amount 860 ation offset an existing fed-
Unrealized gross gain 1,499 eral funds cap (purchased) and
Unrealized gross loss (2,359) a prime rate cap (written)
Total -- position by simultaneously
purchasing a prime rate cap and
writing a federal funds cap at
strikes of 6.00 percent and
3.25 percent, respectively.
The notional amount of each
cap is $1.0 billion. Locks in
losses to be amortized over
the remaining life of the
contracts.
- -------------------------------
Total offsetting positions $4,800,000 5.98% 5.98% .55 $ -
====================================================================================================================================
</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 reset at predetermined reset dates over the life of the contract. Rates
shown are the pay rates in effect as of September 30, 1995. Weighted average
receive rates are fixed rates set at the time the contract was transacted.
Carrying amount includes accrued interest receivable/payable, unamortized
premiums paid/received and any related margin accounts.
T-17
<PAGE>
Table 20
OFF-BALANCE SHEET DERIVATIVES - EXPECTED MATURITIES*
- -----------------------------------------------------
<TABLE>
<CAPTION>
September 30, 1995 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 $ 4,554,423 3,613,000 1,042,000 - - 9,209,423
Weighted average receive rate 6.53% 6.92 5.42 - - 6.56
Estimated fair value $ 19,075 17,367 (11,014) - - 25,428
- ----------------------------------------------------- ------------ ------------ ---------- ----------- ------------- -------------
Liability Rate Conversions
Notional amount $ 370,000 110,000 582,000 2,075,000 500,000 3,637,000
Weighted average receive rate 7.08% 8.04 6.35 7.39 6.67 7.10
Estimated fair value $ 2,393 3,279 2,587 98,313 (12,387) 94,185
- ----------------------------------------------------- ------------ ------------ ---------- ----------- ------------ --------------
Rate Sensitivity Hedges
Notional amount $ 13,539,000 17,200 - - - 13,556,200
Weighted average receive rate - % - - - - -
Estimated fair value $ (1,788) 38 - - - (1,750)
- ----------------------------------------------------- ------------ ------------ ---------- ----------- ------------ --------------
Offsetting Positions
Notional amount $ 4,800,000 - - - - 4,800,000
Weighted average receive rate 5.98% - - - - 5.98
Estimated 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 19.
Table 21
OFF-BALANCE SHEET DERIVATIVES ACTIVITY*
- ---------------------------------------
<TABLE>
<CAPTION>
Asset Rate Liability Rate Asset Rate Sensitivity Offsetting
(In thousands) Conversions Conversions Hedge Hedges Positions Total
- --------------------------------------- ------------ ------------- -------------- ---------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $ 8,222,116 2,762,500 1,200,000 28,256,000 4,800,000 45,240,616
Additions 3,620,000 1,315,000 - 36,356,631 - 41,291,631
Maturities/Amortizations (2,208,302) (440,500) (200,000) (45,633,705) - (48,482,507)
Terminations (424,391) - (1,000,000) (5,422,726) (6,847,117)
- --------------------------------------- ------------- -------------- -------------- ----------------- ------------- ---------------
Balance, September 30, 1995 $ 9,209,423 3,637,000 - 13,556,200 4,800,000 31,202,623
======================================= ============== ============= ============== ================ ============ ===============
</TABLE>
*Includes only off-balance sheet derivative financial instruments related to
interest rate risk management activities.
T-18
<PAGE>
FIRST UNION CORPORATION AND SUBSIDIARIES
NET INTEREST INCOME SUMMARIES
- --------------------------------------------
<TABLE>
<CAPTION>
THIRD QUARTER 1995 SECOND QUARTER 1995
-------------------- -----------------------
Interest Average Interest Average
Average Income/ Rates Average Income/ Rates
(In thousands) Balances Expense Earned/Paid Balances Expense Earned/Paid
- -------------------------------------- ------------ ------------- ------------ -------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing bank balances $ 364,442 4,982 5.42 % $ 533,228 6,326 4.76 %
Federal funds sold and securities
purchased under resale agreements 2,181,134 30,126 5.48 1,867,479 27,678 5.94
Trading account assets (a) 1,564,384 23,898 6.06 1,106,447 16,617 6.02
Securities available for sale (a) 8,641,176 139,991 6.47 7,582,334 121,194 6.40
Investment securities (a)
U.S. Government and other 2,511,763 45,731 7.28 2,459,190 49,084 7.98
State, county and municipal 1,002,248 27,973 11.17 1,119,586 31,917 11.40
Total investment securities 3,514,011 73,704 8.39 3,578,776 81,001 9.05
Loans (a) (b)
Commercial
Commercial, financial and
agricultural 17,052,364 343,914 8.00 16,696,776 342,321 8.22
Real estate - construction and
other 2,077,679 48,291 9.22 1,901,095 44,023 9.29
Real estate - mortgage 5,889,064 131,064 8.83 5,932,344 130,056 8.79
Lease financing 1,172,898 29,148 9.94 1,105,363 27,237 9.86
Foreign 493,790 8,701 6.99 503,888 8,734 6.95
Total commercial 26,685,795 561,118 8.35 26,139,466 552,371 8.47
Retail
Real estate - mortgage 18,471,615 360,522 7.81 15,464,047 298,827 7.73
Installment loans - Bankcard 4,577,771 173,897 15.19 4,314,121 163,271 15.14
Installment loans - other 12,598,296 325,062 10.25 11,955,712 307,426 10.31
Total retail 35,647,682 859,481 9.62 31,733,880 769,524 9.71
Total loans 62,333,477 1,420,599 9.07 57,873,346 1,321,895 9.15
Total earning assets 78,598,624 1,693,300 8.58 72,541,610 1,574,711 8.70
Cash and due from banks 3,198,923 3,154,820
Other assets 5,194,099 4,558,615
Total assets $86,991,646 $80,255,045
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest-bearing deposits
Savings and NOW accounts 14,226,865 101,252 2.82 14,145,903 99,246 2.81
Money market accounts 9,461,143 65,861 2.76 9,158,122 64,932 2.84
Other consumer time 21,973,796 307,377 5.55 19,430,344 262,518 5.42
Foreign 2,539,792 34,363 5.37 2,596,487 41,933 6.48
Other time 2,325,126 36,694 6.26 2,066,530 33,427 6.49
Total interest-bearing deposits 50,526,722 545,547 4.28 47,397,386 502,056 4.25
Federal funds purchased and securities
sold under repurchase agreements 9,309,842 142,156 6.06 7,568,559 113,463 6.01
Commercial paper 943,550 13,625 5.73 1,033,078 15,372 5.97
Other short-term borrowings 3,131,298 49,893 6.32 1,723,886 24,662 5.74
Long-term debt 5,089,517 81,619 6.41 4,945,394 82,785 6.70
Total interest-bearing
liabilities 69,000,929 832,840 4.79 62,668,303 738,338 4.72
Noninterest-bearing deposits 10,625,875 10,256,782
Other liabilities 1,662,660 1,741,524
Stockholders' equity 5,702,182 5,588,436
Total liabilities and
stockholders' equity $86,991,646 $80,255,045
Interest income and rate earned $ 1,693,300 8.58 % $ 1,574,711 8.70 %
Interest expense and rate paid 832,840 4.21 738,338 4.08
Net interest income and margin $ 860,460 4.37 % $ 836,373 4.62 %
</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; a
North Carolina state tax rate of 7.75 percent in 1995 and 7.8275 percent in
1994; 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 9.975
percent in 1995 and 10.25 percent in 1994, respectively.
T-19
<PAGE>
FIRST UNION CORPORATION AND SUBSIDIARIES
NET INTEREST INCOME SUMMARIES
- ------------------------------------------------------------
<TABLE>
<CAPTION>
FIRST QUARTER 1995
-----------------------
(In thousands)
- ----------------------------------------
Interest Average
Average Income/ Rates
Balances Expense Earned/Paid
---------- -------- ------------
<S> <C> <C> <C>
ASSETS
Interest-bearing bank balances $ 689,482 10,147 5.97%
Federal funds sold and securities
purchased under resale agreements 1,855,472 26,274 5.74
Trading account assets (a) 1,310,294 21,360 6.61
Securities available for sale (a) 7,993,897 126,046 6.33
Investment securities (a)
U.S. Government and other
State, county and municipal 2,474,530 46,902 7.58
1,190,113 33,761 11.34
----------- ----------- -------
Total investment securities
3,664,643 80,663 8.80
Loans (a) (b) ----------- ----------- -------
Commercial
Commercial, financial and
agricultural 16,126,010 323,169 8.13
Real estate - construction and
other 1,795,504 41,579 9.39
Real estate - mortgage 5,435,291 119,344 8.90
Lease financing
Foreign 908,580 22,259 9.80
426,788 7,089 6.74
----------- ----------- ------
Total commercial
24,692,173 513,440 8.34
Retail ----------- ----------- ------
Real estate - mortgage
14,193,098 268,320 7.56
Installment loans - Bankcard
Installment loans - other 3,993,532 138,477 13.87
11,536,143 285,270 10.01
----------- -----------
Total retail 29,722,773 692,067 9.36
----------- -----------
Total loans
54,414,946 1,205,507 8.90
----------- -----------
Total earning assets
69,928,734 1,469,997 8.44
=========== ======
Cash and due from banks
Other assets 3,261,626
4,302,719
-----------
Total assets
$77,493,079
===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest-bearing deposits
Savings and NOW accounts 14,015,277 98,540 2.85
Money market accounts 9,504,775 66,326 2.83
Other consumer time 18,502,556 226,494 4.96
Foreign 3,319,697 45,566 5.57
Other time 1,951,836 29,812 6.19
----------- -----------
Total interest-bearing deposit 47,294,141 466,738 4.00
Federal funds purchased and securities 7,268,262 101,498 5.66
sold under repurchase agreements
Commercial paper 669,792 9,551 5.78
Other short-term borrowings 1,655,853 27,205 6.66
Long-term debt 3,576,802 63,217 7.07
----------- -----------
Total interest-bearing
liabilities 60,464,850 668,209 4.48
=========== ======
Noninterest-bearing deposits 9,978,428
Other liabilities 1,614,095
Stockholders' equity 5,435,706
-----------
Total liabilities and
stockholders' equity $77,493,079
===========
Interest income and rate earned
$ 1,469,997 8.44%
Interest expense and rate paid 668,209 3.87
----------- ------
Net interest income and margin $ 801,788 4.57%
===========
</TABLE>
(b)The loan averages include loans on which the accrual of interest has
been discontinued and are stated net of unearned income.
T-20
<PAGE>
FIRST UNION CORPORATION AND SUBSIDIARIES
NET INTEREST INCOME SUMMARIES
<TABLE>
<CAPTION>
NINE MONTHS 1995 SIX MONTHS 1995
---------------- ---------------
Interest Average Interest Average
Average Income/ Rates Average Income/ Rates
(In thousands) Balances Expense Earned/Paid Balances Expense Earned/Paid
- -------------------------------------- --------------- ----------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing bank balances $ 527,860 21,455 5.43 % $ 610,923 16,473 5.44 %
Federal funds sold and securities
purchased under resale agreements 1,969,221 84,078 5.71 1,861,508 53,952 5.84
Trading account assets (a) 1,327,972 61,876 6.23 1,207,807 37,977 6.34
Securities available for sale (a) 8,074,841 387,230 6.40 7,786,979 247,240 6.37
Investment securities (a)
U.S. Government and other 2,481,964 141,717 7.61 2,466,818 95,986 7.78
State, county and municipal 1,103,294 93,651 11.32 1,154,655 65,678 11.37
------------ ------------ ------------- ------------
Total investment securities 3,585,258 235,368 8.75 3,621,473 161,664 8.93
------------ ------------ ------------- ------------
Loans (a) (b)
Commercial
Commercial, financial and
agricultural 16,628,443 1,009,404 8.12 16,412,970 665,490 8.18
Real estate - construction and
other 1,925,793 133,893 9.30 1,848,591 85,602 9.34
Real estate - mortgage 5,753,895 380,464 8.84 5,685,190 249,400 8.84
Lease financing 1,063,249 78,644 9.86 1,007,515 49,496 9.83
Foreign 475,068 24,524 6.90 465,551 15,823 6.85
------------ ------------ ------------- ------------
Total commercial 25,846,448 1,626,929 8.41 25,419,817 1,065,811 8.45
------------ ------------ ------------- ------------
Retail
Real estate - mortgage 16,058,592 927,669 7.70 14,832,083 567,147 7.65
Installment loans - Bankcard (c) 4,297,281 475,645 14.76 4,154,712 301,748 14.53
Installment loans - other 12,033,941 917,758 10.19 11,747,087 592,696 10.16
------------ ------------ ------------- ------------
Total retail 32,389,814 2,321,072 9.56 30,733,882 1,461,591 9.54
------------ ------------ ------------- ------------
Total loans 58,236,262 3,948,001 9.05 56,153,699 2,527,402 9.05
------------ ------------ ------------- ------------
Total earning assets 73,721,414 4,738,008 8.58 71,242,389 3,044,708 8.59
============ ========== ============ =========
Cash and due from banks 3,204,894 3,207,928
Other assets 4,688,409 4,431,375
------------ -------------
Total assets $ 81,614,717 $ 78,881,692
============ =============
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest-bearing deposits
Savings and NOW accounts 14,130,124 299,038 2.83 14,080,951 197,786 2.83
Money market accounts 9,374,520 197,119 2.81 9,330,491 131,258 2.84
Other consumer time 19,981,614 796,389 5.33 18,969,013 489,012 5.20
Foreign 2,815,802 121,862 5.79 2,956,094 87,499 5.97
Other time 2,115,864 99,933 6.31 2,009,500 63,239 6.35
------------ ------------ ------------- ------------
Total interest-bearing deposits 48,417,924 1,514,341 4.18 47,346,049 968,794 4.13
Federal funds purchased and securities
sold under repurchase agreements 8,056,366 357,117 5.93 7,419,240 214,961 5.84
Commercial paper 883,142 38,548 5.84 852,438 24,923 5.90
Other short-term borrowings 2,175,751 101,760 6.25 1,690,058 51,867 6.19
Long-term debt 4,542,779 227,621 6.68 4,264,879 146,002 6.85
------------ ------------ ------------- ------------
Total interest-bearing
liabilities 64,075,962 2,239,387 4.67 61,572,664 1,406,547 4.60
============ ========== ============ =========
Noninterest-bearing deposits 10,289,400 10,118,374
Other liabilities 1,672,938 1,678,161
Stockholders' equity 5,576,417 5,512,493
------------ -------------
Total liabilities and
stockholders' equity $ 81,614,717 $ 78,881,692
============ =============
Interest income and rate earned $ 4,738,008 8.58 % $ 3,044,708 8.59 %
Interest expense and rate paid 2,239,387 4.06 1,406,547 3.98
------------ ---------- ------------ ---------
Net interest income and margin $ 2,498,621 4.52 % $ 1,638,161 4.61 %
============ ========== ============ =========
</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; a
North Carolina state tax rate of 7.75 percent in 1995 and 7.8275 percent in
1994; 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 9.975
percent in 1995 and 10.25 percent in 1994, respectively.
T-21
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED 1994 NINE MONTHS 1994
------------------- ---------------------
Interest Avera Interest Average
Average Income Rates Average Income/ Rates
(In thousands) Balances Expense Earned/Paid Balances Expense Earned/Paid
- ----------------------------------------------- ------------ ------------ ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing bank balances $ 757,440 39,550 5.22% $ 716,364 27,208 5.08%
Federal funds sold and securities
purchased under resale agreements 1,366,180 55,729 4.08 1,318,559 36,256 3.68
Trading account assets (a) 1,021,681 60,617 5.93 965,841 40,840 5.65
Securities available for sale (a) 10,267,532 565,482 5.51 10,964,614 443,534 5.40
Investment securities (a)
U.S. Government and other 1,740,203 125,585 7.22 1,506,052 78,960 6.99
State, county and municipal 1,267,845 145,997 11.52 1,279,269 110,443 11.51
----------- ------------ ----------- ---------
Total investment securities 3,008,048 271,582 9.03 2,785,321 189,403 9.07
----------- ------------ ----------- ---------
Loans (a) (b)
Commercial
Commercial, financial and
agricultural 13,803,412 1,123,333 8.14 13,513,807 834,458 8.26
Real estate - construction and
other 1,608,090 129,173 8.03 1,569,693 90,153 7.68
Real estate - mortgage 5,828,345 462,942 7.94 5,849,927 337,512 7.71
Lease financing 658,776 62,628 9.51 608,777 42,987 9.41
Foreign 428,724 22,498 5.25 397,768 14,101 4.74
----------- ------------ -------------- -------------
Total commercial 22,327,347 1,800,574 8.06 21,939,972 1,319,211 8.04
----------- ------------ --------------- -------------
Retail
Real estate - mortgage 13,810,015 1,019,955 7.39 13,668,875 748,280 7.30
Installment loans - Bankcard (c) 2,775,476 391,603 14.11 2,486,403 267,072 14.32
Installment loans - other 10,142,377 982,312 9.69 9,770,863 703,723 9.62
----------- ------------ -------------- --------------
Total retail 26,727,868 2,393,870 8.96 25,926,141 1,719,075 8.85
----------- ------------ -------------- --------------
Total loans 49,055,215 4,194,444 8.55 47,866,113 3,038,286 8.48
----------- ------------ -------------- --------------
Total earning assets 65,476,096 5,187,404 7.92 64,616,812 3,775,527 7.80
============ ====== ============== ======
Cash and due from banks 3,045,410 2,971,264
Other assets 4,149,188 4,151,594
----------- ------------
Total assets $ 72,670,694 $71,739,670
=========== =============
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest-bearing deposits
Savings and NOW accounts 12,452,101 285,151 2.29 12,179,863 198,697 2.18
Money market accounts 10,576,097 254,863 2.41 10,725,502 187,670 2.34
Other consumer time 16,968,029 742,381 4.38 16,724,456 531,813 4.25
Foreign 1,625,575 75,956 4.67 1,377,427 43,497 4.22
Other time 1,607,283 82,897 5.16 1,586,446 58,607 4.94
----------- ------------ -------------- -----------
Total interest-bearing deposits 43,229,085 1,441,248 3.33 42,593,694 1,020,284 3.20
Federal funds purchased and securities
sold under repurchase agreements 7,270,734 317,225 4.36 7,196,709 222,058 4.13
Commercial paper 661,327 28,166 4.26 676,625 20,481 4.05
Other short-term borrowings 1,419,477 75,526 5.32 1,358,042 50,288 4.95
Long-term debt 3,213,607 198,781 6.19 3,162,021 137,663 5.80
----------- ------------ --------------- -----------
Total interest-bearing
liabilities 55,794,230 2,060,946 3.69 54,987,091 1,450,774 3.53
============ ====== =========== =========
Noninterest-bearing deposits 10,015,666 10,021,667
Other liabilities 1,393,526 1,326,116
Stockholders' equity 5,467,272 5,404,796
----------- ---------------
Total liabilities and
stockholders' equity $ 72,670,694 $ 71,739,670
=========== ============
Interest income and rate earned $5,187,404 7.92% $ 3,775,527 7.80%
Interest expense and rate paid 2,060,946 3.15 1,450,774 3.00
------------ ------ ------------- ---------
Net interest income and margin $3,126,458 4.77% $ 2,324,753 4.80%
============ ====== ============= =========
</TABLE>
(b)The loan averages include loans on which the accrual of interest
has been discontinued and are stated net of unearned income.
T-22
<PAGE>
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
------------- -----------
Third Second First Fourth Third
(In thousands except per share data) Quarter Quarter Quarter Quarter Quarter
- ------------------------------------------------------------ ------------- ------------ ------------- ------------ -------------
<S>
ASSETS <C> <C> <C> <C> <C>
Cash and due from banks $ 3,337,072 3,191,431 3,157,119 3,740,691 3,212,888
Interest-bearing bank balances 99,394 446,712 722,062 945,126 632,206
Federal funds sold and securities
purchased under resale agreements 2,210,144 2,052,236 1,488,462 1,371,025 1,771,643
- ------------------------------------------------------------ ------------- ------------- ------------- ------------ -------------
Total cash and cash equivalents 5,646,610 5,690,379 5,367,643 6,056,842 5,616,737
- ------------------------------------------------------------ ------------- ------------- ------------- ------------ -------------
Trading account assets 1,253,214 1,559,021 1,453,038 1,206,675 1,303,453
Securities available for sale 9,347,263 7,353,926 7,298,853 7,752,479 8,226,530
Investment securities 3,561,947 3,583,906 3,634,798 3,729,869 3,179,763
Loans, net of unearned income 61,802,019 60,020,507 55,767,718 54,029,752 51,633,034
Allowance for loan losses (901,616) (969,122) (968,828) (978,795) (1,004,298)
- ------------------------------------------------------------ ------------- ------------- ------------- ------------ -------------
Loans, net 60,900,403 59,051,385 54,798,890 53,050,957 50,628,736
- ------------------------------------------------------------ ------------- ------------- ------------- ------------ -------------
Premises and equipment 1,956,863 1,881,947 1,771,052 1,756,297 1,617,933
Due from customers on acceptances 407,010 383,289 302,248 218,849 133,928
Mortgage servicing rights 101,928 101,024 80,266 84,898 89,666
Credit card premium 47,403 51,005 54,703 58,494 62,463
Other intangible assets 1,488,203 1,395,368 1,172,106 1,198,907 1,091,488
Other assets 2,123,269 2,050,362 1,921,011 2,199,238 2,292,421
- ------------------------------------------------------------ ------------- ------------- ------------- ------------ -------------
Total assets $ 86,834,113 83,101,612 77,854,608 77,313,505 74,243,118
=========================================================================== ============= ============= ============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing deposits 10,729,434 10,854,459 10,412,883 10,523,538 10,295,616
Interest-bearing deposits 49,086,449 47,987,565 46,390,022 48,434,735 43,391,435
- ------------------------------------------------------------ ------------- ------------- ------------- ------------ -------------
Total deposits 59,815,883 58,842,024 56,802,905 58,958,273 53,687,051
Short-term borrowings 12,940,658 11,012,715 9,681,076 7,532,343 9,988,596
Bank acceptances outstanding 407,010 383,289 302,248 218,849 133,928
Other liabilities 1,944,473 1,750,454 1,876,219 1,778,009 1,541,549
Long-term debt 6,040,639 5,376,283 3,701,426 3,428,514 3,269,363
- ------------------------------------------------------------ ------------- ------------- ------------- ------------ -------------
Total liabilities 81,148,663 77,364,765 72,363,874 71,915,988 68,620,487
- ------------------------------------------------------------ ------------- ------------- ------------- ------------ -------------
STOCKHOLDERS' EQUITY
Preferred stock
Class A, authorized 40,000,000 shares
Series A, 11% cumulative perpetual;
$25.00 stated and liquidation value
- - - - -
Series A, $2.50 cumulative convertible;
no-par value; $25.00 stated and
liquidation value
- - - - -
Series B, none issued
- - - - -
Series 1990 cumulative perpetual
adjustable rate, no par value;
$5.00 liquidation value;
authorized 10,000,000 shares 31,592
- - - -
Common stock, $3.33-1/3 par value;
authorized 750,000,000 shares 559,317 572,790 573,564 586,779 585,948
Paid-in capital 1,056,946 1,260,261 1,272,386 1,433,422 1,693,389
Retained earnings 4,080,495 3,912,179 3,741,801 3,591,581 3,482,620
Unrealized loss on debt and equity securities (11,308) (8,383) (97,017) (214,265) (170,918)
- ------------------------------------------------------------ ------------- ------------- ------------- ------------ ------------
Total stockholders' equity 5,685,450 5,736,847 5,490,734 5,397,517 5,622,631
- ------------------------------------------------------------ ------------- ------------- ------------- ------------ ------------
Total liabilities and stockholders' equity $ 86,834,113 83,101,612 77,854,608 77,313,505 74,243,118
=========================================================================== ============= ============= ============ ============
MEMORANDA
Securities available for sale-amortized cost $ 9,339,961 7,341,023 7,421,417 8,054,592 8,489,477
Investment securities-market value 3,709,398 3,725,575 3,730,577 3,742,534 3,269,641
Common stockholders' equity, net of unrealized loss
on debt and equity securities $ 5,685,450 5,736,847 5,490,734 5,397,517 5,338,590
Preferred shares outstanding 6,318,350
- - - -
Common shares outstanding 167,795,141 171,837,122 172,069,353 176,033,912 175,784,527
============================================================ ============= ============= ============= ============ ============
</TABLE>
T-23
<PAGE>
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
- -----------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended Six Months Ended
September 30, June 30,
------------------ ----------------
(In thousands except per share data) 1995 1994 1995 1994
- ----------------------------------------------------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 3,930,778 3,022,845 2,515,625 1,945,762
Interest and dividends on securities
available for sale 377,565 430,934 240,747 295,313
Interest and dividends on investment securities
Taxable income 139,914 76,939 94,770 45,461
Nontaxable income 62,056 72,441 43,477 48,951
Trading account interest 58,528 38,568 35,373 23,769
Other interest income 105,533 63,464 70,425 38,558
- ----------------------------------------------------- ------------ ------------ ------------ ------------
Total interest income 4,674,374 3,705,191 3,000,417 2,397,814
- ----------------------------------------------------- ------------ ------------ ------------ ------------
INTEREST EXPENSE
Interest on deposits 1,514,341 1,020,284 968,794 651,866
Interest on short-term borrowings 497,425 292,827 291,751 182,133
Interest on long-term debt 227,621 137,663 146,002 85,917
- ----------------------------------------------------- ------------ ------------ ------------ ------------
Total interest expense 2,239,387 1,450,774 1,406,547 919,916
- ----------------------------------------------------- ------------ ------------ ------------ ------------
Net interest income 2,434,987 2,254,417 1,593,870 1,477,898
Provision for loan losses 125,500 75,000 76,500 50,000
- ----------------------------------------------------- ------------ ------------ ------------ ------------
Net interest income after
provision for loan losses 2,309,487 2,179,417 1,517,370 1,427,898
- ----------------------------------------------------- ------------ ------------ ------------ ------------
NONINTEREST INCOME
Trading account profits 28,200 28,476 11,801 17,570
Service charges on deposit accounts 348,244 324,430 227,752 215,105
Mortgage banking income 80,783 53,061 49,001 31,660
Capital management income 209,626 164,798 135,167 101,329
Securities available for sale transactions 9,591 (1,581) 4,878 1,365
Investment security transactions 4,041 3,595 1,450 1,309
Fees for other banking services 71,160 48,549 46,021 31,716
Merchant discounts 52,419 45,901 34,408 29,644
Insurance commissions 33,023 33,201 22,001 20,695
Sundry income 167,429 156,635 101,891 104,073
- ----------------------------------------------------- ------------ ------------ ------------ ------------
Total noninterest income 1,004,516 857,065 634,370 554,466
- ----------------------------------------------------- ------------ ------------ ------------ ------------
NONINTEREST EXPENSE
Personnel expense 1,070,664 948,420 693,170 622,358
Occupancy 179,363 176,122 116,834 117,268
Equipment rentals, depreciation
and maintenance 197,795 165,127 129,209 109,140
Postage, printing and supplies 89,028 73,693 57,804 49,192
FDIC insurance 68,807 89,415 61,097 60,094
Professional fees 50,276 39,241 33,766 22,939
Owned real estate expense 8,405 18,989 5,146 10,204
Amortization 142,458 104,854 89,838 68,733
Sundry 363,594 357,419 212,577 231,133
- ----------------------------------------------------- ------------ ------------ ------------ ------------
Total noninterest expense 2,170,390 1,973,280 1,399,441 1,291,061
- ----------------------------------------------------- ------------ ------------ ------------ ------------
Income before income taxes 1,143,613 1,063,202 752,299 691,303
Income taxes 402,552 369,371 266,254 239,224
- ----------------------------------------------------- ------------ ------------ ------------ ------------
Net income 741,061 693,831 486,045 452,079
Dividends on preferred stock 7,029 18,522 7,029 11,927
- ----------------------------------------------------- ------------ ------------ ------------ ------------
Net income applicable to
common stockholders $ 734,032 675,309 479,016 440,152
============ ============ ============ ============
PER COMMON SHARE DATA
Net income $ 4.27 3.94 2.77 2.59
Cash dividends $ 1.44 1.26 .92 .80
Average common shares 171,921,003 171,265,051 172,745,330 169,688,932
===================================================== ============ ============ ============ ============
</TABLE>
T-24
<PAGE>
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
- ------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
------------- ------------
Third Second First Fourth Third
(In thousands except per share data) Quarter Quarter Quarter Quarter Quarter
- ------------------------------------------------------ ------------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 1,415,153 1,315,702 1,199,923 1,150,493 1,077,083
Interest and dividends on securities
available for sale 136,818 117,747 123,000 119,062 135,621
Interest and dividends on investment securities
Taxable income 45,144 48,457 46,313 46,029 31,478
Nontaxable income 18,579 21,156 22,321 23,394 23,490
Trading account interest 23,155 15,459 19,914 18,677 14,799
Other interest income 35,108 34,004 36,421 31,815 24,906
- ------------------------------------------------------ ------------ ------------ ------------ ------------ ------------
Total interest income 1,673,957 1,552,525 1,447,892 1,389,470 1,307,377
- ------------------------------------------------------ ------------ ------------ ------------ ------------ ------------
INTEREST EXPENSE
Interest on deposits 545,547 502,056 466,738 420,964 368,418
Interest on short-term borrowings 205,674 153,497 138,254 128,090 110,694
Interest on long-term debt 81,619 82,785 63,217 61,118 51,746
- ------------------------------------------------------ ------------ ------------ ------------ ------------ ------------
Total interest expense 832,840 738,338 668,209 610,172 530,858
- ------------------------------------------------------ ------------ ------------ ------------ ------------ ------------
Net interest income 841,117 814,187 779,683 779,298 776,519
Provision for loan losses 49,000 44,000 32,500 25,000 25,000
- ------------------------------------------------------ ------------ ------------ ------------ ------------ ------------
Net interest income after
provision for loan losses 792,117 770,187 747,183 754,298 751,519
- ------------------------------------------------------ ------------ ------------ ------------ ------------ ------------
NONINTEREST INCOME
Trading account profits 16,399 10,265 1,536 13,107 10,906
Service charges on deposit accounts 120,492 117,625 110,127 110,782 109,325
Mortgage banking income 31,782 25,415 23,586 20,873 21,401
Capital management income 74,459 67,754 67,413 59,727 63,469
Securities available for sale transactions 4,713 1,243 3,635 (9,926) (2,946)
Investment security transactions 2,591 1,233 217 411 2,286
Fees for other banking services 25,139 24,093 21,928 20,703 16,833
Merchant discounts 18,011 17,775 16,633 16,939 16,257
Insurance commissions 11,022 10,511 11,490 11,870 12,506
Sundry income 65,538 53,065 48,826 57,418 52,562
- ------------------------------------------------------ ------------ ------------ ------------ ------------ ------------
Total noninterest income 370,146 328,979 305,391 301,904 302,599
- ------------------------------------------------------ ------------ ------------ ------------ ------------ ------------
NONINTEREST EXPENSE
Personnel expense 377,494 351,511 341,659 338,946 326,062
Occupancy 62,529 57,433 59,401 62,006 58,854
Equipment rentals, depreciation
and maintenance 68,586 63,292 65,917 63,245 55,987
Postage, printing and supplies 31,224 26,367 31,437 30,046 24,501
FDIC insurance 7,710 30,935 30,162 30,293 29,321
Professional fees 16,510 16,503 17,263 27,637 16,302
Owned real estate expense 3,259 1,926 3,220 3,305 8,785
Amortization 52,620 46,187 43,651 39,754 36,121
Sundry 151,017 120,585 91,992 108,716 126,286
- ------------------------------------------------------ ------------ ------------ ------------ ------------ ------------
Total noninterest expense 770,949 714,739 684,702 703,948 682,219
- ------------------------------------------------------ ------------ ------------ ------------ ------------ ------------
Income before income taxes 391,314 384,427 367,872 352,254 371,899
Income taxes 136,298 135,291 130,963 120,705 130,147
- ------------------------------------------------------ ------------ ------------ ------------ ------------ ------------
Net income 255,016 249,136 236,909 231,549 241,752
Dividends on preferred stock -- -- 7,029 6,831 6,595
- ------------------------------------------------------ ------------ ------------ ------------ ------------ ------------
Net income applicable to common
stockholders before redemption premium 255,016 249,136 229,880 224,718 235,157
Redemption premium on preferred stock -- -- -- 41,355 --
- ------------------------------------------------------ ------------ ------------ ------------ ------------ ------------
Net income applicable to common
stockholders after redemption premium $ 255,016 249,136 229,880 183,363 235,157
============ ============ ============ ============ ============
PER COMMON SHARE DATA
Net income before redemption premium $ 1.50 1.45 1.32 1.28 1.35
Net income after redemption premium 1.50 1.45 1.32 1.04 1.35
Cash dividends $ .52 .46 .46 .46 .46
Average common shares 170,272,349 171,561,676 173,928,984 176,378,717 174,417,288
====================================================== ============ ============ ============ ============ ============
</TABLE>
T-25
<PAGE>
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------
(In thousands) 1995 1994
- ------------------------------------------------------------------------ --------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 741,061 693,831
Adjustments to reconcile net income to net cash provided (used)
by operating activities
Accretion and amortization of securities discounts and premiums, net (14,696) (11,720)
Provision for loan losses 125,500 75,000
Provision for foreclosed properties (4,231) 2,590
Securities available for sale transactions (9,591) 1,581
Investment security transactions (4,041) (3,595)
Depreciation and amortization 304,166 234,263
Trading account assets, net (46,539) (650,983)
Mortgage loans held for resale (206,796) 696,206
Loss on sales of premises and equipment 10,145 2,312
Gain on sale of First American segregated assets (15,891) (59,007)
Other assets, net 133,988 438,953
Other liabilities, net 66,077 220,267
- --------------------------------------------------------------------------- ----------- -----------
Net cash provided by operating activities 1,079,152 1,639,698
- --------------------------------------------------------------------------- ----------- -----------
INVESTING ACTIVITIES
Increase (decrease) in cash realized from
Sales of securities available for sale 4,572,686 10,615,074
Maturities of securities available for sale 829,745 2,277,201
Purchases of securities available for sale (4,884,932) (9,372,162)
Underdeliveries and calls of investment securities 24,459 38,953
Maturities of investment securities 502,845 408,004
Purchases of investment securities (364,269) (655,333)
Origination of loans, net (4,993,660) (4,514,323)
Sales of loans 2,000,000 -
Sales of premises and equipment 28,654 56,646
Purchases of premises and equipment (320,162) (238,695)
Purchases of mortgage servicing rights (3,702) (7,063)
Other intangible assets, net (4,932) 244,602
Purchase of banking organizations, net of acquired
cash equivalents (508,930) 429,593
- --------------------------------------------------------------------------- ----------- -----------
Net cash used by investing activities (3,122,198) (717,503)
- --------------------------------------------------------------------------- ----------- -----------
FINANCING ACTIVITIES
Increase (decrease) in cash realized from
Sales of deposits, net (4,424,282) (2,056,923)
Securities sold under repurchase agreements
and other short-term borrowings, net 4,363,972 2,475,147
Issuances of long-term debt 3,024,200 323,732
Payments of long-term debt (422,138) (122,722)
Sales of common stock 92,306 73,784
Purchases of common stock (749,097) (179,974)
Cash dividends paid (252,147) (234,372)
- --------------------------------------------------------------------------- ----------- -----------
Net cash provided by financing activities 1,632,814 278,672
- --------------------------------------------------------------------------- ----------- -----------
Increase (decrease) in cash and cash equivalents (410,232) 1,200,867
Cash and cash equivalents, beginning of period 6,056,842 4,415,870
- --------------------------------------------------------------------------- ----------- -----------
Cash and cash equivalents, end of period $ 5,646,610 5,616,737
=========================================================================== =========== ===========
NONCASH ITEMS
Converted debentures $ -- 19,760
Increase in foreclosed properties and decrease in loans 19,126 18,702
Effect on stockholders' equity of an unrealized gain (loss)
on debt and equity securities included in
Securities available for sale 309,414 262,949
Other assets (deferred income taxes) $ (106,456) 92,031
=========================================================================== =========== ===========
</TABLE>
T-26
FIRST UNION CORPORATION
THIRD QUARTER REPORT
(Logo - First Union)
1995
<PAGE>
CONTENTS
Letter from the Chairman
3
News Highlights
4
Financial Tables
6
Board of Directors
16
<PAGE>
LONG-TERM PERFORMANCE
DIVIDENDS PER COMMON SHARE
(DOLLARS PER SHARE)
*ANNUALIZED.
(Dividends per Common Share chart appears here. Plot points are as follows:)
0.4 0.8 1.2 1.6 2.0
1978 .29 1995 2.08
BOOK VALUE PER SHARE GROWTH
(IN DOLLARS)
ORIGINALLY REPORTED (ADJUSTED FOR STOCK SPLITS),
NOT RESTATED FOR POOLING OF INTEREST ACQUISITIONS.
(Book Value Per Share Growth chart appears here. Plot points are as follows:)
5 10 15 20 25 30 35
Dec 1978 6.63 September 1995 33.88
1
...
<PAGE>
BUSINESS PROFILE
FIRST UNION CORPORATION, A BANK HOLDING COMPANY WITH HEADQUARTERS IN CHARLOTTE,
NORTH CAROLINA, HAD ASSETS OF $86.8 BILLION AT SEPTEMBER 30, 1995. ON JUNE 19,
1995, FIRST UNION ANNOUNCED AN AGREEMENT TO ACQUIRE $35 BILLION-ASSET FIRST
FIDELITY BANCORPORATION. FIRST UNION CURRENTLY IS THE NATION'S NINTH LARGEST
BANK HOLDING COMPANY, BASED ON TOTAL ASSETS, WITH THE FOURTH LARGEST BANKING
NETWORK AND EIGHTH LARGEST AUTOMATED TELLER MACHINE NETWORK. FIRST UNION'S FULL-
SERVICE BANKING OFFICES IN FLORIDA, NORTH CAROLINA, GEORGIA, VIRGINIA, SOUTH
CAROLINA, TENNESSEE, MARYLAND AND WASHINGTON, D.C., PROVIDE A WIDE RANGE OF
COMMERCIAL BANKING, CONSUMER BANKING AND RETAIL INVEST MENT SERVICES. THROUGH
NEARLY 200 ADDITIONAL OFFICES IN 37 STATES, WE ALSO PROVIDE SUCH FINANCIAL
SERVICES AS MORTGAGE BANKING, HOME EQUITY LENDING, CAPITAL MARKETS PRODUCTS AND
SERVICES, INSURANCE AND SECURITIES BROKERAGE SERVICES.
<TABLE>
<CAPTION>
TOTAL RETURN
IF YOU HAD INVESTED $1,000 IN FIRST UNION COMMON STOCK:
TOTAL DOLLAR VALUE PERCENT CHANGE IN COMPOUND ANNUAL
SEPTEMBER 30, 1995 DOLLAR VALUE GROWTH RATE
<S> <C> <C> <C>
Three Years Ago... $ 1,577 58% 16%
Five Years Ago.... $ 4,145 315% 33%
Ten Years Ago..... $ 4,178 318% 15%
ASSUMES DIVIDENDS REINVESTED.
</TABLE>
2
...
<PAGE>
LETTER FROM THE CHAIRMAN
Strong fee income growth highlighted First Union's record third quarter
earnings performance. We earned $255 million in net income applicable to common
stockholders for the third quarter of 1995, up from $235 million in the third
quarter a year ago. On a per common share basis, earnings increased 11 percent
to $1.50 per share, compared with $1.35 in the third quarter a year ago.
Earnings in the second quarter of 1995 were $249 million, or $1.45 per share.
In the first nine months of 1995, net income applicable to common
stockholders was $734 million, or $4.27 per share, compared with $675 million,
or $3.94, in the first nine months of 1994. The per-share increase was 8
percent.
Loan growth and credit quality also continued to be strong.
The strong increase in fee income helps validate our expectations for
renewed earnings momentum at First Fidelity after we combine our two companies.
We are seeing the results of our investments in capital markets, capital
management and other businesses that expand our traditional banking base, and we
are optimistic about our financial results for 1995 and 1996.
First Union and First Fidelity are well along in the planning processes for
the merger of our two companies. We already have identified ways to build
relationships in capital markets and other areas that will allow us to "hit the
deck running" when the acquisition is completed. We appreciate the support of
our stockholders, who overwhelmingly approved the merger on October 3, 1995.
Sincerely,
(Signature - Edward E. Crutchfield)
Edward E. Crutchfield
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
3
...
<PAGE>
NEWS HIGHLIGHTS
MCI AND FIRST UNION OFFER INTERNET ACCESS
MCI Communications Corporation and First Union joined forces to offer
customers a free software and service package to provide easy access to the
Internet global computer network. For their 18-month market test, the two
companies will put the power of the Internet directly into the hands of First
Union's retail and commercial customers by providing personal computer software
disks that connect customers directly into a custom-designed First Union
Internet home page.
From there, customers will be able to access a wide variety of First Union
banking applications, information and the bank's "virtual" shopping mall. Bank
customers will also be able to make secure transactions directly over the
Internet so that their account and credit card numbers are safe from electronic
eavesdroppers. The software package enables bank customers to browse the
Internet's World Wide Web -the fastest growing portion of the Internet. You can
reserve a copy of the free First Union Internet Access Package by calling 1-800-
WWW-FUNB.
FIRST UNION SELECTED AS ONE OF "100 BEST COMPANIES"
Working Mother magazine has selected First Union as one of the "100 Best
Companies" for working mothers. The magazine selects companies for its annual
list based on pay, opportunities for women to advance, support for child care
and family-friendly benefits. At First Union, women make up 40 percent of the
company's highest paid employees (top 20 percent). "As differences between
products, services and prices of financial institutions diminish, personal
relationships with customers and quality service will become increasingly
important," said CEO Edward Crutchfield. "Our employees cannot provide their
customers unsurpassed service if they are struggling with personal problems. It
makes sound business sense for First Union to help employees get the resources
they need to help balance competing responsibilities on and off the job."
First Union has instituted several programs to help promote family life.
For example, the company introduced a new employee resource and referral
service, called LifeWorks, in January 1995.
4
...
<PAGE>
By calling a toll-free number, First Union's more than 30,000 employees
nationwide can get free, practical advice from experts on topics ranging from
teenage peer pressure to affordable nursing care for elderly relatives. First
Union also offers a childcare resource and referral service to help employees
find child care. One of the company's most popular benefits is its
paid-time-away-from-work program, which gives employees four hours of paid
time per month to volunteer in schools and education programs.
FIRST UNION AND BLACK COLLEGES COLLABORATE
First Union has developed an affinity credit card program for historically
black colleges and universities designed to assist the fundraising efforts of
alumni associations and promote pride among constituents. The initiative is part
of a comprehensive study by the bank to establish long-term relationships with
black colleges and universities throughout the nation. "The affinity card is one
of many mutually beneficial programs we'd like to develop with historically
black colleges," Lenny Springs, First Union vice president and assistant
director of community reinvestment, said. "We hope we can expand these
relationships to include economic development projects, campus revitalization
and housing initiatives for faculty and staff." The affinity card program offers
each participating school a custom-designed Classic Visa for alumni, faculty,
staff and students. Each time the card is used, First Union will make a
contribution to the school and a portion of the annual fee will be donated to
the institution.
Elizabeth City State University in Elizabeth City, North Carolina; Fisk
University in Nashville, Tennessee; Prairie View A & M University in Prairie
View, Texas; LeMoyne-Owen College in Memphis, Tennessee; North Carolina Central
University in Durham, North Carolina; and St. Paul's College in Lawrenceville,
Virginia, are among the first institutions to participate in the program. First
Union's affinity program is endorsed by the Council of National Alumni
Associations, the National Black College Alumni Hall of Fame Foundation and
the National Alumni Council of the United Negro College Fund.
5
...
<PAGE>
FINANCIAL TABLES
FIRST UNION CORPORATION AND SUBSIDIARIES (UNAUDITED)
.................................
FINANCIAL HIGHLIGHTS
(IN THOUSANDS EXCEPT PER SHARE DATA)
Net income
Dividends on preferred stock
Net income applicable to common stockholders
Net income per common share
Average common shares
Common stockholders' equity
Total stockholders' equity
Book value per common share
Actual common shares
Common stock period-end price
.................................
EARNINGS SUMMARY
(IN THOUSANDS EXCEPT PER SHARE DATA)
Net interest income (a)
Provision for loan losses
Net interest income after provision for loan losses (a)
Securities available for sale transactions
Investment security transactions
Noninterest income
Noninterest expense
Income before income taxes (a)
Income taxes
Tax-equivalent adjustment
Net income
Dividends on preferred stock
Net income applicable to common stockholders
Net income per common share
(a) Tax-equivalent.
6
...
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1994 1995 1994
<S> <C> <C> <C>
$ 255,016 241,752 741,061 693,831
- 6,595 7,029 18,522
$ 255,016 235,157 734,032 675,309
$ 1.50 1.35 4.27 3.94
170,272 174,417 171,921 171,265
$ 5,685,450 5,338,590 5,685,450 5,338,590
5,685,450 5,622,631 5,685,450 5,622,631
$ 33.88 30.37 33.88 30.37
167,795 175,785 167,795 175,785
$ 51.000 43.250 51.000 43.250
</TABLE>
<TABLE>
<CAPTION>
3Q '95
1995 1994 VS.
3Q 2Q 3Q 3Q '94
<S> <C> <C> <C>
$ 860,460 836,373 799,339 7.6%
49,000 44,000 25,000 96.0
811,460 792,373 774,339 4.8
4,713 1,243 (2,946) 260.0
2,591 1,233 2,286 13.3
362,842 326,503 303,259 19.6
770,949 714,739 682,219 13.0
410,657 406,613 394,719 4.0
136,298 135,291 130,147 4.7
19,343 22,186 22,820 (15.2)
255,016 249,136 241,752 5.5
- - 6,595 (100.0)
$ 255,016 249,136 235,157 8.4%
$ 1.50 1.45 1.35 11.1%
</TABLE>
7
...
<PAGE>
FINANCIAL TABLES
FIRST UNION CORPORATION AND SUBSIDIARIES (UNAUDITED)
.................................
AVERAGE BALANCE SHEET SUMMARY
(IN THOUSANDS)
Loans, net
Earning assets
Total assets
Noninterest-bearing deposits
Consumer time deposits
Other time deposits
Common stockholders' equity (a)
Total stockholders' equity (a)
.................................
CAPITAL RATIOS (B)
Tier 1 capital
Total capital
Leverage
.................................
INTANGIBLE ASSETS
(IN THOUSANDS)
Intangible assets
Goodwill
Deposit base premium
Other
Total
Mortgage servicing rights
Credit card premium
(a) Average common stockholders' equity and average total stockholders'
equity exclude average net unrealized gains or losses on debt and equity
securities.
(b) The third quarter 1995 ratios are based on estimates and exclude net
unrealized gains or losses on debt and equity securities.
8
...
<PAGE>
<TABLE>
<CAPTION>
3Q '95
1995 1994 VS.
3Q 2Q 3Q 3Q '94
<S> <C> <C> <C>
$ 62,333,477 57,873,346 50,012,757 24.6%
78,598,624 72,541,610 65,961,440 19.2
86,991,646 80,255,045 73,020,089 19.1
10,625,875 10,256,782 9,927,448 7.0
45,661,804 42,734,369 39,975,098 14.2
4,864,918 4,663,017 3,632,802 33.9
5,711,761 5,642,420 5,396,497 5.8
$ 5,711,761 5,642,420 5,680,537 0.5%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
6.32% 6.86 8.84
10.70 11.58 14.20
5.10% 5.74 6.77
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
$ 1,028,619 945,295 763,832
453,934 443,830 319,522
5,650 6,243 8,134
$ 1,488,203 1,395,368 1,091,488
$ 101,928 101,024 89,666
$ 47,403 51,005 62,463
</TABLE>
9
...
<PAGE>
FINANCIAL TABLES
FIRST UNION CORPORATION AND SUBSIDIARIES (UNAUDITED)
.................................
OTHER FINANCIAL DATA
(DOLLARS IN THOUSANDS)
Return on average assets (a)(b)
Return on average common equity (a)(c)
Net interest margin (a)
Allowance as % of loans, net
Allowance as % of nonaccrual and restructured loans
Allowance as % of nonperforming assets
Loan losses
Loan recoveries
Loan losses, net
As % of average loans, net (a)
Nonperforming assets
Commercial nonaccrual
Real estate nonaccrual
Total nonaccrual loans
Restructured loans
Foreclosed properties
Total nonperforming assets
As % of loans, net and foreclosed properties
(a) Annualized.
(b) Based on net income.
(c) Based on net income applicable to common stockholders and average
common stockholders' equity excluding average net unrealized gains
or losses on debt and equity securities.
10
...
<PAGE>
<TABLE>
<CAPTION>
1995 1994 NINE MONTHS
3Q 2Q 3Q 1995 1994
<S> <C> <C> <C> <C>
1.16% 1.25 1.31 1.21 1.29
17.71 17.71 17.29 17.39 17.45
4.37 4.62 4.84 4.52 4.80
1.46 1.61 1.95 1.46 1.95
204 222 203 204 203
160% 170 154 160 154
$ 74,241 88,857 72,120 225,060 182,704
24,147 24,665 24,964 68,307 72,587
$ 50,094 64,192 47,156 156,753 110,117
.32% .44 .38 .36 .31
$207,703 210,464 154,861 207,703 154,861
232,990 225,802 339,881 232,990 339,881
440,693 436,266 494,742 440,693 494,742
606 630 674 606 674
120,585 132,204 158,234 120,585 158,234
$561,884 569,100 653,650 561,884 653,650
.91% .95 1.26 .91 1.26
</TABLE>
11
...
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
First Union Corporation and Subsidiaries (Unaudited)
(IN THOUSANDS)
Interest Income
Interest and fees on loans
Interest and dividends on securities available for sale
Interest and dividends on investment securities
Taxable income
Nontaxable income
Trading account interest
Other interest income
Total interest income
Interest Expense
Interest on deposits
Interest on short-term borrowings
Interest on long-term debt
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Noninterest Income
Trading account profits
Service charges on deposit accounts
Mortgage banking income
Capital management income
Securities available for sale transactions
Investment security transactions
Fees for other banking services
Merchant discounts
Insurance commissions
Sundry income
Total noninterest income
Noninterest Expense
Personnel expense
Occupancy
Equipment rentals, depreciation and maintenance
Postage, printing and supplies
FDIC insurance
Professional fees
Owned real estate expense
Amortization
Sundry
Total noninterest expense
Income before income taxes
Income taxes
Net income
Dividends on preferred stock
Net income applicable to common stockholders
12
...
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1994 1995 1994
<S> <C> <C> <C>
$ 1,415,153 1,077,083 3,930,778 3,022,845
136,818 135,621 377,565 430,934
45,144 31,478 139,914 76,939
18,579 23,490 62,056 72,441
23,155 14,799 58,528 38,568
35,108 24,906 105,533 63,464
1,673,957 1,307,377 4,674,374 3,705,191
545,547 368,418 1,514,341 1,020,284
205,674 110,694 497,425 292,827
81,619 51,746 227,621 137,663
832,840 530,858 2,239,387 1,450,774
841,117 776,519 2,434,987 2,254,417
49,000 25,000 125,500 75,000
792,117 751,519 2,309,487 2,179,417
16,399 10,906 28,200 28,476
120,492 109,325 348,244 324,430
31,782 21,401 80,783 53,061
74,459 63,469 209,626 164,798
4,713 (2,946) 9,591 (1,581)
2,591 2,286 4,041 3,595
25,139 16,833 71,160 48,549
18,011 16,257 52,419 45,901
11,022 12,506 33,023 33,201
65,538 52,562 167,429 156,635
370,146 302,599 1,004,516 857,065
377,494 326,062 1,070,664 948,420
62,529 58,854 179,363 176,122
68,586 55,987 197,795 165,127
31,224 24,501 89,028 73,693
7,710 29,321 68,807 89,415
16,510 16,302 50,276 39,241
3,259 8,785 8,405 18,989
52,620 36,121 142,458 104,854
151,017 126,286 363,594 357,419
770,949 682,219 2,170,390 1,973,280
391,314 371,899 1,143,613 1,063,202
136,298 130,147 402,552 369,371
255,016 241,752 741,061 693,831
- 6,595 7,029 18,522
$ 255,016 235,157 734,032 675,309
</TABLE>
13
...
<PAGE>
CONSOLIDATED BALANCE SHEETS
FIRST UNION CORPORATION AND SUBSIDIARIES (UNAUDITED)
(IN THOUSANDS)
Assets
Cash and due from banks
Interest-bearing bank balances
Federal funds sold and securities purchased under resale agreements
Total cash and cash equivalents
Trading account assets
Securities available for sale
Investment securities
Loans, net of unearned income
Allowance for loan losses
Loans, net
Premises and equipment
Due from customers on acceptances
Mortgage servicing rights
Credit card premium
Other intangible assets
Other assets
Total assets
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing deposits
Interest-bearing deposits
Total deposits
Short-term borrowings
Bank acceptances outstanding
Other liabilities
Long-term debt
Total liabilities
Stockholders' Equity
Preferred stock
Class A, authorized 40,000,000 shares
Series A, 11% cumulative perpetual; $25.00 stated and liquidation
value
Series A, $2.50 cumulative convertible, no par value; $25.00 stated
and liquidation value
Series B, none issued
Series 1990 cumulative perpetual adjustable rate, no par value;
$5.00 liquidation value; authorized 10,000,000 shares
Common stock, $3.331/3 par value; authorized 750,000,000 shares
Paid-in capital
Retained earnings
Unrealized loss on debt and equity securities
Total stockholders' equity
Total liabilities and stockholders' equity
14
...
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
1995 1994
<S> <C>
$ 3,337,072 3,212,888
99,394 632,206
2,210,144 1,771,643
5,646,610 5,616,737
1,253,214 1,303,453
9,347,263 8,226,530
3,561,947 3,179,763
61,802,019 51,633,034
(901,616) (1,004,298)
60,900,403 50,628,736
1,956,863 1,617,933
407,010 133,928
101,928 89,666
47,403 62,463
1,488,203 1,091,488
2,123,269 2,292,421
$86,834,113 74,243,118
10,729,434 10,295,616
49,086,449 43,391,435
59,815,883 53,687,051
12,940,658 9,988,596
407,010 133,928
1,944,473 1,541,549
6,040,639 3,269,363
81,148,663 68,620,487
- -
- -
- -
- 31,592
559,317 585,948
1,056,946 1,693,389
4,080,495 3,482,620
(11,308) (170,918)
5,685,450 5,622,631
$86,834,113 74,243,118
</TABLE>
15
...
<PAGE>
BOARD OF DIRECTORS
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 Group
Charlotte, 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
16
...
<PAGE>
(Logo - First Union) FIRST UNION CORPORATION Bulk Rate
Two First Union Center U.S. Postage
Charlotte, NC 28288-0570 PAID
Charlotte, N.C.
Permit No.1
This First Union Quarterly Report includes information released to the public
and the news media on October 12, 1995. You may obtain a copy of our Third
Quarter Financial Supplement, which contains more detailed financial and
other information, by writing to Investor Relations, Two First Union
Center, Charlotte, North Carolina 28288-0206. There is no charge.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> JUN-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 3,337,072
<INT-BEARING-DEPOSITS> 99,394
<FED-FUNDS-SOLD> 2,210,144
<TRADING-ASSETS> 1,253,214
<INVESTMENTS-HELD-FOR-SALE> 9,347,263
<INVESTMENTS-CARRYING> 3,561,947
<INVESTMENTS-MARKET> 3,709,398
<LOANS> 62,866,738
<ALLOWANCE> (901,616)
<TOTAL-ASSETS> 86,834,113
<DEPOSITS> 59,815,883
<SHORT-TERM> 12,940,658
<LIABILITIES-OTHER> 1,944,473
<LONG-TERM> 6,040,639
<COMMON> 559,317
0
0
<OTHER-SE> 5,126,133
<TOTAL-LIABILITIES-AND-EQUITY> 86,834,113
<INTEREST-LOAN> 3,930,778
<INTEREST-INVEST> 579,535
<INTEREST-OTHER> 105,533
<INTEREST-TOTAL> 4,674,374
<INTEREST-DEPOSIT> 1,514,341
<INTEREST-EXPENSE> 2,239,387
<INTEREST-INCOME-NET> 2,434,987
<LOAN-LOSSES> 125,500
<SECURITIES-GAINS> 13,632
<EXPENSE-OTHER> 2,170,390
<INCOME-PRETAX> 1,143,613
<INCOME-PRE-EXTRAORDINARY> 741,061
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 741,061
<EPS-PRIMARY> 4.27
<EPS-DILUTED> 4.27
<YIELD-ACTUAL> 4.52
<LOANS-NON> 440,693
<LOANS-PAST> 118,018
<LOANS-TROUBLED> 606
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 969,122
<CHARGE-OFFS> 225,131
<RECOVERIES> 68,378
<ALLOWANCE-CLOSE> 901,616
<ALLOWANCE-DOMESTIC> 731,423
<ALLOWANCE-FOREIGN> 3,030
<ALLOWANCE-UNALLOCATED> 167,163
</TABLE>
<PAGE>
EXHIBIT (99)(A)
FIRST UNION CORPORATION OF VIRGINIA AND SUBSIDIARIES
SUMMARIZED FINANCIAL INFORMATION
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 STATEMENTS OF INCOME DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(IN THOUSANDS) 1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net interest income.......................................................... $263,234 128,041 396,355 371,961
Income before income taxes................................................... 146,452 68,232 211,272 145,623
Net income................................................................... $ 95,112 43,737 136,049 94,504
</TABLE>
CONSOLIDATED BALANCE SHEET DATA
<TABLE>
<CAPTION>
SEPTEMBER 30,
(IN THOUSANDS) 1995 1994
<S> <C> <C>
Assets........................................................................................ $14,096,685 12,528,908
Securities available for sale................................................................. 2,948,380 2,622,567
Investment securities......................................................................... 599,675 295,040
Loans, net of unearned income................................................................. 8,260,202 7,349,668
Stockholder's equity.......................................................................... $ 1,166,864 1,218,013
</TABLE>
<PAGE>
EXHIBIT (99)(B)
PRO FORMA FINANCIAL INFORMATION
PRO FORMA COMBINED CONDENSED BALANCE SHEET
(THE CORPORATION, THE PURCHASE ACQUISITIONS AND FIRST FIDELITY)
SEPTEMBER 30, 1995
(UNAUDITED)
The following unaudited pro forma combined condensed balance sheet combines
the consolidated historical balance sheets of the Corporation, the companies
involved in the Purchase Acquisitions (as hereinafter defined) and First
Fidelity, assuming the companies had been combined as of September 30, 1995, on
a purchase accounting basis with respect to the Purchase Acquisitions pending at
September 30, 1995, and on a pooling of interests accounting basis with respect
to First Fidelity.
<TABLE>
<CAPTION>
THE PURCHASE PRO FORMA PRO FORMA FIRST PRO FORMA PRO FORMA
(IN THOUSANDS) CORPORATION ACQUISITIONS ADJUSTMENTS COMBINED FIDELITY ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks............ $ 3,337,072 50,506 (75,274) 3,312,304 1,649,476 -- 4,961,780
Interest-bearing balances.......... 99,394 25,055 -- 124,449 462,649 -- 587,098
Federal funds sold and securities
purchased under resale
agreements....................... 2,210,144 16,200 -- 2,226,344 425,000 -- 2,651,344
Total cash and cash
equivalents...................... 5,646,610 91,761 (75,274) 5,663,097 2,537,125 -- 8,200,222
Trading account assets............. 1,253,214 -- -- 1,253,214 152,832 -- 1,406,046
Securities available for sale...... 9,347,263 283,349 -- 9,630,612 2,128,992 -- 11,759,604
Investment securities.............. 3,561,947 500,323 (3,816) 4,058,454 4,039,740 -- 8,098,194
Loans, net of unearned income...... 61,802,019 3,359,456 -- 65,161,475 24,387,524 -- 89,548,999
Allowance for loan losses........ (901,616) (26,842) -- (928,458) (554,690) -- (1,483,148)
Loans, net....................... 60,900,403 3,332,614 -- 64,233,017 23,832,834 -- 88,065,851
Premises and equipment............. 1,956,863 23,677 (7,178) 1,973,362 419,869 -- 2,393,231
Due from customers on
acceptances...................... 407,010 -- -- 407,010 178,748 -- 585,758
Mortgage servicing rights.......... 101,928 744 4,453 107,125 47,402 -- 154,527
Credit card premium................ 47,403 -- -- 47,403 -- -- 47,403
Other intangible assets............ 1,488,203 9,010 271,100 1,768,313 808,249 -- 2,576,562
Segregated assets.................. -- -- -- -- -- -- --
Other assets....................... 2,123,269 70,108 (9,583) 2,183,794 1,132,259 -- 3,316,053
Total assets..................... $86,834,113 4,311,586 179,702 91,325,401 35,278,050 -- 126,603,451
LIABILITIES AND
STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing.............. 10,729,434 98,594 -- 10,828,028 4,868,663 -- 15,696,691
Interest-bearing................. 49,086,449 2,602,548 -- 51,688,997 22,710,311 -- 74,399,308
Total deposits................. 59,815,883 2,701,142 -- 62,517,025 27,578,974 -- 90,095,999
Short-term borrowings.............. 12,940,658 1,084,061 -- 14,024,719 3,031,961 -- 17,056,680
Bank acceptances outstanding....... 407,010 -- -- 407,010 178,748 -- 585,758
Other liabilities.................. 1,944,473 64,806 (9,482) 1,999,797 740,938 -- 2,740,735
Long-term debt..................... 6,040,639 156,961 -- 6,197,600 676,735 -- 6,874,335
Total liabilities.............. 81,148,663 4,006,970 (9,482) 85,146,151 32,207,356 -- 117,353,507
STOCKHOLDERS' EQUITY
Preferred stock.................... -- -- -- -- 202,647 -- 202,647
Common stock....................... 559,317 8,617 24,085 592,019 81,934 280,947 954,900
Paid-in capital.................... 1,056,946 99,061 362,037 1,518,044 1,251,173 (348,172) 2,421,045
Retained earnings.................. 4,080,495 199,762 (199,762) 4,080,495 1,606,042 -- 5,686,537
Less: Treasury stock............... -- (3,178) 3,178 -- (67,225) 67,225 --
Unrealized gain (loss) on debt and
equity securities................ (11,308) 354 (354) (11,308) (3,877) -- (15,185)
Total stockholders' equity..... 5,685,450 304,616 189,184 6,179,250 3,070,694 -- 9,249,944
Total liabilities and
stockholders' equity......... $86,834,113 4,311,586 179,702 91,325,401 35,278,050 -- 126,603,451
</TABLE>
See accompanying notes to pro forma financial information.
<PAGE>
PRO FORMA COMBINED CONDENSED INCOME STATEMENTS
(THE CORPORATION AND THE PURCHASE ACQUISITIONS)
(UNAUDITED)
The following unaudited pro forma combined condensed statements of income
present the combined statements of income of the Corporation and the companies
involved in the Purchase Acquisitions, assuming the companies had been combined
for each period presented on a purchase accounting basis (effective as of
January 1, 1994).
<TABLE>
<CAPTION>
THE PURCHASE PRO FORMA PRO FORMA
(IN THOUSANDS EXCEPT PER SHARE DATA) CORPORATION ACQUISITIONS ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
NINE MONTHS ENDED SEPTEMBER 30, 1995
Interest income...................................................... $4,674,374 461,473 (25,930) 5,109,917
Interest expense..................................................... 2,239,387 296,965 -- 2,536,352
Net interest income.................................................. 2,434,987 164,508 (25,930) 2,573,565
Provision for loan losses............................................ 125,500 6,585 -- 132,085
Net interest income after provision for loan losses.................. 2,309,487 157,923 (25,930) 2,441,480
Securities available for sale transactions........................... 9,591 (4,167) -- 5,424
Investment security transactions..................................... 4,041 -- -- 4,041
Noninterest income................................................... 990,884 44,482 -- 1,035,366
Noninterest expense.................................................. 2,170,390 200,372 19,897 2,390,659
Income before income taxes........................................... 1,143,613 (2,134) (45,827) 1,095,652
Income taxes......................................................... 402,552 6,161 (14,146) 394,567
Net income........................................................... 741,061 (8,295) (31,681) 701,085
Dividends on preferred stock......................................... 7,029 -- -- 7,029
Net income applicable to common stockholders......................... 734,032 (8,295) (31,681) 694,056
Pro forma per common share data
Net income available to common stockholders........................ $ 4.27 3.82
Average common shares (in thousands)............................... 171,921 181,731
<CAPTION>
THE 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...................................................... $5,094,661 786,606 (80,286) 5,800,981
Interest expense..................................................... 2,060,946 453,964 -- 2,514,910
Net interest income.................................................. 3,033,715 332,642 (80,286) 3,286,071
Provision for loan losses............................................ 100,000 1,643 -- 101,643
Net interest income after provision for loan losses.................. 2,933,715 330,999 (80,286) 3,184,428
Securities available for sale transactions........................... (11,507 ) 2,647 -- (8,860 )
Investment security transactions..................................... 4,006 -- -- 4,006
Noninterest income................................................... 1,166,470 55,018 -- 1,221,488
Noninterest expense.................................................. 2,677,228 270,493 52,677 3,000,398
Income before income taxes........................................... 1,415,456 118,171 (132,963) 1,400,664
Income taxes......................................................... 490,076 38,119 (40,535) 487,660
Net income........................................................... 925,380 80,052 (92,428) 913,004
Dividends on preferred stock......................................... 25,353 -- -- 25,353
Net income applicable to common stockholders before redemption
premium............................................................ 900,027 80,052 (92,428) 887,651
Redemption premium on preferred stock................................ 41,355 -- -- 41,355
Net income applicable to common stockholders after redemption
premium............................................................ $ 858,672 80,052 (92,428) 846,296
Pro forma per common share data
Net income available to common stockholders before redemption
premium.......................................................... $ 5.22 5.06
Net income available to common stockholders after redemption
premium.......................................................... $ 4.98 4.82
Average common shares (in thousands)............................... 172,543 175,554
</TABLE>
See accompanying notes to pro forma financial information.
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
(THE CORPORATION, THE PURCHASE ACQUISITIONS AND FIRST FIDELITY)
(UNAUDITED)
The following unaudited pro forma combined condensed statements of income
present the combined statements of income of the Corporation, the companies
involved in the Purchase Acquisitions and First Fidelity, assuming the companies
had been combined for each period presented on a purchase accounting basis as to
the Purchase Acquisitions (for the nine months ended September 30, 1995, and the
year ended December 31, 1994, only) and on a pooling of interests accounting
basis as to First Fidelity.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
(DOLLARS IN THOUSANDS, SEPTEMBER 30, YEARS ENDED DECEMBER 31,
EXCEPT PER SHARE DATA) 1995 1994 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income........................ $6,843,506 5,278,740 7,937,133 6,601,528 6,608,666 7,031,400 7,549,088
Interest expense....................... 3,237,209 1,969,627 3,246,946 2,481,952 2,941,680 4,070,885 4,806,471
Net interest income.................... 3,606,297 3,309,113 4,690,187 4,119,576 3,666,986 2,960,515 2,742,617
Provision for loan losses.............. 162,085 139,000 180,643 369,753 642,708 946,284 923,409
Net interest income after provision for
loan losses.......................... 3,444,212 3,170,113 4,509,544 3,749,823 3,024,278 2,014,231 1,819,208
Securities available for sale
transactions......................... 24,472 12,130 8,860 25,767 34,402 -- --
Investment security transactions....... 4,041 3,595 4,006 14,452 1,944 208,614 32,271
Noninterest income..................... 1,346,489 1,147,890 1,620,712 1,541,569 1,360,202 1,254,635 1,028,755
Noninterest expense.................... 3,175,444 2,770,298 4,070,027 3,536,346 3,443,524 2,777,665 2,564,124
Income before income taxes............. 1,643,770 1,563,430 2,073,095 1,795,265 977,302 699,815 316,110
Income taxes........................... 588,927 534,122 709,028 578,912 278,514 129,843 59,868
Net income............................. 1,054,843 1,029,308 1,364,067 1,216,353 698,788 569,972 256,242
Dividends on preferred stock........... 22,306 33,981 46,020 45,553 53,040 51,746 47,151
Net income applicable to common
stockholders before redemption
premium.............................. 1,032,537 995,327 1,318,047 1,170,800 645,748 518,226 209,091
Redemption premium on preferred
stock................................ -- -- 41,355 -- -- -- --
Net income applicable to common
stockholders after redemption
premium.............................. $1,032,537 995,327 1,276,692 1,170,800 645,748 518,226 209,091
Pro forma per common share data:
Net income applicable to common
stockholders before redemption
premium............................ $ 3.57 3.55 4.63 4.30 2.53 2.34 .97
Net income applicable to common
stockholders after redemption
premium............................ $ 3.57 3.55 4.48 4.30 2.53 2.34 .97
Average common shares
(in thousands)....................... 289,438 280,079 284,673 272,439 255,384 221,469 215,529
Corporation historical per common
share data:
Net income applicable to common
stockholders before redemption
premium.......................... $ 4.27 3.94 5.22 4.73 2.23 2.24 1.68
Net income applicable to common
stockholders after redemption
premium.......................... $ 4.27 3.94 4.98 4.73 2.23 2.24 1.68
Average common shares
(in thousands)....................... 171,921 171,265 172,543 167,692 158,683 140,003 135,622
</TABLE>
See accompanying notes to pro forma financial information.
<PAGE>
PRO FORMA COMPUTATIONS OF CONSOLIDATED
RATIOS OF EARNINGS TO FIXED CHARGES
(THE CORPORATION AND FIRST FIDELITY)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS) 1995 1994 1993 1992 1991 1990
EXCLUDING INTEREST ON DEPOSITS
Pretax income from continuing
operations........................... $ 1,691,731 2,087,887 1,795,265 977,302 699,815 316,110
Fixed charges, excluding capitalized
interest............................. 898,313 816,102 607,462 569,638 866,728 1,402,761
(A.) Earnings.......................... $ 2,590,044 2,903,989 2,402,727 1,546,940 1,566,543 1,718,871
Interest, excluding interest on
deposits............................. $ 847,070 746,938 537,964 501,556 803,787 1,349,953
One-third of rents..................... 51,243 69,164 69,498 68,082 62,941 52,808
Capitalized interest................... 1,621 1,120 285 381 2,326 3,144
(B.) Fixed charges..................... $ 899,934 817,222 607,747 570,019 869,054 1,405,905
Consolidated ratios of earnings to
fixed charges, excluding interest on
deposits (A./B.)..................... 2.88x 3.55 3.95 2.71 1.80 1.22
INCLUDING INTEREST ON DEPOSITS
Pretax income from continuing
operations........................... $ 1,691,731 2,087,887 1,795,265 977,302 699,815 316,110
Fixed charges, excluding capitalized
interest............................. 2,991,487 2,862,146 2,551,450 3,009,762 4,133,826 4,859,279
(C.) Earnings.......................... $ 4,683,218 4,950,033 4,346,715 3,987,064 4,833,641 5,175,389
Interest, including interest on
deposits............................. $ 2,940,244 2,792,982 2,481,952 2,941,680 4,070,885 4,806,471
One-third of rents..................... 51,243 69,164 69,498 68,082 62,941 52,808
Capitalized interest................... 1,621 1,120 285 381 2,326 3,144
(D.) Fixed charges..................... $ 2,993,108 2,863,266 2,551,735 3,010,143 4,136,152 4,862,423
Consolidated ratios of earnings to
fixed charges, including interest on
deposits (C./D.)..................... 1.56x 1.73 1.70 1.32 1.17 1.06
</TABLE>
See accompanying notes to pro forma financial information.
<PAGE>
PRO FORMA COMPUTATIONS OF CONSOLIDATED
RATIOS OF EARNINGS TO FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(THE CORPORATION AND FIRST FIDELITY)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS) 1995 1994 1993 1992 1991 1990
EXCLUDING INTEREST ON DEPOSITS
Pretax income from continuing
operations........................... $ 1,691,731 2,087,887 1,795,265 977,302 699,815 316,110
Fixed charges, excluding preferred
stock dividends and capitalized
interest............................. 910,524 861,573 628,840 591,458 878,337 1,422,265
(A.) Earnings.......................... $ 2,602,255 2,949,460 2,424,105 1,568,760 1,578,152 1,738,375
Interest, excluding interest on
deposits............................. $ 847,070 746,938 537,964 501,556 803,787 1,349,953
One-third of rents..................... 51,243 69,164 69,498 68,082 62,941 52,808
Preferred stock dividends*............. 34,517 132,846 66,931 74,860 63,354 66,655
Capitalized interest................... 1,621 1,120 285 381 2,326 3,144
(B.) Fixed charges..................... $ 934,451 950,068 674,678 644,879 932,408 1,472,560
Consolidated ratios of earnings to
fixed charges, excluding interest on
deposits (A./B.)..................... 2.78x 3.10 3.59 2.43 1.69 1.18
INCLUDING INTEREST ON DEPOSITS
Pretax income from continuing
operations........................... $ 1,691,731 2,087,887 1,795,265 977,302 699,815 316,110
Fixed charges, excluding preferred
stock dividends and capitalized
interest............................. 3,003,698 2,907,617 2,572,828 3,031,582 4,145,434 4,878,783
(C.) Earnings.......................... $ 4,695,429 4,995,504 4,368,093 4,008,884 4,845,249 5,194,893
Interest, including interest on
deposits............................. $ 2,940,244 2,792,982 2,481,952 2,941,680 4,070,885 4,806,471
One-third of rents..................... 51,243 69,164 69,498 68,082 62,941 52,808
Preferred stock dividends*............. 34,517 132,846 66,931 74,860 63,354 66,655
Capitalized interest................... 1,621 1,120 285 381 2,326 3,144
(D.) Fixed charges..................... $ 3,027,625 2,996,112 2,618,666 3,085,003 4,199,506 4,929,078
Consolidated ratios of earnings to
fixed charges, including interest on
deposits (C./D.)..................... 1.55x 1.67 1.67 1.30 1.15 1.05
</TABLE>
* Includes redemption premium of $41,355,000 in 1994.
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 Purchase Acquisitions indicated in Note (3) below and the
First Fidelity acquisition 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.
Consummation of the First Fidelity acquisition or either of the pending
Purchase Acquisitions is not contingent upon consummation of any other of
such acquisitions. Consummation of one or both of the pending Purchase
Acquisitions prior to consummation of the First Fidelity acquisition would
not materially impact the results of operations of the Corporation.
(2) It is assumed that the First Fidelity acquisition will be accounted for
on a pooling of interests accounting basis, and accordingly, the related pro
forma adjustments herein reflect, where applicable, an exchange ratio of (i)
1.35 shares of the Corporation's common stock for each of the 81,934,078
shares of First Fidelity common stock (less 1,293,756 treasury shares) which
were outstanding at September 30, 1995; and (ii) one share of one of three
corresponding new series of the Corporation's class A preferred stock for
each share of the related three series of First Fidelity preferred stock
outstanding at September 30, 1995, one series of which includes 3,705,980
shares of convertible preferred stock, which as of such date were
convertible into 2,891,034 shares of First Fidelity common stock. The new
series of the Corporation's class A preferred stock will have substantially
identical terms as the series being exchanged therefor.
As a result, information was adjusted for the First Fidelity
acquisition by the (i) addition of 108,864,435 shares of the Corporation's
common stock amounting to $362,881,000; (ii) elimination of 81,934,078
shares of First Fidelity common stock amounting to $81,934,000; (iii)
cancellation of 1,293,756 treasury shares of First Fidelity at a cost of
$67,225,000; and (iv) recordation of the remaining net amount of
$348,172,000 as a reduction in paid-in capital at September 30, 1995.
The pro forma financial information presented herein does not give
effect to the possible purchase by the Corporation and/or First Fidelity of
up to 5.5 million shares of First Fidelity common stock or 7.4 million
shares of the Corporation's common stock, or some combination of the two
(the "First Fidelity Acquisition Shares"), prior to consummation of the
First Fidelity acquisition. The Corporation has purchased 2.9 million shares
of First Fidelity common stock at a cost of $181 million, and 250,000 shares
of FFB convertible preferred stock at a cost of $12 million.
As of September 30, 1995, the Corporation and First Fidelity had
13,760,713 and 5,325,010 shares of common stock reserved for issuance,
respectively, (excluding, as to the Corporation, shares reserved for
issuance in connection with the First Fidelity acquisition, the pending
Purchase Acquisitions, or upon exercise of the rights attached to shares
of the Corporation's common stock).
For the nine months ended September 30, 1995, First Fidelity had net
income applicable to common stockholders of $338,481,000.
(3) During the period from January 1, 1994 through the date hereof, the
Corporation completed or has pending, the following purchase accounting
acquisitions (the "Purchase Acquisitions"): (i) the acquisition of
BancFlorida Financial Corporation (completed in August 1994) with assets of
$1.6 billion for 3.6 million shares of the Corporation's common stock valued
at $161 million, (ii) the acquisitions of First Florida Savings Bank, FSB
(completed April 1995), Ameribanc Investors Group (completed in April 1995),
Coral Gables Fedcorp, Inc. (completed May 1995), and Home Federal Savings
Bank of Rome, Georgia (completed in August 1995), at an aggregate cost of
$623 million in cash, (iii) the acquisitions of American Savings Bank of
Florida, FSB (completed in July 1995), United Financial Corporation of South
Carolina, Inc. (completed in October 1995), Columbia First Bank, FSB
(completed on November 3, 1995), and RS Financial Corp. and Brentwood
National Bank (each of which is pending as of the date hereof) for an
estimated 15.4 million shares of the Corporation's common stock valued at
an estimated $747 million.
In addition to the foregoing Purchase Acquisitions, during 1994, the
Corporation completed the following purchase accounting acquisitions:
(i) 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 (ii) 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
<PAGE>
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. Accordingly, the pro forma financial information presented herein
includes such acquisitions at their recorded costs and does not include any
pro forma adjustments related thereto.
Goodwill and deposit base premium of approximately $620 million and
$372 million, respectively, are currently expected to result from the
Purchase Acquisitions.
In connection with certain of the foregoing Purchase Acquisitions in
which the consideration involved or will involve the issuance of the
Corporation's common stock, the pro forma financial information presented
herein includes actual and assumed repurchases of the Corporation's common
stock that in the aggregate amount to 19.4 million shares at a cost of $882
million. During 1994, the Corporation purchased 4.9 million shares of the
Corporation's common stock at a cost of $212 million; and during the first
nine months of 1995, through the date hereof, 14.5 million shares of the
Corporation's common stock at a cost of $670 million.
In April 1995, the Corporation's Board of Directors authorized the
purchase of up to 15 million shares of the Corporation's common stock, which
is in addition to the possible purchase of the First Fidelity Acquisition
Shares. As of the date hereof, the Corporation had authority to purchase up
to 5.1 million shares of its common stock, in addition to the First Fidelity
Acquisition Shares and the shares repurchased pursuant to the foregoing
paragraph.
(4) The pro forma adjustment amounts related to the pro forma combined
condensed statements of income reflect a 5.71 percent and 4.08 percent cost
of funds for the nine months ended September 30, 1995 and the year ended
December 31, 1994, 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.
These adjustments resulted in reductions in interest income, net
interest income and net interest income after provision for loan losses for
the nine months ended September 30, 1995 and the year ended December 31,
1994 of $25,930,000 and $80,286,000, respectively; increases in noninterest
expense of $19,897,000 and $52,677,000, respectively; reductions in income
before income taxes of $45,827,000 and $132,963,000, respectively;
reductions in income taxes of $14,146,000 and $40,535,000, respectively; and
reductions in net income applicable to common stockholders of $31,681,000
and $92,428,000, respectively.
(5) Income per share data has been computed based on the combined
historical net income applicable to common stockholders of the Corporation,
First Fidelity and the companies involved in the Purchase Acquisitions using
the historical weighted average shares outstanding of the Corporation's
common stock and the weighted average outstanding shares, adjusted to
equivalent shares of the Corporation's common stock, as of the earliest
period presented.
The components of the pro forma adjustments related to interest income
and noninterest expense for the nine months ended September 30, 1995, and
the year ended December 31, 1994, are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
(In thousands) 1995 1994
<S> <C> <C>
Interest income
Interest and fees on loans........................................................ $ (689) 350
Interest and dividends on investment securities................................... (2,875) (19,999)
Interest-bearing bank balances.................................................... (22,366) (60,637)
Total interest income.......................................................... (25,930) (80,286)
Noninterest expense
Equipment rentals, depreciation and maintenance................................... (882) (3,190)
Mortgage servicing amortization................................................... 1,281 5,437
Other amortization
Goodwill....................................................................... 10,799 27,225
Deposit base premium........................................................... 8,699 23,205
Total noninterest expense.................................................... 19,897 52,677
Income before income taxes.......................................................... $ (45,827) (132,963)
</TABLE>
<PAGE>
(6) 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.
(7) The unaudited pro forma financial information does not include any
First Fidelity acquisition-related expenses or any material acquisition-
related expenses with respect to the Purchase Acquisitions. A currently
estimated after-tax First Fidelity acquisition-related charge of
approximately $270 million, or $.97 per share of the Corporation's common
stock, is expected to be recorded in the appropriate period based on the
consummation date of the First Fidelity acquisition.
(8) As indicated by the foregoing unaudited pro forma financial information
and based solely on combined financial information as of September 30, 1995,
upon consummation of the First Fidelity acquisition and the Purchase
Acquisitions, the Corporation's historical net income per common share after
redemption premium for the nine months ended September 30, 1995 and year
ended December 31, 1994, would have been diluted by 16 percent and 10
percent, respectively. It should not necessarily be assumed, however, that
the foregoing data will represent actual dilution with respect to the First
Fidelity acquisition and the Purchase Acquisitions.
(9) For purposes of computing the combined ratios of earnings to fixed
charges of the Corporation and First Fidelity, earnings represent income
from continuing operations before extraordinary items and cumulative effect
of a change in accounting principle plus income taxes and fixed charges
(excluding capitalized interest). Fixed charges, excluding interest on
deposits, represent interest (other than on deposits, but including
capitalized interest), one-third (the proportion deemed representative of
the interest factor) of rents and all amortization of debt issuance costs.
Fixed charges, including interest on deposits, represent all interest
(including capitalized interest), one-third (the proportion deemed
representative of the interest factor) of rents and all amortization of debt
issuance costs. Pretax preferred stock dividends are included in fixed
charges when computing the combined ratios of earnings to fixed charges and
preferred stock dividends.
Part I - Financial Information
------------------------------
Item 1 - Financial Statements
- -----------------------------
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(thousands, except per share amounts) Three Months Ended
September 30
--------------------
1995 1994
-------- --------
INTEREST INCOME
Interest and fees on loans......................... $476,042 $414,999
Interest on federal funds sold and securities
purchased under agreements to resell............. 3,255 269
Interest and dividends on securities:
Taxable interest income.......................... 87,657 104,543
Tax-exempt interest income....................... 7,645 9,552
Dividends........................................ 949 1,293
Interest on bank deposits.......................... 1,543 4,713
Interest on trading account securities............. 1,387 1,713
-------- --------
Total Interest Income.......................... 578,478 537,082
-------- --------
INTEREST EXPENSE
Interest on:
Deposits......................................... 198,923 150,213
Short-term borrowings............................ 23,973 20,511
Long-term debt................................... 12,631 13,296
-------- --------
Total Interest Expense......................... 235,527 184,020
-------- --------
Net Interest Income.......................... 342,951 353,062
Provision for possible credit losses................. 10,000 20,000
-------- --------
Net Interest Income after Provision
for Possible Credit Losses....................... 332,951 333,062
-------- --------
NON-INTEREST INCOME
Trust income....................................... 26,047 25,890
Service charges on deposit accounts................ 35,984 34,473
Other service charges, commissions and fees........ 27,348 21,657
Trading revenue.................................... 1,605 2,826
Net securities transactions........................ 5,005 4,903
Other income....................................... 12,928 7,504
-------- --------
Total Non-Interest Income........................ 108,917 97,253
-------- --------
NON-INTEREST EXPENSE
Salaries and benefits expense...................... 121,565 119,489
Occupancy expense.................................. 27,455 27,215
Equipment expense.................................. 12,163 10,097
Other expenses..................................... 86,509 101,844
-------- --------
Total Non-Interest Expense....................... 247,692 258,645
-------- --------
<PAGE>
Income before income taxes........................... 194,176 171,670
Income taxes......................................... 68,611 56,652
-------- --------
Net Income........................................... 125,565 115,018
Dividends on Preferred Stock......................... 4,956 5,182
-------- --------
Net Income Applicable to Common Stock................ $120,609 $109,836
======== ========
Per common share:
Net income:
Primary.......................................... $1.48 $1.33
Fully diluted.................................... 1.45 1.30
See accompanying notes to consolidated financial statements.
<PAGE>
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(thousands, except per share amounts) Nine Months Ended
September 30
----------------------
1995 1994
---------- ----------
INTEREST INCOME
Interest and fees on loans....................... $1,408,356 $1,212,654
Interest on federal funds sold and securities
purchased under agreements to resell........... 4,317 759
Interest and dividends on securities:
Taxable interest income........................ 286,291 298,739
Tax-exempt interest income..................... 24,906 29,959
Dividends...................................... 3,120 3,910
Interest on bank deposits........................ 2,638 22,394
Interest on trading account securities........... 3,961 5,134
--------- ---------
Total Interest Income........................ 1,733,589 1,573,549
--------- ---------
INTEREST EXPENSE
Interest on:
Deposits....................................... 578,833 437,474
Short-term borrowings.......................... 79,813 44,568
Long-term debt................................. 42,211 36,811
--------- ---------
Total Interest Expense....................... 700,857 518,853
--------- ---------
Net Interest Income........................ 1,032,732 1,054,696
Provision for possible credit losses............... 30,000 64,000
--------- ---------
Net Interest Income after Provision
for Possible Credit Losses..................... 1,002,732 990,696
--------- ---------
NON-INTEREST INCOME
Trust income..................................... 79,929 80,781
Service charges on deposit accounts.............. 108,206 108,378
Other service charges, commissions and fees...... 79,489 62,343
Trading revenue.................................. 6,670 7,461
Net securities transactions...................... 19,048 13,711
Other income..................................... 36,829 20,544
--------- ---------
Total Non-Interest Income...................... 330,171 293,218
--------- ---------
NON-INTEREST EXPENSE
Salaries and benefits expense.................... 371,445 360,511
Occupancy expense................................ 86,091 87,592
Equipment expense................................ 34,632 31,320
Other expenses................................... 292,617 304,263
--------- ---------
Total Non-Interest Expense..................... 784,785 783,686
--------- ---------
<PAGE>
Income before income taxes......................... 548,118 500,228
Income taxes....................................... 194,360 164,751
--------- ---------
Net Income......................................... 353,758 335,477
Dividends on Preferred Stock....................... 15,277 15,459
--------- ---------
Net Income Applicable to Common Stock.............. $338,481 $320,018
========= =========
Per common share:
Net income:
Primary........................................ $4.17 $3.87
Fully diluted.................................. 4.06 3.80
See accompanying notes to consolidated financial statements.
<PAGE>
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF CONDITION
September 30 December 31
1995 1994
(thousands) (unaudited)
------------ -----------
ASSETS
Cash and due from banks............................ $1,649,476 $2,082,002
Interest-bearing time deposits..................... 462,649 35,567
Securities held to maturity........................ 4,039,740 4,186,860
(market value of $4,040,342 at September 30,
1995 and $4,049,457 at December 31, 1994)
Securities available for sale, at market value..... 2,128,992 3,781,163
Trading account securities, at market value........ 152,832 110,494
Federal funds sold and securities purchased under
agreements to resell............................. 425,000 50,675
Loans, net of unearned income...................... 24,387,524 23,801,241
Less: Reserve for possible credit losses......... (554,690) (599,333)
----------- -----------
Net loans...................................... 23,832,834 23,201,908
Premises and equipment............................. 419,869 437,677
Customers' acceptance liability.................... 178,425 215,556
Other assets....................................... 1,988,233 2,113,794
----------- -----------
Total Assets................................. $35,278,050 $36,215,696
=========== ===========
LIABILITIES Deposits in domestic offices:
Demand deposits.................................. $4,868,663 $5,393,749
Savings/NOW deposits............................. 8,464,655 9,271,335
Money market deposit accounts.................... 3,843,202 4,257,135
Other consumer time deposits..................... 9,264,800 8,858,443
Corporate certificates of deposit................ 380,356 393,058
Deposits in overseas offices....................... 757,298 733,132
----------- -----------
Total Deposits................................. 27,578,974 28,906,852
Short-term borrowings.............................. 3,031,961 2,716,922
Acceptances outstanding............................ 178,748 218,625
Other liabilities.................................. 740,938 682,699
Long-term debt..................................... 676,735 813,623
----------- -----------
Total Liabilities............................ 32,207,356 33,338,721
<PAGE>
STOCKHOLDERS' EQUITY
Preferred stock.................................... 202,647 229,707
Common stock ($1.00 par)
Authorized: 150,000,000 shares
Issued: 81,934,078 shares at September 30, 1995
and 82,003,121 shares at December 31, 1994..... 81,934 82,003
Surplus............................................ 1,251,173 1,256,020
Retained earnings.................................. 1,606,042 1,430,149
Net unrealized losses--securities
available for sale............................... (3,877) (75,232)
Less treasury stock, at cost: 1,293,756 shares at
September 30, 1995 and 1,020,282 shares
at December 31, 1994........................... (67,225) (45,672)
----------- -----------
Total Common Stockholders' Equity............ 2,868,047 2,647,268
----------- -----------
Total Stockholders' Equity................... 3,070,694 2,876,975
----------- -----------
Total Liabilities and Stockholders' Equity... $35,278,050 $36,215,696
=========== ===========
See accompanying notes to consolidated financial statements.
<PAGE>
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (unaudited)
(thousands)
Nine Months Ended
September 30
----------------------
1995 1994
---------- ----------
Balance, January 1.................................. $2,876,975 $2,738,428
Net income........................................ 353,758 335,477
Common Stock issued:
Private placement--Santander exercise
of warrants................................... - 121,189
Stock options and dividend reinvestment plan.... 59,960 19,935
Other........................................... - 1,566
Purchases of treasury stock....................... (155,699) (152,994)
Dividends on Common Stock......................... (120,378) (101,527)
Dividends on Preferred Stock...................... (15,277) (15,459)
Net unrealized gains (losses)--securities
available for sale.............................. 71,355 (65,295)
Other............................................. - 3,200
---------- ----------
Balance, September 30............................... $3,070,694 $2,884,520
========== ==========
See accompanying notes to consolidated financial statements.
<PAGE>
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Nine Months Ended
September 30
-------------------------
(thousands) 1995 1994
----------- -----------
Cash flows from operating activities:
Net income......................................... $353,758 $335,477
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible credit losses............... 30,000 64,000
Depreciation, amortization and accretion........... 58,502 57,600
Deferred income tax provision...................... 28,885 30,966
Gain on sale of assets............................. (16,860) (9,420)
Net securities transactions (gains)................ (19,048) (13,711)
Proceeds from sales of trading account
securities....................................... 7,575,325 7,556,907
Purchases of trading account securities............ (7,612,549) (7,512,409)
Decrease (increase) in accrued interest receivable. 2,318 (57,420)
Increase in accrued interest payable............... 42,458 58,082
Change in current taxes payable.................... 59,548 91,462
Other, net......................................... 85,273 (27,914)
---------- ----------
Net cash provided by operating activities...... 587,610 573,620
Cash flows from investing activities:
Proceeds from maturities of securities
held to maturity................................. 1,270,486 2,026,010
Purchases of securities held to maturity........... (1,196,535) (1,138,599)
Proceeds from sales of securities available
for sale......................................... 1,939,788 695,680
Proceeds from maturities of securities
available for sale............................... 376,661 685,714
Purchases of securities available for sale......... (442,332) (2,429,937)
Net (disbursements) from lending activities........ (627,359) (606,085)
Purchases of premises and equipment................ (36,930) (43,946)
Proceeds from sales of premises and equipment...... 5,128 10,038
Net change in acceptances.......................... (2,746) (5,430)
Net cash on acquisitions........................... 943,182 4,153
---------- ----------
Net cash provided by/(used in)
investing activities......................... 2,229,343 (802,402)
Cash flows from financing activities:
Change in demand, savings/NOW, and money market
deposits......................................... (2,201,563) (1,130,075)
Change in corporate certificates of deposit and
deposits in overseas offices..................... 11,464 672,237
Change in other consumer time deposits............. (199,807) (830,690)
Change in short-term borrowings.................... 315,039 620,440
Issuance of long-term debt......................... - 200,000
Payments on long-term debt......................... (136,888) (166)
Purchases of treasury stock........................ (155,699) (152,994)
Issuance of common stock........................... 59,961 141,123
Dividends paid..................................... (140,579) (116,936)
---------- ----------
Net cash (used in) financing activities........ (2,448,072) (597,061)
---------- ----------
<PAGE>
Net change in cash and cash equivalents........ 368,881 (825,843)
Cash and cash equivalents at beginning
of period (A)................................ 2,168,244 2,826,039
---------- ----------
Cash and cash equivalents at end
of period (A)................................ $2,537,125 $2,000,196
========== ==========
Supplemental disclosures:
Total amount of interest paid for the period....... $658,399 $460,771
========== ==========
Total amount of income taxes paid for
the period....................................... $107,410 $100,884
========== ==========
Total amount of loans transferred to OREO.......... $22,584 $34,178
========== ==========
(A) Reconciliation: September 30 December 31
---------------------- ----------------------
1995 1994 1994 1993
---------- ---------- ---------- ----------
Cash and due from banks......... $1,649,476 $1,575,930 $2,082,002 $1,831,270
Interest-bearing time deposits.. 462,649 411,772 35,567 979,769
Federal funds sold and
securities purchased under
agreements to resell.......... 425,000 12,494 50,675 15,000
---------- ---------- ---------- ----------
Total cash and cash
equivalents................... $2,537,125 $2,000,196 $2,168,244 $2,826,039
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
<PAGE>
SUMMARIZED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) In Management's opinion, the financial information, which is unaudited,
reflects all adjustments (consisting solely of normal recurring
adjustments) necessary for a fair presentation of the financial
information as of and for the three and nine month periods ended
September 30, 1995 and September 30, 1994 in conformity with generally
accepted accounting principles. These financial statements should be
read in conjunction with First Fidelity Bancorporation's ("First
Fidelity" or "the Company" herein) 1994 Annual Report on Form 10-K.
(2) Primary earnings per share is based on the weighted average number of
common shares outstanding during each period, including the assumed
exercise of dilutive stock options and warrants, using the treasury
stock method. Primary earnings per share also reflects provisions for
dividend requirements on all outstanding shares of the Company's
preferred stock.
Fully diluted earnings per share is based on the weighted average
number of common shares outstanding during each period, including the
assumed conversion of convertible preferred stock into common stock and
the assumed exercise of dilutive stock options and warrants using the
treasury stock method. Fully diluted earnings per share also reflects
provisions for dividend requirements on non-convertible preferred
stock.
(3) As previously reported, effective January 1, 1995, the Company adopted
Statement of Financial Accounting Standards ("SFAS") 114, "Accounting
by Creditors for Impairment of a Loan" and SFAS 118, "Accounting by
Creditors for Impairment of a Loan--Income Recognition and
Disclosures". Under SFAS 114 and SFAS 118, impaired loans are measured
based on the present value of expected future cash flows, discounted at
the loan's effective interest rate, or as a practical expedient, at the
loan's observable market price, or the fair value of the collateral if
the loan is collateral-dependent.
(4 In March, 1995, SFAS 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of", was issued. SFAS
121 requires that long-lived assets and certain identifiable
intangibles and any associated goodwill be reviewed for impairment
whenever events or circumstances indicate that the carrying amount of
an asset may not be recoverable. SFAS 121 also requires long-lived
assets and certain identifiable intangibles to be disposed of to be
reported at the lower of carrying amount or fair value less cost to
sell. The adoption of SFAS 121, which is required beginning in 1996, is
not expected to have a material effect on the Company's financial
statements.
<PAGE>
(5) During the second quarter of 1995, the Company adopted SFAS 122,
"Accounting for Mortgage Servicing Rights", which was issued in May,
1995. SFAS 122 amends SFAS 65, "Accounting for Certain Mortgage Banking
Activities". SFAS 122 requires that a mortgage banking enterprise
recognize, as separate assets, rights to service mortgage loans,
however those servicing rights are acquired. SFAS 122 eliminates the
previously existing accounting distinction between servicing rights
acquired through purchase transactions and those acquired through loan
originations. SFAS 122 also requires that a mortgage banking entity
assess its capitalized mortgage servicing rights ("MSRs") periodically
for impairment, based on the fair value of those rights. Through
September 30, 1995, servicing rights capitalized pursuant to SFAS 122
were not material to the Company's financial statements.
(6) The carrying value of capitalized MSRs at September 30, 1995 was $47.4
million, which approximated fair value. Fair value was determined by
calculating the discounted present value of estimated expected net
future cash flows, considering estimated prepayments and defaults,
projected interest rates and other factors. For purposes of evaluating
and measuring impairment, capitalized MSRs are aggregated into groups
having homogeneous risk characteristics, based on the attributes of the
underlying loans, and are separately valued, using appropriate
assumptions for each risk group. No valuation allowance was required
for capitalized MSRs at September 30, 1995.
(7) As previously reported, on June 19, 1995, First Fidelity and First
Union Corporation ("First Union") announced the execution of a
definitive Agreement and Plan of Merger (the "Merger Agreement"),
pursuant to which, among other things, First Fidelity would merge into
a wholly-owned subsidiary of First Union (the "Merger"). The Merger,
which has been approved by the respective shareholders of both
companies and by the Federal Reserve Board, is expected to close by
January 1, 1996, subject to certain conditions of closing. The Merger
will be accounted for as a pooling of interests under generally
accepted accounting principles.
(8) In October, 1995, SFAS 123, "Accounting for Stock-Based Compensation",
was issued. SFAS 123 establishes the concept of a fair-value-based
method of accounting for employee stock compensation plans. Companies
having such plans will have the option of either: a) recording as
compensation cost the fair value as of grant date of stock options
granted to employees, ratably over the vesting period, or b) continuing
to account for such options as prescribed in Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees."
If the latter option is selected, the Company must provide pro-forma
footnote disclosures which illustrate what the impact would have been
on net income and earnings per share, had the fair value-based method
been used. The Company does not anticipate that SFAS 123, which is
required beginning in 1996, will have an impact on its financial
statements.
<PAGE>
