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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 June 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.
275,767,174 shares of Common Stock, par value $3.33 1/3 per share, were
outstanding as of July 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.
1
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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 June
30, 1996, June 30, 1995, and December 31, 1995, respectively, set forth on page
T-21 of the Corporation's Second Quarter Financial Supplement for the six months
ended June 30, 1996 (the "Financial Supplement"), are incorporated herein by
reference.
The Consolidated Statements of Income of the Corporation and Subsidiaries
for the three and six months ended June 30, 1996 and 1995, set forth on pages
T-22 and T-23 of the Financial Supplement, are incorporated herein by reference.
The Consolidated Statements of Cash Flows of the Corporation and
Subsidiaries for the six months ended June 30, 1996 and 1995, set forth on page
T-24 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 15 and T-1 through T-24 of the Financial
Supplement and is incorporated herein by reference.
A copy of the Financial Supplement is being filed as Exhibit (19) to this
Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Information relating to certain proposals voted on at the annual meeting of
the stockholders of the Corporation held on April 16, 1996, is set forth under
Item 4 in the Corporation's 1996 First Quarter Report on Form 10-Q and
incorporated herein by reference.
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 Second 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 June 30, 1996, no Reports on Form 8-K 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: August 14, 1996
By:
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 Second 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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SIX
MONTHS
ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS) 1996 1995 1994 1993 1992 1991
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EXCLUDING INTEREST ON DEPOSITS:
Pretax income from continuing
operations............................ $1,054,436 2,218,601 2,087,887 1,795,265 977,302 699,815
Fixed charges, excluding capitalized
interest.............................. 853,078 1,266,255 816,102 607,462 569,638 866,728
(A.) Earnings........................... $1,907,514 3,484,856 2,903,989 2,402,727 1,546,940 1,566,543
Interest, excluding interest on
deposits.............................. $ 819,281 1,198,487 746,938 537,964 501,556 803,787
One-third of rents...................... 33,797 67,768 69,164 69,498 68,082 62,941
Capitalized interest.................... 2,278 2,757 1,120 285 381 2,326
(B.) Fixed charges...................... $ 855,356 1,269,012 817,222 607,747 570,019 869,054
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............................ $1,054,436 2,218,601 2,087,887 1,795,265 977,302 699,815
Fixed charges, excluding capitalized
interest.............................. 2,328,319 4,119,583 2,862,146 2,551,450 3,009,762 4,133,826
(C.) Earnings........................... $3,382,755 6,338,184 4,950,033 4,346,715 3,987,064 4,833,641
Interest, including interest on
deposits.............................. $2,294,522 4,051,815 2,792,982 2,481,952 2,941,680 4,070,885
One-third of rents...................... 33,797 67,768 69,164 69,498 68,082 62,941
Capitalized interest.................... 2,278 2,757 1,120 285 381 2,326
(D.) Fixed charges...................... $2,330,597 4,122,340 2,863,266 2,551,735 3,010,143 4,136,152
Consolidated ratios of earnings to fixed
charges, including interest
on deposits (C./D.)................... 1.45X 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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SIX
MONTHS
ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS) 1996 1995 1994 1993 1992 1991
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EXCLUDING INTEREST ON DEPOSITS:
Pretax income from continuing
operations............................ $1,054,436 2,218,601 2,087,887 1,795,265 977,302 699,815
Fixed charges, excluding preferred stock
dividends and capitalized interest.... 857,216 1,281,312 861,573 628,840 591,458 878,337
(A.) Earnings........................... $1,911,652 3,499,913 2,949,460 2,424,105 1,568,760 1,578,152
Interest, excluding interest on
deposits.............................. $ 819,281 1,198,487 746,938 537,964 501,556 803,787
One-third of rents...................... 33,797 67,768 69,164 69,498 68,082 62,941
Preferred stock dividends*.............. 11,722 41,447 132,846 66,931 74,860 63,354
Capitalized interest.................... 2,278 2,757 1,120 285 381 2,326
(B.) Fixed charges...................... $ 867,078 1,310,459 950,068 674,678 644,879 932,408
Consolidated ratios of earnings to fixed
charges, excluding interest on
deposits (A./B.)...................... 2.20X 2.67 3.10 3.59 2.43 1.69
INCLUDING INTEREST ON DEPOSITS:
Pretax income from continuing
operations............................ $1,054,436 2,218,601 2,087,887 1,795,265 977,302 699,815
Fixed charges, excluding preferred stock
dividends and capitalized interest.... 2,332,457 4,134,640 2,907,617 2,572,828 3,031,582 4,145,434
(C.) Earnings........................... $3,386,893 6,353,241 4,995,504 4,368,093 4,008,884 4,845,249
Interest, including interest on
deposits.............................. $2,294,522 4,051,815 2,792,982 2,481,952 2,941,680 4,070,885
One-third of rents...................... 33,797 67,768 69,164 69,498 68,082 62,941
Preferred stock dividends*.............. 11,722 41,447 132,846 66,931 74,860 63,354
Capitalized interest.................... 2,278 2,757 1,120 285 381 2,326
(D.) Fixed charges...................... $2,342,319 4,163,787 2,996,112 2,618,666 3,085,003 4,199,506
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.
FIRST UNION CORPORATION
AND SUBSIDIARIES
Second Quarter
Financial
Supplement
Six Months Ended
June 30, 1996
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FIRST UNION CORPORATION
AND SUBSIDIARIES
SECOND QUARTER FINANCIAL SUPPLEMENT
SIX MONTHS ENDED JUNE 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
Noninterest Income.................................................................................. T-2
Noninterest Expense................................................................................. T-2
Selected Lines of Business.......................................................................... T-3
Internal Capital Growth and Dividend Payout Ratios.................................................. T-3
Selected Quarterly Data............................................................................. T-4
Securities Available for Sale....................................................................... T-5
Investment Securities............................................................................... T-6
Loans............................................................................................... T-7
Allowance for Loan Losses and Nonperforming Assets.................................................. T-8
Intangible Assets................................................................................... T-9
Allowance for Foreclosed Properties................................................................. T-9
Deposits............................................................................................ T-10
Time Deposits in Amounts of $100,000 or More........................................................ T-10
Long-Term Debt...................................................................................... T-11
Changes in Stockholders' Equity..................................................................... T-12
Capital Ratios...................................................................................... T-13
Off-Balance Sheet Derivative Financial Instruments.................................................. T-14
Off-Balance Sheet Derivatives-Expected Maturities................................................... T-16
Off-Balance Sheet Derivatives Activity.............................................................. T-16
Net Interest Income Summaries
Five Quarters Ended June 30, 1996.............................................................. T-17
Year-to-date June 30, 1996; June 30, September 30, and December 31, 1995....................... T-19
Consolidated Balance Sheets
Five Quarters Ended June 30, 1996.............................................................. T-21
Consolidated Statements of Income
Five Quarters Ended June 30, 1996.............................................................. T-22
Year-to-date June 30, 1996 and 1995............................................................ T-23
Consolidated Statements of Cash Flows............................................................... T-24
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SELECTED FINANCIAL DATA
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Three Months Ended Six Months Ended
June 30. June 30.
(In thousands except per share data) 1996 1995 1996 1995
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FINANCIAL HIGHLIGHTS
Net income $ 439,369 364,394 682,219 714,238
Dividends on preferred stock 3,684 5,113 7,584 17,350
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Net income applicable to common stockholders 435,685 359,281 674,635 696,888
After-tax restructuring charges - - 181,095 -
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Net income applicable to common stockholders
before merger-related restructuring charges $ 435,685 359,281 855,730 696,888
================================================================================================================================
PER COMMON SHARE DATA
Net income $ 1.55 1.30 2.40 2.49
Net income before merger-related, after tax restructuring charges 1.55 1.30 3.04 2.49
Net income before merger-related, after tax restructuring charges
and intangible amortization expense 1.73 1.45 3.41 2.80
Cash dividends 0.52 0.46 1.04 0.92
Quarter-end price 60.875 45.250 60.875 45.250
Book value $ 32.46 30.42 32.46 30.42
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PERFORMANCE HIGHLIGHTS
Return on average assets (a) (b) 1.30% 1.28 1.03 1.27
Return on average common equity (a) (c) 19.11 17.32 14.99 16.92
Before merger-related after-tax restructuring charges
Return on average assets (a) (b) 1.29 1.28 1.30 1.27
Return on average common equity (a) (c) 18.60 17.32 18.64 16.92
Dividend payout ratio on common shares 33.55 33.01 43.33 34.26
Net interest margin (a) 4.17 4.62 4.18 4.64
ASSET QUALITY
Allowance as % of loans, net 1.55 1.83 1.55 1.83
Allowance as % of nonaccrual and restructured loans 195 244 195 244
Allowance as % of nonperforming assets 169 182 169 182
Net charge-offs to average loans, net (a) 0.45 0.44 0.56 0.40
Net charge-offs to average loans, net, excluding net credit card
charge-offs (a) (d) 0.17 - 0.30 -
Nonperforming assets to loans, net and foreclosed properties 0.91 1.00 0.91 1.00
CAPITAL
Tier 1 capital to risk-weighted assets 7.11 7.31 7.11 7.31
Stockholders' equity to assets 6.66% 7.32 6.66 7.32
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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 half of
1996 was $675 million, or $2.40 per share ($856 million, or $3.04 before
restructuring charges), compared with $697 million, or $2.49 per share, in the
first half of 1995. The first half of 1996 operating earnings included $181
million after-tax, or $0.64 per share, in restructuring charges related to the
January 1, 1996, First Fidelity Bancorporation pooling of interests acquisition.
Amounts for 1995 have been restated to reflect the acquisition.
In the second quarter of 1996, net income applicable to common stockholders was
$436 million, compared with $359 million in the second quarter of 1995 and $239
million in the first quarter of 1996 ($420 million before a $181 million
restructuring charge). On a per common share basis, earnings were $1.55,
compared with $1.30 in the second quarter of 1995 and $.85 in the first quarter
of 1996, or $1.50 before the restructuring charges.
Tax-equivalent net interest income increased 8 percent compared with the first
half of 1995, including 9 percent growth in the second quarter of 1996 compared
with the second quarter of 1995. Average loans amounted to $89.8 billion in the
second quarter of 1996, compared with $81.5 billion in the second quarter of
1995. Nonperforming assets were $836 million, or 0.91 percent of loans and
foreclosed properties, at June 30, 1996, compared with $845 million, or 1.00
percent, at June 30, 1995, and $826 million, or 0.91 percent, at December 31,
1995. Annualized net charge-offs were 0.45 percent in the second quarter of
1996, compared with 0.44 percent in the second quarter of 1995, and 0.49 percent
in the fourth quarter of 1995. Noninterest, or fee, income (excluding securities
transactions) increased 26 percent in the first half of 1996 compared with the
first half of 1995, including 25 percent growth in the second quarter of 1996
compared with the second quarter of 1995. Included in noninterest income is
Capital Management fee income, which increased 24 percent, and Capital Markets
fee income, which increased 133 percent in the first half of 1996 compared with
the first half 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 Card Products 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.
In July 1996, we completed the final conversion of operating systems related to
the First Fidelity acquisition. This rapid conversion of systems should reduce
expenses associated with transaction processing, product introduction, sales
support and employee training. In addition, ongoing expense control efforts
resulted in an operating efficiency ratio of 57 percent in the second quarter of
1996.
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, as reflected in the 26 percent increase in
noninterest income in the first half of 1996. We believe this indicates customer
satisfaction with these new products and with the delivery channel options we
are offering.
In the first half of 1996, we completed purchase accounting acquisitions of
three banks and thrifts in North Carolina, Florida and Tennessee and two railcar
leasing operations. We also announced two pending purchase
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accounting acquisitions of a thrift and a bank in Florida and in Connecticut,
respectively, as well as the purchase acquisition of an additional railcar
leasing operation, which was completed on July 31, 1996. The railcar leasing
acquisitions will 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 five completed acquisitions had combined assets,
net loans and deposits of $2.1 billion, $1.4 billion and $1.7 billion,
respectively, at June 30, 1996. The three pending acquisitions had combined
assets, net loans and deposits of $6.2 billion, $3.3 billion and $3.5 billion,
respectively, at June 30, 1996.
Also during the first half of 1996, we acquired a 32.5 percent equity ownership
interest in NOVA Corporation of Atlanta, Ga., in exchange for our merchant
bankcard processing business. In addition, we announced the purchase of the
trustee and agency servicing rights to the corporate trust portfolio of Meridian
Trust Company based in Pennsylvania, which is expected to add approximately
1,100 bond trustee and agency accounts and increase First Union's corporate
trust servicing portfolio to approximately $125 billion in principal
outstanding. These purchases will help First Union to improve market share in
its banking operations and to add diversity to 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,
our focus has shifted more to a strategy of internal growth and acquisitions to
expand existing 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 dynamic and 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 8 percent in the first half of 1996
to $2.5 billion, compared with $2.3 billion in the first half of 1995, and 9
percent in the second quarter of 1996 to $1.3 billion, compared with $1.2
billion in the second quarter of 1995. Second quarter 1996 tax-equivalent net
interest income increased 4 percent from the first quarter of 1996. The
increases primarily reflected loan growth, the repricing of variable rate
assets, and purchase accounting acquisitions.
Nonperforming loans reduce interest income because the contribution from these
loans is eliminated or sharply reduced. In the first half of 1996, $35 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 half of 1996 was $5 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
4.18 percent in the first half of 1996, compared with 4.64 percent in the first
half of 1995. The margin was 4.17 percent in the second quarter of 1996,
compared with 4.62 percent in the second quarter of 1995 and 4.19 percent in the
first quarter of 1996. The margin decline was primarily related to
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the addition of acquired banks and thrifts with lower margins and to 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 7.99 percent in the first half of
1996, compared with 8.34 percent in the first half of 1995. The average rate
paid on interest-bearing liabilities was 4.37 percent in the first half of 1996
and 4.33 percent in the first half 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 card products areas,
to provide additional sources of fee income that complement our longstanding
banking products and services. These investments were reflected in the 26
percent growth in noninterest income, excluding securities transactions, to $1.1
billion in the first half of 1996, compared with $835 million in the first half
of 1995. Noninterest income, excluding securities transactions, was $540 million
in the second quarter of 1996, compared with $431 million in the second quarter
of 1995 and $511 million in the first quarter of 1996.
Virtually all categories of noninterest income increased in the first half of
1996 compared with the first half of 1995. Key contributors included fee income
related to Capital Markets activities, which increased 133 percent to $176
million in the first half of 1996 from $75 million in the first half of 1995.
Capital Markets activities include asset securitizations, risk management
products, international trade finance, loan syndications, private placements,
merchant banking, other financing alternatives and trading activities, which are
discussed below. Additionally, Capital Management fee income, including mutual
funds, personal and corporate trust, and brokerage services, increased 24
percent in the first half of 1996 to $235 million from $189 million in the first
half of 1995. Other significant sources of noninterest income that increased
from the first half of 1995 included service charges on deposit accounts, which
increased 9 percent; mortgage banking income, which increased 10 percent; and
insurance commissions (including annuities), which increased 86 percent.
TRADING ACTIVITIES
Our Capital Markets Group also made a key contribution to noninterest income
through trading profits. Trading profits were $29 million in the first half of
1996, compared with $17 million in the first half of 1995. Trading account
assets were $4.8 billion at June 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, money market instruments, foreign exchange, options, futures,
forward rate agreements and swaps, and the trading of debt securities.
NONINTEREST EXPENSE
Noninterest expense increased in the first half of 1996 to $2.3 billion, or $2.1
billion excluding merger-related restructuring charges, compared with $1.9
billion in the first half of 1995. Noninterest expense was $1.1 billion in the
second quarter of 1996, compared with $980 million in the second quarter of
1995 and $1.3 billion, or $1.0 billion
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excluding the restructuring charges, in the first quarter of 1996. The
increase in noninterest expense was primarily related to purchase accounting
acquisitions that resulted in higher personnel costs, an increase in
amortization expense on intangibles and an increase in depreciation expense.
In addition, costs related to ongoing revenue-enhancing business initiatives
contributed to the increase in noninterest expense. Without the
merger-related charges, our overhead efficiency ratio was 57 percent in the
first half of 1996 compared with 61 percent in the first half of 1995. The
overhead efficiency ratio was affected somewhat by the significant investments
and initiatives under way in capital markets, capital management and other
areas. These investments and initiatives are designed to enhance noninterest
income in future periods.
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, service contract terminations, professional fees and other
miscellaneous items, none of which individually exceeded $8 million after tax.
At June 30, 1996, $231 million of such charges had been paid and $47 million
was related to noncash charges. The remaining accrual of $97 million at
June 30, 1996, will be paid by January 1997.
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. Premiums related to savings and
loan association deposits acquired by banks continued to be assessed at the rate
of 23 cents to 31 cents per $100.00. Congress has considered legislation to
merge the Bank Insurance Fund (BIF) and the Savings Association Insurance Fund
(SAIF) as well as a provision to recapitalize SAIF through special assessments.
At June 30, 1996, we had $24.1 billion in SAIF deposits that were subject to the
potential assessments. Based on certain legislation that has been proposed, our
after-tax assessments could be $84 million in 1996, and $14 million in both 1997
and 1998. Based on the final outcome of such legislation, such assessments could
be higher or lower. The FDIC premium expense decreased from $93 million in
the first half of 1995 to $26 million in the first half of 1996. The expense
savings in the first half 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 in 1996 in various
current and future discretionary investments, business initiatives and
technology programs. The Accounting and Regulatory Matters section includes more
information on the reduced FDIC insurance premiums.
Amortization of intangibles represents the amortization of goodwill, deposit
base premium and other identifiable intangibles 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 June 30, 1996, and December 31,
1995, we had $2.5 billion and $2.4 billion, respectively, 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, 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 $18 million in the first
half of 1996, compared with a gain of $19 million in the first half of 1995.
At June 30, 1996, we had securities available for sale with a market value of
$21.8 billion, compared with $18.2 billion at year-end 1995. The market value of
securities available for sale was $216 million below amortized cost at June 30,
1996. A $147 million after-tax unrealized loss reduced stockholders' equity at
June 30, 1996.
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The average rate earned on securities available for sale in the first half of
1996 was 6.54 percent, compared with 6.40 percent in first half of 1995. The
average maturity of the portfolio was 4.48 years at June 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 $2.7 billion at June 30, 1996,
compared with $3.1 billion at year-end 1995.
The average rate earned on investment securities in the first half of 1996 was
8.69 percent, compared with 7.64 percent in the first half of 1995. The average
maturity of the portfolio was 6.24 years at June 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.
The loan portfolio at June 30, 1996, was composed of 43 percent in commercial
loans and 57 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 June 30, 1996, were $91.3 billion, compared with $90.6 billion at
year-end 1995. Average net loans in the second quarter of 1996 were $89.8
billion, compared with $81.5 billion in the second quarter of 1995. Demand for
credit slowed in the first half of 1996, and our branch sales emphasis focused
more heavily on investment products rather than lending products. Commercial
loans decreased slightly in the first half of 1996 due to repositioning of
short-term assets in the acquired First Fidelity portfolio. Consumer lending,
particularly credit cards and direct lending, continue to be the
highest-yielding portfolios.
At June 30, 1996, unused loan commitments related to commercial and consumer
loans were $22.1 billion and $15.9 billion, respectively. Commercial and standby
letters of credit were $3.8 billion. At June 30, 1996, loan participations sold
to other lenders amounted to $486 million. They were recorded as a reduction of
gross loans.
The average rate earned on loans in the first half of 1996 was 8.51 percent,
compared with 8.79 percent in the first half of 1995. The average prime rate in
the first half of 1996 was 8.29 percent, compared with 8.91 percent in the first
half of 1995. Factors affecting loan rates between the second quarter of 1996
and year-end 1995 included an
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increased portion of the loan portfolio tied to rate indices other than the
prime rate; a larger portfolio of fixed and adjustable rate mortgages; and the
repricing of 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
June 30, 1996, compared with 14 percent at December 31, 1995. This portfolio
included commercial real estate mortgage loans of $9.5 billion at June 30, 1996,
and $10.0 billion at December 31, 1995.
ASSET QUALITY
NONPERFORMING ASSETS
At June 30, 1996, nonperforming assets were $836 million, or .91 percent of net
loans and foreclosed properties, compared with $826 million, or .91 percent, at
December 31, 1995.
Loans or properties of less than $5 million each made up 75 percent, or $631
million, of nonperforming assets at June 30, 1996. Of the rest:
(bullet) 10 loans or properties between $5 million and $10 million each
accounted for $68 million; and
(bullet) 6 loans or properties over $10 million each accounted for $137 million.
Fifty-one percent of nonperforming assets were collateralized primarily by real
estate at June 30, 1996, compared with 50 percent at year-end 1995.
PAST DUE LOANS
In addition to these nonperforming assets, at June 30, 1996, accruing loans 90
days past due were $272 million, compared with $275 million at March 31, 1996,
and $290 million at December 31, 1995. Of these, $32 million were related to
commercial and commercial real estate loans at June 30, 1996, and $15 million at
December 31, 1995. At June 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 .56 percent in the
first half of 1996, compared with .40 percent in the first half of 1995. Net
charge-offs were .45 percent in the second quarter of 1996, .66 percent in the
first quarter of 1996 and .49 percent in the fourth quarter of 1995. Excluding
net charge-offs related to credit cards, such percentages were .17 percent in
the second quarter of 1996 and .45 percent in the first quarter of 1996. The
increase in net charge-offs in the first half of 1996 was principally related to
a single, large commercial credit and to the maturing credit card portfolio. The
credit quality of the card portfolio is performing in most respects as our model
had anticipated, but, like much of the rest of the industry, we are experiencing
a higher than anticipated level of personal bankruptcies. Management had
considered the potential sale of certain vintages of our credit card portfolio,
which would have reduced future charge-offs. Due to market conditions for such
assets, however, it is currently anticipated that such sale will not occur.
Therefore, charge-off rates related to the managed credit card portfolio are not
likely to decline in the second half of 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. All of these steps have
been taken with the goals of minimizing future credit losses and deterioration,
while allowing for maximum profitability. Table 10 provides information on net
charge-offs by category.
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PROVISION AND ALLOWANCE FOR LOAN LOSSES
The loan loss provision was $150 million in the first half of 1996, compared
with $97 million in the first half of 1995. The provision was $80 million in the
second quarter of 1996, compared with $54 million in the second quarter a year
ago and $70 million in the first quarter of 1996. 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 upon 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. Reserves for
consumer loans are based principally on delinquencies and historical loss rates.
We analyze all loans in excess of $1 million that are being monitored as
potential credit problems to determine whether supplemental, specific reserves
are necessary.
The allowance for loan losses was $1.4 billion at June 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 195 percent at June 30, 1996, and 233
percent at year-end 1995. The ratio of the allowance to net loans was 1.55
percent at June 30, 1996, compared with 1.66 percent at year-end 1995.
In the first half 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. If the
sale of certain credit card vintages does not occur, the effect of higher
net charge-offs will likely cause a reduction in our unallocated allowance
for loan losses at September 30, 1996.
At June 30, 1996, impaired loans, which are included in nonaccrual loans,
amounted to $464 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 $43 million related to $323 million of impaired
loans. The rest of impaired loans are recorded at or below cost. In the first
half of 1996, the average recorded investment in impaired loans was $471 million
and $8 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 and Greensboro, North Carolina; Miami and
Jacksonville, Florida; Bergen County and Newark, New Jersey; Philadelphia,
Pennsylvania; Connecticut metro; New York City metro; and Washington, D.C., are
our largest markets. Substantially all of the $12.4 billion commercial real
estate portfolio at June 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
$193 million at June 30, 1996.
CORE DEPOSITS
Core deposits are a fundamental and cost-effective funding source for any
banking institution. Core deposits were $86.2 billion at June 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 36
percent at June 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 half of 1996 and 1995, average noninterest-bearing deposits were 19
percent of average core deposits. The Net Interest Income Summaries provide
additional information about average core deposits.
Average core deposit balances were $86.1 billion in the first half of 1996, an
increase of $6.8 billion from the first half of 1995. Average balances in
savings and NOW and noninterest-bearing deposits were higher when compared with
the first quarter of 1996, while money market and other consumer time deposits
were lower. Deposits can be affected by branch closings or consolidations,
seasonal factors and the rates being offered compared to other investment
opportunities.
PURCHASED FUNDS
Purchased funds at June 30, 1996, were $33.1 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 half of 1996 were $28.6 billion, an
increase of 59 percent from $18.0 billion in the first half of 1995. The
increase was used primarily to fund loan growth and to purchase held-for-sale
portfolio securities.
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 half of 1996 to increase
earning assets or to reduce borrowings.
LONG-TERM DEBT
Long-term debt was 84 percent of total stockholders' equity at June 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 $372 million of bank notes
with varying rates and terms that mature by 2036. Additionally, in the first
half of 1996 we issued $260 million of subordinated notes with rates ranging
from 7.00 percent to 7.18 percent and maturities of either 10 years or 15 years.
In July 1996, we issued $300 million of 7.50 percent, 10-year subordinated
notes, and on August 7, 1996, we issued $300 million of 6.824 percent/7.574
percent, 30-year subordinated debentures. Proceeds from these debt issues have
been used for general corporate purposes.
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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 1996,
$1.4 billion of long-term debt will mature, including bank notes discussed above
of $737 million. Funds for the payment of long-term debt will come from
operations or, if necessary, additional borrowings.
STOCKHOLDERS' EQUITY
At June 30, 1996, total stockholders' equity was $9.3 billion, compared with
$9.0 billion at December 31, 1995, and 282 million common shares were
outstanding, compared with 278 million shares at December 31, 1995. We
historically have purchased our common stock in the open market in connection
with announced purchase acquisitions. The shares purchased typically approximate
the number of shares to be issued in the related purchase acquisition. In
conjunction with the stock-for-stock acquisitions of the bank and thrift in
Connecticut and Florida, respectively, we expect to purchase up to 11.7 million
shares of common stock. By August 13, 1996, we had acquired 11.65 million of
such shares at a cost of $729 million.
On July 1, 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 the first half 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.
The corporation paid $299 million in dividends to preferred and common
stockholders in the first half of 1996. At June 30, 1996, stockholders' equity
was reduced by a $147 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 half of 1996, compared with $17
million in the first half 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 $792 million available for dividends at June
30, 1996. Our subsidiaries paid $427 million in dividends to the corporation in
the first half 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
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of qualifying preferred stock, less certain intangible assets (tier 1 capital).
The rest may consist of a limited amount of subordinated debt, nonqualifying
preferred stock and a limited amount of the loan loss allowance (together with
tier 1 capital, total capital). At June 30, 1996, the tier 1 and total capital
ratios were 7.11 percent and 11.94 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 June 30, 1996, was 5.60 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 17 had a leverage ratio in excess of 5.22 percent at June
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 June 30, 1996, the deposit-taking subsidiary
banks listed in Table 17 met the capital and leverage ratio requirements for
"well capitalized" banks. We expect to maintain these ratios at the required
levels by the retention of earnings and, if necessary, the issuance of
additional capital. 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.
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.
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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.
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 July 1996 estimate of future short-term interest rates includes a gradual
rise in the federal funds rate to 5.75 percent by June 1997 and assumes that it
would remain at that level for the rest of the forecast period. Based on the
July 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 1.8 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.
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OFF-BALANCE SHEET DERIVATIVES FOR INTEREST RATE RISK MANAGEMENT
As part of our overall interest rate risk management strategy, for many years we
have used off-balance sheet derivatives as a cost- and capital-efficient way to
modify the repricing or maturity characteristics of on-balance sheet assets and
liabilities. Our off-balance sheet derivative transactions used for interest
rate sensitivity management include interest rate swaps, futures and options
with indices that relate to the pricing of specific financial instruments of the
corporation. We believe we have appropriately controlled the risk so that the
derivatives used for rate sensitivity management will not have any significant
unintended effect on corporate earnings. As a 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 second 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 $181 million at June 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, total 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 depreciation of off-balance sheet derivative financial
instruments used to manage our interest rate sensitivity was $80 million at June
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 $3 million and $1
million, respectively, at June 30, 1996.
Although off-balance sheet derivative financial instruments do not expose the
corporation to credit risk equal to the notional amount, we are exposed to
credit risk equal to the extent of the fair value gain in an off-balance sheet
derivative financial instrument if the counterparty fails to perform. We
minimize the credit risk in these instruments by dealing only with high quality
counterparties. Each transaction is specifically approved for applicable credit
exposure. In addition, our policy is to require 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 June 30, 1996, the total credit
risk in excess of thresholds was $72 million. The fair value of collateral held
was 107 percent of the total credit risk in excess of thresholds. For nondealer
transactions, the need for collateral is evaluated on an individual transaction
basis, and is primarily dependent on the financial strength of the counterparty.
13
<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.
In June 1996, Statement of Financial Accounting Standards 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 based on fair value; and (e) pledged financial
assets to 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.
This Standard is effective for transfers of servicing of financial assets
and extinguishments of liabilities occurring after December 31, 1996, and 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.
Various legislative proposals related to the future of the Bank Insurance Fund
(BIF) and Savings Association Insurance Fund (SAIF) have been under
consideration. Several of these proposals include a one-time special assessment
for SAIF deposits and a subsequent comparable and reduced level of annual
premiums for SAIF deposits. It is not known when and if any such proposal or any
other related proposal may be adopted.
Legislation has been enacted providing that deposits and certain claims for
administrative expenses and employee compensation against an insured depository
institution would be afforded a priority over other general unsecured claims
against such an institution, including federal funds and letters of credit, in
the "liquidation or other resolution" of such an institution by any receiver.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (IBBEA)
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.
14
<PAGE>
Table 1
CONSOLIDATED SUMMARIES OF INCOME, PER SHARE AND BALANCE SHEET DATA
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Twelve 1996 1995
Months ------------------------------ ----------------------------------------
Ended
June 30, Second First Fourth Third Second
(In thousands except per share data) 1996 Quarter Quarter Quarter Quarter Quarter
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED SUMMARIES OF INCOME
Interest income $ 9,302,033 2,431,704 2,339,480 2,278,414 2,252,435 2,132,530
================================================================================================================================
Interest income* $ 9,399,723 2,456,342 2,364,254 2,301,623 2,277,504 2,161,005
Interest expense 4,474,460 1,167,104 1,127,418 1,111,571 1,068,367 976,328
- - --------------------------------------------------------------------------------------------------------------------------------
Net interest income* 4,925,263 1,289,238 1,236,836 1,190,052 1,209,137 1,184,677
Provision for loan losses 273,500 80,000 70,000 64,500 59,000 54,000
- - --------------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses* 4,651,763 1,209,238 1,166,836 1,125,552 1,150,137 1,130,677
Securities available for sale
transactions 43,695 3,693 14,583 15,701 9,718 8,213
Investment security transactions 5,909 1,741 800 777 2,591 1,233
Noninterest income 2,063,307 540,129 511,081 545,343 466,754 431,442
Merger-related restructuring charges ** 375,675 - 281,229 94,446 - -
Noninterest expense 4,124,513 1,051,638 1,011,386 1,042,848 1,018,641 979,992
- - --------------------------------------------------------------------------------------------------------------------------------
Income before income taxes* 2,264,486 703,163 400,685 550,079 610,559 591,573
Income taxes 768,634 239,156 133,061 191,508 204,909 198,704
Tax-equivalent adjustment 97,690 24,638 24,774 23,209 25,069 28,475
- - --------------------------------------------------------------------------------------------------------------------------------
Net income 1,398,162 439,369 242,850 335,362 380,581 364,394
Dividends on preferred stock 16,624 3,684 3,900 4,084 4,956 5,113
- - --------------------------------------------------------------------------------------------------------------------------------
Net income applicable to common
stockholders $ 1,381,538 435,685 238,950 331,278 375,625 359,281
================================================================================================================================
PER COMMON SHARE DATA
Net income $ 4.95 1.55 0.85 1.19 1.36 1.30
Cash dividends $ 2.08 0.52 0.52 0.52 0.52 0.46
Average common shares - 282,576,082 280,374,291 278,526,745 275,484,290 278,118,886
Average common stockholders' equity***
Quarter-to-date $ - 9,167,318 8,930,379 8,685,245 8,351,428 8,321,636
Year-to-date - 9,048,848 8,930,379 8,412,020 8,319,942 8,303,939
Common stock price
High 64 5/8 64 5/8 62 7/8 58 7/8 51 3/8 49 3/4
Low 45 1/4 57 1/2 51 1/2 49 5/8 45 1/4 42 7/8
Period-end $ 60 7/8 60 7/8 60 3/8 55 5/8 51 45 1/4
To earnings ratio**** 12.30X 12.30 12.85 11.04 10.16 9.29
To book value 188 % 188 190 174 166 149
Book value $ 32.46 32.46 31.80 31.89 30.68 30.42
BALANCE SHEET DATA
Assets 139,885,834 139,885,834 130,581,264 131,879,873 121,918,643 118,462,474
Long-term debt $ 7,806,544 7,806,544 7,539,045 7,120,947 6,717,374 6,053,033
=================================================================================================================================
</TABLE>
*Tax-equivalent.
**Merger-related restructuring charges amount to $181,095,000 after tax in
the first quarter of 1996 and $72,826,000 in the fourth quarter of 1995.
***Quarter-to-date and year-to-date average common stockholders' equity
excludes average net unrealized gains or losses on debt and equity
securities.
****Based on net income applicable to common stockholders.
T-1
<PAGE>
Table 2
NONINTEREST INCOME
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Twelve 1996 1995
Months ------------------------------ --------------------------------------
Ended
June 30, Second First Fourth Third Second
(In thousands) 1996 Quarter Quarter Quarter Quarter Quarter
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Trading account profits $ 81,839 8,774 20,524 34,537 18,004 12,423
Service charges on deposit accounts 642,510 166,202 160,730 159,102 156,476 154,128
Mortgage banking income 156,709 40,051 37,191 39,978 39,489 35,624
Capital management income 443,117 120,102 114,873 107,636 100,506 95,267
Securities available for sale transactions 43,695 3,693 14,583 15,701 9,718 8,213
Investment security transactions 5,909 1,741 800 777 2,591 1,233
Fees for other banking services 158,769 44,017 33,040 39,786 41,926 40,575
Insurance commissions 74,382 25,280 19,032 17,384 12,686 11,553
Sundry income 505,981 135,703 125,691 146,920 97,667 81,872
- - ------------------------------------------------------------------------------------------------------------------------------------
Total $2,112,911 545,563 526,464 561,821 479,063 440,888
====================================================================================================================================
</TABLE>
<PAGE>
Table 3
NONINTEREST EXPENSE
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Twelve 1996 1995
Months ------------------------------ -------------------------------------
Ended
June 30, Second First Fourth Third Second
(In thousands) 1996 Quarter Quarter Quarter Quarter Quarter
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Personnel expense
Salaries $ 1,687,108 424,401 412,421 437,198 413,088 388,091
Other benefits 382,737 100,996 112,925 82,845 85,971 87,084
- - -----------------------------------------------------------------------------------------------------------------------------------
Total 2,069,845 525,397 525,346 520,043 499,059 475,175
Occupancy 352,918 82,538 93,299 87,097 89,984 86,324
Equipment rentals, depreciation and maintenance 358,982 97,392 93,232 87,609 80,749 74,560
Advertising 57,889 10,013 11,026 16,165 20,685 18,402
Telecommunications 96,474 24,550 25,446 22,746 23,732 20,543
Travel 91,188 26,830 21,856 22,201 20,301 20,407
Postage 65,152 16,423 18,947 13,869 15,913 13,063
Printing and office supplies 87,519 23,425 23,381 20,687 20,026 18,681
FDIC insurance 53,467 13,850 12,211 19,240 8,166 46,942
Other insurance 28,441 7,695 7,873 8,093 4,780 5,742
Professional fees 127,842 28,348 6,424 51,542 41,528 41,311
External data processing 110,107 38,425 35,744 16,795 19,143 18,326
Owned real estate expense 6,320 (487) 338 3,732 2,737 2,736
Mortgage servicing amortization 37,675 12,072 10,976 6,954 7,673 5,298
Other intangibles amortization 244,535 61,117 61,784 61,820 59,814 54,858
Merger-related restructuring charges 375,675 - 281,229 94,446 - -
Sundry 336,159 84,050 63,503 84,255 104,351 77,624
- - -----------------------------------------------------------------------------------------------------------------------------------
Total $ 4,500,188 1,051,638 1,292,615 1,137,294 1,018,641 979,992
===================================================================================================================================
</TABLE>
T-2
<PAGE>
Table 4
SELECTED LINES OF BUSINESS*
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, 1996
- - -----------------------------------------------------------------------------------------------------------------------
First Union Other
Card Home Equity Consumer Capital Capital Mortgage
(Dollars in thousands) Products Bank Banking Markets Management Banking
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data
Interest income** $ 442,562 158,589 855,528 677,048 28,218 932,274
Interest expense 165,389 90,777 484,222 517,631 9,594 656,794
Noninterest income 58,839 13,617 13,519 176,120 252,597 100,576
- - -----------------------------------------------------------------------------------------------------------------------
Other Data
Net charge-offs 170,730 2,337 56,981 46,952 - 7,832
Average loans, net 6,252,845 3,182,128 18,260,977 9,661,532 173,598 24,047,706
Nonperforming assets 19,302 8,746 60,991 92,299 - 159,382
Average deposits - - - 3,061,625 888,187 -
Assets under care - - - - 114,417,917 -
Assets under management - - - - 42,130,686 -
Loans serviced - - - - - 49,300,000
Origination volume $ 3,404,512 718,224 4,405,130 - - 2,283,956
Locations 1,992 138 1,991 1,304 1,540 2,042
=======================================================================================================================
</TABLE>
*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 $1.9 billion of securitized credit cards managed
by the Division. Mortgage banking includes mortgage loans managed by
affiliated banks.
**Tax-equivalent.
<PAGE>
Table 5
INTERNAL CAPITAL GROWTH AND DIVIDEND PAYOUT RATIOS
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1996 1995
-------------------------- --------------------- --------------------------------
Second First Fourth Third Second
1996 1995 Quarter Quarter Quarter Quarter Quarter
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INTERNAL CAPITAL GROWTH*
Assets to stockholders' equity 14.50X 13.53 14.80 14.20 14.06 14.15 13.54
X
Return on assets 1.03% 1.27 1.30 0.75 1.06 1.25 1.28
- - ------------------------------------------------------------------------------------------------------------------------------------
Return on total stockholders' equity (a) 14.88% 16.88 18.94 10.72 15.00 17.65 17.10
X
Earnings retained 56.00% 64.15 65.91 38.09 57.84 65.39 66.05
- - ------------------------------------------------------------------------------------------------------------------------------------
Internal capital growth (a) 8.33% 10.83 12.48 4.08 8.67 11.54 11.29
====================================================================================================================================
DIVIDEND PAYOUT RATIOS ON
Common shares 43.33% 34.26 33.55 61.18 41.44 33.75 33.01
Preferred and common shares 44.00% 35.85 34.09 61.91 42.16 34.61 33.95
====================================================================================================================================
Return on common stockholders' equity ** (a) 14.99% 16.92 19.11 10.76 15.13 17.84 17.32
====================================================================================================================================
</TABLE>
(a) The determination of these ratios exclude average net unrealized gains or
losses on debt and equity securities.
* Based on average balances and net income.
** Based on average balances and net income applicable to common stockholders.
T-3
<PAGE>
Table 6
SELECTED QUARTERLY DATA
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
-------------------------------- -----------------------------------------------
Second First Fourth Third Second
(Dollars in thousands) Quarter Quarter Quarter Quarter Quarter
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FIRST UNION MORTGAGE CORPORATION
PERMANENT LOAN ORIGINATIONS
Residential
Direct** $ 1,295,802 946,071 738,709 1,028,900 656,745
Wholesale 544 41,540 75,987 118,986 136,537
- - ---------------------------------------------------------------------------------------------------------------------------
Total $ 1,296,346 987,611 814,696 1,147,886 793,282
===========================================================================================================================
VOLUME OF RESIDENTIAL
LOANS SERVICED $ 49,321,000 49,900,000 50,047,000 48,802,000 45,930,000
===========================================================================================================================
FIRST UNION CORPORATION
NUMBER OF OFFICES
Banking 1,981 1,981 1,964 1,969 1,978
Other 229 208 190 192 193
- - ---------------------------------------------------------------------------------------------------------------------------
Total offices 2,210 2,189 2,154 2,161 2,171
===========================================================================================================================
OTHER DATA
ATMs 2,119 2,142 2,123 1,350 * 1,227 *
Employees 45,353 44,968 44,536 44,483 44,204
===========================================================================================================================
</TABLE>
* Not restated for pooling of interests acquisition.
** Includes originations of affiliated banks.
<PAGE>
Table 7
SECURITIES AVAILABLE FOR SALE
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, 1996
-----------------------------------------------------------------------------------------------------
Gross Unrealized Average
1 Year 1-5 5-10 After 10 ------------------- Amortized Maturity
(In thousands) or Less Years Years Years Total Gains Losses Cost in Years
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MARKET VALUE
U.S. Treasury $ 68,278 3,809,321 16,476 13,637 3,907,712 (1,039) 52,116 3,958,789 2.72
U.S. Government agencies 35,877 2,509,065 8,716,399 2,661 11,264,002 (14,559) 150,842 11,400,285 5.76
CMOs 159,841 3,592,406 70,264 - 3,822,511 (4,394) 34,890 3,853,007 2.90
State, county and municipal 250 998 935 8,330 10,513 - 191 10,704 12.16
Other 200,448 1,843,196 32,884 753,365 2,829,893 (27,033) 25,122 2,827,982 3.73
- - ---------------------------------------------------------------------------------------------------------------------------
Total $ 464,694 11,754,986 8,836,958 777,993 21,834,631 (47,025) 263,161 22,050,767 4.48
====================================================================================================================================
MARKET VALUE
Debt securities $ 464,694 11,754,986 8,836,958 66,133 21,122,771 (35,703) 262,719 21,349,787
Sundry securities - - - 711,860 711,860 (11,322) 442 700,980
- - ---------------------------------------------------------------------------------------------------------------------------
Total $ 464,694 11,754,986 8,836,958 777,993 21,834,631 (47,025) 263,161 22,050,767
===========================================================================================================================
AMORTIZED COST
Debt securities $ 463,135 11,833,958 8,969,410 83,284 21,349,787
Sundry securities - - - 700,980 700,980
- - ------------------------------------------------------------------------------------------
Total $ 463,135 11,833,958 8,969,410 784,264 22,050,767
==========================================================================================
WEIGHTED AVERAGE YIELD
U.S. Treasury 4.85% 6.01 9.00 10.62 6.01
U.S. Government agencies 5.84 6.56 6.98 7.92 6.89
CMOs 8.00 7.06 7.50 - 7.11
State, county and municipal 9.20 8.11 9.30 8.56 8.59
Other 7.36 5.75 7.89 6.24 6.02
Consolidated 7.09% 6.41 6.99 6.34 6.66
=========================================================================================
</TABLE>
Included in "U.S. Government agencies" and "Other" at June 30, 1996, are
$2,171,874,000 of securities that are denominated in currencies other than the
U.S. dollar. The currency exchange rates were hedged utilizing both on and
off-balance sheet instruments to minimize the exposure to currency revaluation
risks. At June 30, 1996, these securities had a weighted average maturity of
3.45 years and a weighted average yield of 5.63 percent. The weighted average
U.S. equivalent yield for comparative purposes of these securities was 7.62
percent based on a weighted average funding cost differential of (1.99) 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 June 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 $3,039,000 that had a
market value of $3,039,000 at June 30, 1996. There were no commitments to sell
securities at June 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 six months of 1996 were $40,941,000 and $24,007,000,
respectively, and gross gains and losses realized on the sale of sundry
securities were $1,350,000 and $8,000, respectively.
T-5
<PAGE>
Table 8
INVESTMENT SECURITIES
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, 1996
-----------------------------------------------------------------------------------------------------
Gross Unrealized Average
1 Year 1-5 5-10 After 10 ------------------- Market Maturity
(In thousands) or Less Years Years Years Total Gains Losses Value in Years
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CARRYING VALUE
U.S. Government agencies $ 192 114,362 966,479 21,463 1,102,496 18,784 (7,221) 1,114,059 6.12
CMOs 85,311 446,453 - - 531,764 5,423 (499) 536,688 2.62
State, county and municipal 154,842 235,294 149,014 400,616 939,766 96,406 (2,197) 1,033,975 8.05
Other 1,987 6,488 14,460 84,358 107,293 5,443 (538) 112,198 11.00
- - --------------------------------------------------------------------------------------------------------------------------------
Total $ 242,332 802,597 1,129,953 506,437 2,681,319 126,056 (10,455) 2,796,920 6.24
================================================================================================================================
CARRYING VALUE
Debt securities $ 242,332 802,597 1,129,953 471,247 2,646,129 126,056 (10,455) 2,761,730
Sundry securities - - - 35,190 35,190 - - 35,190
- - --------------------------------------------------------------------------------------------------------------------------
Total $ 242,332 802,597 1,129,953 506,437 2,681,319 126,056 (10,455) 2,796,920
==========================================================================================================================
MARKET VALUE
Debt securities $ 243,427 824,695 1,154,595 539,013 2,761,730
Sundry securities - - - 35,190 35,190
- - -----------------------------------------------------------------------------------------
Total $ 243,427 824,695 1,154,595 574,203 2,796,920
=========================================================================================
WEIGHTED AVERAGE YIELD
U.S. Government agencies 7.81% 8.12 7.65 7.56 7.69
CMOs 7.45 7.68 - - 7.64
State, county and municipal 10.30 10.89 11.31 11.79 11.24
Other 7.40 7.63 7.87 8.10 8.02
Consolidated 9.27% 8.68 8.13 10.99 8.94
=============================================================================================
</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 June 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 June 30,
1996. Gross gains and losses realized on repurchase agreement underdeliveries
and calls of investment securities in the first six months of 1996 were
$2,997,000 and $456,000, respectively.
T-6
<PAGE>
Table 9
LOANS
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
------------------------------ ----------------------------------------
Second First Fourth Third Second
(In thousands) Quarter Quarter Quarter Quarter Quarter
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMERCIAL
Commercial, financial and agricultural
Taxable* $ 22,358,345 22,378,102 23,897,326 23,323,127 22,382,091
Nontaxable 909,077 939,305 750,958 737,257 815,758
- - ----------------------------------------------------------------------------------------------------------------------------
Total commercial, financial
and agricultural 23,267,422 23,317,407 24,648,284 24,060,384 23,197,849
Real estate - construction and other 2,859,869 2,598,673 2,505,627 2,424,185 2,220,687
Real estate - mortgage 9,533,900 9,733,868 9,991,640 9,788,173 9,946,577
Lease financing 3,954,439 3,598,730 3,169,698 2,855,883 2,586,522
Foreign 712,507 763,584 649,760 575,005 557,367
- - ----------------------------------------------------------------------------------------------------------------------------
Total commercial 40,328,137 40,012,262 40,965,009 39,703,630 38,509,002
- - ----------------------------------------------------------------------------------------------------------------------------
RETAIL
Real estate - mortgage 27,228,616 27,203,799 27,273,991 25,070,937 22,932,561
Installment loans - Bankcard* 5,000,249 4,037,404 3,657,619 3,197,873 4,881,537
Installment loans - other* (a) 20,563,674 20,365,533 20,212,216 19,626,445 18,999,391
- - ----------------------------------------------------------------------------------------------------------------------------
Total retail 52,792,539 51,606,736 51,143,826 47,895,255 46,813,489
- - ----------------------------------------------------------------------------------------------------------------------------
Total loans 93,120,676 91,618,998 92,108,835 87,598,885 85,322,491
- - ----------------------------------------------------------------------------------------------------------------------------
UNEARNED INCOME
Loans 431,635 435,643 476,591 448,567 442,050
Lease financing 1,350,415 1,193,307 1,069,364 960,775 860,787
- - ----------------------------------------------------------------------------------------------------------------------------
Total unearned income 1,782,050 1,628,950 1,545,955 1,409,342 1,302,837
- - ----------------------------------------------------------------------------------------------------------------------------
Loans, net $ 91,338,626 89,990,048 90,562,880 86,189,543 84,019,654
============================================================================================================================
</TABLE>
* 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.
(a) Installment loans-other include (in thousands) $2,499,335; $2,406,276;
$2,358,021; $2,080,514; and $1,913,647 of retail leasing loans at the end
of the second and first quarters of 1996 and the fourth, third and second
quarters of 1995, respectively, that were acquired in the First Fidelity
merger.
T-7
<PAGE>
Table 10
ALLOWANCE FOR LOAN LOSSES AND NONPERFORMING ASSETS
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
------------------------------ ----------------------------------------
Second First Fourth Third Second
(In thousands) Quarter Quarter Quarter Quarter Quarter
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR LOAN LOSSES
Balance, beginning of quarter $ 1,435,845 1,507,798 1,456,306 1,534,572 1,550,223
Provision for loan losses 80,000 70,000 64,500 59,000 54,000
Allowance of loans acquired or sold, net 1,676 6,168 94,152 (66,412) 20,486
Loan losses, net (101,997) (148,121) (107,160) (70,854) (90,137)
- - ----------------------------------------------------------------------------------------------------------------------------------
Balance, end of quarter $ 1,415,524 1,435,845 1,507,798 1,456,306 1,534,572
==================================================================================================================================
(as % of loans, net) 1.55 % 1.60 1.66 1.69 1.83
==================================================================================================================================
(as % of nonaccrual and restructured loans) 195 % 197 233 236 244
==================================================================================================================================
(as % of nonperforming assets) 169 % 171 182 178 182
==================================================================================================================================
LOAN LOSSES
Commercial, financial and agricultural* $ 23,414 64,505 39,717 18,331 27,870
Real estate - construction and other 658 3,607 1,029 7 725
Real estate - mortgage 33,320 12,526 21,798 14,897 23,687
Installment loans - Bankcard* 68,020 55,019 38,203 49,464 51,256
Installment loans - other* 37,360 36,068 31,529 23,638 21,862
- - ----------------------------------------------------------------------------------------------------------------------------------
Total 162,772 171,725 132,276 106,337 125,400
- - ----------------------------------------------------------------------------------------------------------------------------------
LOAN RECOVERIES
Commercial, financial and agricultural 42,175 12,029 12,433 18,639 19,935
Real estate - construction and other 341 846 421 2,527 1,592
Real estate - mortgage 6,979 1,773 2,371 3,353 2,713
Installment loans - Bankcard* 2,568 2,264 3,551 3,792 3,395
Installment loans - other* 8,712 6,692 6,340 7,172 7,628
- - ----------------------------------------------------------------------------------------------------------------------------------
Total 60,775 23,604 25,116 35,483 35,263
- - ----------------------------------------------------------------------------------------------------------------------------------
Loan losses, net $ 101,997 148,121 107,160 70,854 90,137
==================================================================================================================================
(as % of average loans, net)** 0.45 % 0.66 0.49 0.33 0.44
==================================================================================================================================
(as % of average loans, net, excluding Bankcard)** 0.17 % 0.45 - - -
==================================================================================================================================
NONPERFORMING ASSETS
Nonaccrual loans
Commercial loans $ 310,243 330,357 330,626 285,474 297,581
Consumer loans 92,419 107,209 80,753 75,318 59,785
Commercial real estate loans* 156,295 156,615 - - -
Consumer real estate loans* 162,861 133,074 - - -
Real estate loans* - - 232,702 254,252 267,934
- - ----------------------------------------------------------------------------------------------------------------------------------
Total nonaccrual loans 721,818 727,255 644,081 615,044 625,300
Restructured loans 3,576 594 3,772 1,865 3,270
Foreclosed properties 110,677 114,146 178,484 200,886 216,616
- - ----------------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 836,071 841,995 826,337 817,795 845,186
==================================================================================================================================
(as % of loans, net and foreclosed properties) 0.91 % 0.93 0.91 0.95 1.00
==================================================================================================================================
Accruing loans past due 90 days $ 272,472 274,666 289,866 241,598 234,242
==================================================================================================================================
</TABLE>
* 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.
** 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-8
<PAGE>
Table 11
INTANGIBLE ASSETS
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
------------------------------ ----------------------------------------
Second First Fourth Third Second
(In thousands) Quarter Quarter Quarter Quarter Quarter
- - ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MORTGAGE SERVICING RIGHTS $ 149,584 147,157 148,933 149,330 148,125
======================================================================================================
CREDIT CARD PREMIUM $ 41,566 44,947 43,894 47,403 51,005
======================================================================================================
OTHER INTANGIBLE ASSETS
Goodwill $ 1,918,534 1,912,093 1,883,362 1,740,386 1,654,140
Deposit base premium 530,493 513,964 535,373 542,432 535,664
Other 11,975 9,023 12,932 13,634 14,604
- - ------------------------------------------------------------------------------------------------------
Total $ 2,461,002 2,435,080 2,431,667 2,296,452 2,204,408
======================================================================================================
</TABLE>
<PAGE>
Table 12
ALLOWANCE FOR FORECLOSED PROPERTIES
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
----------------------- ----------------------------------------
Second First Fourth Third Second
(In thousands) Quarter Quarter Quarter Quarter Quarter
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Foreclosed properties $ 130,444 136,151 202,686 228,615 249,561
- - --------------------------------------------------------------------------------------------------------------------------------
Allowance for foreclosed properties, beginning of quarter 22,005 24,202 27,729 32,945 38,384
Provision for foreclosed properties (2,161) (882) 475 (2,250) (1,696)
Transfer from (to) allowance for segregated assets 403 115 (106) 192 40
Dispositions, net (480) (1,430) (3,896) (3,158) (3,783)
- - --------------------------------------------------------------------------------------------------------------------------------
Allowance for foreclosed properties, end of quarter 19,767 22,005 24,202 27,729 32,945
- - --------------------------------------------------------------------------------------------------------------------------------
Foreclosed properties, net $ 110,677 114,146 178,484 200,886 216,616
================================================================================================================================
</TABLE>
T-9
<PAGE>
Table 13
DEPOSITS
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
------------------------------ ----------------------------------------
Second First Fourth Third Second
(In thousands) Quarter Quarter Quarter Quarter Quarter
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CORE DEPOSITS
Noninterest-bearing $ 16,830,861 16,725,597 17,043,223 15,598,097 16,049,504
Savings and NOW accounts 25,492,146 25,149,422 24,297,270 22,787,821 22,945,394
Money market accounts 12,842,727 13,149,260 13,112,918 13,286,726 13,046,757
Other consumer time 31,079,054 31,178,734 31,945,313 31,244,025 29,859,887
- - ----------------------------------------------------------------------------------------------------------
Total core deposits 86,244,788 86,203,013 86,398,724 82,916,669 81,901,542
Foreign 2,232,249 1,438,602 3,526,771 1,821,483 3,321,095
Other time 2,975,560 2,876,189 2,629,723 2,656,705 2,438,310
- - ----------------------------------------------------------------------------------------------------------
Total deposits $ 91,452,597 90,517,804 92,555,218 87,394,857 87,660,947
==========================================================================================================
</TABLE>
<PAGE>
Table 14
TIME DEPOSITS IN AMOUNT OF $100,000 OR MORE
- - --------------------------------------------------------------------------------
June 30, 1996
--------------------------
Time Other
(In thousands) Certificates Time
- - ------------------------------------------------------------------
MATURITY OF
3 months or less $ 3,177,934 76,972
Over 3 months through 6 months 1,307,051 0
Over 6 months through 12 months 1,212,567 0
Over 12 months 1,419,004 0
- - ------------------------------------------------------------------
Total $ 7,116,556 76,972
==================================================================
T-10
<PAGE>
Table 15
LONG-TERM DEBT
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
- - ------------------------------------------------------------------------------------------ ----------------------------------------
Second First Fourth Third Second
(In thousands) 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 $ 15,536 15,619 15,619 15,619 15,619
Floating rate extendible notes due 2005 9,738 10,100 10,100 10,100 10,100
11% notes due 1996 - 18,360 18,360 18,360 18,360
Floating rate notes due 1996 - - 150,000 150,000 150,000
5.95% notes due 1995 - - - - 150,000
6-3/4% notes due 1998 249,245 249,123 249,001 248,878 248,756
Floating rate notes due 1998 299,853 299,832 299,810 299,788 299,766
Fixed rate medium-term senior notes, varying
rates and terms to 1996 - - 200 200 200
Fixed rate medium-term subordinated notes, varying
rates and terms to 2001 54,000 54,000 54,000 54,000 54,000
Floating rate subordinated notes due 2003 149,259 149,233 149,206 149,180 149,153
11% subordinated and variable rate notes due 1996 - 17,951 17,951 17,951 17,951
8-1/8% subordinated notes due 1996 99,965 100,000 100,000 100,000 100,000
9.45% subordinated notes due 1999 248,849 250,000 250,000 250,000 250,000
9.45% subordinated notes due 2001 148,092 147,999 147,906 147,813 147,721
8-1/8% subordinated notes due 2002 248,781 248,730 248,679 248,629 248,577
8% subordinated notes due 2002 223,404 223,342 223,280 223,224 223,161
7-1/4% subordinated notes due 2003 148,967 148,928 148,889 148,850 148,811
6-5/8% subordinated notes due 2005 248,285 248,237 248,189 248,142 248,094
6% subordinated notes due 2008 197,350 197,296 197,242 197,189 197,135
6-3/8% subordinated notes due 2009 147,755 147,712 147,669 147,625 147,581
8% subordinated notes due 2009 148,703 148,679 148,655 148,631 148,607
8.77% subordinated notes due 2004 148,670 148,630 148,590 148,550 148,510
7-1/2% subordinated debentures due 2035 246,293 246,243 246,194 246,144 246,095
7.05% subordinated notes due 2005 248,166 248,116 248,065 248,014 -
6-7/8% subordinated notes due 2005 248,434 248,392 248,350 248,307 -
6.55% subordinated debentures due 2035 248,497 248,457 248,417 - -
7% subordinated notes due 2006 198,343 198,300 - - -
7.18% subordinated notes due 2011 58,772 58,740 - - -
- - ------------------------------------------------------------------------------------------------------------------------------------
Total debentures and notes issued by the Parent Company 4,034,957 4,072,019 3,964,372 3,715,194 3,368,197
- - ------------------------------------------------------------------------------------------------------------------------------------
DEBENTURES AND NOTES OF SUBSIDIARIES
Subordinated bank notes with varying rates and terms to 2036 1,537,000 1,465,000 1,165,000 1,365,000 1,175,000
Floating rate senior notes due 1996 200,000 200,000 200,000 200,000 200,000
6.80% subordinated notes due 2003 148,790 150,000 150,000 150,000 150,000
9-5/8% subordinated notes due 1999 149,562 150,000 150,000 150,000 150,000
8-1/2% subordinated notes due 1998 149,150 149,150 149,150 149,150 149,150
Floating rate subordinated notes due 1997 25,000 25,000 25,000 25,000 25,000
9-7/8% subordinated capital notes due 1999 74,610 74,576 74,542 74,507 74,473
9-5/8% subordinated capital notes due 1999 74,964 74,961 74,957 74,955 74,951
10-1/2% collateralized mortgage obligations due 2014 45,942 45,942 48,545 51,273 54,070
Debentures and notes with varying rates and terms to 2015 41,224 42,896 37,031 18,476 8,143
9-1/2% mortgage backed bonds - - - 3,500 3,500
- - ------------------------------------------------------------------------------------------------------------------------------------
Total debentures and notes of subsidiaries 2,446,242 2,377,525 2,074,225 2,261,861 2,064,287
- - ------------------------------------------------------------------------------------------------------------------------------------
OTHER DEBT
Notes payable to FDIC due 1996 47,492 51,430 76,138 83,969 92,355
Advances from the Federal Home Loan Bank 1,208,150 958,150 958,150 607,846 482,846
Mortgage notes and other debt 45,167 55,207 39,983 40,264 40,322
Capitalized leases 24,536 24,714 8,079 8,240 5,026
- - ------------------------------------------------------------------------------------------------------------------------------------
Total other debt 1,325,345 1,089,501 1,082,350 740,319 620,549
- - ------------------------------------------------------------------------------------------------------------------------------------
Total $7,806,544 7,539,045 7,120,947 6,717,374 6,053,033
====================================================================================================================================
</TABLE>
T-11
<PAGE>
Table 16
CHANGES IN STOCKHOLDERS' EQUITY*
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Twelve 1996 1995
Months ------------------------------ -------------------------------------
Ended
June 30, Second First Fourth Third Second
(In thousands) 1996 Quarter Quarter Quarter Quarter Quarter
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning of period $ 8,675,245 9,109,563 9,043,144 8,562,624 8,675,245 8,373,606
Net income 1,398,162 439,369 242,850 335,362 380,581 364,394
Purchase of common stock (826,859) (78,861) (37,092) (215,887) (495,019) (56,707)
Common stock issued for stock
options exercised 152,481 93,791 25,198 14,990 18,502 37,337
Common stock issued through
dividend reinvestment plan 34,578 9,976 10,241 7,485 6,876 6,471
Common stock for purchase
accounting acquisitions 734,434 - 123,924 357,657 252,853 -
Pre-merger transaction of
pooled bank (74,674) - - 71,711 (146,385) (53,304)
Cash dividends paid
By First Union Corporation on
Preferred stock (7,584) (3,684) (3,900) - - -
Common stock (469,206) (146,108) (145,195) (91,203) (86,700) (78,758)
By acquired bank on
Preferred stock (9,040) - - (4,084) (4,956) (5,113)
Common stock (86,160) - - (46,095) (40,065) (39,857)
Unrealized gain (loss) on debt and
equity securities (205,429) (108,098) (149,607) 50,584 1,692 127,176
- - ------------------------------------------------------------------------------------------------------------------------------------
Balance, end of period $ 9,315,948 9,315,948 9,109,563 9,043,144 8,562,624 8,675,245
====================================================================================================================================
</TABLE>
*Preferred and common stock transactions related to an acquired company are
included in pre-merger transactions of pooled bank.
T-12
<PAGE>
Table 17
CAPITAL RATIOS
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
------------------------------ ----------------------------------------
Second First Fourth Third Second
(In thousands) Quarter Quarter Quarter Quarter Quarter
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED CAPITAL RATIOS*
Qualifying capital
Tier 1 capital 7,020,438 6,749,366 6,551,148 6,266,720 6,591,212
Total capital 11,791,784 11,478,593 11,198,355 10,701,459 10,567,302
Adjusted risk-based assets 98,785,804 96,357,575 97,830,366 91,958,148 90,200,656
Adjusted leverage ratio assets 125,440,218 121,384,576 119,420,752 116,090,265 110,566,962
Ratios
Tier 1 capital 7.11% 7.00 6.70 6.81 7.31
Total capital 11.94 11.91 11.45 11.64 11.72
Leverage 5.60 5.56 5.49 5.45 5.96
Stockholders' equity to assets
Quarter-end 6.66 6.98 6.86 7.02 7.32
Average 6.76% 7.04 7.11 7.07 7.39
=============================================================================================================
BANK CAPITAL RATIOS
Tier 1 capital
First Union National Bank of
Florida 7.70% 7.73 7.57 8.18 6.55
Georgia 6.67 8.22 6.69 6.46 8.72
Maryland 12.20 12.18 11.36 15.88 20.14
North Carolina 6.66 6.60 6.46 6.56 6.65
South Carolina 8.17 8.14 8.42 7.33 7.86
Tennessee 10.75 11.43 11.12 11.85 11.62
Virginia 9.29 8.51 7.41 7.61 6.81
Washington, D.C. 11.48 11.66 13.77 18.67 17.46
First Union National Bank 10.69 10.01 9.16 9.63 9.92
First Union Bank of Connecticut 11.26 11.91 12.60 12.85 12.69
First Union Bank of Delaware 13.98 22.84 25.45 23.86 20.17
First Union Home Equity Bank 7.61 7.08 7.50 6.89 5.28
Total capital
First Union National Bank of
Florida 11.57 11.72 10.97 11.54 10.01
Georgia 10.54 12.82 10.62 10.56 11.52
Maryland 13.46 13.44 12.62 17.15 21.42
North Carolina 10.71 10.55 10.15 10.29 10.32
South Carolina 11.47 11.33 11.79 11.09 11.79
Tennessee 12.00 12.69 12.38 13.11 12.88
Virginia 12.61 11.86 10.57 11.25 10.39
Washington, D.C. 12.75 12.94 15.03 19.94 18.74
First Union National Bank 12.56 11.87 10.95 11.44 11.83
First Union Bank of Connecticut 12.52 13.17 13.88 14.14 13.97
First Union Bank of Delaware 15.28 24.12 26.74 25.15 21.45
First Union Home Equity Bank 9.91 9.46 10.09 9.47 8.28
Leverage
First Union National Bank of
Florida 5.32 5.36 5.18 5.56 5.15
Georgia 5.23 5.56 5.54 6.02 6.40
Maryland 7.56 7.08 9.32 13.11 13.08
North Carolina 5.80 5.64 5.72 5.87 5.81
South Carolina 6.18 6.18 6.24 5.85 5.94
Tennessee 5.85 7.21 7.64 8.19 7.71
Virginia 6.78 6.67 6.17 5.69 5.28
Washington, D.C. 6.18 5.69 6.32 8.50 7.70
First Union National Bank 8.09 7.59 7.43 7.67 7.59
First Union Bank of Connecticut 8.40 8.18 8.30 8.35 8.22
First Union Bank of Delaware 11.02 19.91 17.20 14.79 16.55
First Union Home Equity Bank 6.71% 6.53 6.48 6.22 5.53
=============================================================================================================
</TABLE>
*Risk-based capital ratio guidelines require a minimum ratio of tier 1 capital
to risk-weighted assets of 4.00 percent and a minimum ratio of total capital
to risk-weighted assets of 8.00 percent. The minimum leverage ratio of tier 1
capital to adjusted average quarterly assets is from 3.00 to 5.00 percent.
T-13
<PAGE>
Table 18
OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS*
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Weighted
Average Rate Estimated
------------------ ----------------------------------------
June 30, 1996 Notional Maturity** Fair
(In thousands) Amount Receive Pay In Years Value Comments
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSET RATE CONVERSIONS
Interest rate swaps $ 7,842,399 6.40% 5.60% 1.08 (1)
Carrying amount $ 15,898
Unrealized gross gain 14,663
Unrealized gross loss (36,051)
---------
Total (5,490)
---------
Forward bullet
interest rate swaps 6,057,000 5.95 - 1.47 (2)
Carrying amount -
Unrealized gross gain 684
Unrealized gross loss (22,858)
---------
Total (22,174)
- - ------------------------------------------------- ---------
Total asset rate conversions $ 13,899,399 6.20% 5.60% 1.25 $(27,664)
===========================================================================================
LIABILITY RATE CONVERSIONS
Interest rate swaps $ 5,564,000 6.78% 5.58% 6.03 (3)
Carrying amount $ 11,136
Unrealized gross gain 61,357
Unrealized gross loss (99,227)
---------
Total (26,734)
---------
Other financial instruments 150,000 4.00 - 7.06 (4)
Carrying amount 1,556
Unrealized gross gain -
Unrealized gross loss (1,176)
---------
Total 380
- - ------------------------------------------------- ---------
Total liability rate conversions $ 5,714,000 6.71% 5.58% 6.06 $ (26,354)
===========================================================================================
</TABLE>
(1) Converts floating rate loans to fixed rate. Adds to liability sensitivity.
Similar characteristics to a fixed income security funded with variable rate
liabilities. Includes $4.9 billion of indexed amortizing swaps, with $1.4
billion maturing within 1 year and and $3.5 billion within 4.3 years.
(2) Converts floating rate loans to fixed rates in future periods.
$6.0 billion effective December 1996; $57 million effective
March 1997.
(3) Converts $3.7 billion of fixed rate long-term debt to floating rate by
matching the maturity of the swap to the debt issue. Rate sensitivity remains
unchanged due to the direct linkage of the swap to the debt issue. Also converts
$1.1 billion of fixed rate CD's to variable rate and $762 million of fixed rate
bank notes to floating rate.
(4) $150 million floor offsets a corresponding rate floor in long-
term debt.
(Continued)
T-14
<PAGE>
Table 18
OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS*
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Weighted
Average Rate Estimated
------------------ -------------------------------------
June 30, 1996 Notional Maturity** Fair
(In thousands) Amount Receive Pay In Years Value Comments
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
RATE SENSITIVITY HEDGES
Put options on eurodollar futures$ 5,096,000 - % 6.36% .59 (1)
Carrying amount $ 2,985
Unrealized gross gain -
Unrealized gross loss (631)
---------
Total 2,354
---------
Interest rate caps 185,200 5.56 7.47 3.16 (2)
Carrying amount 1,404
Unrealized gross gain 1,048
Unrealized gross loss (22)
---------
Total 2,430
---------
Pay fixed swaptions 5,000,000 - 6.50 .46 (3)
Carrying amount 1,779
Unrealized gross gain 10,821
Unrealized gross loss -
---------
Total 12,600
---------
CMT Floor 100,000 6.42 - 4.84 (4)
Carrying amount 1,112
Unrealized gross gain 73
Unrealized gross loss -
---------
Total 1,185
---------
Long eurodollar futures 33,355,000 5.86 - 1.24 (5)
Carrying amount -
Unrealized gross gain -
Unrealized gross loss (44,626)
---------
Total (44,626)
- - ------------------------------------------------- ---------
Total rate sensitivity hedges $ 43,736,200 5.86% 6.45% 1.09 $ (26,057)
=============================================================================================
</TABLE>
(1) Paid a premium for the right to lock in the 3 month LIBOR reset
rates on pay variable rate swaps. $2.5 billion effective December
1996: $2.6 billion effective March 1997.
(2) Paid a premium for the right to lock in 3 month LIBOR rates on $168 million
in short-term liabilities; $17 million uncaps a LIBOR-based, asset-backed
security at 11.72 percent.
(3) Paid a premium for the right to pay fixed on interest rate swaps for one
year, effective December 1996. Reduces liability sensitivity of one year fixed
rates above 6.50 percent.
(4) First Union Mortgage Corporation paid a premium for a CMT floor in order to
offset the decline in value of mortgage servicing in a falling rate environment.
(5) Converts floating rate LIBOR-based loans to fixed rate. Adds to liability
sensitivity. Similar characteristics to fixed income security funded with
variable rate liabilities. $4.9 billion effective December 1996; $5.0 billion
effective March 1997; $4.9 billion effective June 1997; $8.6 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.
*Includes only off-balance sheet derivative financial instruments related to
interest rate risk management activities.
**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 upon one to
six month LIBOR. Pay rates related to forward interest rate swaps are set on
the future effective date. Pay rates reset at predetermined reset dates over
the life of the contract. Rates shown are the rates in effect as of June 30,
1996. Weighted average receive rates are fixed rates at the time the contract
was transacted. Carrying amount includes accrued interest receivable/payable
and unamortized premiums paid/received.
T-15
<PAGE>
Table 19
OFF-BALANCE SHEET DERIVATIVES - EXPECTED MATURITIES*
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, 1996 1 Year 1 -2 2 -5 5 -10 After 10
(In thousands) or Less Years Years Years Years Total
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSET RATE CONVERSIONS
Notional amount $3,163,648 9,657,000 1,078,751 - - 13,899,399
Weighted average receive rate 6.17% 6.31 5.35 - - 6.20
Estimated fair value $ 11,400 (12,411) (26,653) - - (27,664)
- - -------------------------------------------------------------------------------------------------------------------
LIABILITY RATE CONVERSIONS
Notional amount $ 975,000 814,000 390,000 2,975,000 560,000 5,714,000
Weighted average receive rate 6.33% 6.22 6.76 6.95 6.77 6.71
Estimated fair value $ 3,404 4,551 4,734 (11,192) (27,851) (26,354)
- - -------------------------------------------------------------------------------------------------------------------
RATE SENSITIVITY HEDGES
Notional amount $24,911,000 14,580,000 4,202,200 43,000 - 43,736,200
Weighted average receive rate 5.44% 6.08 6.60 5.58 - 5.86
Estimated fair value $ (10,603) (16,495) 275 766 - (26,057)
===================================================================================================================
</TABLE>
*Includes only off-balance sheet derivative financial instruments related to
interest rate risk management activities. Pay rates are generally based upon
one to six month LIBOR and reset at predetermined reset dates. Current pay
rates are not necessarily indicative of future pay rates and therefore have
been excluded from the above table. Weighted average pay rates are indicated in
Table 18.
<PAGE>
Table 20
OFF-BALANCE SHEET DERIVATIVES ACTIVITY*
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Rate
Asset Rate Liability Rate Asset Sensitivity Offsetting
(In thousands) Conversions Conversions Hedges Hedges Positions Total
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $17,402,355 5,307,000 1,016,000 29,674,200 4,800,000 58,199,555
Additions - 1,027,000 - 24,864,000 - 25,891,000
Maturities/Amortizations (3,502,956) (620,000) (697,000) (8,302,000) (4,800,000) (17,921,956)
Offsets - - - - - -
Terminations - - (319,000) (2,500,000) - (2,819,000)
- - -----------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1996 $13,899,399 5,714,000 - 43,736,200 - 63,349,599
=======================================================================================================================
</TABLE>
*Includes only off-balance sheet derivative financial instruments related to
interest rate risk management activities.
T-16
<PAGE>
FIRST UNION CORPORATION AND SUBSIDIARIES
NET INTEREST INCOME SUMMARIES
<TABLE>
<CAPTION>
SECOND QUARTER 1996 FIRST QUARTER 1996
Average Average
Interest Rates Interest Rates
Average Income/ Earned/ Average Income/ Earned/
(In thousands) Balances Expense Paid Balances Expense Paid
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing bank balances $ 183,634 1,466 3.21 % $ 127,147 2,395 7.58 %
Federal funds sold and securities
purchased under resale agreements 6,100,407 79,215 5.22 5,728,049 75,229 5.28
Trading account assets (a) 4,100,972 71,135 6.98 3,081,296 47,381 6.18
Securities available for sale (a) 20,906,731 341,398 6.54 17,007,148 277,897 6.54
Investment securities (a)
U.S. Government and other 1,766,840 32,718 7.41 1,890,006 34,848 7.38
State, county and municipal 1,000,688 27,907 11.01 1,125,754 30,161 10.71
Total investment securities 2,767,528 60,625 8.71 3,015,760 65,009 8.62
Loans (a) (b)
Commercial
Commercial, financial and
agricultural (c) 23,069,897 446,563 7.78 23,036,387 442,910 7.73
Real estate - construction and other 2,779,488 58,796 8.51 2,546,046 55,279 8.73
Real estate - mortgage 9,615,000 202,672 8.48 9,832,235 209,685 8.58
Lease financing 1,914,483 47,374 9.90 1,810,366 43,171 9.54
Foreign 694,511 10,808 6.26 689,207 10,643 6.21
Total commercial 38,073,379 766,213 8.09 37,914,241 761,688 8.08
Retail
Real estate - mortgage 27,235,575 525,681 7.72 27,418,713 526,238 7.68
Installment loans - Bankcard (c) 4,527,496 151,808 13.41 4,133,388 148,563 14.38
Installment loans - other (c) 19,982,083 458,801 9.22 19,807,662 459,854 9.33
Total retail 51,745,154 1,136,290 8.80 51,359,763 1,134,655 8.85
Total loans 89,818,533 1,902,503 8.50 89,274,004 1,896,343 8.52
Total earning assets 123,877,805 2,456,342 7.95 118,233,404 2,364,254 8.02
Cash and due from banks 5,062,970 5,051,839
Other assets 7,517,201 7,451,490
Total assets $136,457,976 $130,736,733
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest-bearing deposits
Savings and NOW accounts 25,359,362 164,775 2.61 24,626,132 159,365 2.60
Money market accounts 13,099,517 90,249 2.77 13,266,876 91,757 2.78
Other consumer time 30,974,816 408,150 5.30 31,860,581 421,874 5.33
Foreign 2,364,078 28,919 4.92 2,272,200 31,128 5.51
Other time 3,173,616 37,768 4.79 2,823,767 41,256 5.88
Total interest-bearing deposits 74,971,409 729,861 3.92 74,849,556 745,380 4.01
Federal funds purchased and securities
sold under repurchase agreements 20,718,472 253,828 4.93 16,320,595 207,034 5.10
Commercial paper 841,009 10,448 5.00 987,430 12,716 5.18
Other short-term borrowings 4,101,397 55,259 5.42 3,651,978 48,773 5.37
Long-term debt 7,615,248 117,708 6.18 7,242,535 113,515 6.27
Total interest-bearing
liabilities 108,247,535 1,167,104 4.33 103,052,094 1,127,418 4.40
Noninterest-bearing deposits 16,627,700 16,285,735
Other liabilities 2,364,987 2,193,102
Stockholders' equity 9,217,754 9,205,802
Total liabilities and
stockholders' equity $136,457,976 $130,736,733
Interest income and rate earned $2,456,342 7.95 % $2,364,254 8.02 %
Interest expense and rate paid 1,167,104 3.78 1,127,418 3.83
Net interest income and margin $1,289,238 4.17 % $1,236,836 4.19 %
</TABLE>
(a) Yields related to securities and loans exempt from both federal and
state income taxes, federal income taxes taxes only are stated on a
fully tax-equivalent basis. They are reduced by the nondeductible
portion of in a federal tax rate of 35 percent; and tax rates of
7.75 percent in North Carolina; 5.5 percent in Florida; 6 percent
in Georgia and Tennessee ; 7 percent in Maryland; 9.975 percent in
Washington, D.C.; 4.87 percent 6.5 percent in 1996 in New Jersey;
and 10.75 percent in 1996 in Connecticut.
T-17
<PAGE>
<TABLE>
<CAPTION>
FOURTH QUARTER 1995 THIRD QUARTER 1995 SECOND 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>
$ 154,079 1,853 4.77 % $ 461,644 6,525 5.61 % $ 568,339 6,891 4.86 %
2,887,716 42,364 5.82 2,372,023 33,381 5.58 1,912,030 28,389 5.96
1,890,870 30,386 6.38 1,664,614 25,461 6.07 1,196,164 18,092 6.07
11,878,325 191,710 6.40 10,888,645 176,461 6.43 10,428,756 167,105 6.43
6,373,019 111,199 6.92 5,982,856 98,061 6.50 5,807,669 98,052 6.77
1,248,272 33,413 10.62 1,430,075 38,933 10.80 1,590,136 44,017 11.10
7,621,291 144,612 7.53 7,412,931 136,994 7.33 7,397,805 142,069 7.70
23,555,239 462,776 7.79 22,828,203 451,025 7.84 22,534,030 451,104 8.03
2,476,227 56,485 9.05 2,352,583 54,400 9.17 2,196,238 50,723 9.26
9,947,990 221,349 8.83 9,855,667 221,011 8.90 9,939,381 222,533 8.98
1,614,409 38,086 9.36 1,463,774 33,974 9.21 1,401,798 32,063 9.17
654,411 11,598 7.03 620,863 11,166 7.14 632,201 11,170 7.09
38,248,276 790,294 8.20 37,121,090 771,576 8.25 36,703,648 767,593 8.39
26,558,521 511,960 7.65 24,973,345 481,819 7.65 21,671,463 412,950 7.64
3,490,503 119,494 13.58 4,941,979 185,517 14.89 4,690,786 176,392 15.08
19,584,784 468,950 9.50 18,998,053 459,770 9.60 18,397,114 441,524 9.63
49,633,808 1,100,404 8.80 48,913,377 1,127,106 9.14 44,759,363 1,030,866 9.24
87,882,084 1,890,698 8.54 86,034,467 1,898,682 8.76 81,463,011 1,798,459 8.86
112,314,365 2,301,623 8.13 108,834,324 2,277,504 8.30 102,966,105 2,161,005 8.42
5,260,097 4,917,048 4,842,107
7,510,406 7,058,234 6,553,205
$125,084,868 $120,809,606 $114,361,417
23,446,948 154,577 2.62 22,887,084 145,153 2.25 22,886,367 143,950 2.52
13,114,443 97,040 2.94 13,371,543 97,742 2.90 12,994,625 95,721 2.95
31,929,740 431,620 5.36 31,298,954 419,446 5.32 28,415,455 366,816 5.18
2,307,046 33,326 5.73 2,891,083 39,293 5.39 3,287,551 52,039 6.35
2,716,067 43,591 6.37 2,759,297 42,836 6.16 2,462,712 39,160 6.38
73,514,244 760,154 4.10 73,207,961 744,470 4.03 70,046,710 697,686 4.00
12,144,455 170,570 5.57 10,745,161 161,603 5.97 9,332,402 138,492 5.95
1,038,616 14,538 5.55 1,103,356 15,753 5.66 1,193,619 17,566 5.90
3,764,835 54,304 5.72 3,291,754 52,291 6.30 1,782,631 25,688 5.78
6,940,303 112,005 6.40 5,766,258 94,250 6.48 5,703,380 96,896 6.81
97,402,453 1,111,571 4.53 94,114,490 1,068,367 4.50 88,058,742 976,328 4.45
16,118,425 15,619,317 15,226,362
2,668,287 2,539,377 2,629,844
8,895,703 8,536,422 8,446,469
$125,084,868 $120,809,606 $114,361,417
$2,301,623 8.13 % $2,277,504 8.30 % $2,161,005 8.42 %
1,111,571 3.93 1,068,367 3.89 976,328 3.80
$1,190,052 4.20 % $1,209,137 4.41 % $1,184,677 4.62 %
</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-18
<PAGE>
FIRST UNION CORPORATION AND SUBSIDIARIES
NET INTEREST INCOME SUMMARIES
<TABLE>
<CAPTION>
SIX MONTHS ENDED 1996 SIX MONTHS ENDED 1995
Average Average
Interest Rates Interest Rates
Average Income/ Earned/ Average Income/ Earned/
(In thousands) Balances Expense Paid Balances Expense Paid
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing bank balances $ 155,390 3,861 5.00 % $ 646,462 17,568 5.48 %
Federal funds sold and securities
purchased under resale agreements 5,914,228 154,444 5.25 1,895,468 55,014 5.85
Trading account assets (a) 3,591,134 118,516 6.64 1,293,587 40,830 6.36
Securities available for sale (a) 18,956,939 619,295 6.54 11,037,567 350,328 6.40
Investment securities (a)
U.S. Government and other 1,828,423 67,566 7.39 5,873,028 194,253 6.67
State, county and municipal 1,063,221 58,068 10.92 1,639,311 90,434 11.12
Total investment securities 2,891,644 125,634 8.69 7,512,339 284,687 7.64
Loans (a) (b)
Commercial
Commercial, financial and
agricultural (c) 23,053,142 889,473 7.76 22,067,973 878,202 8.03
Real estate - construction and other 2,662,767 114,075 8.62 2,114,864 99,639 9.50
Real estate - mortgage 9,723,618 412,357 8.53 9,749,876 430,245 8.90
Lease financing 1,862,425 90,545 9.72 1,290,953 58,587 9.15
Foreign 691,859 21,451 6.24 589,679 20,479 7.00
Total commercial 37,993,811 1,527,901 8.08 35,813,345 1,487,152 8.37
Retail
Real estate - mortgage 27,327,144 1,051,919 7.70 20,973,831 791,931 7.61
Installment loans - Bankcard (c) 4,330,442 300,371 13.87 4,527,121 326,544 14.55
Installment loans - other (c) 19,894,872 918,655 9.28 18,197,015 858,645 9.52
Total retail 51,552,458 2,270,945 8.83 43,697,967 1,977,120 9.12
Total loans 89,546,269 3,798,846 8.51 79,511,312 3,464,272 8.79
Total earning assets 121,055,604 4,820,596 7.99 101,896,735 4,212,699 8.34
Cash and due from banks 5,057,405 4,917,786
Other assets 7,484,345 6,442,771
Total assets $133,597,354 $113,257,292
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest-bearing deposits
Savings and NOW accounts 24,992,747 324,140 2.61 22,925,250 288,431 2.54
Money market accounts 13,183,207 182,006 2.78 13,297,203 192,853 2.92
Other consumer time 31,417,698 830,024 5.31 27,913,931 687,389 4.97
Foreign 2,318,139 60,047 5.21 3,586,718 105,527 5.93
Other time 2,998,691 79,024 5.30 2,401,804 74,504 6.26
Total interest-bearing deposits 74,910,482 1,475,241 3.96 70,124,906 1,348,704 3.88
Federal funds purchased and securities
sold under repurchase agreements 18,519,533 460,862 5.00 9,185,690 263,747 5.79
Commercial paper 914,219 23,164 5.10 1,034,792 29,820 5.81
Other short-term borrowings 3,876,688 104,032 5.40 1,755,196 54,024 6.21
Long-term debt 7,428,892 231,223 6.22 5,050,528 175,582 7.01
Total interest-bearing
liabilities 105,649,814 2,294,522 4.37 87,151,112 1,871,877 4.33
Noninterest-bearing deposits 16,456,718 15,161,995
Other liabilities 2,279,044 2,572,604
Stockholders' equity 9,211,778 8,371,581
Total liabilities and
stockholders' equity $133,597,354 $113,257,292
Interest income and rate earne $4,820,596 7.99 % $4,212,699 8.34 %
Interest expense and rate paid 2,294,522 3.81 1,871,877 3.70
Net interest income and margin $2,526,074 4.18 % $2,340,822 4.64 %
</TABLE>
(a) Yields related to securities and loans exempt from both federal and
state income taxes, federal income taxes only are 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.
T-19
<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
$ 475,771 25,946 5.45 % $ 584,179 24,093 5.51 %
2,265,686 130,759 5.77 2,056,065 88,395 5.75
1,537,655 96,677 6.29 1,418,622 66,291 6.25
11,211,947 718,499 6.41 10,987,382 526,789 6.41
6,026,734 403,513 6.70 5,910,039 292,314 6.61
1,488,009 162,780 10.94 1,568,799 129,367 11.03
7,514,743 566,293 7.54 7,478,838 421,681 7.54
22,634,368 1,792,003 7.92 22,324,167 1,329,227 7.96
2,265,962 210,524 9.29 2,194,975 154,039 9.38
9,826,476 872,605 8.88 9,785,527 651,256 8.90
1,416,042 130,647 9.23 1,349,194 92,561 9.17
613,855 43,243 7.04 600,188 31,645 7.05
36,756,703 3,049,022 8.30 36,254,051 2,258,728 8.33
23,389,576 1,785,710 7.63 22,321,653 1,273,750 7.63
4,370,403 631,555 14.45 4,666,926 512,061 14.67
18,748,715 1,787,365 9.53 18,466,962 1,318,415 9.55
46,508,694 4,204,630 9.04 45,455,541 3,104,226 9.13
83,265,397 7,253,652 8.71 81,709,592 5,362,954 8.78
106,271,199 8,791,826 8.27 104,234,678 6,490,203 8.32
5,003,881 4,917,538
6,867,006 6,650,178
$118,142,086 $115,802,394
23,047,127 588,161 2.55 22,912,389 433,584 2.53
13,269,875 387,635 2.92 13,322,255 290,595 2.92
29,779,347 1,538,455 5.17 29,054,672 1,106,835 5.09
3,088,832 178,146 5.77 3,352,292 144,820 5.78
2,571,123 160,931 6.26 2,522,277 117,340 6.22
71,756,304 2,853,328 3.98 71,163,885 2,093,174 3.93
10,324,539 595,920 5.77 9,711,226 425,350 5.86
1,053,037 60,111 5.71 1,057,897 45,573 5.76
2,649,027 160,619 6.06 2,273,011 106,315 6.25
5,707,257 381,837 6.69 5,291,726 269,832 6.82
91,490,164 4,051,815 4.43 89,497,745 2,940,244 4.39
15,518,337 15,316,111
2,588,347 2,561,407
8,545,238 8,427,131
$118,142,086 $115,802,394
$8,791,826 8.27 % $6,490,203 8.32 %
4,051,815 3.81 2,940,244 3.77
$4,740,011 4.46 % $3,549,959 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 six 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-20
<PAGE>
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
1996 1995
Second First Fourth Third Second
(In thousands except per share data) Quarter Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 5,455,783 5,250,210 6,312,076 4,986,548 4,942,264
Interest-bearing bank balances 72,763 51,347 79,235 562,043 901,745
Federal funds sold and securities
purchased under resale agreements 6,197,809 4,416,024 4,152,754 2,635,144 2,755,611
Total cash and cash equivalents 11,726,355 9,717,581 10,544,065 8,183,735 8,599,620
Trading account assets 4,793,392 3,307,356 1,881,066 1,406,046 1,659,550
Securities available for sale 21,834,631 17,177,885 18,193,699 11,475,348 9,762,983
Investment securities 2,681,319 2,926,617 3,139,616 7,601,687 7,461,802
Loans, net of unearned income 91,338,626 89,990,048 90,562,880 86,189,543 84,019,654
Allowance for loan losses (1,415,524) (1,435,845) (1,507,798) (1,456,306) (1,534,572)
Loans, net 89,923,102 88,554,203 89,055,082 84,733,237 82,485,082
Premises and equipment 2,863,208 2,733,508 2,553,170 2,376,732 2,310,275
Due from customers on acceptances 517,954 391,648 616,301 585,758 544,644
Mortgage servicing rights 149,584 147,157 148,933 149,330 148,125
Credit card premium 41,566 44,947 43,894 47,403 51,005
Other intangible assets 2,461,002 2,435,080 2,431,667 2,296,452 2,204,408
Other assets 2,893,721 3,145,282 3,272,380 3,062,915 3,234,980
Total assets $139,885,834 130,581,264 131,879,873 121,918,643 118,462,474
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing deposits 16,830,861 16,725,597 17,043,223 15,598,097 16,049,504
Interest-bearing deposits 74,621,736 73,792,207 75,511,995 71,796,760 71,611,443
Total deposits 91,452,597 90,517,804 92,555,218 87,394,857 87,660,947
Short-term borrowings 27,894,793 20,371,290 19,500,127 15,972,619 13,033,681
Bank acceptances outstanding 516,490 391,648 616,301 585,758 544,644
Other liabilities 2,899,462 2,651,914 3,044,136 2,685,411 2,494,924
Long-term debt 7,806,544 7,539,045 7,120,947 6,717,374 6,053,033
Total liabilities 130,569,886 121,471,701 122,836,729 113,356,019 109,787,229
STOCKHOLDERS' EQUITY
Preferred stock 163,495 170,960 183,223 195,527 218,349
Common stock, $3.33-1/3 par value;
authorized 750,000,000 shares 939,825 936,878 926,152 909,172 926,728
Paid-in capital 2,128,065 2,098,641 1,974,833 1,786,573 2,078,062
Retained earnings 6,231,254 5,941,677 5,847,922 5,686,537 5,468,983
Unrealized gain (loss) on debt and equity securities (146,691) (38,593) 111,014 (15,185) (16,877)
Total stockholders' equity 9,315,948 9,109,563 9,043,144 8,562,624 8,675,245
Total liabilities and stockholders' equity $139,885,834 130,581,264 131,879,873 121,918,643 118,462,474
MEMORANDA
Securities available for sale-amortized cost $ 22,050,767 17,225,841 17,992,898 11,453,883 9,743,438
Investment securities-market value 2,796,920 3,059,921 3,319,602 7,749,740 7,605,235
Common stockholders' equity, net of unrealized gain
(loss) on debt and equity securities $ 9,152,453 8,938,603 8,859,921 8,367,097 8,456,896
Preferred shares outstanding 2,598,835 2,897,428 3,387,950 3,880,110 4,792,978
Common shares outstanding 281,947,670 281,063,734 277,845,768 272,752,001 278,018,734
</TABLE>
T-21
<PAGE>
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1996 1995
Second First Fourth Third Second
(In thousands except per share data) Quarter Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 1,896,802 1,888,659 1,883,708 1,891,195 1,789,984
Interest and dividends on securities
available for sale 337,255 274,207 188,555 173,281 163,648
Interest and dividends on investment
securities
Taxable income 32,267 34,421 110,634 97,474 97,425
Nontaxable income 18,408 20,206 22,780 26,037 29,384
Trading account interest 66,291 44,363 28,520 24,542 16,809
Other interest income 80,681 77,624 44,217 39,906 35,280
Total interest income 2,431,704 2,339,480 2,278,414 2,252,435 2,132,530
INTEREST EXPENSE
Interest on deposits 729,861 745,380 760,154 744,470 697,686
Interest on short-term borrowings 319,535 268,523 239,412 229,647 181,746
Interest on long-term debt 117,708 113,515 112,005 94,250 96,896
Total interest expense 1,167,104 1,127,418 1,111,571 1,068,367 976,328
Net interest income 1,264,600 1,212,062 1,166,843 1,184,068 1,156,202
Provision for loan losses 80,000 70,000 64,500 59,000 54,000
Net interest income after
provision for loan losses 1,184,600 1,142,062 1,102,343 1,125,068 1,102,202
NONINTEREST INCOME
Trading account profits 8,774 20,524 34,537 18,004 12,423
Service charges on deposit accounts 166,202 160,730 159,102 156,476 154,128
Mortgage banking income 40,051 37,191 39,978 39,489 35,624
Capital management income 120,102 114,873 107,636 100,506 95,267
Securities available for sale transactions 3,693 14,583 15,701 9,718 8,213
Investment security transactions 1,741 800 777 2,591 1,233
Fees for other banking services 44,017 33,040 39,786 41,926 40,575
Insurance commissions 25,280 19,032 17,384 12,686 11,553
Sundry income 135,703 125,691 146,920 97,667 81,872
Total noninterest income 545,563 526,464 561,821 479,063 440,888
NONINTEREST EXPENSE
Personnel expense 525,397 525,346 520,043 499,059 475,175
Occupancy 82,538 93,299 87,097 89,984 86,324
Equipment rentals, depreciation and maint 97,392 93,232 87,609 80,749 74,560
Postage, printing and supplies 39,848 42,328 34,556 35,939 31,744
FDIC insurance 13,850 12,211 19,240 8,166 46,942
Professional fees 28,348 6,424 51,542 41,528 41,311
Owned real estate expense (487) 338 3,732 2,737 2,736
Amortization 73,189 72,760 68,774 67,487 60,156
Merger-related restructuring charges - 281,229 94,446 - -
Sundry 191,563 165,448 170,255 192,992 161,044
Total noninterest expense 1,051,638 1,292,615 1,137,294 1,018,641 979,992
Income before income taxes 678,525 375,911 526,870 585,490 563,098
Income taxes 239,156 133,061 191,508 204,909 198,704
Net income 439,369 242,850 335,362 380,581 364,394
Dividends on preferred stock 3,684 3,900 4,084 4,956 5,113
Net income applicable to
common stockholders $ 435,685 238,950 331,278 375,625 359,281
PER COMMON SHARE DATA
Net income $ 1.55 0.85 1.19 1.36 1.30
Cash dividends $ 0.52 0.52 0.52 0.52 0.46
Average common shares 282,576,082 280,374,291 278,526,745 275,484,290 278,118,886
</TABLE>
T-22
<PAGE>
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Six Months Ended
June 30,
(In thousands except per share data) 1996 1995
INTEREST INCOME
Interest and fees on loans $ 3,785,461 3,447,939
Interest and dividends on securities
available for sale 611,462 343,729
Interest and dividends on investment securities
Taxable income 66,688 193,037
Nontaxable income 38,614 60,294
Trading account interest 110,654 37,947
Other interest income 158,305 72,582
Total interest income 4,771,184 4,155,528
INTEREST EXPENSE
Interest on deposits 1,475,241 1,348,704
Interest on short-term borrowings 588,058 347,591
Interest on long-term debt 231,223 175,582
Total interest expense 2,294,522 1,871,877
Net interest income 2,476,662 2,283,651
Provision for loan losses 150,000 96,500
Net interest income after
provision for loan losses 2,326,662 2,187,151
NONINTEREST INCOME
Trading account profits 29,298 16,866
Service charges on deposit accounts 326,932 299,974
Mortgage banking income 77,242 70,118
Capital management income 234,975 189,049
Securities available for sale transactions 18,276 18,921
Investment security transactions 2,541 1,450
Fees for other banking services 77,057 77,859
Insurance commissions 44,312 23,773
Sundry income 261,394 157,614
Total noninterest income 1,072,027 855,624
NONINTEREST EXPENSE
Personnel expense 1,050,743 943,050
Occupancy 175,837 175,470
Equipment rentals, depreciation and maintenance 190,624 151,678
Postage, printing and supplies 82,176 68,782
FDIC insurance 26,061 93,083
Professional fees 34,772 83,289
Owned real estate expense (149) 7,512
Amortization 145,949 117,439
Merger-related restructuring charges 281,229 -
Sundry 357,011 296,231
Total noninterest expense 2,344,253 1,936,534
Income before income taxes 1,054,436 1,106,241
Income taxes 372,217 392,003
Net income 682,219 714,238
Dividends on preferred stock 7,584 17,350
Net income applicable to common
stockholders $ 674,635 696,888
PER COMMON SHARE DATA
Net income $ 2.40 2.49
Cash dividends $ 1.04 0.92
Average common shares 281,475,187 280,336,816
T-23
<PAGE>
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
(In thousands) 1996 1995
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 682,219 714,238
Adjustments to reconcile net income to net cash provided
(used) by operating activities
Accretion and amortization of securities discounts and
premiums, net 23,408 (46,096)
Provision for loan losses 150,000 96,500
Provision for foreclosed properties (3,043) (981)
Securities available for sale transactions (18,276) (18,921)
Investment security transactions (2,541) (1,450)
Depreciation and amortization 294,079 262,715
Trading account assets, net (2,912,326) (342,381)
Mortgage loans held for resale (23,405) (27,348)
(Gain) Loss on sales of premises and equipment (2,990) 5,900
Gain on sale of segregated assets (1,993) (14,730)
Other assets, net 546,390 251,644
Other liabilities, net (189,699) (20,578)
Net cash provided (used) by operating activities (1,458,177) 858,512
INVESTING ACTIVITIES
Increase (decrease) in cash realized from
Sales of securities available for sale 7,307,027 5,258,426
Maturities of securities available for sale 2,468,960 651,752
Purchases of securities available for sale (13,605,042) (2,867,522)
Sales and underdeliveries of investment securities 5,971 21,465
Maturities of investment securities 502,482 973,512
Purchases of investment securities (45,874) (616,935)
Origination of loans, net 343,600 (3,671,304)
Sales of premises and equipment 19,137 31,477
Purchases of premises and equipment (425,785) (240,311)
Sales of mortgage servicing rights 934 0
Purchases of mortgage servicing rights (22,544) (7,307)
Other intangible assets, net 17,022 (25,116)
Purchases of banking organizations, net of acquired cash
equivalents 263,776 417,882
Net cash used by investing activities (3,170,336) (73,981)
FINANCING ACTIVITIES
Increase (decrease) in cash realized from
Sales of deposits, net (2,832,013) (4,053,602)
Securities sold under repurchase agreements
and other short-term borrowings, net 8,337,193 2,425,441
Issuances of long-term debt 850,386 2,191,514
Payments of long-term debt (269,129) (387,245)
Sales of common stock 139,206 80,672
Purchases of preferred stock 0 (870)
Purchases of common stock (115,953) (409,826)
Cash dividends paid (298,887) (256,081)
Net cash provided (used) by financing activities 5,810,803 (409,997)
Decrease in cash and cash equivalents 1,182,290 374,534
Cash and cash equivalents, beginning of year 10,544,065 8,225,086
Cash and cash equivalents, end of year $ 11,726,355 8,599,620
NONCASH ITEMS
Increase in securities available for sale $ - 57,382
Decrease in investment securities - (72,274)
Increase in other assets - 14,892
Increase in foreclosed properties and a decrease in loans 15,152 28,921
Conversion of preferred stock to common stock 19,728 10,488
Issuance of common stock for purchase accounting acquisit 123,924 -
Effect on stockholders' equity of an unrealized gain (loss)
on debt and equity securities included in
Securities available for sale (416,937) 415,594
Other assets (deferred income taxes) $ (159,231) 142,974
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 5,455,783
<INT-BEARING-DEPOSITS> 72,763
<FED-FUNDS-SOLD> 6,197,809
<TRADING-ASSETS> 4,793,392
<INVESTMENTS-HELD-FOR-SALE> 21,834,631
<INVESTMENTS-CARRYING> 2,681,319
<INVESTMENTS-MARKET> 2,796,920
<LOANS> 93,116,396
<ALLOWANCE> (1,415,524)
<TOTAL-ASSETS> 139,885,834
<DEPOSITS> 91,452,597
<SHORT-TERM> 27,894,793
<LIABILITIES-OTHER> 2,899,462
<LONG-TERM> 7,806,544
0
163,495
<COMMON> 939,825
<OTHER-SE> 8,212,628
<TOTAL-LIABILITIES-AND-EQUITY> 139,885,834
<INTEREST-LOAN> 3,785,461
<INTEREST-INVEST> 716,764
<INTEREST-OTHER> 158,305
<INTEREST-TOTAL> 4,771,184
<INTEREST-DEPOSIT> 1,475,241
<INTEREST-EXPENSE> 2,294,522
<INTEREST-INCOME-NET> 2,476,662
<LOAN-LOSSES> 150,000
<SECURITIES-GAINS> 20,817
<EXPENSE-OTHER> 2,344,253
<INCOME-PRETAX> 1,054,436
<INCOME-PRE-EXTRAORDINARY> 1,054,436
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 682,219
<EPS-PRIMARY> 2.40
<EPS-DILUTED> 2.40
<YIELD-ACTUAL> 4.18
<LOANS-NON> 721,818
<LOANS-PAST> 272,472
<LOANS-TROUBLED> 3,576
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,507,798
<CHARGE-OFFS> 334,497
<RECOVERIES> 84,379
<ALLOWANCE-CLOSE> 1,415,524
<ALLOWANCE-DOMESTIC> 950,482
<ALLOWANCE-FOREIGN> 3,680
<ALLOWANCE-UNALLOCATED> 461,362
</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 ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(IN THOUSANDS) 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net interest income.......................................................... $160,860 133,121 305,064 260,005
Income before income taxes................................................... 137,030 64,820 223,849 127,794
Net income................................................................... $ 87,246 40,937 141,969 82,078
</TABLE>
CONSOLIDATED BALANCE SHEET DATA
<TABLE>
<CAPTION>
JUNE 30,
(IN THOUSANDS) 1996 1995
<S> <C> <C>
Assets........................................................................................ $18,084,393 14,077,338
Securities available for sale................................................................. 5,026,461 2,128,559
Investment securities......................................................................... 453,700 344,177
Loans, net of unearned income................................................................. 10,394,032 8,715,900
Stockholder's equity.......................................................................... $ 1,432,676 1,125,418
</TABLE>
