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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
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.
271,311,239 shares of Common Stock, par value $3.33 1/3 per share, were
outstanding as of October 31, 1996.
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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.
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FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF INCOME
CONSOLIDATED STATEMENTS OF CASH FLOWS
The Consolidated Balance Sheets of the Corporation and Subsidiaries at
September 30, 1996, September 30, 1995, and December 31, 1995, respectively, set
forth on page T-20 of the Corporation's Third Quarter Financial Supplement for
the nine months ended September 30, 1996 (the "Financial Supplement"), are
incorporated herein by reference.
The Consolidated Statements of Income of the Corporation and Subsidiaries
for the three and nine months ended September 30, 1996 and 1995, set forth on
pages T-21 and T-22 of the Financial Supplement, are incorporated herein by
reference.
The Consolidated Statements of Cash Flows of the Corporation and
Subsidiaries for the nine months ended September 30, 1996 and 1995, set forth on
page T-23 of the Financial Supplement, are incorporated herein by reference.
A copy of the Financial Supplement is being filed as Exhibit (19) to this
Report.
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PART II. OTHER INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Management's Discussion and Analysis of Financial Condition and Results of
Operations appears on pages 2 through 22 and T-1 through T-23 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 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
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EXHIBIT NO. DESCRIPTION
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(4) Instruments defining the rights of security holders, including indentures.*
(12)(a) Computations of Consolidated Ratios of Earnings to Fixed Charges.
(12)(b) Computations of Consolidated Ratios of Earnings to Fixed Charges and Preferred Stock Dividends.
(19) The Corporation's Third Quarter 1996 Financial Supplement.
(27) The Corporation's Financial Data Schedule.**
(99) First Union Corporation of Virginia and Subsidiaries Summarized Financial Information.
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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.
** Filing by Electronic Data Gathering, Analysis and Retrieval System only.
(b) Reports on Form 8-K.
During the quarter ended September 30, 1996, Current Reports on Form 8-K,
dated August 20, 1996, and September 6, 1996, were filed with the Commission by
the Corporation.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FIRST UNION CORPORATION
Date: November 14, 1996
By: /s/ JAMES H. HATCH
JAMES H. HATCH
SENIOR VICE PRESIDENT AND CORPORATE
CONTROLLER
(PRINCIPAL ACCOUNTING OFFICER)
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EXHIBIT INDEX
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EXHIBIT NO. DESCRIPTION
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(4) Instruments defining the rights of security holders, including indentures.*
(12)(a) Computations of Consolidated Ratios of Earnings to Fixed Charges.
(12)(b) Computations of Consolidated Ratios of Earnings to Fixed Charges and Preferred Stock Dividends.
(19) The Corporation's Third Quarter 1996 Financial Supplement.
(27) The Corporation's Financial Data Schedule.**
(99) First Union Corporation of Virginia and Subsidiaries Summarized Financial Information.
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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.
** Filing by Electronic Data Gathering, Analysis and Retrieval System only.
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EXHIBIT (12)(A)
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 MILLIONS) 1996 1995 1994 1993 1992 1991
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EXCLUDING INTEREST ON DEPOSITS:
Pretax income from continuing operations....................... $ 1,603 2,219 2,088 1,795 977 700
Fixed charges, excluding capitalized interest.................. 1,293 1,266 816 608 570 867
(A.) Earnings.................................................. $ 2,896 3,485 2,904 2,403 1,547 1,567
Interest, excluding interest on deposits....................... $ 1,243 1,198 747 538 502 804
One-third of rents............................................. 50 68 69 70 68 63
Capitalized interest........................................... 3 3 1 -- -- 2
(B.) Fixed charges............................................. $ 1,296 1,269 817 608 570 869
Consolidated ratios of earnings to fixed charges, excluding
interest on deposits (A./B.)................................. 2.23X 2.75 3.55 3.95 2.71 1.80
INCLUDING INTEREST ON DEPOSITS:
Pretax income from continuing operations....................... $ 1,603 2,219 2,088 1,795 977 700
Fixed charges, excluding capitalized interest.................. 3,502 4,120 2,862 2,552 3,010 4,134
(C.) Earnings.................................................. $ 5,105 6,339 4,950 4,347 3,987 4,834
Interest, including interest on deposits....................... $ 3,452 4,052 2,793 2,482 2,942 4,071
One-third of rents............................................. 50 68 69 70 68 63
Capitalized interest........................................... 3 3 1 -- -- 2
(D.) Fixed charges............................................. $ 3,505 4,123 2,863 2,552 3,010 4,136
Consolidated ratios of earnings to fixed charges, including
interest
on deposits (C./D.).......................................... 1.46X 1.54 1.73 1.70 1.32 1.17
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EXHIBIT (12)(B)
FIRST UNION CORPORATION
COMPUTATIONS OF CONSOLIDATED
RATIOS OF EARNINGS TO FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
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NINE
MONTHS
ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
(DOLLARS IN MILLIONS) 1996 1995 1994 1993 1992 1991
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EXCLUDING INTEREST ON DEPOSITS:
Pretax income from continuing operations....................... $ 1,603 2,219 2,088 1,795 977 700
Fixed charges, excluding preferred stock dividends and
capitalized interest......................................... 1,297 1,281 861 629 592 878
(A.) Earnings.................................................. $ 2,900 3,500 2,949 2,424 1,569 1,578
Interest, excluding interest on deposits....................... $ 1,243 1,198 747 538 502 804
One-third of rents............................................. 50 68 69 70 68 63
Preferred stock dividends*..................................... 12 41 133 67 75 63
Capitalized interest........................................... 3 3 1 -- -- 2
(B.) Fixed charges............................................. $ 1,308 1,310 950 675 645 932
Consolidated ratios of earnings to fixed charges, excluding
interest on deposits (A./B.)................................. 2.22X 2.67 3.10 3.59 2.43 1.69
INCLUDING INTEREST ON DEPOSITS:
Pretax income from continuing operations....................... $ 1,603 2,219 2,088 1,795 977 700
Fixed charges, excluding preferred stock dividends and
capitalized interest......................................... 3,506 4,134 2,908 2,573 3,032 4,145
(C.) Earnings.................................................. $ 5,109 6,353 4,996 4,368 4,009 4,845
Interest, including interest on deposits....................... $ 3,452 4,052 2,793 2,482 2,942 4,071
One-third of rents............................................. 50 68 69 70 68 63
Preferred stock dividends*..................................... 12 41 133 67 75 63
Capitalized interest........................................... 3 3 1 -- -- 2
(D.) Fixed charges............................................. $ 3,517 4,164 2,996 2,619 3,085 4,199
Consolidated ratios of earnings to fixed charges, including
interest
on deposits (C./D.).......................................... 1.45X 1.53 1.67 1.67 1.30 1.15
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*Includes redemption premium of $41,355,000 in 1994.
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FIRST UNION CORPORATION
AND SUBSIDIARIES
THIRD QUARTER
FINANCIAL
SUPPLEMENT
NINE MONTHS ENDED
SEPTEMBER 30, 1996
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FIRST UNION CORPORATION
AND SUBSIDIARIES
THIRD QUARTER FINANCIAL SUPPLEMENT
NINE MONTHS ENDED SEPTEMBER 30, 1996
(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, Per Share Data
and Balance Sheet Data........................................................................... T-1
Selected Lines of Business.......................................................................... T-2
Internal Capital Growth and Dividend Payout Ratios.................................................. T-2
Selected Quarterly Data............................................................................. T-3
Securities Available for Sale....................................................................... T-4
Investment Securities............................................................................... T-5
Loans............................................................................................... T-6
Allowance for Loan Losses and Nonperforming Assets.................................................. T-7
Intangible Assets................................................................................... T-8
Allowance for Foreclosed Properties................................................................. T-8
Deposits............................................................................................ T-9
Time Deposits in Amounts of $100,000 or More........................................................ T-9
Long-Term Debt...................................................................................... T-10
Changes in Stockholders' Equity..................................................................... T-11
Capital Ratios...................................................................................... T-12
Off-Balance Sheet Derivative Financial Instruments.................................................. T-13
Off-Balance Sheet Derivatives-Expected Maturities................................................... T-15
Off-Balance Sheet Derivatives Activity.............................................................. T-15
Net Interest Income Summaries
Five Quarters Ended September 30, 1996......................................................... T-16
Year-to-date September 30 and June 30, 1996; December 31
and September 30, 1995.................................................................... T-18
Consolidated Balance Sheets
Five Quarters Ended September 30, 1996......................................................... T-20
Consolidated Statements of Income
Five Quarters Ended September 30, 1996......................................................... T-21
Year-to-date September 30, 1996 and 1995....................................................... T-22
Consolidated Statements of Cash Flows............................................................... T-23
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SELECTED FINANCIAL DATA
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Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- -----------------------
(In millions, except per share data) 1996 1995 1996 1995
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FINANCIAL HIGHLIGHTS
Net income $ 357 381 1,039 1,095
Dividends on preferred stock 1 5 8 22
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Net income applicable to common stockholders 356 376 1,031 1,073
After-tax restructuring charges and SAIF special assessment 86 - 267 -
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Net income applicable to common stockholders
before merger-related restructuring charges and SAIF special assessment $ 442 376 1,298 1,073
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PER COMMON SHARE DATA
Net income $ 1.29 1.36 3.69 3.85
Net income before merger-related, after tax restructuring charges
and SAIF special assessment 1.60 1.36 4.65 3.85
Net income before merger-related, after tax restructuring charges,
SAIF special assessment and intangible amortization expense 1.77 1.54 5.19 4.34
Cash dividends 0.58 0.52 1.62 1.44
Quarter-end price 66.750 51.000 66.750 51.000
Book value $ 31.94 30.68 31.94 30.68
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PERFORMANCE HIGHLIGHTS
Return on average assets (a) (b) 1.06% 1.25 1.04 1.26
Return on average common equity (a) (c) 15.91 17.84 15.30 17.24
Before merger-related after-tax restructuring charges and
SAIF special assessment
Return on average assets (a) (b) 1.32 1.25 1.30 1.26
Return on average common equity (a) (c) 19.17 17.84 18.81 17.24
Dividend payout ratio on common shares 44.96 33.75 43.90 34.08
Net interest margin (a) 4.27 4.41 4.21 4.55
ASSET QUALITY
Allowance as % of loans, net 1.49 1.69 1.49 1.69
Allowance as % of nonaccrual and restructured loans 188 236 188 236
Allowance as % of nonperforming assets 167 178 167 178
Net charge-offs to average loans, net (a) 0.64 0.33 0.58 0.38
Net charge-offs to average loans, net, excluding net credit card
charge-offs (a) (d) 0.28 - 0.30 -
Nonperforming assets to loans, net and foreclosed properties 0.89 0.95 0.89 0.95
CAPITAL
Tier 1 capital to risk-weighted assets 6.38 6.81 6.38 6.81
Stockholders' equity to assets 6.49% 7.02 6.49 7.02
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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.
(d) Data not available prior to 1996.
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MANAGEMENT'S ANALYSIS OF OPERATIONS
EARNINGS HIGHLIGHTS
First Union's net income applicable to common stockholders in the first nine
months of 1996 was $1.03 billion, or $3.69 per share after first quarter 1996
merger-related restructuring charges of $181 million after-tax and third quarter
1996 Savings Association Insurance Fund (SAIF) special assessment charges of $86
million after-tax. Before these charges, net income was $1.30 billion, or $4.65
per share, compared with $1.07 billion, or $3.85 per share, in the first nine
months of 1995.
The restructuring charges were related to the January 1, 1996, First Fidelity
Bancorporation pooling of interests acquisition. Amounts for 1995 have been
restated to reflect the acquisition. The SAIF special assessment resulted from
recent legislation to recapitalize the SAIF, and applied to $25.0 billion in
deposits (out of our $91.4 billion deposit base) that were originally acquired
from thrift institutions. As a result of the legislation, beginning in 1997 we
expect to realize a net annual benefit of $35 million pre-tax from the reduced
SAIF premiums, which we currently plan to apply to business-related initiatives
to enhance revenues by increasing the products, services and distribution
channels available to customers.
In the third quarter of 1996, net income applicable to common stockholders was
$356 million, or $442 million before the SAIF special assessment, compared with
$376 million in the third quarter of 1995. On a per common share basis, earnings
were $1.29, or $1.60 before the SAIF assessment, compared with $1.36 in the
third quarter of 1995.
Tax-equivalent net interest income increased 7 percent from the first nine
months of 1995, including 6 percent growth in the third quarter of 1996 from the
third quarter of 1995. Average net loans amounted to $89.9 billion in the first
nine months of 1996, compared with $81.7 billion in the first nine months of
1995. Nonperforming assets were $825 million, or 0.89 percent of net loans and
foreclosed properties, at September 30, 1996, compared with $818 million, or
0.95 percent, at September 30, 1995, and $826 million, or 0.91 percent, at
December 31, 1995. Annualized net charge-offs were 0.64 percent in the third
quarter of 1996, compared with 0.33 percent in the third quarter of 1995, and
0.49 percent in the fourth quarter of 1995. Excluding net charge-offs related to
the credit card portfolio, third quarter 1996 net charge-offs were 0.28 percent.
At September 30, 1996, the credit card portfolio represented 6 percent of the
total loan portfolio.
Noninterest, or fee, income (excluding securities transactions) increased 27
percent in the first nine months of 1996 from the first nine months of 1995,
including 28 percent growth in the third quarter of 1996 from the third quarter
of 1995. Included in
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noninterest income is Capital Management fee income, which increased 38 percent,
and Capital Markets fee income, which increased 52 percent, in the third quarter
of 1996 from the third quarter of 1995.
Domestic banking operations, including trust operations, located in Connecticut,
Delaware, Florida, Georgia, Maryland, New Jersey, New York, North Carolina,
Pennsylvania, South Carolina, Tennessee, Virginia and Washington, D.C., and
mortgage banking operations are our principal sources of revenues. Foreign
banking operations are immaterial.
OUTLOOK
With the discretionary investments we have made in recent years, particularly in
the Capital Management, Capital Markets and electronic and remote banking areas
of our company, we have many more opportunities to serve customers with a
broader selection of financial products. These products diversify our revenue
stream and complement our traditional loan and deposit products.
The response in both our southern and northern markets to mutual funds, asset
management accounts, annuities and other investment planning products and
services continues to be strong. We believe this indicates customer satisfaction
with these new products and with the delivery channel options we are offering.
Access to an expanded network of broker-dealers as well as expanded investment
management activities will be gained with the completion, expected during late
1996, of the acquisition of Keystone Investments, Inc., a Boston-based
investment manager and mutual fund advisory company with $11.8 billion in assets
under management at September 30, 1996. The transaction, which is expected to be
accounted for as a pooling of interests, calls for First Union to issue
2,912,000 shares of common stock and to assume $145 million of Keystone
long-term debt as a result of the acquisition. This transaction is subject to
approval by shareholders of the Keystone family of mutual funds and by
regulatory bodies, and to other conditions of closing.
In the first nine months of 1996, we completed purchase accounting acquisitions
of three banks and thrifts in North Carolina, Florida and Tennessee and three
railcar leasing operations. We also announced three pending purchase accounting
acquisitions, including a thrift and a bank in Florida and a bank in
Connecticut, respectively. The railcar leasing acquisitions operate as part of
First Union Rail Corporation. The railcar purchases make First Union Rail the
second largest general freight car leasing operation in North America. The three
railcar leasing acquisitions had combined assets of $1.0 billion.
The three completed bank-and thrift-related acquisitions had combined
assets, net loans and deposits of $2.2 billion, $1.4 billion and $1.7 billion,
respectively. The three pending bank- and thrift-related acquisitions had
combined assets, net loans and deposits of approximately $5.3 billion, $3.4
billion and $3.6 billion, respectively, at September 30, 1996.
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Also in the first nine months of 1996, we acquired a 32.5 percent equity
ownership interest in NOVA Corporation of Atlanta, Georgia, in exchange for our
merchant bankcard processing business. In October 1996, we consummated the
purchase of the trustee and agency servicing rights to the corporate trust
portfolio of Meridian Trust Company based in Pennsylvania, which added
approximately 1,100 bond trustee and agency accounts and increased First
Union's corporate trust servicing portfolio to approximately $125 billion in
principal outstanding.
We also consummated the purchase of two insurance agencies in Virginia and
Pennsylvania.
These acquisitions will help First Union improve market share in its banking
operations and further diversify its earnings stream.
We continue to be alert to opportunities to enhance stockholder value through
acquisitions. With the completion of the First Fidelity acquisition, however, we
have refocused our primary management attention to leveraging our existing base
as we invest in new technology and fee income-generating lines of business. The
significant investments we have made in acquisitions, in technology and in
expanded products and services position us to serve our 12 million customers in
a diverse geographic marketplace and to reduce the impact of shifts in the
credit cycle.
We also continue to evaluate acquisition opportunities that will provide access
to customers and markets that we believe complement our long-term goals.
Acquisition discussions and in some cases negotiations also 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 net income per common
share may occur in connection with some future acquisitions.
The ACCOUNTING AND REGULATORY MATTERS section provides information about
legislative, accounting and regulatory matters that have recently been adopted
or proposed.
INCOME STATEMENT REVIEW
NET INTEREST INCOME
Tax-equivalent net interest income increased 7 percent in the first nine months
of 1996 to $3.81 billion, compared with $3.55 billion in the first nine months
of 1995, and 6 percent in the third quarter of 1996 to $1.28 billion, compared
with $1.21 billion in the third quarter of 1995. The increases primarily
reflected loan growth, the repricing of variable rate assets, and purchase
accounting acquisitions.
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Nonperforming loans reduce interest income because the contribution from these
loans is eliminated or sharply reduced. In the first nine months of 1996, $54
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 1996 was $8 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
4.21 percent in the first nine months of 1996, compared with 4.55 percent in the
first nine months of 1995. The margin was 4.27 percent in the third quarter of
1996, compared with 4.41 percent in the third quarter of 1995. The margin
decline was primarily related to the securitization of $1.5 billion in credit
card receivables in the third quarter of 1995; the addition of lower spread
investment securities in the early months of 1996; the addition of acquired
banks and thrifts with lower margins; and the generation of lower-spread assets
related to Capital Markets activities. It should be noted that the margin is not
our primary management focus or goal. Our goal is to continue increasing net
interest income.
The average rate earned on earning assets was 8.03 percent in the first nine
months of 1996, compared with 8.32 percent in the first nine months of 1995. The
average rate paid on interest-bearing liabilities was 4.37 percent in the first
nine months of 1996 and 4.39 percent in the first nine months of 1995.
We use securities and off-balance sheet transactions to manage interest rate
sensitivity. More information on these transactions is included in the INTEREST
RATE RISK MANAGEMENT section.
NONINTEREST INCOME
We are meeting the challenges of increasing competition and changing customer
demands and demographics by making discretionary investments to enhance our
prospects for income growth. We have significantly broadened our product lines,
particularly in the Capital Markets, Capital Management and Customer Direct
Access (formerly Card Products) divisions, to provide additional sources of fee
income that complement our longstanding banking products and services. These
investments were reflected in the 27 percent growth in noninterest income,
excluding securities transactions, to $1.65 billion in the first nine months of
1996, compared with $1.30 billion in the first nine months of 1995. Noninterest
income, excluding securities transactions, was $598 million in the third quarter
of 1996, compared with $466 million in the third quarter of 1995.
Virtually all sources of noninterest income increased in the first nine months
of 1996 compared with the first nine months of 1995. Key contributors included
income related to Capital Markets activities, which increased 92 percent to $301
million in
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the first nine months of 1996 from $157 million in the first nine months of
1995. Capital Markets activities include asset securitizations, risk management
products, international trade finance, loan syndications, private placements,
merchant banking, and other financing alternatives. Trading activities, which
are discussed below, also are managed by the Capital Markets Group.
Additionally, Capital Management fee income, including personal and corporate
trust, brokerage services and mutual funds, increased 35 percent in the first
nine months of 1996 to $409 million from $302 million in the first nine months
of 1995. Gains from securities transactions declined from the first nine months
of 1995.
TRADING ACTIVITIES
Our Capital Markets Group also made a key contribution to noninterest income
through trading profits. Trading profits were $52 million in the first nine
months of 1996, compared with $35 million in the first nine months of 1995.
Trading account assets were $4.8 billion at September 30, 1996, compared with
$1.9 billion at year-end 1995. The increase was the result of general market
conditions and expanded trading volume. Trading activities are undertaken to
satisfy customers' risk management and investment needs and for the
corporation's own proprietary account. All trading activities are conducted
within risk limits established by the corporation's Credit/Market Risk
Committee, and all trading positions are recorded at estimated fair value daily.
Trading activities include fixed income securities such as U.S. Treasury,
municipal, mortgage-backed, asset-backed and corporate debt securities. Also
included in trading activities are money market instruments, foreign exchange,
options, futures, forward rate agreements and swaps.
NONINTEREST EXPENSE
Noninterest expense increased in the first nine months of 1996 to $3.56 billion,
or $3.14 billion excluding the $133 million pre-tax SAIF special assessment and
the $281 million pre-tax merger-related restructuring charges, compared with
$2.96 billion in the first nine months of 1995. Noninterest expense was $1.21
billion in the third quarter of 1996, or $1.08 billion excluding the SAIF
special assessment, compared with $1.02 billion in the third quarter of 1995.
The increase in noninterest expense was primarily related to purchase accounting
acquisitions that resulted in higher personnel costs, an increase in
amortization expense on other intangible assets and an increase in depreciation
expense. In addition, the increase reflects our continued growth in fee-income
generating businesses such as those managed by the Capital Management and
Capital Markets Groups, in which expenses move more in tandem with revenues.
Without the special charges, our overhead efficiency ratio was 57 percent in the
first nine months of 1996, compared with 60 percent in the first nine months of
1995. The overhead efficiency ratio also was affected somewhat by the
significant investments and initiatives under way in Capital Markets, Capital
Management and other areas.
The $375 million of previously reported pre-tax merger-related restructuring
charges primarily related to severance and change in control obligations, fixed
asset write-downs and vacant space accruals, accelerated disposition of owned
real estate, ser-
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vice contract terminations, professional fees and other miscellaneous items,
none of which individually exceeded $8 million after tax. In the fourth quarter
of 1995, $94 million of such charges were recorded. At September 30, 1996, $260
million of such charges had been paid and $47 million was related to noncash
charges. The remaining accrual of $68 million at September 30, 1996, will be
paid by January 1997.
In the third quarter of 1996, Congress passed legislation to recapitalize the
SAIF through a special, one-time assessment on financial institutions that have
deposits insured by SAIF. At September 30, 1996, we had $25.0 billion in SAIF
deposits (out of our $91.4 billion deposit base) that were subject to the
special assessment. As a result of the legislation, beginning in 1997 we expect
to realize a net annual benefit of $35 million pre-tax from reduced SAIF
premiums. Additionally, this legislation further provides for assessments to be
imposed on insured depository institutions to pay for the cost of Financing
Corporation funding. We currently estimate assessments may amount to up to $14
million after-tax in 1997 with similar assessments per year through 1999 (or
earlier if no savings association exist prior to December 31, 1999) in
connection with such funding.
In addition, the FDIC significantly reduced the insurance premiums it charges on
federally insured bank deposits to the statutory minimum of $2,000.00 for "well
capitalized" banks, effective January 1, 1996. The FDIC premium expense
decreased from $101 million in the first nine months of 1995 to $41 million in
the first nine months of 1996. The expense savings in the first nine months of
1996 were largely offset by discretionary investments in areas such as the
company's retail delivery channels, and Capital Markets and Capital Management
operations.
We currently expect to invest the expected savings that result from the FDIC
premium reduction and the SAIF premium reduction in various current and future
discretionary investments, business initiatives and technology programs.
Amortization of other intangible assets predominantly represent the amortization
of goodwill and deposit base premium related to purchase accounting
acquisitions. These intangibles are amortized over periods ranging from six to
25 years. Amortization is a noncash charge to income; therefore, liquidity and
funds management activities are not affected. At both September 30, 1996, and
December 31, 1995, we had $2.4 billion in other intangible assets. Costs related
to environmental matters were not material.
BALANCE SHEET REVIEW
SECURITIES AVAILABLE FOR SALE
Securities available for sale are used as a part of the corporation's interest
rate risk management strategy. They may be sold in response to changes in
interest rates,
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changes in prepayment risk, liquidity needs, the need to increase regulatory
capital ratios and other factors. These securities are carried at estimated fair
value. Unrealized changes in fair value are recognized as a separate component
of stockholders' equity, net of tax.
Realized gains and losses are recognized in income at the time the securities
are sold. The available for sale portfolio consists of U.S. Treasury, municipal
and mortgage-backed and asset-backed securities as well as collateralized
mortgage obligations, corporate, foreign and equity securities. Securities
available for sale transactions resulted in a gain of $20 million in the first
nine months of 1996, compared with a gain of $29 million in the first nine
months of 1995.
At September 30, 1996, we had securities available for sale with a market value
of $13.7 billion, compared with $18.2 billion at year-end 1995. In the third
quarter of 1996, we sold $7.9 billion in securities as part of the corporate
balance sheet management process. This action will result in a higher-yielding
earning asset mix. The market value of securities available for
sale was $142 million below amortized cost at September 30, 1996. As a result, a
$99 million after-tax unrealized loss reduced stockholders' equity at September
30, 1996.
The average rate earned on securities available for sale in the first nine
months of 1996 was 6.57 percent, compared with 6.41 percent in first nine months
of 1995. The average maturity of the portfolio was 5.50 years at September 30,
1996.
INVESTMENT SECURITIES
Investment securities are those securities that we intend to hold to maturity.
Sales of these securities are rare. These securities are carried at amortized
cost. The portfolio consists of U.S. Government agency, corporate, municipal and
mortgage-backed securities, and collateralized mortgage obligations. First
Union's investment securities amounted to $2.6 billion at September 30, 1996,
compared with $3.1 billion at year-end 1995. This decline resulted from
scheduled maturities, prepayments and issuer calls.
The average rate earned on investment securities in the first nine months of
1996 was 8.68 percent, compared with 7.54 percent in the first nine months of
1995. The increase in yield was primarily related to the year-end 1995 transfer
of lower-yielding securities to the available for sale portfolio. The average
maturity of the portfolio was 6.20 years at September 30, 1996.
LOANS
The loan portfolio, which represents our largest asset balance, is a significant
source of interest and fee income. The loan portfolio is subject to both credit
and interest rate risk. Our lending strategy stresses quality growth,
diversified by product, geography and industry. A common credit underwriting
structure is in place throughout the company.
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The loan portfolio at September 30, 1996, was composed of 44 percent in
commercial loans and 56 percent in consumer loans. The portfolio mix did not
change significantly from year-end 1995. The commercial loan portfolio includes
general commercial loans, both secured and unsecured, and commercial real estate
loans. General commercial loans are typically working capital loans to finance
the inventory, receivables and other working capital needs of commercial
borrowers, and term loans to finance fixed assets or acquisitions.
Commercial real estate loans typically finance the construction or purchase of
commercial real estate. Consumer loans include mortgage, credit card and
installment loans. Consumer mortgage lending includes both first and second
mortgage loans.
Consistent with our longtime 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, which we believe reduces the risk of credit loss from
any single borrower or group of borrowers. A majority of our commercial loans
are for less than $10 million. Consumer lending through our full-service bank
branches is managed using an automated underwriting system that combines
statistical predictors of risk and industry standards for acceptable levels of
customer debt capacity and collateral valuation. These guidelines are
continually monitored for overall effectiveness and compliance with fair lending
practices.
Net loans at September 30, 1996, were $92.5 billion, compared with $90.6 billion
at year-end 1995. The increase was related primarily to acquisitions.
Average net loans in the first nine months of 1996 were $89.9
billion, compared with $81.7 billion in the first nine months of 1995. Demand
for credit slowed in the first nine months of 1996, and our branch sales
emphasis focused more heavily on investment products rather than lending
products. Commercial loans increased slightly in the first nine months of 1996
due to the addition of lease financings. Consumer lending, particularly credit
cards and direct lending, continue to be the highest-yielding portfolios.
At September 30, 1996, unused loan commitments related to commercial and
consumer loans were $24.1 billion and $22.5 billion, respectively. Commercial
and standby letters of credit were $4.5 billion. At September 30, 1996, loan
participations sold to other lenders amounted to $510 million. They were
recorded as a reduction of gross loans.
The average rate earned on loans in the first nine months of 1996 was 8.55
percent, compared with 8.78 percent in the first nine months of 1995. Factors
affecting loan rates in the first nine months of 1996 compared with the first
nine months of 1995 included a general decrease in market rates used to price
loans. For example, the prime rate decreased to an average of 8.29 percent in
the first nine months of 1996, compared with 8.86 percent in the first nine
months of 1995. Other factors included the 1995 credit card securitization,
which removed $1.5 billion in credit card
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receivables from our balance sheet; as well as a larger portfolio of fixed and
adjustable rate mortgages as a result of bank and thrift acquisitions. These
factors were offset somewhat by the upward repricing of adjustable rate
mortgages and credit card portfolio introductory rates.
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, 1996, compared with 14 percent at December 31, 1995. This
portfolio included commercial real estate mortgage loans of $9.5 billion at
September 30, 1996, compared with $10.0 billion at December 31, 1995.
ASSET QUALITY
NONPERFORMING ASSETS
At September 30, 1996, nonperforming assets were $825 million, or 0.89 percent
of net loans and foreclosed properties, compared with $826 million, or 0.91
percent, at December 31, 1995.
Loans or properties of less than $5 million each made up 75 percent, or $622
million, of nonperforming assets at September 30, 1996. Of the rest:
o 8 loans or properties between $5 million and $10 million each accounted
for $54 million; and
o 7 loans or properties over $10 million each accounted for $149 million.
Fifty-one percent of nonperforming assets were collateralized primarily by real
estate at September 30, 1996, compared with 50 percent at year-end 1995.
PAST DUE LOANS
In addition to these nonperforming assets, at September 30, 1996, accruing loans
90 days past due were $291 million, compared with $290 million at December 31,
1995. Of these, $28 million were related to commercial and commercial real
estate loans at September 30, 1996, and $15 million at December 31, 1995. At
September 30, 1996, we were closely monitoring certain loans for which borrowers
were experiencing increased levels of financial stress. None of these loans were
included in nonperforming assets or in accruing loans past due 90 days, and the
aggregate amount of these loans is not significant.
NET CHARGE-OFFS
Net charge-offs as a percentage of average net loans were 0.58 percent in the
first nine months of 1996, compared with 0.38 percent in the first nine months
of 1995. Net charge-offs were 0.64 percent in the third quarter of 1996 and 0.33
percent in
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the third quarter of 1995. Excluding net charge-offs related to credit cards,
such percentages were 0.28 percent in the third quarter of 1996, 0.17 percent in
the second quarter of 1996 and 0.45 percent in the first quarter of 1996.
The increase in net charge-offs in the first nine months of 1996 was principally
related to the maturing credit card portfolio and to a single, large commercial
credit in the first quarter of 1996. With respect to the credit card portfolio,
like much of the rest of the industry, we are experiencing a higher than
anticipated level of personal bankruptcies. Charge-off rates related to the
managed credit card portfolio are not likely to decline in the fourth quarter of
1996 or in 1997, although rates may fluctuate in 1997 similar to the trends seen
in 1996. We do not believe that the higher levels of net charge-offs in the card
portfolio are indicative of any significant deterioration in the credit quality
of the total loan portfolio. We are carefully monitoring trends in both the
commercial and consumer loan portfolios for signs of credit weakness.
Additionally, we have evaluated our credit policies in light of changing
economic trends, and we have taken appropriate steps where necessary. All of
these steps have been taken with the goals of minimizing future credit losses
and deterioration, while allowing for maximum profitability. Table 8 provides
information on net charge-offs by category.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The loan loss provision was $255 million in the first nine months of 1996,
compared with $156 million in the first nine months of 1995. The provision was
$105 million in the third quarter of 1996, compared with $60 million in the
third quarter a year ago. 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.
We establish reserves based on various 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. 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.
Reserves for all consumer loans are based principally on delinquencies and
historical and projected loss rates, and with respect to card products,
additional factors.
The allowance for loan losses was $1.4 billion at September 30, 1996, compared
with $1.5 billion at year-end 1995. The ratio of the allowance for loan losses
to nonaccrual and restructured loans was 188 percent at September 30, 1996, and
233 percent at December 31, 1995. The ratio of the allowance to net loans was
1.49 percent at September 30, 1996, compared with 1.66 percent at December 31,
1995.
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Excluding residential mortgage loan outstandings and the associated reserves,
the ratio of the allowance to loans at September 30, 1996, was 2.00 percent.
Residential mortgages historically generate very low credit losses and require
smaller reserves. Residential mortgages represented 28 percent of the total
loan portfolio at September 30, 1996.
In the first nine months of 1996, we reallocated the acquired First Fidelity
allowance for loan losses based on First Union's policies and procedures. As a
result, the unallocated portion of the combined allowance for loan losses
increased from $230 million at December 31, 1995, to $461 million at June
30, 1996. The unallocated portion at September 30, 1996, was $316 million. The
reduction in the unallocated allowance for loan losses at September 30, 1996,
compared with June 30, 1996, was the result of increases to the allocated
reserve model resulting from the decision to retain rather than sell a
portion of the card portfolio.
At September 30, 1996, impaired loans, which are included in nonaccrual loans,
amounted to $425 million. A loan is considered to be impaired when, based on
current information, it is probable that we will not receive all amounts due in
accordance with the contractual terms of a loan agreement. Included in the
allowance for loan losses is $46 million related to $267 million of impaired
loans. The remaining impaired loans are recorded at or below cost. In the first
nine months of 1996, the average recorded investment in impaired loans was $465
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.
GEOGRAPHIC EXPOSURE
The loan portfolio in the East Coast region of the United States is spread
primarily across 82 metropolitan statistical areas with diverse economies.
Atlanta, Georgia; Charlotte, North Carolina; Miami and Jacksonville, Florida;
Newark, New Jersey; Philadelphia, Pennsylvania; and Washington, D.C., are our
largest markets. Substantially all of the $12.3 billion commercial real estate
portfolio at September 30, 1996, was located in our banking region.
LIQUIDITY AND FUNDING SOURCES
Liquidity planning and management are necessary to ensure we maintain the
ability to fund operations cost-effectively and to meet current and future
obligations such as loan commitments and deposit outflows. In this process, we
focus on both assets and liabilities and on 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 and high per- capita income Northeast region, creates considerable
funding diversity and stability. Further, our acquisitions of bank and thrift
deposits have enhanced liquidity.
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Asset liquidity is maintained through maturity management and through 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, commercial and mortgage loans. Other
off-balance sheet sources of liquidity exist as well, including a mortgage
servicing portfolio for which the estimated fair value exceeded book value by
$197 million at September 30, 1996.
CORE DEPOSITS
Core deposits are a fundamental and cost-effective funding source for any
banking institution. Core deposits were $86.1 billion at September 30, 1996,
compared with $86.4 billion at December 31, 1995. Core deposits include savings,
negotiable order of withdrawal (NOW), money market, noninterest-bearing and
other consumer time deposits.
The portion of core deposits in higher-rate, other consumer time deposits was 35
percent at September 30, 1996, and 37 percent at year-end 1995. 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 they are less expensive to process.
In the first nine months of 1996 and 1995, average noninterest-bearing deposits
were 19 percent of average core deposits.
Average core deposit balances were $85.8 billion in the first nine months of
1996, an increase primarily related to acquisitions of $5.2 billion from the
first nine months of 1995. Average balances in savings and NOW, other consumer
time and noninterest- bearing deposits were higher when compared with the first
nine months of 1995, while money market deposits were lower. Deposits can be
affected by branch closings or consolidations, seasonal factors and the rates
being offered compared to other investment opportunities. The NET INTEREST
INCOME SUMMARIES provide additional information about average core deposits.
PURCHASED FUNDS
Purchased funds at September 30, 1996, were $28.2 billion, compared with $25.7
billion at year-end 1995. 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.
Average purchased funds in the first nine months of 1996 were $28.7 billion, an
increase of 52 percent from $18.9 billion in the same period of 1995. The
increase was used primarily to fund loans and to purchase available for sale
portfolio securities earlier in the year.
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CASH FLOWS
Cash flows from operations are a significant source of liquidity. 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; depreciation and amortization; and deferred income taxes
or benefits. This cash was available in the first nine months of 1996 to
increase earning assets or to reduce borrowings.
LONG-TERM DEBT
Long-term debt was 84 percent of total stockholders' equity at September 30,
1996, compared with 79 percent at December 31, 1995. The increase in long-term
debt compared with year-end 1995 was primarily related to the addition in the
first nine months of 1996 of $860 million of subordinated notes and debentures
with rates ranging from 6.824 percent to 7.574 percent and maturities of 10
years to 30 years. In October 1996, we issued $300 million of 7 1/8 percent
subordinated bank notes due in 2006. Proceeds from these debt issues were used
for general corporate purposes.
Under a shelf registration statement filed with the Securities and Exchange
Commission, we currently have available for issuance $640 million of senior or
subordinated debt securities. The sale of any additional debt securities will
depend on future market conditions, funding needs and other factors.
DEBT OBLIGATIONS
We have a $350 million, 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 has not used this line of credit. During the
fourth quarter of 1996, $306 million of long-term debt will mature, including
bank notes of $197 million. Funds for the payment of long-term debt will come
from operations or, if necessary, additional borrowings.
STOCKHOLDERS' EQUITY
At September 30, 1996, total stockholders' equity was $8.7 billion, compared
with $9.0 billion at December 31, 1995, and 271 million common shares were
outstanding, compared with 278 million shares at December 31, 1995. In recent
years, we generally have purchased our common stock in the open market in
connection with purchase acquisitions. The shares purchased typically
approximate the number of shares to be issued in the related purchase
acquisition. In conjunction with the two pending stock-for-stock acquisitions of
the bank and thrift in Connecticut and Florida, respectively, we purchased 12
million shares of common stock at a cost of $751 million. Additionally, we
purchased 2 million shares of common stock in the first nine months of 1996 at a
cost of $133 million to offset issuances of common stock related to First
Union's employee stock compensation plans, dividend
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reinvestment plans and conversions of the Series B Convertible Class A Preferred
Stock. This compares with purchases of 14 million shares at a cost of $660
million in the first nine months of 1995.
In the third quarter of 1996, First Union redeemed all 350,000 outstanding
shares of its Series D Adjustable Rate Cumulative Class A Preferred Stock and
all 2,965,200 outstanding depositary shares, each representing a 1/40th interest
in a share, of its Series F 10.64 percent Class A Preferred Stock. The aggregate
redemption price was $109 million. In September 1996, we called for redemption
on November 15, 1996, of all of our Series B Convertible Class A Preferred Stock
at a redemption price of $25.00 per share, plus accrued dividends. At September
30, 1996, 1,910,946 of such shares were outstanding. Before redemption, these
shares are convertible into common stock at the rate of 1.0531 shares of common
stock for each share of Series B stock. In the first quarter of 1995, we
redeemed all of the 6.3 million outstanding shares of Series 1990 cumulative
perpetual adjustable rate preferred stock at a redemption price of $51.50 per
share.
We paid $457 million in dividends to preferred and common stockholders in the
first nine months of 1996. At September 30, 1996, stockholders' equity was
reduced by a $99 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.
Preferred dividends were $8 million in the first nine months of 1996, compared
with $22 million in the first nine months of 1995.
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. Banking regulators generally limit a
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 $430 million available for dividends at
September 30, 1996. Our subsidiaries paid $1.1 billion in dividends to the
corporation in the first nine months of 1996.
REGULATORY CAPITAL
Federal banking regulations require that bank holding companies and their
subsidiary banks maintain minimum levels of capital. These banking regulations
measure capital using three formulas relating to tier 1 capital, total capital
and leverage capital. The minimum level 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 total capital is to be composed of common equity,
retained earnings and a limited amount of
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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, 1996, the tier 1 and total capital ratios were 6.38 percent and
10.94 percent, respectively, compared with 6.70 percent and 11.45 percent at
December 31, 1995.
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
are generally required to maintain a leverage ratio of at least 4 to 5 percent.
The leverage ratio at September 30, 1996, was 5.23 percent, compared with 5.49
percent at December 31, 1995.
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 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. Each subsidiary
bank listed in Table 15 had a leverage ratio in excess of 5.17 percent at
September 30, 1996. 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, 1996, the deposit-taking
subsidiary banks listed in Table 15 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. 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. First Union Home Equity
Bank, N.A. is not a deposit-taking bank.
The ACCOUNTING AND REGULATORY MATTERS section provides more information about
proposed changes in risk-based capital standards.
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INTEREST RATE RISK MANAGEMENT
Managing interest rate risk is fundamental to banking. Banking institutions
manage the inherently different maturity and repricing characteristics of the
lending and deposit-taking lines of business to achieve a desired interest rate
sensitivity position and to limit exposure to interest rate risk. The inherent
maturity and repricing characteristics of our day-to-day 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 Credit/Market Risk Committee of the corporation's board of directors reviews
overall interest rate risk management activity. The corporation's Funds
Management Committee, which includes the three members of the Office of the
Chairman of the corporation, 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 and finance
personnel monitor the day-to-day exposure to changes in interest rates in
response to loan and deposit flows. They 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 36 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.
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, our model 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.
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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 36 months. The measurement of
interest rate sensitivity is the percentage change in earnings per share
calculated by the model under "high rate" and under "low rate" scenarios. 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 the rate remains 100 basis points higher or lower than the base-line
through the rest of the 36-month period. Our policy limit for the maximum
negative impact on earnings per share resulting from high rate or low rate
scenarios is 5 percent. The policy measurement period begins with the fourth
month forward and ends with the 15th month (i.e., a 12-month period.)
Our October 1996 estimate of future short-term interest rates includes a gradual
rise in the federal funds rate to 5.55 percent by June 1998 and assumes that it
would remain very close to that level for the rest of the forecast period. Based
on the October 1996 outlook, if interest rates were to rise 100 basis points
above the estimated short-term rate scenario, i.e., follow the high rate
scenario, the model indicates that earnings during the policy measurement period
would be negatively affected by 3.1 percent. Our model indicates that earnings
would benefit by 2.7 percent in our low rate scenario, i.e., a 100 basis point
decline in estimated short-term interest rates.
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, more extreme interest rate scenarios. These alternate scenarios may
include interest rate paths both higher, lower and more volatile than those used
for policy measurement. Because the interest rate sensitivity model is based on
numerous interest rate assumptions, projected changes in growth in balance sheet
categories and changes in other basic assumptions, actual results may differ
from our current simulated outlook.
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 and implement such strategies when we believe those actions
are prudent. As new monthly outlooks become available, management will continue
to formulate strategies to protect earnings from the potential effects of
changes in 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 interestrate sensitivity management include interest
rate swaps, futures and options with indices that relate to the pricing of
specific financial instruments of the corporation. We believe we have
appropriately controlled the risk so that the derivatives used for rate
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sensitivity management will not have any significant unintended effect on
corporate earnings. As a matter of policy we do not use highly leveraged
derivative instruments for interest rate risk management. The impact of
derivative products on our earnings and rate sensitivity is fully incorporated
in the earnings simulation model in the same manner as on-balance sheet
instruments.
Our overall goal is to manage our rate sensitivity in ways that earnings are not
adversely affected materially whether rates go up or down. 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
value when compared with their cost. The impact on net interest income
attributable to these off-balance sheet transactions, all of which are linked to
specific financial instruments as part of our overall interest rate risk
management strategy, will generally be offset by net interest income from
on-balance sheet assets and liabilities. 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 unduly at risk as interest rates
move up or down.
For example, there was significant interest rate volatility between year-end
1993 and the end of the third quarter of 1996, which was reflected in the
dramatic change in the market value of our securities portfolio and off-balance
sheet positions. The combined market value of those positions moved from an
unrealized gain of $903 million at December 31, 1993, to an unrealized loss of
$1.1 billion at December 31, 1994, to an unrealized gain of $771 million at
December 31, 1995, and back to an unrealized loss of $9 million at September 30,
1996. Despite these large year-to-year and quarterly fluctuations in market
value and related fluctuations in the net interest income contribution from
these positions, tax-equivalent net interest income continued to increase. This
is the outcome we strive to achieve in using portfolio securities and
off-balance sheet products to balance the income effects of core loans and
deposits from changing interest rate environments.
The fair value appreciation of off-balance sheet derivative financial
instruments used to manage our interest rate sensitivity was $8 million at
September 30, 1996, compared with fair value appreciation of $390 million at
December 31, 1995.
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 was $1 million and $26
million, respectively, at September 30, 1996. These gains and losses will affect
net income primarily in 1997.
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
19
<PAGE>
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 that 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. Derivative collateral arrangements for dealer transactions and
trading activities are based on established thresholds of acceptable credit risk
by counterparty. Thresholds are determined based on the strength of the
individual counterparty and are bilateral. As of September 30, 1996, the total
credit risk in excess of thresholds was $70 million. The fair value of
collateral held was 106 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 it is primarily dependent on the financial
strength of the counterparty.
20
<PAGE>
ACCOUNTING AND REGULATORY MATTERS
On January 1, 1996, the corporation adopted Statement of Financial Accounting
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. 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. The corporation's January 1, 1996, adoption
of this Standard had no impact on net income.
On January 1, 1996, the corporation also adopted Statement of Financial
Accounting 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 and disclose the pro forma information as required, if
material.
In June 1996, Statement of Financial Accounting Standard No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," was issued. The Standard (i) sets forth the criteria for (a)
determining when to recognize financial and servicing assets and liabilities;
and (b) accounting for transfers of financial assets as sales or borrowings; and
(ii) requires (a) liabilities and derivatives related to a transfer of financial
assets to be recorded at fair value; (b) servicing assets and retained interests
in transferred assets carrying amounts be determined by allocating carrying
amounts based on fair value; (c) amortization of servicing assets and
liabilities be in proportion to net servicing income; (d) impairment measurement
be based on fair value; and (e) pledged financial assets be classified as
collateral.
This Standard provides implementation guidance for assessing isolation of
transferred assets and for accounting for transfers of partial interests,
servicing of financial assets, securitizations, transfers of sales-type and
direct financing lease receivables, securities lending transactions, repurchase
agreements including "dollar rolls," "wash sales," loan syndications and
participations, risk participations in banker's acceptances, factoring
arrangements, transfers of receivables with recourse and extinguishments of
liabilities.
21
<PAGE>
This Standard is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996, and it is to
be applied prospectively. The effect on the corporation has not been determined.
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 with such bank.
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.
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)
authorized interstate acquisitions of banks and bank holding companies without
geographic limitation beginning September 27, 1995. Beginning June 1, 1997, a
bank may merge with a bank in another state as long as neither of the states opt
out of interstate branching between the date of enactment of IBBEA and May 31,
1997. IBBEA further provides that a state may enact laws permitting interstate
merger transactions before June 1, 1997. Certain states in which First Union
conducts banking operations have enacted such legislation.
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.
22
<PAGE>
Table 1
CONSOLIDATED SUMMARIES OF INCOME, PER COMMON SHARE AND BALANCE SHEET DATA
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Twelve 1996 1995
Months ------------------------------------- ---------------------
Ended
Sept. 30, Third Second First Fourth Third
(In millions, except per share data) 1996 Quarter Quarter Quarter Quarter Quarter
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED SUMMARIES OF INCOME
Interest income $ 9,472 2,423 2,431 2,339 2,279 2,252
- - ------------------------------------------------------------------------------------------------------------------------------------
Interest income (a) $ 9,562 2,440 2,456 2,364 2,302 2,277
Interest expense 4,564 1,158 1,167 1,127 1,112 1,067
- - ------------------------------------------------------------------------------------------------------------------------------------
Net interest income (a) 4,998 1,282 1,289 1,237 1,190 1,210
Provision for loan losses 319 105 80 70 64 60
- - ------------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses (a) 4,679 1,177 1,209 1,167 1,126 1,150
Securities available for sale transactions 35 2 3 15 15 10
Investment security transactions 4 - 2 1 1 3
Noninterest income 2,195 598 541 510 546 466
Merger-related restructuring charges (b) 375 - - 281 94 -
SAIF special assessment (c) 133 133 - - - -
Noninterest expense 4,185 1,078 1,052 1,011 1,044 1,018
- - ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes (a) 2,220 566 703 401 550 611
Income taxes 756 192 239 133 192 205
Tax-equivalent adjustment 90 17 25 25 23 25
- - ------------------------------------------------------------------------------------------------------------------------------------
Net income 1,374 357 439 243 335 381
Dividends on preferred stock 12 1 3 4 4 5
- - ------------------------------------------------------------------------------------------------------------------------------------
Net income applicable to common stockholders $ 1,362 356 436 239 331 376
- - ------------------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE DATA
Net income $ 4.88 1.29 1.55 0.85 1.19 1.36
Cash dividends $ 2.14 0.58 0.52 0.52 0.52 0.52
Average common shares (in thousands) - 274,001 282,576 280,374 278,527 275,484
Average common stockholders' equity (d)
Quarter-to-date $ - 8,905 9,167 8,930 8,685 8,351
Year-to-date - 9,000 9,049 8,930 8,412 8,320
Common stock price
High 67 7/8 67 7/8 64 5/8 62 7/8 58 7/8 51 3/8
Low 49 5/8 61 1/8 57 1/2 51 1/2 49 5/8 45 1/4
Period-end $ 66 3/4 66 3/4 60 7/8 60 3/8 55 5/8 51
To earnings ratio (e) 13.68X 13.68 12.30 12.85 11.04 10.71
To book value 209 % 209 188 190 174 166
Book value $ 31.94 31.94 32.46 31.80 31.89 30.68
BALANCE SHEET DATA
Assets 133,882 133,882 139,886 130,581 131,880 121,919
Long-term debt $ 7,332 7,332 7,807 7,538 7,122 6,717
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Tax-equivalent.
(b) Merger-related restructuring charges amount to $181 million after tax in the
first quarter of 1996 and $73 million in the fourth quarter of 1995.
(c) The SAIF special assessment amounted to $86 million after tax in the third
quarter of 1996.
(d) Quarter-to-date and year-to-date average common stockholders' equity
excludes average net unrealized gains or losses on debt and equity
securities.
(e) Based on net income applicable to common stockholders.
T-1
<PAGE>
Table 2
SELECTED LINES OF BUSINESS (a)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1996
---------------------------------------------------------------------------
First
Union
Home Other
Card Equity Consumer Capital Capital Mortgage
(Dollars in millions) Products Bank Banking Markets Mgt. Banking
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data
Interest income (b) $ 670 244 1,286 1,049 54 1,394
Interest expense 244 141 728 806 26 982
Noninterest income 94 25 21 301 408 147
- - -----------------------------------------------------------------------------------------------------------------------------------
Other Data
Net charge-offs - owned 270 4 86 50 - 11
Average loans, net 6,409 3,277 18,289 9,729 165 23,959
Nonperforming assets 21 10 78 96 - 182
Average deposits - - - 3,101 933 -
Assets under care - - - - 114,577 -
Assets under management - - - - 42,552 -
Loans serviced - - - - - 46,370
Origination volume $ 5,585 1,053 6,886 - - 3,167
Locations 1,922 127 1,922 1,304 1,529 1,971
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The information contained herein represents selected lines of business
data other than commercial lending and branch operations. Certain
information is prepared from internal management reports. Average loans,
net for the Card Products Division includes $1.5 billion of securitized
credit cards managed by the Division. Mortgage banking includes mortgage
loans managed by affiliated banks.
(b) Tax-equivalent.
<PAGE>
TABLE 3
INTERNAL CAPITAL GROWTH AND DIVIDEND PAYOUT RATIOS
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1996 1995
----------------------- ---------------------------------- -----------------------
THIRD SECOND FIRST FOURTH THIRD
1996 1995 QUARTER QUARTER QUARTER QUARTER QUARTER
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INTERNAL CAPITAL GROWTH (A)
Assets to stockholders' equity 14.69 X 13.74 15.08 14.80 14.20 14.06 14.15
X
Return on assets 1.04 % 1.26 1.06 1.30 0.75 1.06 1.25
- - --------------------------------------------------------------------------------------------------------------------------------
Return on total stockholders' equity (b) 15.19 % 17.14 15.83 18.94 10.72 15.00 17.65
X
Earnings retained 55.93 % 64.58 55.78 65.91 38.09 57.84 65.39
- - ---------------------------------------------------------------------------------------------------------------------------------
Internal capital growth (b) 8.50 % 11.07 8.83 12.48 4.08 8.67 11.54
- - ----------------------------------------------------------------------------------------------------------------------------------
DIVIDEND PAYOUT RATIOS ON
Common shares 43.90 % 34.08 44.96 33.55 61.18 41.44 33.75
Preferred and common shares 44.07 % 35.42 44.22 34.09 61.91 42.16 34.61
- - ----------------------------------------------------------------------------------------------------------------------------------
Return on common stockholders' equity (b) (c) 15.30 % 17.24 15.91 19.11 10.76 15.13 17.84
- - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on average balances and net income.
(b) The determination of these ratios exclude average net unrealized gains or
losses on debt and equity securities.
(c) Based on average balances and net income applicable to common stockholders.
T-2
<PAGE>
Table 4
SELECTED QUARTERLY DATA
- - --------------------------------------------------------------------------------
1996 1995
-------------------------- ------------------
Third Second First Fourth Third
(Dollars in millions) Quarter Quarter Quarter Quarter Quarter
- - -------------------------------------------------------------------------------
FIRST UNION MORTGAGE CORPORATION
PERMANENT LOAN ORIGINATIONS
Residential
Direct (a) $ 883 1,296 946 739 1,029
Wholesale - 1 42 76 119
- - -------------------------------------------------------------------------------
Total $ 883 1,297 988 815 1,148
- - -------------------------------------------------------------------------------
VOLUME OF RESIDENTIAL
LOANS SERVICED $ 46,370 49,321 49,900 50,047 48,802
- - -------------------------------------------------------------------------------
FIRST UNION CORPORATION
NUMBER OF OFFICES
Banking 1,912 1,981 1,981 1,964 1,969
Other 226 229 208 190 192
- - -------------------------------------------------------------------------------
Total offices 2,138 2,210 2,189 2,154 2,161
- - -------------------------------------------------------------------------------
OTHER DATA
ATMs 2,313 2,119 2,142 2,123 1,350(b)
Employees 45,116 45,353 44,968 44,536 44,483
- - -------------------------------------------------------------------------------
(a) Includes originations of affiliated banks.
(b) Not restated for pooling of interests acquisition.
T-3
<PAGE>
Table 5
SECURITIES AVAILABLE FOR SALE
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, 1996
------------------------------------------------------------------------------
Gross Unrealized Average
1 Year 1-5 5-10 After 10 -------------------- Amortized Maturity
(In millions) 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 $ - 1,420 - 2 1,422 - 24 1,446 2.49
U.S. Government agencies 28 1,096 7,940 2 9,066 (9) 124 9,181 6.26
CMOs 5 1,214 - - 1,219 (1) 15 1,233 4.01
State, county and municipal - 1 1 31 33 - - 33 15.94
Other 116 1,041 61 771 1,989 (27) 16 1,978 4.59
- - ----------------------------------------------------------------------------------------------------------------
Total $ 149 4,772 8,002 806 13,729 (37) 179 13,871 5.50
- - --------------------------------------------------------------------------------------------------------------------
MARKET VALUE
Debt securities $ 149 4,772 8,002 78 13,001 (26) 178 13,153
Sundry securities - - - 728 728 (11) 1 718
- - ----------------------------------------------------------------------------------------------------------------
Total $ 149 4,772 8,002 806 13,729 (37) 179 13,871
- - ----------------------------------------------------------------------------------------------------------------
AMORTIZED COST
Debt securities $ 149 4,798 8,115 91 13,153
Sundry securities - - - 718 718
- - ------------------------------------------------------------------------------
Total $ 149 4,798 8,115 809 13,871
- - ------------------------------------------------------------------------------
WEIGHTED AVERAGE YIELD
U.S. Treasury -% 5.68 - 7.93 5.69
U.S. Government agencies 5.79 6.31 7.03 7.97 6.94
CMOs 11.80 7.60 - - 7.62
State, county and municipal - 7.92 9.29 6.96 7.07
Other 8.21 5.71 7.86 5.51 5.85
Consolidated 7.86% 6.32 7.04 5.58 6.72
- - -----------------------------------------------------------------------------
</TABLE>
Included in "U.S. Government agencies" and "Other" at September 30, 1996, are
$1.3 billion 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, 1996, these securities had a weighted average maturity
of 3.90 years and a weighted average yield of 5.41 percent. The weighted average
U.S. equivalent yield for comparative purposes of these securities was 7.51
percent based on a weighted average funding cost differential of (2.10) 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, 1996. Average maturity in years
excludes preferred and common stocks and money market funds.
Yields related to securities exempt from both federal and state income taxes,
federal income taxes only or state income taxes only are stated on a fully
tax-equivalent basis. They are reduced by the nondeductible portion of interest
expense, assuming a federal tax rate of 35 percent; and tax rates of 7.75
percent in North Carolina; 5.5 percent in Florida; 4.5 percent in South
Carolina; 6 percent in Georgia and Tennessee; 7 percent in Maryland; 9.975
percent in Washington, D.C.; 4.87 percent in Delaware; 6.5 percent in New
Jersey; and 10.75 percent in Connecticut.
There were commitments to purchase securities at a cost of $282 million that had
a market value of $282 million at September 30, 1996. There were commitments to
sell securities at a cost of $97 million that had a market value of $97 million
at September 30, 1996. Gross gains and losses from sales are accounted for on a
trade date basis. Gross gains and losses realized on the sale of debt securities
in the first nine months of 1996 were $122 million and $103 million,
respectively, and gross gains realized on the sale of sundry securities were $1
million.
T-4
<PAGE>
Table 6
INVESTMENT SECURITIES
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, 1996
-----------------------------------------------------------------------------------------------
Gross Unrealized Average
1 Year 1-5 5-10 After 10 ------------------- Market Maturity
(In millions) 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 $ - 166 895 21 1,082 18 (6) 1,094 6.16
CMOs 75 427 - - 502 7 (1) 508 2.82
State, county and municipal 94 234 147 391 866 102 (1) 967 8.40
Other 8 55 10 43 116 6 - 122 3.73
- - ---------------------------------------------------------------------------------------------------------------------------
Total $ 177 882 1,052 455 2,566 133 (8) 2,691 6.20
- - ------------------------------------------------------------------------------------------------------------------------------------
CARRYING VALUE
Debt securities $ 177 882 1,052 411 2,522 133 (8) 2,647
Sundry securities - - - 44 44 - - 44
- - ---------------------------------------------------------------------------------------------------------------------------
Total $ 177 882 1,052 455 2,566 133 (8) 2,691
- - ---------------------------------------------------------------------------------------------------------------------------
MARKET VALUE
Debt securities $ 179 910 1,078 480 2,647
Sundry securities - - - 44 44
- - -----------------------------------------------------------------------------------------
Total $ 179 910 1,078 524 2,691
- - -----------------------------------------------------------------------------------------
WEIGHTED AVERAGE YIELD
U.S. Government agencies -% 8.43 7.64 7.54 7.76
CMOs 7.46 7.68 - - 7.65
State, county and municipal 9.89 10.77 11.26 11.77 11.21
Other 9.22 9.95 7.84 5.03 7.90
Consolidated 8.83% 8.78 8.15 10.94 8.91
- - -----------------------------------------------------------------------------------------
</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, 1996.
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; and tax rates of 7.75
percent in North Carolina; 5.5 percent in Florida; 4.5 percent in South
Carolina; 6 percent in Georgia and Tennessee; 7 percent in Maryland; 9.975
percent in Washington, D.C.; 4.87 percent in Delaware; 6.5 percent in New
Jersey; and 10.75 percent in Connecticut.
There were no commitments to purchase or sell investment securities at September
30, 1996. Gross gains realized on repurchase agreement underdeliveries and calls
of investment securities in the first nine months of 1996 were $3 million.
T-5
<PAGE>
Table 7
LOANS
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
---------------------------- ----------------
Third Second First Fourth Third
(In millions) Quarter Quarter Quarter Quarter Quarter
- - ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMERCIAL
Commercial, financial and agricultural
Taxable (a) $ 22,887 22,358 22,378 23,897 23,323
Nontaxable 904 909 939 751 737
- - ------------------------------------------------------------------------------------------------------
Total commercial, financial and agricultural 23,791 23,267 23,317 24,648 24,060
Real estate - construction and other 2,832 2,860 2,599 2,506 2,424
Real estate - mortgage 9,456 9,534 9,734 9,992 9,788
Lease financing (b) 4,255 3,954 3,599 3,170 2,856
Foreign 925 713 763 649 576
- - ------------------------------------------------------------------------------------------------------
Total commercial 41,259 40,328 40,012 40,965 39,704
- - ------------------------------------------------------------------------------------------------------
RETAIL
Real estate - mortgage 26,603 27,229 27,204 27,274 25,071
Installment loans - Bankcard (a) 5,450 5,000 4,037 3,658 3,198
Installment loans - other (a) (c) 21,082 20,564 20,366 20,212 19,626
- - ------------------------------------------------------------------------------------------------------
Total retail 53,135 52,793 51,607 51,144 47,895
- - ------------------------------------------------------------------------------------------------------
Total loans 94,394 93,121 91,619 92,109 87,599
- - ------------------------------------------------------------------------------------------------------
UNEARNED INCOME
Loans 440 432 436 477 448
Lease financing 1,434 1,350 1,193 1,069 962
- - ------------------------------------------------------------------------------------------------------
Total unearned income 1,874 1,782 1,629 1,546 1,410
- - ------------------------------------------------------------------------------------------------------
Loans, net $ 92,520 91,339 89,990 90,563 86,189
- - ------------------------------------------------------------------------------------------------------
</TABLE>
(a) Data for the first quarter of 1996 has been revised to conform with new
classifications presented in the second quarter of 1996. Data prior to
1996 is not available. Installment loans - Bankcard include credit card,
ICR, signature and First Choice amounts.
(b) Lease financing amounts do not include related deferred income taxes.
(c) Installment loans-other include (in millions) $2,579; $2,499; $2,406;
$2,358; and $2,081 of retail leasing loans at the end of the third, second
and first quarters of 1996 and the fourth and third quarters of 1995,
respectively, that were acquired in the First Fidelity merger.
T-6
<PAGE>
Table 8
ALLOWANCE FOR LOAN LOSSES AND NONPERFORMING ASSETS
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
------------------------------- ----------------------
Third Second First Fourth Third
(In millions) Quarter Quarter Quarter Quarter Quarter
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR LOAN LOSSES
Balance, beginning of quarter $ 1,416 1,436 1,508 1,456 1,535
Provision for loan losses 105 80 70 64 60
Allowance of loans acquired or sold, net - 2 6 95 (68)
Loan losses, net (144) (102) (148) (107) (71)
- - ---------------------------------------------------------------------------------------------------------------------
Balance, end of quarter $ 1,377 1,416 1,436 1,508 1,456
- - ---------------------------------------------------------------------------------------------------------------------
(as % of loans, net) 1.49% 1.55 1.60 1.66 1.69
- - ---------------------------------------------------------------------------------------------------------------------
(as % of nonaccrual and restructured loans) 188% 195 197 233 236
- - --------------------------------------------------------------------------------------------------------------------
(as % of nonperforming assets) 167% 169 171 182 178
- - ---------------------------------------------------------------------------------------------------------------------
LOAN LOSSES
Commercial, financial and agricultural (a) $ 25 23 65 40 18
Real estate - construction and other 1 - 4 1 -
Real estate - mortgage 15 33 13 22 15
Installment loans - Bankcard (a) 97 68 55 38 50
Installment loans - other (a) 38 38 35 31 24
- - ---------------------------------------------------------------------------------------------------------------------
Total 176 162 172 132 107
- - ---------------------------------------------------------------------------------------------------------------------
LOAN RECOVERIES
Commercial, financial and agricultural 9 42 12 12 19
Real estate - construction and other - - 1 - 3
Real estate - mortgage 2 7 2 2 4
Installment loans - Bankcard (a) 13 3 2 4 3
Installment loans - other (a) 8 8 7 7 7
- - ---------------------------------------------------------------------------------------------------------------------
Total 32 60 24 25 36
- - ---------------------------------------------------------------------------------------------------------------------
Loan losses, net $ 144 102 148 107 71
- - ---------------------------------------------------------------------------------------------------------------------
(as % of average loans, net) (b) 0.64% 0.45 0.66 0.49 0.33
- - ---------------------------------------------------------------------------------------------------------------------
(as % of average loans, net, excluding Bankcard) (b) 0.28% 0.17 0.45 - -
- - ---------------------------------------------------------------------------------------------------------------------
NONPERFORMING ASSETS
Nonaccrual loans
Commercial loans $ 294 311 330 331 285
Commercial real estate loans (a) 137 156 157 - -
Consumer real estate loans (a) 186 163 133 - -
Installment loans 110 92 107 81 75
Real estate loans (a) - - - 232 255
- - ---------------------------------------------------------------------------------------------------------------------
Total nonaccrual loans 727 722 727 644 615
Restructured loans 3 4 1 4 2
Foreclosed properties 95 110 114 178 201
- - ---------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 825 836 842 826 818
- - ---------------------------------------------------------------------------------------------------------------------
(as % of loans, net and foreclosed properties) 0.89% 0.91 0.93 0.91 0.95
- - ---------------------------------------------------------------------------------------------------------------------
Accruing loans past due 90 days $ 291 272 275 290 242
- - ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Data for the first quarter of 1996 has been revised to conform with new
classifications presented in the second quarter of 1996. Data prior to
1996 is not available.
(b) Annualized.
Any loans classified by regulatory examiners as loss, doubtful, substandard or
special mention that have not been disclosed herein 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.
T-7
<PAGE>
Table 9
INTANGIBLE ASSETS
- - ------------------------------------------------------------------------------
1996 1995
---------------------------- -------------------
Third Second First Fourth Third
(In millions) Quarter Quarter Quarter Quarter Quarter
- - ------------------------------------------------------------------------------
MORTGAGE SERVICING RIGHTS $ 134 150 147 149 149
- - ------------------------------------------------------------------------------
CREDIT CARD PREMIUM $ 38 42 45 44 47
- - ------------------------------------------------------------------------------
OTHER INTANGIBLE ASSETS
Goodwill $ 1,867 1,919 1,912 1,884 1,740
Deposit base premium 500 530 514 535 542
Other 12 12 9 13 14
- - ------------------------------------------------------------------------------
Total $ 2,379 2,461 2,435 2,432 2,296
- - ------------------------------------------------------------------------------
<PAGE>
Table 10
ALLOWANCE FOR FORECLOSED PROPERTIES
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
------------------------- -----------------
Third Second First Fourth Third
(In millions) Quarter Quarter Quarter Quarter Quarter
- - -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Foreclosed properties $ 112 130 136 203 229
- - -----------------------------------------------------------------------------------------------------
Allowance for foreclosed properties, beginning of quarter 20 22 25 28 33
Provision for foreclosed properties - (2) (1) 1 (2)
Dispositions, net (3) - (2) (4) (3)
- - -----------------------------------------------------------------------------------------------------
Allowance for foreclosed properties, end of quarter 17 20 22 25 28
- - -----------------------------------------------------------------------------------------------------
Foreclosed properties, net $ 95 110 114 178 201
- - -----------------------------------------------------------------------------------------------------
</TABLE>
T-8
<PAGE>
Table 11
DEPOSITS
- - --------------------------------------------------------------------------------
1996 1995
-------------------------- ----------------------
Third Second First Fourth Third
(In millions) Quarter Quarter Quarter Quarter Quarter
- - --------------------------------------------------------------------------------
CORE DEPOSITS
Noninterest-bearing $ 18,008 16,831 16,726 17,043 15,598
Savings and NOW accounts 25,009 25,492 25,149 24,297 22,788
Money market accounts 13,019 12,843 13,149 13,113 13,287
Other consumer time 30,086 31,079 31,179 31,945 31,244
- - --------------------------------------------------------------------------------
Total core deposits 86,122 86,245 86,203 86,398 82,917
Foreign 2,303 2,232 1,439 3,527 1,821
Other time 3,019 2,976 2,876 2,630 2,657
- - --------------------------------------------------------------------------------
Total deposits $ 91,444 91,453 90,518 92,555 87,395
- - --------------------------------------------------------------------------------
<PAGE>
Table 12
TIME DEPOSITS IN AMOUNTS OF $100,000 OR MORE
- - --------------------------------------------------------------------
September 30, 1996
----------------------
Time Other
(In millions) Certificates Time
- - --------------------------------------------------------------------
MATURITY OF
3 months or less $ 2,930 77
Over 3 months through 6 months 1,263 -
Over 6 months through 12 months 1,394 -
Over 12 months 1,280 -
- - --------------------------------------------------------------------
Total $ 6,867 77
- - --------------------------------------------------------------------
T-9
<PAGE>
Table 13
LONG-TERM DEBT
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
------------------------------------- --------------------
Third Second First Fourth Third
(In millions) Quarter Quarter Quarter Quarter Quarter
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DEBENTURES AND NOTES ISSUED BY THE PARENT COMPANY
7-1/2% debentures due 2002 $ 16 16 16 16 16
Floating rate extendible notes due 2005 10 10 10 10 10
11% notes due 1996 - - 18 18 18
Floating rate notes due 1996 - - - 150 150
6-3/4% notes due 1998 249 249 249 249 249
Floating rate notes due 1998 300 300 300 300 300
Fixed rate medium-term subordinated notes, varying
rates and terms to 2001 54 54 54 54 54
Floating rate subordinated notes due 2003 149 149 149 149 149
11% subordinated and variable rate notes due 1996 - - 18 18 18
8-1/8% subordinated notes due 1996 100 100 100 100 100
9.45% subordinated notes due 1999 249 249 250 250 250
9.45% subordinated notes due 2001 148 148 148 148 148
8-1/8% subordinated notes due 2002 249 249 249 249 249
8% subordinated notes due 2002 223 223 223 223 223
7-1/4% subordinated notes due 2003 149 149 149 149 149
6-5/8% subordinated notes due 2005 248 248 248 248 248
6% subordinated notes due 2008 197 197 197 197 197
6-3/8% subordinated notes due 2009 148 148 148 148 148
8% subordinated notes due 2009 149 149 149 149 149
8.77% subordinated notes due 2004 149 149 149 148 148
7-1/2% subordinated debentures due 2035 246 246 246 246 246
7.05% subordinated notes due 2005 248 248 248 248 248
6-7/8% subordinated notes due 2005 249 248 248 248 248
6.55% subordinated debentures due 2035 249 249 249 249 -
7% subordinated notes due 2006 198 198 198 - -
7.18% subordinated notes due 2011 59 59 59 - -
7-1/2% subordinated notes due 2006 297 - - - -
6.824%/7.574% subordinated debentures due 2026 298 - - - -
- - -----------------------------------------------------------------------------------------------------------------------------------
Total debentures and notes issued by the Parent Company 4,631 4,035 4,072 3,964 3,715
- - -----------------------------------------------------------------------------------------------------------------------------------
DEBENTURES AND NOTES OF SUBSIDIARIES
Subordinated bank notes with varying rates and terms to 2036 997 1,537 1,465 1,165 1,365
Floating rate senior notes due 1996 - 200 200 200 200
6.80% subordinated notes due 2003 149 149 150 150 150
9-5/8% subordinated notes due 1999 150 150 150 150 150
8-1/2% subordinated notes due 1998 149 149 149 149 149
Floating rate subordinated notes due 1997 25 25 25 25 25
9-7/8% subordinated capital notes due 1999 75 75 75 75 75
9-5/8% subordinated capital notes due 1999 75 75 75 75 75
10-1/2% collateralized mortgage obligations due 2014 40 46 46 49 51
Debentures and notes with varying rates and terms to 2015 39 41 43 37 18
9-1/2% mortgage backed bonds - - - - 4
- - ----------------------------------------------------------------------------------------------------------------------------------
Total debentures and notes of subsidiaries 1,699 2,447 2,378 2,075 2,262
- - -----------------------------------------------------------------------------------------------------------------------------------
OTHER DEBT
Notes payable to FDIC due 1996 - 47 51 76 84
Advances from the Federal Home Loan Bank 933 1,208 958 958 608
Mortgage notes and other debt 45 45 54 41 40
Capitalized leases 24 25 25 8 8
- - ----------------------------------------------------------------------------------------------------------------------------------
Total other debt 1,002 1,325 1,088 1,083 740
- - -----------------------------------------------------------------------------------------------------------------------------------
Total $ 7,332 7,807 7,538 7,122 6,717
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
T-10
<PAGE>
Table 14
CHANGES IN STOCKHOLDERS' EQUITY (a)
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Twelve 1996 1995
Months ------------------------------------- ---------------------
Ended
Sept. 30, Third Second First Fourth Third
(In millions) 1996 Quarter Quarter Quarter Quarter Quarter
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning of period $ 8,563 9,316 9,110 9,043 8,563 8,675
Net income 1,374 357 439 243 335 381
Redemption of preferred stock (109) (109) - - - -
Purchase of common stock (1,148) (816) (79) (37) (216) (495)
Common stock issued for stock options exercised 175 41 94 25 15 19
Common stock issued through dividend
reinvestment plan 38 11 9 11 7 7
Common stock for purchase accounting acquisitions 482 - - 124 358 253
Pre-merger transactions of pooled bank 72 - - - 72 (146)
Cash dividends paid
By First Union Corporation on
Preferred stock (8) (1) (3) (4) - -
Common stock (540) (157) (147) (145) (91) (87)
By acquired bank on
Preferred stock (4) - - - (4) (5)
Common stock (46) - - - (46) (40)
Unrealized gain (loss) on debt and
equity securities (160) 47 (107) (150) 50 1
- - ----------------------------------------------------------------------------------------------------------------------------------
Balance, end of period $ 8,689 8,689 9,316 9,110 9,043 8,563
- - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Preferred and common stock transactions related to an acquired company are
included in pre-merger transactions of pooled bank.
T-11
<PAGE>
Table 15
CAPITAL RATIOS
- - --------------------------------------------------------------------------------
1996 1995
--------------------------- ---------------
Third Second First Fourth Third
(In millions) Quarter Quarter Quarter Quarter Quarter
- - --------------------------------------------------------------------------------
CONSOLIDATED CAPITAL RATIOS (a)
Qualifying capital
Tier 1 capital $ 6,414 7,020 6,749 6,551 6,267
Total capital 10,996 11,792 11,479 11,198 10,701
Adjusted risk-based assets 100,519 98,786 96,358 97,830 91,958
Adjusted leverage ratio assets $122,759 125,440 121,385 119,421 116,090
Ratios
Tier 1 capital 6.38% 7.11 7.00 6.70 6.81
Total capital 10.94 11.94 11.91 11.45 11.64
Leverage 5.23 5.60 5.56 5.49 5.45
Stockholders' equity to assets
Quarter-end 6.49 6.66 6.98 6.86 7.02
Average 6.63% 6.76 7.04 7.11 7.07
- - --------------------------------------------------------------------------------
BANK CAPITAL RATIOS
Tier 1 capital
First Union National Bank of
Florida 7.01% 7.70 7.73 7.57 8.18
Georgia 6.64 6.67 8.22 6.69 6.46
Maryland 10.73 12.20 12.18 11.36 15.88
North Carolina 6.32 6.66 6.60 6.46 6.56
South Carolina 8.29 8.17 8.14 8.42 7.33
Tennessee 11.06 10.75 11.43 11.12 11.85
Virginia 9.67 9.29 8.51 7.41 7.61
Washington, D.C. 16.20 11.48 11.66 13.77 18.67
First Union National Bank 11.75 10.69 10.01 9.16 9.63
First Union Bank of Connecticut 10.89 11.26 11.91 12.60 12.85
First Union Bank of Delaware 15.39 13.98 22.84 25.45 23.86
First Union Home Equity Bank 8.02 7.61 7.08 7.50 6.89
Total capital
First Union National Bank of
Florida 10.72 11.57 11.72 10.97 11.54
Georgia 10.43 10.54 12.82 10.62 10.56
Maryland 11.97 13.46 13.44 12.62 17.15
North Carolina 10.03 10.71 10.55 10.15 10.29
South Carolina 11.60 11.47 11.33 11.79 11.09
Tennessee 12.10 12.00 12.69 12.38 13.11
Virginia 12.97 12.61 11.86 10.57 11.25
Washington, D.C. 17.44 12.75 12.94 15.03 19.94
First Union National Bank 13.56 12.56 11.87 10.95 11.44
First Union Bank of Connecticut 12.94 12.52 13.17 13.88 14.14
First Union Bank of Delaware 16.65 15.28 24.12 26.74 25.15
First Union Home Equity Bank 10.47 9.91 9.46 10.09 9.47
Leverage
First Union National Bank of
Florida 5.20 5.32 5.36 5.18 5.56
Georgia 5.18 5.23 5.56 5.54 6.02
Maryland 6.64 7.56 7.08 9.32 13.11
North Carolina 5.98 5.80 5.64 5.72 5.87
South Carolina 6.40 6.18 6.18 6.24 5.85
Tennessee 5.66 5.85 7.21 7.64 8.19
Virginia 7.15 6.78 6.67 6.17 5.69
Washington, D.C. 6.15 6.18 5.69 6.32 8.50
First Union National Bank 9.04 8.09 7.59 7.43 7.67
First Union Bank of Connecticut 8.05 8.40 8.18 8.30 8.35
First Union Bank of Delaware 12.07 11.02 19.91 17.20 14.79
First Union Home Equity Bank 7.14% 6.71 6.53 6.48 6.22
- - --------------------------------------------------------------------------------
(a) 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-12
<PAGE>
Table 16
OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS (a)
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Weighted
Average Rate Estimated
--------------------- -----------------------
September 30, 1996 Notional Maturity In Fair
(In millions) Amount Receive Pay Years (b) Value Comments
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSET RATE CONVERSIONS
Interest rate swaps $ 13,910 6.41% 5.54% 2.53 Converts floating rate loans to fixed
Carrying amount $ 34 rate. Adds to liability sensitivity.
Unrealized gross gain 36 Similar characteristics to a fixed
Unrealized gross loss (28) income security funded with
variable rate liabilities. Includes
$4.9 billion of indexed amortizing
swaps, with $1.4 billion maturing
within 1 year and $3.5 billion
within 4 years.
---------
Total 42
---------
Forward bullet
interest rate swaps 6,057 5.96 - 1.22 Converts floating rate loans to fixed
Carrying amount - rates in future periods. $6.0 billion
Unrealized gross gain 1 effective December 1996; $57
Unrealized gross loss (12) million effective March 1997.
---------
Total (11)
- - ----------------------------------------------- ---------
Total asset rate conversions $ 19,967 6.27% 5.54% 2.13 $ 31
- - -------------------------------------------------------------------------------------------
LIABILITY RATE CONVERSIONS
Interest rate swaps $ 6,129 6.84% 5.79% 6.21 Converts $4.3 billion of fixed rate
Carrying amount $ 11 long-term debt to floating rate by
Unrealized gross gain 65 matching the maturity of the swap
Unrealized gross loss (97) to the debt issue. Rate sensitivity
remains unchanged due to the direct
linkage of the swap to the debt
issue. Also converts $1.0 billion of
fixed rate CD's to variable rate and
$762 million of fixed rate bank
notes to floating rate.
---------
Total (21)
---------
Other financial instruments 150 4.00 - 6.81 $150 million floor offsets a
Carrying amount 1 corresponding rate floor in long-
Unrealized gross gain - term debt.
Unrealized gross loss (1)
---------
Total -
- - ----------------------------------------------- ---------
Total liability rate conversions $ 6,279 6.77% 5.79% 6.22% $(21)
- - -------------------------------------------------------------------------------------------
</TABLE>
(Continued)
T-13
<PAGE>
Table 16
OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS (a)
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Weighted
Average Rate Estimated
--------------------- ------------------
September 30, 1996 Notional Maturity In Fair
(In millions) Amount Receive Pay Years (b) Value Comments
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
RATE SENSITIVITY HEDGES
Put options on eurodollar futures $ 20,766 - % 6.30% 0.31 Paid a premium for the right to lock
Carrying amount $12 in the 3 month LIBOR reset rates on
Unrealized gross gain - pay variable rate swaps. $8.1 billion
Unrealized gross loss (6) effective December 1996; $7.6
billion effective March 1997; $5.1
billion effective June 1997.
---------
Total 6
---------
Interest rate caps 168 5.63 7.03 2.96 Paid a premium for the right to lock
Carrying amount 1 in 3 month LIBOR reset rates on
Unrealized gross gain 1 pay variable rate swaps.
Unrealized gross loss -
Total 2
---------
Short futures 16,695 - 5.92 0.31 Locks in 3 month LIBOR reset rates
Carrying amount - on pay variable rate swaps. $10.6
Unrealized gross gain 1 billion effective December 1996;
Unrealized gross loss (4) $6.0 billion effective March 1997;
$89 million effective June 1997.
---------
Total (3)
---------
CMT Floor 100 6.42 - 4.59 First Union Mortgage Corporation
Carrying amount 1 paid a premium for a CMT floor in
Unrealized gross gain - order to offset the decline in value of
Unrealized gross loss - mortgage servicing in a falling rate
environment.
---------
Total 1
---------
Long eurodollar futures 14,550 6.29 - 1.53 Converts floating rate LIBOR-based
Carrying amount - loans to fixed rate. Adds to liability
Unrealized gross gain - sensitivity. Similar characteristics to
Unrealized gross loss (8) fixed income security funded with
variable rate liabilities. $4.6
billion effective September 1997:
$2.0 billion effective December
1997, March 1998, June 1998 and
September 1998; $500 million
effective December 1998, March 1999,
June 1999 and September 1999.
---------
Total (8)
- - ----------------------------------------------- ---------
Total rate sensitivity hedges $ 52,279 6.28% 6.13% 0.67 $(2)
- - ---------------------------------------------------------------------------------------
</TABLE>
(a) Includes only off-balance sheet derivative financial instruments related to
interest rate risk management activities.
(b) Estimated maturity approximates duration except for forward bullets, average
duration of 1.0 years; and long eurodollar futures, average duration of .25
years. 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 on one
to six month LIBOR. Pay rates related to forward interest rate swaps are set
on the future effective date. Pay rates reset at predetermined reset dates
over the life of the contract. Rates shown are the rates in effect as of
September 30, 1996. Weighted average receive rates were 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-14
<PAGE>
Table 17
OFF-BALANCE SHEET DERIVATIVES - EXPECTED MATURITIES(a)
- - --------------------------------------------------------------------------------
September 30, 1996 1 Year 1 -2 2 -5 5 -10 After 10
(In millions) or Less Years Years Years Years Total
- - --------------------------------------------------------------------------------
ASSET RATE CONVERSIONS
Notional amount $ 5,095 6,157 8,715 - - 19,967
Weighted average receive rate 6.33% 5.95 6.47 - - 6.27
Estimated fair value $ 9 (11) 33 - - 31
- - --------------------------------------------------------------------------------
LIABILITY RATE CONVERSIONS
Notional amount $ 1,024 765 505 3,425 560 6,279
Weighted average receive rate 6.41% 6.13 7.32 6.95 6.76 6.77
Estimated fair value $ 5 2 16 (16) (28) (21)
- - --------------------------------------------------------------------------------
RATE SENSITIVITY HEDGES
Notional amount $42,021 8,030 2,193 35 - 52,279
Weighted average receive rate 5.64% 6.57 6.56 5.64 - 6.28
Estimated fair value $ (5) 1 1 1 - (2)
- - -------------------------------------------------------------------------------
(a) Includes only off-balance sheet derivative financial instruments related
to interest rate risk management activities. Pay rates are generally based
on one to six month LIBOR and reset at predetermined reset dates. Current
pay rates are not necessarily indicative of future pay rates, and
therefore, they have been excluded from the above table. Weighted average
pay rates are indicated in Table 16.
<PAGE>
Table 18
OFF-BALANCE SHEET DERIVATIVES ACTIVITY (a)
- - ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
Rate
Asset Rate Liability Rate Asset Sensitivity Offsetting
(In millions) Conversions Conversions Hedges Hedges Positions Total
- - ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $ 17,402 5,307 1,016 29,674 4,800 58,199
Additions 7,741 1,627 - 66,229 - 75,597
Maturities/Amortizations (5,176) (655) (697) (17,302) (4,800) (28,630)
Offsets - - - - - -
Terminations - - (319) (26,322) - (26,641)
- - ------------------------------------------------------------------------------------------------
Balance, September 30, 1996 $ 19,967 6,279 - 52,279 - 78,525
- - ------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes only off-balance sheet derivative financial instruments related to
interest rate risk management activities.
T-15
<PAGE>
FIRST UNION CORPORATION AND SUBSIDIARIES
NET INTEREST INCOME SUMMARIES
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THIRD QUARTER 1996 SECOND QUARTER 1996
-------------------------------------- ------------------------------------
Average Average
Interest Rates Interest Rates
Average Income/ Earned/ Average Income/ Earned/
(In millions) Balances Expense Paid Balances Expense Paid
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing bank balances $ 65 1 8.73% $ 183 1 3.21%
Federal funds sold and securities
purchased under resale agreements 5,760 77 5.26 6,100 79 5.22
Trading account assets (a) 5,359 88 6.58 4,101 72 6.98
Securities available for sale (a) 15,657 260 6.62 20,907 341 6.54
Investment securities (a)
U.S. Government and other 1,693 31 7.57 1,767 34 7.41
State, county and municipal 894 24 10.67 1,001 28 11.01
----------------------- -----------------------
Total investment securities 2,587 55 8.64 2,768 62 8.71
----------------------- -----------------------
Loans (a) (b)
Commercial
Commercial, financial and agricultural (c) 22,825 446 7.78 23,070 447 7.78
Real estate - construction and other 2,846 60 8.35 2,779 59 8.51
Real estate - mortgage 9,480 200 8.41 9,615 202 8.48
Lease financing 2,063 48 9.37 1,914 48 9.90
Foreign 721 12 6.36 696 10 6.26
----------------------- -----------------------
Total commercial 37,935 766 8.04 38,074 766 8.09
----------------------- -----------------------
Retail
Real estate - mortgage 26,855 529 7.88 27,236 526 7.72
Installment loans - Bankcard (c) 5,257 173 13.16 4,527 151 13.41
Installment loans - other (c) 20,445 491 9.55 19,982 458 9.22
----------------------- -----------------------
Total retail 52,557 1,193 9.06 51,745 1,135 8.80
----------------------- -----------------------
Total loans 90,492 1,959 8.63 89,819 1,901 8.50
----------------------- -----------------------
Total earning assets 119,920 2,440 8.12 123,878 2,456 7.95
--------------------- ----------------------
Cash and due from banks 5,333 5,063
Other assets 8,178 7,517
----------- ----------
Total assets $ 133,431 $ 136,458
----------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits
Savings and NOW accounts 25,126 173 2.73 25,359 164 2.61
Money market accounts 13,239 93 2.79 13,100 90 2.77
Other consumer time 30,467 398 5.20 30,975 408 5.30
Foreign 1,856 24 5.24 2,364 29 4.92
Other time 3,195 46 5.67 3,173 38 4.79
----------------------- -----------------------
Total interest-bearing deposits 73,883 734 3.95 74,971 729 3.92
Federal funds purchased and securities
sold under repurchase agreements 19,038 234 4.91 20,719 254 4.93
Commercial paper 830 11 5.03 841 10 5.00
Other short-term borrowings 3,841 56 5.78 4,102 56 5.42
Long-term debt 7,849 123 6.27 7,615 118 6.18
----------------------- -----------------------
Total interest-bearing liabilities 105,441 1,158 4.37 108,248 1,167 4.33
----------------------- ----------------------
Noninterest-bearing deposits 16,585 16,628
Other liabilities 2,556 2,364
Stockholders' equity 8,849 9,218
----------- ----------
Total liabilities and stockholders' equity $ 133,431 $ 136,458
----------- ----------
Interest income and rate earned $ 2,440 8.12% $ 2,456 7.95%
Interest expense and rate paid 1,158 3.85 1,167 3.78
----------------------- ----------------------
Net interest income and margin $ 1,282 4.27% $ 1,289 4.17%
----------------------- ----------------------
</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 tax rate of
35 percent; and tax rates of 7.75 percent in North Carolina; 5.5 percent
in Florida; 4.5 percent in South Carolina; 6 percent in Georgia and
Tennessee ; 7 percent in Maryland; 9.975 percent in Washington, D.C.;
4.87 percent in 1996 in Delaware; 6.5 percent in 1996 in New Jersey; and
10.75 percent in 1996 in Connecticut. Lease financing amounts include
related deferred income taxes.
T-16
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
FIRST QUARTER 1996 FOURTH QUARTER 1995 THIRD QUARTER 1995
-------------------------------------- -------------------------------------- -----------------------------------
Average Average Average
Interest Rates Interest Rates Interest Rates
Average Income/ Earned/ Average Income/ Earned/ Average Income/ Earned/
Balances Expense Paid Balances Expense Paid Balances Expense Paid
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 127 3 7.58% $ 154 2 4.77% $ 461 7 5.61%
5,728 75 5.28 2,888 42 5.82 2,372 33 5.58
3,081 47 6.18 1,891 30 6.38 1,665 25 6.07
17,007 278 6.54 11,878 192 6.40 10,889 176 6.43
1,890 34 7.38 6,373 111 6.92 5,983 98 6.50
1,126 30 10.71 1,248 34 10.62 1,430 39 10.80
----------------------- ---------------------- ----------------------
3,016 64 8.62 7,621 145 7.53 7,413 137 7.33
----------------------- ---------------------- ----------------------
23,036 443 7.73 23,555 463 7.79 22,828 451 7.84
2,546 55 8.73 2,476 56 9.05 2,353 54 9.17
9,832 210 8.58 9,948 221 8.83 9,856 221 8.90
1,810 43 9.54 1,614 38 9.36 1,464 34 9.21
690 11 6.21 655 12 7.03 620 11 7.14
----------------------- ---------------------- ----------------------
37,914 762 8.08 38,248 790 8.20 37,121 771 8.25
----------------------- ---------------------- ----------------------
27,419 526 7.68 26,559 512 7.65 24,973 482 7.65
4,133 149 14.38 3,490 119 13.58 4,942 186 14.89
19,808 460 9.33 19,585 470 9.50 18,998 460 9.60
----------------------- ------------------------ ----------------------
51,360 1,135 8.85 49,634 1,101 8.80 48,913 1,128 9.14
----------------------- ---------------------- ----------------------
89,274 1,897 8.52 87,882 1,891 8.54 86,034 1,899 8.76
----------------------- ---------------------- ----------------------
118,233 2,364 8.02 112,314 2,302 8.13 108,834 2,277 8.30
------------------------ ------------------------ ---------------------
5,052 5,260 4,917
7,452 7,511 7,059
----------- ---------- ----------
$ 130,737 $ 125,085 $ 120,810
----------- ---------- ----------
24,626 160 2.60 23,447 155 2.62 22,887 145 2.25
13,267 92 2.78 13,114 97 2.94 13,372 98 2.90
31,861 422 5.33 31,930 432 5.36 31,299 419 5.32
2,272 31 5.51 2,307 33 5.73 2,891 39 5.39
2,824 41 5.88 2,716 43 6.37 2,759 43 6.16
----------------------- ---------------------- ----------------------
74,850 746 4.01 73,514 760 4.10 73,208 744 4.03
16,321 207 5.10 12,144 171 5.57 10,745 162 5.97
987 13 5.18 1,039 15 5.55 1,103 16 5.66
3,651 48 5.37 3,765 54 5.72 3,292 52 6.30
7,243 113 6.27 6,940 112 6.40 5,766 93 6.48
----------------------- ---------------------- ----------------------
103,052 1,127 4.40 97,402 1,112 4.53 94,114 1,067 4.50
------------------------ ------------------------ -----------------------
16,286 16,118 15,619
2,193 2,668 2,540
9,206 8,897 8,537
----------- ---------- ----------
$ 130,737 $ 125,085 $ 120,810
----------- ---------- ----------
$ 2,364 8.02% $ 2,302 8.13% $ 2,277 8.30%
1,127 3.83 1,112 3.93 1,067 3.89
------------------------ ------------------------ -----------------------
$ 1,237 4.19% $ 1,190 4.20% $ 1,210 4.41%
------------------------ ------------------------ -----------------------
</TABLE>
(b) The loan averages include loans on which the accrual of interest has been
discontinued and are stated net of unearned income.
(c) Data for the first quarter of 1996 has been revised to conform with new
classifications presented in the second quarter of 1996. Data prior to 1996
is not available. Installment loans - Bankcard include credit card, ICR,
signature and First Choice amounts.
T-17
<PAGE>
FIRST UNION CORPORATION AND SUBSIDIARIES
NET INTEREST INCOME SUMMARIES
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED 1996 SIX MONTHS ENDED 1996
------------------------------------ -----------------------------------
Average Average
Interest Rates Interest Rates
Average Income/ Earned/ Average Income/ Earned/
(In millions) Balances Expense Paid Balances Expense Paid
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing bank balances $ 125 5 5.64% $ 156 4 5.00%
Federal funds sold and securities
purchased under resale agreements 5,862 231 5.26 5,914 154 5.25
Trading account assets (a) 4,185 207 6.61 3,591 119 6.64
Securities available for sale (a) 17,849 879 6.57 18,957 619 6.54
Investment securities (a)
U.S. Government and other 1,783 99 7.45 1,829 68 7.39
State, county and municipal 1,006 82 10.85 1,063 58 10.92
----------------------- ----------------------
Total investment securities 2,789 181 8.68 2,892 126 8.69
----------------------- ----------------------
Loans (a) (b)
Commercial
Commercial, financial and agricultural (c) 22,977 1,336 7.77 23,053 890 7.76
Real estate - construction and other 2,724 174 8.52 2,663 114 8.62
Real estate - mortgage 9,641 612 8.49 9,724 412 8.53
Lease financing 1,930 139 9.59 1,862 91 9.72
Foreign 702 33 6.28 692 21 6.24
----------------------- ----------------------
Total commercial 37,974 2,294 8.07 37,994 1,528 8.08
----------------------- ----------------------
Retail
Real estate - mortgage 27,168 1,581 7.76 27,327 1,052 7.70
Installment loans - Bankcard (c) 4,642 473 13.59 4,330 300 13.87
Installment loans - other (c) 20,080 1,409 9.37 19,895 918 9.28
----------------------- ----------------------
Total retail 51,890 3,463 8.90 51,552 2,270 8.83
----------------------- ----------------------
Total loans 89,864 5,757 8.55 89,546 3,798 8.51
----------------------- ----------------------
Total earning assets 120,674 7,260 8.03 121,056 4,820 7.99
----------------------- ----------------------
Cash and due from banks 5,150 5,057
Other assets 7,717 7,484
----------- ----------
Total assets $ 133,541 $ 133,597
----------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits
Savings and NOW accounts 25,037 497 2.65 24,993 324 2.61
Money market accounts 13,202 275 2.78 13,183 182 2.78
Other consumer time 31,099 1,228 5.27 31,418 830 5.31
Foreign 2,163 84 5.22 2,318 60 5.21
Other time 3,064 125 5.43 2,998 79 5.30
----------------------- ----------------------
Total interest-bearing deposits 74,565 2,209 3.96 74,910 1,475 3.96
Federal funds purchased and securities
sold under repurchase agreements 18,694 695 4.97 18,520 461 5.00
Commercial paper 886 34 5.08 914 23 5.10
Other short-term borrowings 3,865 160 5.53 3,877 104 5.40
Long-term debt 7,570 354 6.24 7,429 231 6.22
----------------------- ----------------------
Total interest-bearing liabilities 105,580 3,452 4.37 105,650 2,294 4.37
----------------------- ----------------------
Noninterest-bearing deposits 16,499 16,457
Other liabilities 2,372 2,278
Stockholders' equity 9,090 9,212
----------- ----------
Total liabilities and stockholders' equity $133,541 $ 133,597
----------- ----------
Interest income and rate earned $ 7,260 8.03% $ 4,820 7.99%
Interest expense and rate paid 3,452 3.82 2,294 3.81
----------------------- ----------------------
Net interest income and margin $ 3,808 4.21% $ 2,526 4.18%
----------------------- ----------------------
</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 tax rate of
35 percent; and tax rates of 7.75 percent in North Carolina; 5.5 percent
in Florida; 4.5 percent in South Carolina; 6 percent in Georgia and
Tennessee ; 7 percent in Maryland; 9.975 percent in Washington, D.C.;
4.87 percent in 1996 in Delaware; 6.5 percent in 1996 in New Jersey; and
10.75 percent in 1996 in Connecticut. Lease financing amounts include
related deferred income taxes.
T-18
<PAGE>
------------------------------------------------------------------------------
YEAR ENDED 1995 NINE MONTHS ENDED 1995
------------------------------------ ------------------------------------
Average Average
Interest Rates Interest Rates
Average Income/ Earned/ Average Income/ Earned/
Balances Expense Paid Balances Expense Paid
------------------------------------------------------------------------------
$ 475 26 5.45% $ 584 24 5.51%
2,266 131 5.77 2,056 88 5.75
1,538 97 6.29 1,419 66 6.25
11,212 718 6.41 10,987 527 6.41
6,027 403 6.70 5,910 292 6.61
1,488 163 10.94 1,569 130 11.03
----------------------- -----------------------
7,515 566 7.54 7,479 422 7.54
----------------------- -----------------------
22,634 1,792 7.92 22,324 1,329 7.96
2,266 210 9.29 2,195 154 9.38
9,827 873 8.88 9,786 651 8.90
1,416 131 9.23 1,349 93 9.17
614 43 7.04 600 32 7.05
----------------------- -----------------------
36,757 3,049 8.30 36,254 2,259 8.33
----------------------- -----------------------
23,389 1,786 7.63 22,322 1,274 7.63
4,370 632 14.45 4,667 512 14.67
18,749 1,787 9.53 18,467 1,318 9.55
----------------------- -----------------------
46,508 4,205 9.04 45,456 3,104 9.13
----------------------- -----------------------
83,265 7,254 8.71 81,710 5,363 8.78
----------------------- -----------------------
106,271 8,792 8.27 104,235 6,490 8.32
---------------------- -----------------------
5,004 4,918
6,867 6,649
----------- ----------
$ 118,142 $ 115,802
----------- ----------
23,047 588 2.55 22,912 434 2.53
13,270 388 2.92 13,322 291 2.92
29,779 1,538 5.17 29,055 1,107 5.09
3,089 178 5.77 3,352 145 5.78
2,571 161 6.26 2,523 116 6.22
----------------------- -----------------------
71,756 2,853 3.98 71,164 2,093 3.93
10,325 596 5.77 9,711 425 5.86
1,053 60 5.71 1,058 46 5.76
2,649 161 6.06 2,273 106 6.25
5,707 382 6.69 5,292 270 6.82
----------------------- -----------------------
91,490 4,052 4.43 89,498 2,940 4.39
----------------------- ----------------------
15,518 15,316
2,589 2,561
8,545 8,427
----------- ----------
$ 118,142 $ 115,802
----------- ----------
$ 8,792 8.27% $ 6,490 8.32%
4,052 3.81 2,940 3.77
----------------------- ----------------------
$ 4,740 4.46% $ 3,550 4.55%
----------------------- ----------------------
(b)The loan averages include loans on which the accrual of interest
has been discontinued and are stated net of unearned income.
(c)New classifications for the first nine months of 1996 are included
herein. Data prior to 1996 is not available. Installment loans -
Bankcard include credit card, ICR, signature and First Choice
amounts.
T-19
<PAGE>
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
---------------------------- --------------------
Third Second First Fourth Third
(In millions, except per share data) Quarter Quarter Quarter Quarter Quarter
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 6,101 5,456 5,250 6,312 4,987
Interest-bearing bank balances 40 73 51 79 562
Federal funds sold and securities
purchased under resale agreements 5,660 6,197 4,417 4,153 2,635
- - -----------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 11,801 11,726 9,718 10,544 8,184
- - -----------------------------------------------------------------------------------------------------------
Trading account assets 4,779 4,793 3,307 1,881 1,406
Securities available for sale 13,729 21,835 17,178 18,194 11,475
Investment securities 2,566 2,681 2,927 3,140 7,602
Loans, net of unearned income 92,520 91,339 89,990 90,563 86,189
Allowance for loan losses (1,377) (1,416) (1,436) (1,508) (1,456)
- - -----------------------------------------------------------------------------------------------------------
Loans, net 91,143 89,923 88,554 89,055 84,733
- - -----------------------------------------------------------------------------------------------------------
Premises and equipment 3,811 2,863 2,734 2,553 2,377
Due from customers on acceptances 571 518 392 616 586
Other intangible assets 2,379 2,461 2,435 2,432 2,296
Other assets 3,103 3,086 3,336 3,465 3,260
- - -----------------------------------------------------------------------------------------------------------
Total assets $ 133,882 139,886 130,581 131,880 121,919
- - -----------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing deposits 18,008 16,831 16,726 17,043 15,598
Interest-bearing deposits 73,436 74,622 73,792 75,512 71,797
- - -----------------------------------------------------------------------------------------------------------
Total deposits 91,444 91,453 90,518 92,555 87,395
Short-term borrowings 22,910 27,895 20,371 19,500 15,973
Bank acceptances outstanding 571 516 392 616 586
Other liabilities 2,936 2,899 2,652 3,044 2,685
Long-term debt 7,332 7,807 7,538 7,122 6,717
- - -----------------------------------------------------------------------------------------------------------
Total liabilities 125,193 130,570 121,471 122,837 113,356
- - -----------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock 48 163 171 183 195
Common stock, $3.33-1/3 par value;
authorized 750,000,000 shares 901 940 937 926 909
Paid-in capital 1,408 2,128 2,099 1,975 1,787
Retained earnings 6,431 6,231 5,942 5,848 5,687
Unrealized gain (loss) on debt and equity securities (99) (146) (39) 111 (15)
- - -----------------------------------------------------------------------------------------------------------
Total stockholders' equity 8,689 9,316 9,110 9,043 8,563
- - -----------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 133,882 139,886 130,581 131,880 121,919
- - -----------------------------------------------------------------------------------------------------------
MEMORANDA
Securities available for sale-amortized cost $ 13,871 22,051 17,226 17,993 11,454
Investment securities-market value 2,691 2,797 3,060 3,320 7,750
Common stockholders' equity, net of unrealized
gain (loss) on debt and equity securities $ 8,641 9,153 8,939 8,860 8,368
Preferred shares outstanding (in thousands) 1,911 2,599 2,897 3,388 3,880
Common shares outstanding (in thousands) 270,508 281,948 281,064 277,846 272,752
- - -----------------------------------------------------------------------------------------------------------
</TABLE>
T-20
<PAGE>
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
- - -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
------------------------------------- ----------------------
Third Second First Fourth Third
(In millions, except per share data) Quarter Quarter Quarter Quarter Quarter
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 1,953 1,896 1,889 1,884 1,891
Interest and dividends on securities available for sale 258 336 274 189 173
Interest and dividends on investment securities
Taxable income 31 33 34 110 98
Nontaxable income 16 19 20 23 26
Trading account interest 87 67 44 29 24
Other interest income 78 80 78 44 40
- - --------------------------------------------------------------------------------------------------------------------------
Total interest income 2,423 2,431 2,339 2,279 2,252
- - --------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 734 729 746 760 744
Interest on short-term borrowings 301 320 268 240 229
Interest on long-term debt 123 118 113 112 94
- - --------------------------------------------------------------------------------------------------------------------------
Total interest expense 1,158 1,167 1,127 1,112 1,067
- - --------------------------------------------------------------------------------------------------------------------------
Net interest income 1,265 1,264 1,212 1,167 1,185
Provision for loan losses 105 80 70 64 60
- - --------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 1,160 1,184 1,142 1,103 1,125
- - --------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Trading account profits 23 8 21 34 18
Service charges on deposit accounts 165 166 161 160 156
Mortgage banking income 38 40 37 40 40
Capital management income 145 138 126 113 105
Securities available for sale transactions 2 3 15 15 10
Investment security transactions - 2 1 1 3
Fees for other banking services 41 44 33 40 42
Sundry income 186 145 132 159 105
- - --------------------------------------------------------------------------------------------------------------------------
Total noninterest income 600 546 526 562 479
- - --------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries 454 425 412 437 413
Other benefits 99 101 113 83 86
- - --------------------------------------------------------------------------------------------------------------------------
Personnel expense 553 526 525 520 499
Occupancy 82 83 93 88 90
Equipment 108 98 93 88 80
Advertising 10 10 11 16 21
Telecommunications 27 25 25 23 24
Travel 23 27 22 22 20
Postage, printing and supplies 43 40 42 34 36
FDIC assessment 15 14 12 19 8
Professional fees 23 29 6 51 42
External data processing 24 38 36 17 19
Other intangible amortization 60 61 62 62 60
Merger-related restructuring charges - - 281 94 -
SAIF special assessment 133 - - - -
Sundry 110 101 84 104 119
- - --------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 1,211 1,052 1,292 1,138 1,018
- - --------------------------------------------------------------------------------------------------------------------------
Income before income taxes 549 678 376 527 586
Income taxes 192 239 133 192 205
- - --------------------------------------------------------------------------------------------------------------------------
Net income 357 439 243 335 381
Dividends on preferred stock 1 3 4 4 5
- - --------------------------------------------------------------------------------------------------------------------------
Net income applicable to common stockholders $ 356 436 239 331 376
- - --------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE DATA
Net income $ 1.29 1.55 0.85 1.19 1.36
Cash dividends $ 0.58 0.52 0.52 0.52 0.52
Average common shares (in thousands) 274,001 282,576 280,374 278,527 275,484
- - --------------------------------------------------------------------------------------------------------------------------
</TABLE>
T-21
<PAGE>
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------
Nine Months Ended Six Months Ended
September 30, June 30,
------------------------------------------------
(In millions, except per share data) 1996 1995 1996 1995
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 5,738 5,339 3,785 3,448
Interest and dividends on securities available for sale 868 517 610 344
Interest and dividends on investment securities
Taxable income 98 291 67 193
Nontaxable income 55 86 39 60
Trading account interest 198 62 111 38
Other interest income 236 113 158 73
- - -------------------------------------------------------------------------------------------------------------
Total interest income 7,193 6,408 4,770 4,156
- - -------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 2,209 2,093 1,475 1,349
Interest on short-term borrowings 889 577 588 348
Interest on long-term debt 354 270 231 176
- - -------------------------------------------------------------------------------------------------------------
Total interest expense 3,452 2,940 2,294 1,873
- - -------------------------------------------------------------------------------------------------------------
Net interest income 3,741 3,468 2,476 2,283
Provision for loan losses 255 156 150 96
- - -------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 3,486 3,312 2,326 2,187
- - -------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Trading account profits 52 35 29 17
Service charges on deposit accounts 492 456 327 300
Mortgage banking income 115 110 77 70
Capital management income 409 302 264 197
Securities available for sale transactions 20 29 18 19
Investment security transactions 3 4 3 1
Fees for other banking services 118 120 77 78
Sundry income 463 279 277 174
- - -------------------------------------------------------------------------------------------------------------
Total noninterest income 1,672 1,335 1,072 856
- - -------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries 1,291 1,178 837 765
Other benefits 313 264 214 178
- - -------------------------------------------------------------------------------------------------------------
Personnel expense 1,604 1,442 1,051 943
Occupancy 258 265 176 175
Equipment 299 232 191 152
Advertising 31 56 21 35
Telecommunications 77 64 50 40
Travel 72 56 49 36
Postage, printing and supplies 125 105 82 69
FDIC assessment 41 101 26 93
Professional fees 58 125 35 83
External data processing 98 54 74 35
Other intangible amortization 183 167 123 107
Merger-related restructuring charges 281 - 281 -
SAIF special assessment 133 - - -
Sundry 295 288 185 169
- - -------------------------------------------------------------------------------------------------------------
Total noninterest expense 3,555 2,955 2,344 1,937
- - -------------------------------------------------------------------------------------------------------------
Income before income taxes 1,603 1,692 1,054 1,106
Income taxes 564 597 372 392
- - -------------------------------------------------------------------------------------------------------------
Net income 1,039 1,095 682 714
Dividends on preferred stock 8 22 7 17
- - -------------------------------------------------------------------------------------------------------------
Net income applicable to common stockholders $ 1,031 1,073 675 697
- - -------------------------------------------------------------------------------------------------------------
PER COMMON SHARE DATA
Net income $ 3.69 3.85 2.40 2.49
Cash dividends $ 1.62 1.44 1.04 0.92
Average common shares (in thousands) 278,984 278,721 281,475 280,337
- - -------------------------------------------------------------------------------------------------------------
</TABLE>
T-22
<PAGE>
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------------------
Nine Months Ended
September 30,
---------------------
(In millions) 1996 1995
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,039 1,095
Adjustments to reconcile net income to net cash provided (used) by operating activities
Accretion and amortization of securities discounts and premiums, net 33 (47)
Provision for loan losses 255 156
Provision for foreclosed properties (3) (3)
Securities available for sale transactions (20) (29)
Investment security transactions (3) (4)
Depreciation and amortization 456 405
Trading account assets, net (2,898) (89)
Mortgage loans held for resale (29) (207)
(Gain) Loss on sales of premises and equipment (2) 10
Gain on sale of segregated assets (6) (16)
Other assets, net 511 517
Other liabilities, net (156) 120
- - ---------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities (823) 1,908
- - ---------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Increase (decrease) in cash realized from
Sales of securities available for sale 15,664 6,513
Maturities of securities available for sale 2,789 1,206
Purchases of securities available for sale (14,107) (5,327)
Sales and underdeliveries of investment securities 8 25
Maturities of investment securities 667 1,773
Purchases of investment securities (99) (1,561)
Origination of loans, net (851) (5,642)
Sales of loans - 2,000
Sales of premises and equipment 32 36
Purchases of premises and equipment (679) (357)
Sales of mortgage servicing rights 15 -
Purchases of mortgage servicing rights (34) (7)
Other intangible assets, net 22 (38)
Purchases of banking organizations, net of acquired cash equivalents (658) 434
- - ---------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities 2,769 (945)
- - ---------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase (decrease) in cash realized from
Sales of deposits, net (2,840) (6,814)
Securities sold under repurchase agreements and other short-term borrowings, net 3,352 4,679
Issuances of long-term debt 1,416 3,024
Payments of long-term debt (1,310) (559)
Sales of common stock 191 152
Purchases of preferred stock (109) (7)
Purchases of common stock (932) (1,091)
Cash dividends paid (457) (388)
- - ---------------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (689) (1,004)
- - ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 1,257 (41)
Cash and cash equivalents, beginning of year 10,544 8,225
- - ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 11,801 8,184
- - ---------------------------------------------------------------------------------------------------------------------------
NONCASH ITEMS
Increase in securities available for sale $ - 57
Decrease in investment securities - (72)
Increase in other assets - 15
Increase in foreclosed properties and a decrease in loans 23 42
Conversion of preferred stock to common stock 26 27
Issuance of common stock for purchase accounting acquisitions 124 253
Effect on stockholders' equity of an unrealized gain (loss) on debt and equity securities
included in
Securities available for sale (342) 417
Other assets (deferred income taxes) $ (132) 143
- - ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
T-23
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 6,101
<INT-BEARING-DEPOSITS> 40
<FED-FUNDS-SOLD> 5,660
<TRADING-ASSETS> 4,779
<INVESTMENTS-HELD-FOR-SALE> 13,729
<INVESTMENTS-CARRYING> 2,566
<INVESTMENTS-MARKET> 2,691
<LOANS> 94,394
<ALLOWANCE> (1,377)
<TOTAL-ASSETS> 133,882
<DEPOSITS> 91,444
<SHORT-TERM> 22,910
<LIABILITIES-OTHER> 2,936
<LONG-TERM> 7,332
0
48
<COMMON> 901
<OTHER-SE> 7,740
<TOTAL-LIABILITIES-AND-EQUITY> 133,882
<INTEREST-LOAN> 5,738
<INTEREST-INVEST> 1,021
<INTEREST-OTHER> 236
<INTEREST-TOTAL> 7,193
<INTEREST-DEPOSIT> 2,209
<INTEREST-EXPENSE> 3,452
<INTEREST-INCOME-NET> 3,741
<LOAN-LOSSES> 255
<SECURITIES-GAINS> 23
<EXPENSE-OTHER> 3,555
<INCOME-PRETAX> 1,603
<INCOME-PRE-EXTRAORDINARY> 1,603
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,039
<EPS-PRIMARY> 3.69
<EPS-DILUTED> 3.69
<YIELD-ACTUAL> 4.21
<LOANS-NON> 727
<LOANS-PAST> 291
<LOANS-TROUBLED> 3
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,508
<CHARGE-OFFS> 510
<RECOVERIES> 116
<ALLOWANCE-CLOSE> 1,377
<ALLOWANCE-DOMESTIC> 1,373
<ALLOWANCE-FOREIGN> 4
<ALLOWANCE-UNALLOCATED> 316
</TABLE>
<PAGE>
EXHIBIT (99)
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 NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
(IN MILLIONS) 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net interest income....................................................................... $175 136 480 396
Income before income taxes................................................................ 127 83 351 211
Net income................................................................................ $ 82 54 224 136
</TABLE>
CONSOLIDATED BALANCE SHEET DATA
<TABLE>
<CAPTION>
SEPTEMBER 30,
(IN MILLIONS) 1996 1995
<S> <C> <C>
Assets.................................................................................................. $20,075 14,097
Securities available for sale........................................................................... 4,215 2,948
Investment securities................................................................................... 424 600
Loans, net of unearned income........................................................................... 10,989 8,260
Stockholder's equity.................................................................................... $ 1,876 1,167
</TABLE>
